I’m going to be controversial here. If I worked for a corporate I might have been called in and told that I cannot express my opinion in this way. But thank goodness I’m unemployed, so I can have my say. And sorry, the letter is a bit long this week.

Yet again, over the last 2 weeks another ‘Ponzi’ scheme has been in the news because it collapsed. Billions of Rands of investor money gone. Many investors have lost everything, maybe some will get back a few cents in the Rand when investigations and winds up are all done. The principal owner/operator has turned himself in at a police station, thinking he will be safer in jail than on the street.

Why was this money lost? Because it actually never owned anything, any assets. I have gone on at times about how your money in a unit trust fund actually owns assets, either actual shares of companies, or bonds or listed property, etc. In such a scheme as the above, it is very hard to know what’s being owned, if anything at all. People begin to get great ‘returns’, but these are shown either by statements that simply get generated but mean nothing, or through income payments on a monthly or whatever basis. All appears very good so they tell their mates. The operating company/guy even does presentations to people, showing these ‘returns’. It might run very successfully for years, for many years, while money keeps coming in. It eventually collapses, either because whatever electronic game and equation that was being played in the background to manipulate the ‘potential’ value of the investments backfires, (because nothing is actually being owned) and/or because a few investors begin wanting to draw all or a lot of their money out and the system suddenly begins to have a cash flow problem. Your income is initially paid out from the funds received by the scheme, but later, the income might be getting paid out by the next inflow. Not good….

Why do people go here? Many folk want to make their own choices for investing, not using the right process to identify something that might not work, not using the right person or not knowing how to really dig down, determine, ask the right questions, see what’s going on. Many investors in this example were even advised to go in by registered Financial Advisors and apparently the offering was even registered with our industry authorities. (But in my opinion, the people working in these industry regulatory spaces – they are just humans, not necessarily knowing themselves what to ask)

I have had an ‘investment scheme’ presented to me many years ago. It was a property syndication that eventually collapsed. You didn’t get your money back. The guy who brought this to me….. the numbers simply didn’t make sense to my simple brain. Expected returns were claimed to be xyz. I said to him your return figures are irrelevant because you cannot control an expected return. Commissions were too much: this is how they succeed in getting some advisors to market their product – they offer to pay us too much. He couldn’t explain the underlying ownership well enough and clients wouldn’t be able to draw their funds out for an initial time period. That’s always a raised flag to me: all assets based on the stock market are saleable within a few days. Anyway… I invited the guy to leave my office and that was that. I had colleagues that invested their clients in this, and these colleagues were so distraught when their clients lost their money. I said to them but this and that and the other… They said but they thought this and that. Too late.

I have written about this a couple of years ago, but it will be good to mention it again, especially after my trilogy early this year about the workings of unit trust funds.

For those of you who watch your investment values (too) often, you will have notices drops in value of 3 or 4 or 5% in the last month or so. If you are adding to your investment’s on a monthly basis, either through debit orders into unit trust funds or retirement annuities, or monthly contributions into your employer pension fund, or if you are not using all your income from your Marriott funds and you have reinvesting income (which to me is like doing monthly savings), then it is actually good for your investments to sometimes have these drops in market values. This because your money being added during these ‘down months’ is buying cheaper units in your funds and therefore buying more units (more assets) for you than you would have been buying, had the markets not gone down.

Using some simple numbers, let’s say the market went down 5% in the middle of September. Your debit order now in October bought units at a 5% lower price than in September. Then let’s assume the markets go up by 3% again by the beginning of December. The value of the units you bought in October and November, have now gone up by that 3%, yes? However, the units you owned before this, have now only recovered 3% of their loss, and hence are still down 2%.

This is also an argument for increasing your Retirement Annuity monthly contributions vs. making too large a once-off addition at the end of the tax year.

I hope my basic example sort of makes sense.

Then….. maybe it’s important to go back to my story of a few weeks ago, around the matter of medical aids paying for treatment and hospitalisation for riding unlicensed and non-road legal motorbikes in the forest…. Well, this week I found my original notes around that topic and I see that I wrote down that I would not get cover for accidents if riding in Lesotho, Namibia etc. We all think of international travel insurance for going overseas, but I definitely have never thought about this for popping over into Lesotho for a couple of days. Just a thought for those of us who might do that little holiday visit into Lesotho, Swaziland, Botswana, Zimbabwe, Mozambique etc.

We’re busy changing medical aids at the moment, due to some particular reasons. Going through the process and reading all about the exclusions of benefits the various medicals aids I looked at all have, I remembered a conversation with my medical aid about 13 or 14 years ago.

I had just bought old offroad motorbikes for my son and I. The obvious ‘Dad’ excuse for getting his own toy as well, being that ‘my boy can’t ride alone in the bush’. Only after buying them, did the thought go through my mind of whether medical aid would pay for injuries sustained while riding these things. So I phoned my medical aid.

I asked the consultant who answered if my underage son riding an unlicenced motorbike offroad in the forests and the bush would be covered for injuries and hospitalisation if he had an accident. Question 2 was; if we’re riding these bikes down a public road to get to the forests and we have an accident, what then? I remember these questions sending the consultant off to the underwriters in the back office to get accurate answers.

On question two, we would get no benefits paid while riding unlicenced motorbikes on a public road and we had an accident.

On questions one, yes, the medical scheme would pay for treatment and hospitalisation for my son if injured riding in the forest even though underage, unlicensed and on a non-road legal vehicle.

So, a reminder that breaking the law can result in no benefits being paid for by your medical scheme. Each one might have slightly different exclusions, and it’s worth going and reading up on them. With my example above, it was that grey area of were we breaking the law, that made me pick up the phone.

My random topic this week might be of interest to many of you. And many others will know all this happens and will indeed be doing it in their own businesses.

Each month I ‘park’ the VAT that I must pay to SARS in my property bonds, and when they are too low and have no more capacity to hold anymore, I move the rest to a Marriott Money Market account that I keep for this sort of purpose. Then when I must pay it across, I draw it back out of wherever and pay it to our friends down the road. I have been doing this for years and years. So I have made money from hanging on to my VAT for a while, either from reduced interest on my property bonds, or from positive interest paid to my money market account. Scaling this example up a bit…. Let me use an example of a Superspar store, although a Pick ʼn Pay or Makro or etc will do just as well.

Large consumer stores like these can have huge sales every day, some even a million Rand a day or much more. But let’s use that figure. The VAT on a million Rand is about R130,000. (Some of you are thinking why is it not R150,000 – that looking like 15%. The maths down the sum to find 15% of the sale price is different to the maths back up the sum. Arbitrary information for a Friday…..)

So your Superspar down the road is able to put R130,000 a day of Vat into some interest bearing account that this particular store is able to benefit from and keep. And they will benefit from this money for anywhere from 30 to 90 days. (the Vat from May and June for example, must be paid by the end of July).

But we’re not finished. Let’s now talk about the products on the shelf. Stores like these will demand (probably) 90 days to pay for the goods they have bought to sell. Let’s pretend your local Superspar had that large delivery truck arrive yesterday – that one that messes up the traffic while trying to get into the delivery yard – and they unpacked a whole lot of Lux soap (produced by Unilever which you own through your unit trust funds. But I digress – yet again) and put it on their shelves. You go in today and buy your bar of Lux. The store gets paid for it today, by you. And if you didn’t have the cash, you borrowed it from your bank through your credit card. But the store still gets paid today. However, it now has the proceeds from the sale of the soap but it still has 89 days to pay the supplier the cost price of the item. The bar of soap moved in and out in a day, the store got paid, and they can now sit on the money from the sale for another 89 days.

Therefore between the Vat and the sale of the item, can you see how much money a store like this will have to put away into some or other account where the store can keep and enjoy the interest. They make a massive amount of income simply by playing with these sums of money that they can enjoy for a while.

So, when you go into your Spar or Woollies Food today, bear in mind that besides their mark up, they are actually making a lot of their income from simply sitting on money that is not theirs but they can enjoy for anywhere from 30 to 90 days. (And of course, every month another cycle of 30 to 90 days is beginning, so the process is never ending)

And you thought they only made their money from selling that bar of soap.

On Wednesday this week I had a “working” lunch with (virtually) the most senior fund manager from Marriott. I try and get his undivided attention about every three months.

He brings subject material to the table, but so I do. I always have some or other agenda in my mind. This week I had examples and questions from the very things I have been busy with for three of you reading this. So my head is always around what I’m doing or attempting to understand better for my clients. We spoke about local fund mixes I use, consistency of distributions (income) being paid by funds and global property valuations and the things affecting them. He took me through what many of us might have noticed on the news for property owners in the UK, that being interest rate hikes from the base of 0% in covid now heading to 5%. The conversations included two computer screens with lots of graphs going on and then real-time London Stock Exchange price searches. All rounded off with a very decent fillet steak.

It’s both wonderful and a privilege to have time alone with him. Not forgetting the free lunch as well!!

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.