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.

My lessons on unit trust funds continues….. Last week I said that this week I was going to look at how and why the price of shares, and thus the value of unit trust funds, moves up and down and what effects them on a daily basis. However, I realised while composing this trilogy of teachings, (it might be longer than a trilogy – is there a word for that?) that a prelude to that lesson needs to be inserted here. So this week’s might become next week’s. Or the week’s after. Depends on how I arrange the episodes.

You will all see the name of some or other unit trust fund in your statements or schedules from me. You might see names like Marriott Worldwide or Essential Income Fund, you might see Allan Gray Equity or Coronation Balanced or Ninety One Managed or Sarasin Global Equity Fund. These are all Unit Trust Funds. A small fund will be a couple of billion Rand in size but a large one could be 100 billion Rand or even more. For all of you reading this, somewhere through these unit trust funds you actually own bits of all, or either of, Pick n Pay, Spar, Coca-Cola, Clicks, Netcare, Standard Bank, Absa, Woolworths, Microsoft, Johnson & Johnson and others like I mentioned last week. You all spend your money at somewhere that you own. That is a good thought.

The word Equity that you see in many unit trust names, really just means shares of companies. So an Equity fund will mainly own shares of companies, no property or bonds or (much) cash. However, by law every unit trust fund must hold a minimum of around 3% in cash. The reason for this is that they have to be able to pay out your withdrawal request within a set number of days and the only way to ensure that this can happen, is to have some cash in the fund. Otherwise you’ll moan at me that you cannot get your money out when you want to buy that motorbike that you shouldn’t really buy. They’ll pay you your withdrawal from the cash and then slowly sell whichever underlying shares they deem best to sell, to top up the cash portion of the fund again. If you own direct shares you can only get your withdrawal out when the stock broker finds a buyer for your shares. (You only get the money for selling your car when you find a buyer) But a Unit Trust Fund has to be able to pay you quickly.

Let’s look at what also actually happens. You ask me one day to help you get R100 out of your fund. But Bob comes along on the same day and asks me to help him add R200 into his fund, which happens to be the same unit trust fund that you are in. So on a net basis, on this day the behind-the-scenes-admin lady with the wide rimmed glasses, will only feed an extra R100 to the fund manager guys to trade into the stock market. Why? Because they took your R100 out of Bob’s R200 inflow instead of selling units in the fund. They still correctly adjust the number of units you own and of what Bob has just bought, but they don’t have to disrupt the fund, they are not forced to sell anything. The fund manager guys managing your unit trust funds actually have no idea who owns the units in the funds they manage. The behind-the-scenes-admin lady with the wide rimmed glasses records that info.

Next week we’ll look at shareholder meetings and that pricing up and down thing.

My next couple of newsletters are supposed to talk about what a Unit Trust Fund is, together with some interesting stuff on how they operate. So here goes part one.

In other parts of the world, these things are also called Mutual Funds, or Collective Investment Schemes. Mutual meaning many of us together, collective meaning we collectively invest in this thing. The name ‘Unit’ would refer to you and I owning units, or parts, of an investment fund. The use of the word ‘Trust’ is because all of these investment funds are governed, regulated, watched over, by independent Trustees. In SA we find that this is usually the Trustee department of one of the large Banks. For my examples through these mails, I am going to use Pick n Pay as the example of owning a listed company. But my thoughts would apply to any one of numerous other companies, whether that be in South African, or maybe Diageo in the UK, or Colgate-Palmolive in the US, or Nestle in Europe. (Just a by the way, these companies might be based on one country’s stock market, but they trade their product all over the world, because you might well have their whiskey and toothpaste and hot chocolate in your cupboards at home.)

The price of one PnP share yesterday ended the day at R59.38 per share, at 5.05pm. (Share prices of companies vary from small amounts like R20 to well over R1000, for just one share) Now with your and my debit order of only R300 per month, you would not be buying many shares with each payment and it would take a while for you to build up a spread of various companies. So some clever person once said, ‘why don’t we create a system/space/fund, that can pool everyone’s smaller pieces of money and then we can use that as enough money to go and buy many shares, and then those people giving us small bits of money can be given a small part of that whole big ‘collective’ investment fund, in the form of a proportionate number of units. Hence the average you and me can own a very small portion of many companies, through smaller parts.

Next week, I am going to look at how and why their price might move up and down and what effects them on a daily basis. This newsletter will get far too long if I try to cover it all today. And I don’t want you to get bored and close the email.