Financially Speaking June #1 2008

“When a man does not know which harbour he is heading for, no wind is the right wind.”

Dear Client,

I have recently been getting around to fixing a whole bunch of old things that needed fixing. The 7 year-old fax machine in my office, one of those old paper-roll types, needed fixing; my old hi-fi amplifier was going on and off – this is a 19 year-old Technics thing that weights about 2kgs and blasts out 80 watts per channel, (anyone remember that language) all back and sorted; my 30 year-old Mercedes Benz 123 series model – the gear stick was wobbling around – I take a couple of tools and hey, its done; even my 18 year-old dog got a service at the vet! Now I’m considering fitting a CD shuttle to my 11 year-old car because it still has a radio-tape player in it. Don’t give me those Ipod things, I prefer to shove the disc in and hear the music.

Here’s the thing; the old fashioned things of life can still and often do things well enough and even sometimes still better. And so it is with investing. The simple old fashioned way of determining whether or not a share is worth buying and keeping works the same today as it did 50 years ago.

This week I listened to the Marriott Team, and it was Simon Pearce in particular, talk about how positive they are about beginning to see increasing opportunities again to get into higher yielding asset classes and will only do it when the price at which they buy that income stream is acceptable. Property was one asset class they spoke of. As property continues to take strain, it becomes cheaper and hence the income from it is found at a higher resultant yield. Other stocks are cheaper too. Simon told us how, when Warren Buffet bought a significant chunk of Coca-Cola a number of years back, his shareholders were worried as they thought the share price was going nowhere. He said be patient. The stock was at a good price and the dividends good. For four years the price went nowhere but the dividends rose by more than 10% per annum. Then after four years the share price rose by more than 60%. Marriott do this; buy the stock for the dividend and don’t worry about price. Why, because they look after the income dependent investor.

On the same day Allan Gray held a presentation too and were talking about a conservative next two years. This is because they are after price growth, whereas Marriott is after dependable income streams. Each form is simple in many ways and still done today on the same principles as it was done many years ago.

Next issue: interesting perspectives on Gold.

Insurance information:

PPS’s incapacity benefit (the monthly disability income part) – the premiums are now finally going to be tax deductible as from the 2009 tax year. At least that’s what we’ve been told. This is good and we’ll wait and see if they can generate the tax statement separately for the respective portion of the premiums only.

Until next time

Please note that all the views expressed in this publication are based on my opinion and no action or advice is implied or intended.