Weekly Thoughts

Finally our days start getting longer again. I am always happy to pass the Winter Solstice. Which technically was Wednesday evening. But it’s not going to begin getting warmer yet. If you remember your high school geography, there is a delayed effect in the thermal equator following the geographical equator. The thermal equator will continue going north for a while. It eventually wakes up and turns south again only after the geographical equator has overtaken it again, and started to drag it back after itself. So we have not yet had our coldest weather and it will still last for a while. But the sun stays out longer from now. Enough of the geography lesson.

There have been a couple of items in the news about the Spar group having a decline in profits and not paying out a dividend at the moment. Yesterday I phoned an asset manager at Marriott and asked him what the low down was and what had they done with their shareholding of the company. He said; “Kev, there’s just too much noise around Spar at the moment.” He told me that they were going through an expensive IT upgrade – which he said will make them become more efficient in the future so they needed to do; that they have a significant franchisee dispute issue they’re dealing with which might cost legal fees, and then that generator diesel costs have affected their margins too much, like it has for many, many businesses. He said these companies have low margins and Spar has decided to keep cash in hand for now and hence not pay out a dividend.

I then asked him if this would affect the income streams for my Marriott clients. He told me that they had already sold all their shareholding of Spar more than a month ago and bought other retailers like Shoprite and Pick ʼn Pay and that I didn’t need to worry, that they are comfortable that the equity fund would maintain paying out a stable dividend income.

This is what I expect. Marriott’s mandate is to sell a company if they default on their income stream. They had been watching the company for a long enough period of time and made a decision. I was happy.

I’ve had quite a few questioning emails, messages or conversations with more than a few of you over the past month or so, about if everything is about to collapse in the country and you’ll lose all your money. Some of these concerns have also arisen from the sensationalism written by a couple of journalists in the press. They are just humans writing and need their articles published. They are not necessarily always correct. I once had an article published by Bruce Cameron in Personal Finance and another published in an industry magazine. Doesn’t necessarily mean I was totally correct or that everyone would agree with me. Let’s remind you what your money owns, where it actually sits.

Remember what I talked about in my series earlier this year about how unit trust funds work. Through your unit trust funds you own shares of some very good companies. For you to permanently lose this money, the companies will virtually need to collapse and be liquidated and put into business rescue. This means you will no longer be able go to Pick ʼn Pay or Woollies Food or pay your Mnet subscription or buy Johnson & Johnson plasters or Nestle hot chocolate or go to a Netcare hospital and your local Clicks store will also have closed.

Now why would these stores close and all these businesses go under when you and I and Bob next door continually spend our money at them? And when you’ve taken your money out of your investments you will have it in the bank – oh, but your bank went down too – or in a shoe box. But then you will still go to Pick ʼn Pay to buy your food and your Johnson & Johnson baby powder. So the companies you used to own through your unit trust funds, are now still getting all your money but you just don’t own them anymore. My point is that 30 or 40 million consumers will continue to spend their money at these places and they are not going to collapse. Yes, the high end consumer products might battle because the top half-a-percent of the spending population is the sector that can afford to emigrate, but neither would all of them emigrate anyway. So the high end housing market might battle a bit or the sales of very expensive cars might decline. On the issue of some of our money sitting in Government Bonds: I’ve often had long talks to asset managers and consultants about how secure these bonds actually are. There is a lot of foreign investing into these high interest rate assets, so they have to be kept secure.

We’ve been through panic times before: The credit crisis of 2008; Marikana; the 94 elections; Boipatong; and for those old enough, I’m sure the Rubicon Speech also might have been one. All these events or tragedies created a lot of worry amongst people and uncertainty on the stock markets. But the companies continued and the markets continued.

A week or so ago I spent an hour with my consultant from Coronation. A great guy. We always have very good conversations. He is one of those people who likes to ride his bicycle from the Drakensburg to the sea. Anyway, he was telling me that the ‘big four’ banks have recently approved loans to the value of 34 billion Rand for private electricity generation. Which is great. An obvious need. A positive thing for the future. However, I asked him why the banks have so much cash to lend out. His response was because of the amount of money people are leaving to sit in the bank.

Unit trust funds, owning shares of good consumer companies, are a very safe place for your money to be. Potentially safer than giving it to the bank to lend out.

Over the years I’ve used these newsletters to talk about direct financial planning or investment or industry related stuff, or philosophise about humanity and life and I suppose to relate personal life experiences that have possible benefits to any of you reading this. Case in point: emergency strategy for remote punctures!!! This week is another of these life experiences, this time nearly being a victim of ATM fraud. defrauded at an ATM.

On Tuesday this week I was innocently using an ATM in Johannesburg when one of those all-too-often warnings about watching your back came true. I was using an ATM on the exterior of a shopping centre, exposed to the car park which was right there. Now I consider myself a person who is very aware of who is around me or in my space. Therefore I had already noticed this well-dressed man standing behind me, at the appropriate distance for someone waiting to use the ATM. Just before I was about to get my card out, he stepped up alongside me and tapped – what looked like his bank card – against the slot that your card goes into, and at the same time talking to me in a way that appeared as if he was pointing at the card slot and trying to help me with something.

A moment later the screen changed, showing a place for my cell phone number to be typed into. (Which I had no intention of doing) He said, “You’ll need to put your number in there.” “Put your number in,” he repeated. And a third time, raising his voice, “Put your number in!” I responded with: “Don’t you shout at me!” And with that he was gone. All over in about 20 seconds. I thought to myself, ‘he is obviously fed up to wait his turn’, not realising I had just been a victim of an attempted scamming. But something else had now happened and my card would not come out of the ATM. I had finished my transaction, but the card was gone. Having my computer with me, I immediately sat down at a coffee shop next door, went online and cancelled the card. A short while later I called my bank’s fraud line and chatted with them.

No money was stolen out of the account, so that’s OK. But I was not happy that I had allowed myself to get caught out. I should have been more aware and caught him out, rather than this way round.

I subsequently learnt that this is how they get the information for your account: simply by tapping another card – that is obviously somehow programmed to do this – over the card slot, which apparently then sends the card / account information to someone sitting nearby with a computer. Whether every event is like this or not, I don’t know.

I might never use such an exposed ATM again, unless there is someone with me to watch my back. It was too easy for him to be there and to get away.

I suppose I am sharing this just to say yes, it happens, and so quickly, and the person looks very presentable, and it even happened to me, who considers himself someone who would usually react very quickly. I should have made him regret being in my space. Next time, if I have someone behind me, I might just cancel and leave. Be careful.

The three of us had an amazing experience of riding and engaging with the experiences of Lesotho over the long weekend. It is a country of dramatic scenery and epic proportions. I wouldn’t be surprised if we had a total altitude change (ascents and descents) of around 10,000 metres. You spend so much time going up and down: valley after valley and mountain after mountain. It is simply how the lie of the land is.

We did some roads and routes where the ‘road’ did not exist on any map or even on Google Earth. Sometimes our average speed was 30 to 40 km/h for hours on end. But we found communities in every corner. No one around, and then suddenly a heard of sheep and a shepherd.

We might want to think that folk living in these spaces are poor. It depends how we define our own wealth I suppose. There is a lot of successful subsistence farming and living going on: Fields of maize and cabbages and barley and spinach…. Herds of sheep and cattle and chickens (flocks in their case) for food stuff, donkeys and horses for transport, perennial rivers for free water, land with no rates and taxes to put your – some very decent and neat – little house up.

I met a local man in a guesthouse we stayed in one evening. Doing my usual thing of asking too many questions when in an interesting and intelligent conversation, I discovered he worked for a NGO with US Aid funding to uplift the lives of Lesotho children caught up in malnutrition, child abuse or were orphans. I brought up the topic of the subsistence communities we’d passed through. He called these people rich. I agreed with him.

We are wrapped up in our lives, many of us constantly aspiring for more. I suppose they are wrapped up in their lives, and probably also constantly aspire for more. The nature of man. We are born into most of what we are and have.

But there was a simplicity there, without it being poverty.

Something light hearted…… looking for a ray of fun and life in the dead end of load shedding.

Driving around Johannesburg earlier this month, and last, I have come to the conclusion that South Africans are possibly the best 4-way stop drivers in the world. With so many traffic lights down so often, we have become quite efficient at the my-turn-your-turn thing, with many intersections working at a constant and steady pace. That is, until someone who never mastered board games in their formative years arrives at ground zero and then the rhythm breaks down!

At one interaction in Randburg, I came across a chap who obviously used to stand at the lights with a piece of cardboard and a cup, but now uses traffic conducting to gather his donations – although how to stop and pay him was a mystery. Anyway…. He has used his initiative and has become very good indeed at conducting the traffic, in an intersection that is two lanes each way in both directions. If that made sense. He was so entertaining and such a disciplinarian of anyone who didn’t listen to him, that it was also wonderful entertainment. And he made the intersection work. Innovative South Africans.

So as I say, just finding some ‘light’ in our ‘darker’ times.

Well, following on from the drama of my last newsletter and travels, I rolled safely into my province on Wednesday this week, new tyre and all, after spending a couple of nights halfway in a tiny village in one of those 100-and-something year old hotels. Many of these very old establishments have stories and mysteries and ghosts. This one was no different. It is known for a donkey who just walks into the pub some evenings. Which it did the one night. Very sweet and gently it was. Just stands there, wanting a pat. Didn’t order anything though….

A last point around my flat tyre and Roadside Assistance: I have subsequently learnt this week, that I would not have qualified for Roadside Assistance from my short term insurer, even if I had called in the first place. This because my motorbike is only insured for Third Party, not comprehensively. So maybe it’s back to the AA for me so that the assistance is on me, not the vehicle’s level of insurance. Just a thought in case there’s something in it for one of you reading this.

You might have heard this week about an American Bank that collapsed, being sold in the end for USD1. Much of its business was lending to start-ups and Venture Capital businesses, which carries a fair degree of risk. Some of these enterprises didn’t work so well and then together with the bank’s credit rating being reduced, they could not honour client withdrawals. i.e. they didn’t have enough money to pay everyone out who wanted their deposits back after people got scared.

Now I have mentioned on more than one occasion that our money can be safer in a good unit trust fund, or share portfolio, than in a bank. Why, because you own something good, you are not lending your money out. Remember our deposits in a bank go out the other side and are lent to people to buy stuff they can’t really afford, or who don’t want to use their own money. If someone cannot keep paying their house off, the bank can take it away and sell it, getting their money back. Same with your car. But they don’t want to take someone’s business back. They don’t want to have to try sell a business, because they know they might never get their money back.

Before you worry too much, South Africa’s major banks are very safe and well run, managing their lending well.

In my last ‘Weekly’ – sorry, already four weeks ago…. I’m not supposed to be doing that anymore – I wrote about the new man in my Succession Plan in the event of me not, and I used the example of; ‘don’t-make-it-across-the-highway-one-day’. Well….. this past week was very close for collecting on this plan. Right down to the very example I gave.

On Sunday I was riding my motorbike up to Johannesburg, where I’ve been for the week, when my front tube gave notice. I’ve never had a front wheel blowout at 120km/h. There is no control. Those are probably enough words to describe it. Somehow, after 200 meters of weaving all over my two lanes, plus crossing the white line a couple of times and somehow missing all vehicles, I managed to slow down and get to the side of the road and stop. The first thing I did was go sit in the veld and watch the traffic go by.

After a couple of minutes of reflecting on all that had just happened, I thought, OK, who do I phone now. I could see Warden in the distance, so I could walk if I had to. I phoned AA, thinking my membership was still valid. It was not. “We’ll help you,” said the man, “you’ll just have to pay”. I was sure I had Roadside Assistance somehow and that it was probably through my short term insurance. But this person here hadn’t read all the small print properly neither saved the details to his phone. You know that attitude of, ‘it won’t happen to me and I’ll get around to it one day’. However, while I was going through the AA call, a guy pulled up in his white double cab and hopped out to help me. He owned the Warden Truckstop, a 24/7 vehicle recovery business for anyone breaking down on the N3. A friend of his had passed me by and phoned him to say; “daar’s a biker wat langs die pad gestop het.” Being a biker himself, Jannie was quick to come looking. He took me to his depot first but then after examining and chatting about fixing options out there in Warden, he took me all the way to Johannesburg with my bike on a trailer. Obviously I had to pay for that.

I have now checked up on all this. And yes, I have roadside assistance through my short term insurance. Which I have now saved to my phone and labelled Roadside Assistance, not the name of the insurance company or the name of my short term brokerage. Someone else can help look if need be and the label is logical. After contacting them on Monday and admitting stupidity, they have told me that I can only claim a small portion of the towing costs after the fact.

Anyway….. my point of this letter is not for everyone to have pity on me, or for Adrienne and Jacki to learn that they nearly lost their jobs, but to question whether we have all done this? Have we all prepared for a breakdown? Do you have the necessary contact numbers; have you ever practiced changing a wheel; do you need to keep a block of wood in your car to put your jack on when you’ve got to change a wheel on a loose surface; when last did you test your jack; do you regularly check the pressure of your spare wheel; do you have jumper leads in your car… etc. On the wheel issue, I will now always ride with spare tubes and tyre levers (to take the tyre off) and my small electric pump. Then I can change a tube on the side of the road.

I am also going to save the numbers of two people from different spaces of my life under Emergency Contact 1 (and 2). Just maybe one day, you’re able to tell someone – or you cannot and someone just looks on your phone, and finds these numbers.

Then I have a self-made business card kept in a transparent pocket on my bike jacket sleeve, with contact numbers and blood group and medical aid etc. I am now thinking that surely I should also have one of these in my car. You could do something like this too. Let’s take a moment, and check we’re sorted for an emergency.

On an reflective note…. On Sunday evening I wondered what music had been in my ears when the action happened. I went and listed to what song I had stopped my ipod on. Journey: Wheel In The Sky Keep Turning….

A couple of mundane issues today….

Firstly, a reminder that if you wish to do a top up into your Retirement Annuity with the aim of reducing your taxable income for the 2023 tax year, we should make sure the funds are reflecting in the asset manager’s bank account by the 27th February. Which is a Monday – so Friday the 24th would be even safer.

A top up would be if we haven’t contributed the maximum of 27.5% of our taxable income over the year either through debit orders and/or additional lump sums, but up to a total maximum of R350,000 for the tax year. One also has to have the cash flow to cope with adding something. In reality, if you pay income tax at 30%, for example, you would be paying in R100 to save R30. Another way to look at it is, you either pay the extra R30 in tax, or R100 into your retirement annuity, the wealth of which you are keeping in the end. But you needed the extra R70 in your cash flow to pay it.

Secondly… many of you have asked me over the years what happens if I don’t make it across the highway one day. We – Financial Advisors like myself who are not large corporate entities that don’t die – have to have an agreement in place which entails a Succession Plan to cater for such an event. For ten years now, I have had an agreement in place with a guy in Johannesburg who is a few years older than me. I began to think that it was time to try find someone significantly younger than me, someone who might be around for a while to come. This was not all that simple seeing as the average age of the IFA is still around my age.

However, after speaking to my investment consultants and looking around at colleagues, I have managed to find someone down here in my area who is 12 years younger than me, part of a small two-man independent business, works with the companies I work with and appears to work in a similar way to me. I like the chap and so went ahead and signed a new succession agreement with him this week. What would actually happen if that highway day came along, is that Jacki has to submit this agreement to the companies I use, they are supposed to transfer my business across to David (his name), then Jacki has to tell you all that I’m no longer around and that my recommendation is for David to help you. However this is optional from your side and you’d be entitled to find someone else. David has clients in KZN, up in Johannesburg as well as in the Cape. So he travels around too, which is nice for my Johannesburg clients.

So that’s all sorted again.

That’s it for today.

I have decided to summarise what I have spoken of for the last 3 weeks, that being my Trilogy on explaining a bit about unit trust funds. There will always be more that I could write, but I think I have covered enough. Many of you have let me know how these newsletters have helped you to understand a bit more. I’m glad for that.

So a brief summary:

• A unit trust fund is an entity that invests in and owns shares of companies listed on stock markets as well as other assets like cash and bonds.
• You and I can own tiny parts of that entity through owning units.
• You are actually owning tiny fractions of companies that you spend your money at. Take that in.
• Fund managers buy and sell the underlying shares on our behalf.
• They go to shareholder meetings on our behalf.
• Share prices sometimes go up and down for no good reason but investor sentiment or investor bad behaviour.
• A seller of shares needs a buyer. A buyer of shares needs a seller. No seller means a buyer cannot buy.
• A unit trust fund owns around 3% in cash to help with the ease of withdrawals for investors. A unit trust fund manager does not need to find a buyer.
• The last trade of the day – the last buy or sell of a share at the end of any particular day – gives the closing price of that company on that day on the stock market. Those closing prices give us our unit trust fund values at the end of that day.

On a last by-the-way note, over the years I have walked past the desks of many fund managers at most companies that I use. This has allowed me to see them at work behind their array of large computer screens, keeping watch on stock markets around the world. I have walked past the guys at Coronation, Allan Gray and Foord in Cape Town, the Marriott guys in Hillcrest, the offshore people at Sarasin, Investec and Orbis in London and then also FIM Capital (Marriott’s offshore colleagues) on the Isle of Man. It gave me a feeling of what happens at the coal faces of the funds I bring to clients.

Maybe another epic saga of something to take you through will come to mind in due course. Until then…

I’m starting this week’s Unit Trust saga with that thought on shareholder meetings.

People who own shares in companies are entitled to attend these meetings, because you own part of that company. But you and I, as owners of part of a Unit Trust Fund which in turn owns the shares, don’t get invited to the shareholder’s meeting of Woolworths. However, the Allan Gray Equity Unit Trust Fund owns about 1.5 billion Rand’s worth of shares of your favourite Woollies Store, which means that Allan Gray is entitled to send their fund manager guys off to the shareholder’s meeting on your behalf. And they do this. So you get representation at and someone defending your ownership of that company. If the fund manager guys don’t like what they hear, or don’t like what the company is doing or the dividend that has been declared at the meeting for that quarter or that year, they might slowly sell some of the shares they’re holding.

Let’s now look at that price up and down thing, which in turn implies the movement of the value of our funds up and down.

Generally, the price of anything is determined by supply and demand. Lots of people want it: price can go up. No one wants it: price will come down. Many people want it at the same time: called an auction. Simple as that. I want to play tongue in cheek here with an example of how the value of a share of a company and hence the value of our unit trust fund, can move up or down for no apparent good reason.

When a unit trust fund manager needs to sell some shares of a particular company in the fund – it might be that they have had a large withdrawal from their fund or they are ready to sell a particular share because they are happy with the profits they can take from the price going up nicely – they have to find a buyer. Yes, every sale on the stock market requires the seller to find a buyer. Every buyer of a share, has to find a seller. It’s not like cashing a cheque at the bank (history lesson) where you can easily get all your cash at once. So, let’s say a fund manager puts two hundred million Rand of Pick n Pay shares up for sale. He finds one buyer for all of it in one go: the trade is done. (I say one buyer in one go because it might take him the whole afternoon to sell bits and pieces of that 200 million through having to find multiple buyers) This trade would now be the latest trade of Pick n Pay on the stock market and has therefore just set the price of a Pick n Pay share for whoever carries out the next trade. If it was the last trade of the day, then it is the closing price of that share/company for that day and the price you see in the newspaper the next day.

If, while the Allan Gray fund guys are trying to sell this two hundred million Rand of Pick n Pay, another 10 sellers start trading – they could be individuals, other stock brokers, other unit trust fund managers like maybe Marriott needs to sell as well – then there might be too many sellers for the number of buyers on that day and the price will go down and down and down as all the sellers compete for the too-few-buyers. So if Pick n Pay’s share price goes down that day, it also means the price of your unit trust fund drops for the day. (Remember, your unit trust fund has a piece of its pie chart owning this company and that piece of the pie chart has just dropped in value) And then you get upset tomorrow morning because your fund value went down meanwhile it’s your mate’s fault down the road because he came along and added the last 300 million Rand of sale on Pick n Pay and ‘helped’ the share price go down. It had nothing to do with Pick n Pay doing badly or Putin in Ukraine or Elon buying a bird company – it was simply too many people wanting their money out in a short space of time. Follow?

Like in The Pillars Of The Earth: The beautiful lady star character who had begun a wool selling trade – she could not sell all her fleece at the end of the year because there were suddenly too many sellers for the number of buyers.

Hope my stories today continue to make sense.