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Volg die skakel om die nuusbrief af te laai: Ultima Nuusbrief - Junie 2010

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I trust that you won’t say something like this! Unfortunately, investors were caught off guard again by advancing investment markets.

A 30 October 2009 article in Beeld by Neville Brand-Jonker describes how investors scrambled out of money market funds during the third quarter of 2009. R91 billion moved from money market funds to mainly asset allocation funds. Brand-Jonker commented that it seemed as if investors didn’t know where to allocate funds and trusted fund managers to do the job for them. He said that fund managers voiced their disappointment that ordinary investors again largely missed the upswing in the market.

It all began seven months ago and continued through October 2009 - the All Share Index (ALSI) of the Johannesburg Securities Exchange advanced more than 37% from March until the end of September. Mr Jeremy Gardiner form Investec Asset Management said that South African investors, just like their emerging market counterparts, didn’t trust the early upswing in the market. But why should they? Experts believed that the market would advance by 15% and then retrace. Unfortunately for investors, this did not happen.

We at Ultima have always believed that success as an investor is not achieved by the timing of markets. Rather, success comes through having a robust investment strategy and a correctly aligned asset allocation that’s closely monitored. Success over time will then be inevitable

Given their natural talent for their respective fields, what can the likes of Ryk Neethling, Tiger Woods, Lance Armstrong and the Williams sisters learn from someone else? These internationally-renowned sportspeople are dedicated, determined and confident. So why would they require a coach?

Behind virtually every champion athlete is a champion coach providing guidance in three key areas: improving technique, setting short and long-term goals and continually reigniting the athlete’s motivation to stay on track to achieve these goals. A financial coach or what we refer to as a financial planner, plays much the same role for champion investors.

setting short- and long-term goals

Ask any successful athlete, in fact, ask anyone who is successful in any particular field and the importance of goal setting will be immediately obvious. A coach working with an athlete for the first time will not immediately consider diet, fitness or training routines. Instead, the coach and athlete will work together to set realistic goals. Only then will the coach assesses the athlete’s abilities, fitness and potential and design a plan that offers the best chance of achieving those goals.

Similarly, investors can benefit from setting clear, realistic goals, such as the level of income they wish to live on in retirement. While longer-term goals are essential, short-term goals are as just as important as most people have financial needs that will not wait until retirement. These can include buying a new car or paying off debt and can all be built into a long-term financial plan. In this way, investors can enjoy ‘little’ victories along their journey to lasting financial well-being.

providing expert technical advice

Athletes become champions by accessing the latest technical training through updated technology and information and most importantly, a trusted coach.

Investors should also obtain as much technical detail as possible when it comes to understanding their investments.  Each individual’s circumstances are different and require a customised approach to ensure that their goals are achieved. This means that everyone requires a tailor-made strategy that suits their particular needs, whether it’s planning for retirement, organising inheritance, efficient tax planning or any other needs.  Expert financial coaches will focus on those needs and use their technical expertise to develop a sensible plan and keep it updated. This includes providing guidance on sound investment principles such as diversification.

overcoming the barriers to success

Setting clear goals and developing a strategy to achieve them are essential for athletes and investors. However, the journey towards these goals holds great challenges and rewards. This is where coaches add their greatest value!

Champion coaches help athletes put setbacks, such as injuries, behind them and tackle the psychological obstacles in the way of success. Those athletes who ignore short-term pain and set backs and remain focused on their goals are the ones most likely to attain long-term success.

Investors are distracted by similar hurdles. For example, successful investors have to learn to live with the pain of occasional market declines. This is done by understanding the difference between a short-term reduction in portfolio value and a permanent capital loss. Excessive fear results in some investors selling their assets for less than they are worth in difficult market conditions. Others may be tempted to leave their money in
low-returning assets for long periods of time.  Excessive optimism can be just as damaging. For example, investors who eagerly chase ‘hot stocks’ or ‘hot funds’ often do just as poorly as they don’t rationally assess the outlook. In these instances, an expert financial coach helps investors deal with their emotions and other behavioural characteristics that get in the way of success. Investors who can overcome the temptation to self-destruct during difficult market conditions and stay focused on simple investment principles during the good times will give themselves the best possible chance of achieving their goals.

When all is said and done, champion athletes and investors enjoy greater success by working with champion coaches.

Mense soos Ryk Neethling, Tiger Woods, Lance Armstrong en die Williams-susters het ‘n aangebore talent vir hul onderskeie sportsoorte – dus, wat sal iemand anders hulle kan leer? Hierdie internasionaal bekende sportlui is toegewyd, vasberade en selfversekerd. Waarom benodig hulle dan afrigters?

Agter feitlik elke kampioensportpersoon is daar ‘n kampioenafrigter wat leiding op drie gebiede verskaf: die verbetering van tegniek, die stel van kort- en langtermyndoelwitte en die voortdurende aanvuur van die persoon om gemotiveerd en op koers te bly ten einde die gestelde doelwitte te bereik. ‘n Finansiële afrigter, oftewel ‘n finansiële beplanner, vervul ‘n soortgelyke rol vir kampioenbeleggers.

Die stel van kort- en langtermyndoelwitte

Enige suksesvolle sportpersoon, trouens enige persoon wat in ‘n besondere veld sukses behaal, sal saamstem dat dit uiters belangrik is om doelwitte te stel. ‘n Afrigter wat saam met ‘n sportpersoon begin werk, sal aanvanklik nie aan dieet, fiksheid of ‘n oefenroetine aandag gee nie. Die afrigter sal eerstens saam met die sportpersoon realistiese doelwitte stel, en daarna sy of haar vermoëns, fiksheid en potensiaal evalueer om sodoende ‘n program of plan op te stel sodat hy of sy die beste kans sal hê om hierdie doelwitte te bereik.

Op dieselfde manier sal dit beleggers baat om duidelike, realistiese doelwitte te stel, byvoorbeeld wat betref die inkomstevlak wat hulle in hul aftreejare wil hê. Hoewel langtermyndoelstellings noodsaaklik is, is korttermyndoelstelllings ook baie belangrik omdat meeste mense finansiële behoeftes het wat nie tot by aftrede uitgestel kan word nie. Sodanige behoeftes, byvoorbeeld die koop van ‘n nuwe motor of die afbetaling van skuld, kan almal in ‘n langtermyn finansiële plan ingebou word. Op dié wyse kan beleggers op hul pad na voortgesette finansiële welstand ‘klein oorwinningkies’ behaal en geniet.

Die gee van deskundige tegniese raad

Sportlui word kampioene deur toegang te hê tot die jongste tegnologie en inligting oor tegniese opleidingsmetodes, en, van die grootste belang, deur ‘n betroubare afrigter te hê.

Beleggers moet ook soveel tegniese inligting as moontlik versamel wat hulle kan help om hul beleggings te verstaan. Elke persoon se omstandighede verskil en benodig ‘n eie benadering om te verseker dat die gestelde doelwitte bereik word. Dit kom daarop neer dat elke belegger ‘n pasgemaakte strategie nodig het wat sy of haar behoeftes pas, hetsy dit aftredebeplanning, nalatenskapbeplanning, doeltreffende belastingbeplanning of enige ander behoefte behels. Kundige finansiële raadgewers sal hul aandag op hierdie behoeftes toespits en hul tegniese kundigheid aanwend om ‘n verstandige plan op te stel en by te hou. Dit sluit raadgewing oor gesonde beleggingsbeginsels soos diversifikasie in.

Hulp om hindernisse in die pad van sukses te bowe te kom

Die stel van duidelike doelwitte en die ontwikkeling van ‘n strategie om dié doelwitte te bereik, is noodsaaklik vir beleggers en sportlui. Op pad daarheen is daar groot uitdagings, maar ook belonings. Dit is hier waar afrigters hul grootste waardetoevoeging kan lewer!

Kampioenafrigters help sportlui om terugslae, soos beserings, die hoof te bied, en om psigologiese hindernisse wat in die pad van sukses staan by die horings te pak. Dié sportlui wat korttermynpyn en -terugslae ignoreer en op hul doelwitte konsentreer, sal heel waarskynlik dié wees wat langtermynsukses behaal.

Beleggers word deur soortgelyke hindernisse gekortwiek. Suksesvolle beleggers moet byvoorbeeld leer om dan en wan met die pyn van markdalings saam te leef. Hulle moet weet wat die verskil is tussen ‘n korttermynverlaging in die waarde van hul portfolio en permanente kapitaalverlies. Oordrewe vreesagtigheid veroorsaak dat sommige beleggers in moeilike markomstandighede hul bates verkoop teen ‘n laer prys as wat dit werd is. Ander beleggers kom weer in die versoeking om vir lang tye hul geld in lae-opbrengsbates te los. Oordrewe optimisme kan net so skadelik wees. Byvoorbeeld, beleggers wat gretiglik “warmaandele” of “warmfondse” najaag, vaar dikwels ewe swak omdat hul vooruitskouings nie op ‘n realistiese beoordeling gegrond is nie. In sulke gevalle help kundige finansiële afrigters die beleggers om hul emosies en ander gedragseienskappe wat in die pad van sukses staan, beter te hanteer en bestuur. Beleggers wat in moeilike markomstandighede die versoeking van selfvernietigende optrede kan weerstaan, en in goeie tye op eenvoudige beleggingsbeginsels ingestel kan bly, sal die beste moontlike kans staan om hul doelwitte te bereik.

Alles in ag genome, ervaar kampioensportlui en -beleggers die meeste sukses as hulle die pad saam met kampioenafrigters stap.

As financial planners, one aspect of our commitment to our clients, is to continually be on the lookout for possible scams and investment fraud. Ian De Lange from Seed Investments wrote the following article which we believe is crucial to trying to avoid investment scams.

This week South Africa was rocked with an investment scandal, that in terms of the purported sheer size of up to R15 billion, will dwarf any previous scams. While we know that despite tight regulations, there will always be scams looking for culprits, it is very important that investors assess counterparty risk before an investment is made.

In the alleged scam of Tannenbaum billions of rands were invested into a private operating company promising investors fantastic returns. It amazes how supposed smart investors apparently put in millions without a hint of due diligence.

I found this on the CFA (Chartered Financial Analyst) website, adapted slightly for local situation. There are no guarantees, but with investments it is vital that counterparty risk is reduced to as close to zero as possible.

10 tips on avoiding investment fraud – posted after the Bernie Madoff scheme came to light.

1. Understand clearly the investment strategy – “Some investment opportunities appear alluring simply because they are described in impressive, complicated terms. Investment strategies and financial products should be clear and understandable. The nature of the risks involved can vary widely and should be well understood. Even the venerable Peter Lynch advised people to invest only in what they understood – advice he abided by in his successful career. If you don’t understand it, stay away.

2. Match investment strategy to reported performance – One of the red flags in the Madoff affair is that reported performance was too consistently good. Other investment scams, popular on the internet, purport to use ultra-safe “prime bank” financial instruments from the world’s largest banks. E-mails that promise double-digit returns are incongruent with the safe investment strategies they purport to offer. Also, find out if the firm has its reported performance numbers independently audited, who audits them, and if possible whether these figures comply with Global Investment Performance Standards, a set of ethical principles for calculating and reporting investment results.

3. Watch for e-mail solicitations and Internet fraud – The internet is a low-cost way for scammers to reach millions of people. Unsolicited e-mail messages offering you investment opportunities that sound too good to be true probably are. Online bulletin boards and electronic investment newsletters are also fertile ground to disseminate false information on thinly traded stocks for a pump-and-dump scheme. Treat information from unknown sources on the internet with great suspicion.

4. Be wary of “sure things,” quick returns, and special access – Legitimate investment professionals do not promise sure bets. Legitimate get-rich-quick schemes simply do not exist. Scammers often make the implausible combination of safety and high returns seem plausible by granting you “special access” based on your relationship with a mutual acquaintance or affiliation with a specific religion or ethnic group. Also, understand clearly the terms by which you can redeem shares or exit the investment. When can it be done and what are the fees? Ponzi schemes become unsustainable when investors pull out their money.

5. Understand what, if any, regulatory oversight exists – Fraud may be less prevalent in regulated settings, like mutual funds. Hedge funds are less regulated than mutual funds and the risks must be carefully analysed.

6. Assess the operational risk and infrastructure – Any investment management operation should have a physical infrastructure for trading and administration. Ask to see them and inquire about the firm’s processes and controls. It is important that a firm have separate, independent operations for asset management, trading, and custody to provide checks and balances against fraud.

7. Ask about independent audits and who performs them. An auditor should be independent, reputable, and congruent with the size and scope of the investment operation.

8. Assess the personnel – Ultimately, the reliability of any operation is predicated on the integrity and competence of its people. So find out who makes investment decisions and who implements the investment strategy. They should be separate people with relevant experience, education, and training. Credible investment professionals speak knowledgably and comfortably about their professional standards.

9. Perform a background check. If an advisor firm or investment manager is not listed with the FSB (www.fsb.co.za), find out why. If they are, make sure their record is clear.

10. Limit your exposure – One of the surest ways to avoid the catastrophe associated with investment fraud is to limit the amount you invest. Diversification is one of the most fundamental and enduring investment principles. Investors often expose themselves to unnecessary risks by concentrating their funds in one or two securities. By limiting your exposure to five to 10 percent of your assets, the principle of diversification can protect you if an investment turns out to be fraudulent.

Although these points cannot guarantee that you will avoid investment fraud, they will increase the likelihood that you will make smart choices.

Eighteen months ago, investors were euphorically excited about investing in shares. Risk or the danger that shares could ease didn’t play any role in decision-making. The situation at the time was almost reminiscent of vultures at a carcass.

The rest is, as they say, history. Shares are dead, or at any rate, they are like a disgraced family member - the family prefers not to talk about the situation.

The investment environment has indeed changed fundamentally.  Large companies with previously proven yield histories of more than a hundred years suddenly no longer exist. The market capitalization of others that survived has shrunk alarmingly. 

Investors are thus afraid with good reason. Few people have lived through such an economic crisis in their lifetime. Lifebuoys thrown out by governments to stabilise the economies have had little influence so far.  

Our own economy is only now really starting to feel the cold winds of change while experts warn that the worst is yet to come.

Shares are thus dead with good reason … or are they really? Although no experienced vulture will leave a fresh carcass in peace, the danger exists that investors may be allowing the biggest investment opportunity of their lives to slip through their fingers.

Although nobody can correctly predict the turning point of the bear market, several fund managers agree that there are many companies out there who will successfully survive the storms. The market has the tendency to turn while economic news is still very dark.

Could it be that investors will be caught on the wrong foot again?

If you are young or perhaps began saving recently, you can lay a solid foundation for the future by investing in a focussed shares investment strategy. In future, do not become panicky when such negative economic times re-appear. Remember that markets always move in cycles and by investing more when the markets are easing, you can really improve your total yield over time.

If you are already retired and withdraw an income from your portfolio, you must diversify to effectively counteract the negative cycles. Make sure that you have a tested investment strategy and stick to it in the long term.

If, in the longer term, the top business entrepreneurs can’t do better with their capital than a safe bank investment, then shares are indeed dead. 

Shares are dead - long live shares!

Agtien maande gelede was beleggers eufories oor die prestasie van aandelebeleggings. Dat daar risiko aan verbonde kan wees of dat die gevaar bestaan dat die aandele kan daal, het toe geensins ‘n rol by besluitneming gespeel nie. Die situasie het mens amper aan aasvoëls by ‘n karkas laat dink.

Die res is, soos hulle sê, geskiedenis. Aandele het gesneuwel – oftewel hulle word behandel soos familielede wat skandes gemaak het en oor wie daar liewer nie gepraat word nie.

Die beleggingsomgewing het inderdaad wesenlik verander. Groot maatskappye met ‘n bewese opbrengsgeskiedenis van meer as honderd jaar bestaan skielik nie meer nie. Ander wat oorleef het, se markkapitalisasie het kommerwekkend gekrimp.

Beleggers is dus met goeie rede bevrees. Min mense het al ‘n soortgelyke ekonomiese krisis beleef. Die reddingsboeie wat deur regerings uitgegooi is om die ekonomie te stabiliseer het tot dusver min invloed gehad.

Ons eie ekonomie begin nou eers werklik die koue winde van verandering voel, terwyl kenners maan dat die ergste nog aan die kom is.

Is aandele dus waarlik dood … of is hulle nie? Alhoewel geen deurwinterde aasvoël ‘n vars karkas met rus sal laat nie, is die moontlikheid tog daar dat beleggers dalk die grootste beleggingsgeleentheid ooit deur hul vingers kan laat glip.

Alhoewel niemand waarskynlik die draaipunt van die beermark reg kan voorspel nie, is menige fondsbestuurder dit eens dat daar vele maatskappye daar buite is wat die storms suksesvol sal oorleef. Die mark het die geneigdheid om te draai terwyl die nuus op die ekonomiese front steeds ‘n baie donker prentjie skilder.

Kan dit wees dat beleggers weer onkant gevang gaan word?

Indien jy jonk is of dalk onlangs met ‘n spaarpoging begin het, kan jy vir jou ‘n stewige fondasie vir die toekoms lê deur in ‘n gefokusde aandelebeleggingsstrategie te belê. En moenie paniekerig word as daar in die toekoms weer swaar ekonomiese tye is nie. Onthou markte beweeg altyd in siklusse en deur meer te belê wanneer die markte daal, kan jy jou totale opbrengs oor tyd baie verbeter.

Indien jy reeds afgetree is en inkomste uit jou portefeulje moet onttrek, moet jy diversifiseer om negatiewe siklusse effektief teen te werk. Maak seker dat jy ‘n getoetste beleggingsstrategie het, en hou daarby oor die lang termyn.

Indien die top sake-entrepreneurs vir die langer termyn nie iets beter met hulle kapitaal kan doen as om dit in ‘n veilige bankbelegging te plaas nie, dan is aandele inderdaad dood.

Aandele is dood, lank lewe aandele!