Ultima Financial Planners - News

26 October 2008

I believe we are going through some of the toughest times experienced the past 80 years. Unprecedented volatility is experienced every day on the markets. Unlike previous down markets, this time the whole world is in turmoil. Many of us will definitely feel the urge to jump ship to what we believe is safer asset classes such as bonds and cash. I believe this would not be the correct strategy as the long term prognosis for equities is still good. I came upon a recent article written by Warren Buffett which I think will benefit all of us while we go through these trying times.

The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

If you ever tried to play the computer card game hearts you would no doubt have encountered how difficult it is to get zero score while the other players all bust. You have to be able to know at all times how many cards have already been played and also who still holds what cards. All your opponents would want to dump the queen of spades on you while you would want them to end up with her.

When considering investments many people also want to shoot the moon or put differently, shoot the lights out! While investment markets are advancing almost all investors seems to be aggressive. This might entail constantly switching to better funds trying to obtain the best possible returns compared to your friends or peers.

Now we know that markets never go up in a straight line. We had arguably the best of economic times during the past six years. Although danger signs appeared on the horizon, many investors chose to ignore them. Instead of constantly trying to outsmart investment markets by regularly switching investments, a better approach would be to calculate your need or requirement at the time you need your investment to mature. This could be upon retirement or some pre-determined event.

You then build a diversified portfolio (cash, equities, bonds, gilts and property) that will give you the required return over your pre-determined period. There would then seldom be disappointments along the way because you are constantly monitoring and adjusting your asset allocation, not timing the market. This might not sound exciting at first but as you go along and witness your steady progress you will soon realise the value of such an approach.

I asked John Kinsley from Prudential Asset Managers whether I could use his article that was published in Money Marketing as I believe it would add value to your investment knowledge.

John Kinsley
Besturende direkteur
Prudential Portfolio Managers (South Africa)

Active or passive? Value or growth? Equities or bonds, or maybe cash?

Not only do investors have to grapple with volatile stock markets and endure worrying economic conditions, but in addition they also have to make sense of continuous debates among experts about which are the better approaches to asset management: value or growth, active or passive.

At Prudential we say that instead of worrying about picking the one asset manager which follows an approach likely to outperform all others, or choosing the one asset class that will do the best, your strategy should centre on appropriate diversification.

If, in addition, you are able to take emotion out of your approach, you are likely to take investment choices that will help you achieve superior returns over time.

The ability to make decisions without the influence of emotions is one of the most important skills of a successful asset manager. Often it is this ability that enables investors to diversify appropriately – generally this involves investing your money in an asset class, a region, or a stock that has fallen out of favour with the market.

Take the Prudential Global High Yield Bond Portfolio as an example. Global bonds underperformed most other asset classes during 2007 with global corporate bonds suffering further as a result of the global credit crunch. The performance of the Prudential portfolio was therefore not very exciting for most of 2007.

Needless to say investors stayed clear of it. But then during the period from late October 2007 through to February this year the JSE All Share Index endured a roller coaster ride, at one point almost shedding all the earlier gains of 2007. Meanwhile global bonds enjoyed something of ‘a flight to quality’, and this, together with the weakness in the rand, meant that the Prudential Global High Yield Bond Fund of Funds produced a return in rands of over 27% for the first quarter of 2008.

All our clients’ global balanced portfolios have a portion invested in global bonds. While last year this may have been psychologically difficult to hold on to, it proved an amazing buffer against volatility at the beginning of this year.

For investors, the biggest learning is that different asset classes and stocks will perform differently when market conditions change. Equally, the various approaches followed by asset managers will produce different results at different times.

For the past year or two, as valuations have become more concentrated, many value managers struggled against their more growth-orientated competitors. This was a global phenomenon as the performance charts show. But after recent events, value managers are able to plan ahead by scouting for cheap stocks which are likely to be tomorrow’s darlings. And for the past two years or so, the majority of active equity managers found it difficult to beat their benchmarks such as the JSE All Share Index, leaving passive managers gloating.

But this may all change without much warning. The question is whether you, as the investor, are geared for this change?

When in January this year the JSE All Share Index reached its lowest point and investors were fleeing equities, at Prudential, we started buying equities and listed property. While this was difficult from an emotional point of view, we were rewarded when the market started turning days later.

We’ve witnessed a fund of funds manager sell all listed property holdings in January, a day before listed property bounced back by 3%. Not only did this manager materialise a loss for his investors, but he also proved that market timing never pays.

Investors should not adopt a blanket approach that dictates that going against the herd is best. Instead, you need to develop the discipline and conviction to buy when the market is cheap and to include “out of fashion” opportunities, where necessary, to diversify the portfolio.

Diversification principles need not only apply to assets. If the debates about value and growth or active and passive are leaving you confused, you could consider diversifying across asset managers as well.

Remember though, if your investment portfolio was constructed in line with your long-term needs and diversified accordingly, you have nothing to worry about. If not, best you get some advice sooner rather than later.

Ek het vir John Kinsley gevra of ons sy artikel wat in die tydskrif Money Marketing verskyn het kan gebruik aangesien ek glo dat dit vir u insiggewend sal wees.

John Kinsley
Besturende direkteur
Prudential Portfolio Managers (South Africa)

Aktief of passief? Waarde of groei? Ekwiteite of obligasies, of miskien kontant?

Beleggers moet nie net met ongestadige effektemarkte worstel en kwellende ekonomiese toestande verduur nie, maar hulle moet ook wys word uit die voortdurende debatte tussen deskundiges oor wat die beter benaderings tot batebestuur is: waarde of groei, aktief of passief.

By Prudential sê ons dat in plaas van om u te bekommer oor die èèn batebestuurder wat ʼn benadering volg wat waarskynlik al die ander sal oortref, of die èèn bateklas wat die beste sal presteer, te kies, moet u strategie eerder op toepaslike diversifikasie gesentreer wees.

As u daarbenewens in staat is om emosies van u benadering te verwyder, sal u waarskynlik beleggingskeuses wat u sal help om oor ʼn tydperk voortreflike opbrengste te bereik, maak.

Die vermoë om besluite sonder die invloed van emosies te neem, is een van die belangrikste vaardighede van ʼn suksevolle batebestuurder. Dikwels is dit dié vermoë wat beleggers in staat stel om toepaslik te diversifiseer – oor die algemeen behels dit om u geld in ʼn bateklas, ʼn streek of ʼn effek wat in die mark in onguns geraak het , te belê.

Neem die Prudential Global High Yield Bond Portfolio as ʼn voorbeeld. Globale effekte het gedurende 2007 swakker as die meeste ander bateklasse presteer, en globale effekte het verder gely as gevolg van die globale kredietkrisis. Die prestasie van die Prudential portefeulje was derhalwe vir die meeste deel van 2007 nie baie opwindend nie.

Dit is onnodig om te sê dat beleggers daarvan weggebly het. Maar dan, gedurende die tydperk vanaf laat in Oktober 2007 tot Februarie vanjaar, het die JE-Indeks van Alle Aandele ʼn wipwaentjierit verduur en op ʼn tydstip bykans al die vroeër winste van 2007 ingeboet. Terselfdertyd het globale effekte effens van ʼn ‘vlug na gehalte’ geniet, en dít, tesame met die swakheid van die rand, het beteken dat die Prudential Global High Yield Bond Fund of Funds vir die eerste kwartaal van 2008 ʼn opbrengs in rand van oor 27 persent gelewer het.

ʼn Gedeelte van al ons kliënte se globale gebalanseerde portefeuljes is in globale effekte belê. Ofskoon dit verlede jaar sielkundig dalk moeilik was om daaraan vas te hou, is dit aan die begin van hierdie jaar as ʼn verbasende buffer teen ongestadigheid bewys.

Vir beleggers is dit die moeilikste om te leer dat verskillende bateklasse en effekte op verskillende wyses sal presteer wanneer marktoestande verander. Desgelyks sal die onderskeie benaderings wat deur batebestuurders gevolg word op verskillende tydstippe verskillende resultate oplewer.

Oor die afgelope jaar of twee, soos waardasies gekonsentreerder geword het, het baie waardebestuurders in teenstelling met hul meer groeibepaalde mededingers gesukkel. Dít was ʼn globale verskynsel, soos die prestasiegrafieke toon. Maar ná die laaste gebeurtenisse is waardebestuurders in staat om vooruit te beplan deur goedkoop effekte wat waarskynlik more se skatjies sal word, te verken. En oor die afgelope jaar of wat was dit vir die meeste aktiewe ekwiteitsbestuurders moeilik om hul toonaangewers soos die JE-Indeks van Alle Aandele te klop waaroor passiewe bestuurders hulself verlustig het.

Maar dit kan sonder te veel waarskuwing verander. Die vraag is of u, as belegger, vir sodanige verandering gereed is.

Toe die JE-Indeks van Alle Aandele in Januarie vanjaar ‘n laagtepunt bereik het en beleggers uit ekwiteite gevlug het, het ons, by Prudential, begin om ekwiteite en genoteerde eiendom te koop. Ofskoon dit uit ʼn emosionele standpunt moeilik was, is ons beloon toe die mark ʼn paar dae later begin omkeer.

Ons kan getuig van ʼn fonds-van-fondsebestuurder wat in Januarie, ʼn dag voordat genoteerde eiendom met 3 persent teruggespring het, al genoteerde eiendomsbesit verkoop het. Dié bestuurder het nie net ʼn verlies vir sy beleggers teweeggebring nie, maar hy het ook bewys dat markstydberekening nooit lonend is nie.

Beleggers behoort nie ʼn alomvattende benadering wat dikteer dat dit die beste is om teen die kudde te hardloop, in te neem nie. In stede daarvan moet u die dissipline en oortuiging ontwikkel om te koop wanneer die mark goedkoop is en om, wanneer dit nodig is, “uit die mode”-geleenthede in te sluit om die portefeulje te diversifiseer.

Diversifikasiebeginsels hoef nie net op bates van toepassing te wees nie. Indien die debatte oor waarde en groei of aktief en passief u verward laat, kan u oorweeg om ook oor batebestuurders te diversifiseer.

Onthou egter dat as u portefeulje ooreenkomstig u langtermynbehoeftes opgestel is en dienooreenkomstig gediversifiseer is, hoef u oor niks bekommerd te wees nie. Indien dit egter nie die geval is nie, hoe eerder u ʼn bietjie raad inwin hoe beter.

Some ten years ago when I entered the investment world I had a fascinating discussion with my grandmother. She taught me the very important lesson of not putting all your eggs in one basket. This she explained was the key to investment success as it reduced your risk dramatically.

To illustrate the point she explained that she had split her investments equally amongst four banks. All the money was on call or in a fixed deposit depending on the rates payable by the various banks. This spreading of her risk made perfect sense to me. It was only a while later that I came to terms with her error. The error was that she had not spread her risk at all.

Putting your eggs in two baskets is not good enough. You need to put your eggs in a basket and a padded box. The basket may be able to carry more, but the box is safer. If you fall carrying two baskets the dangers are equally great. With a padded box you will be a lot safer but will not be able to carry that many eggs. This is more appropriate spreading of risk.

My grandmother should have diversified away from just having all her money in the bank by putting some into equities, property or fixed interest securities as well. This would have provided effective diversification for her. True diversification requires spreading your assets among investments with different characteristics that will react differently to each other. The biggest challenge in diversification of an investment portfolio is accepting that you will have an underperforming investment within your portfolio. If not you have not diversified properly, you are heading for disaster. A properly diversified portfolio must have an underperforming component to it. Appreciate its benefits.

Investment diversification is appropriately illustrated by the ice cream seller at the waterfront. On warm days visitors form long queues to buy an ice cream from him. To earn extra income and reduce his risk he decides to diversify his business and sell cooldrinks as well. By doing this he increases his income slightly because some patrons buy both an ice-cream and a cool drink and non ice-cream eaters are now buying his drinks. He is now content that he has added another product line to his business. However, this additional product line will not solve his problem on a cold day when people want neither ice-cream nor cooldrinks. usiness risk. Instead of selling cooldrinks he should sell hot chocolate. By doing this he could sell hot chocolate on cold days and ice cream on hot days. This is effective diversification. He will now have a business that will be able to generate him an income every day, all year round.

Not earning any income on cold days is a major business risk. Instead of selling cooldrinks he should sell hot chocolate. By doing this he could sell hot chocolate on cold days and ice cream on hot days. This is effective diversification. He will now have a business that will be able to generate him an income every day, all year round.

If only life was this simple. He does not have limitless cash to ensure that he has sufficient stocks of ice-cream and hot chocolate for most extremes of weather conditions. How can he be one step ahead of the game and keep the right balance of stock? If there were an equal number of warm days to cold days it would be easy for him to spend half his money on ice-cream and the other half on hot chocolate. However this is not always easy. Cape Town weather can be unpredictable at best. He needs to do some planning and obtain information on the average number of hot and cold days per year and buy his stocks accordingly. To be smarter he should get these statistics per season, then per month and act accordingly. If six out of ten days are cold, six out of ten rand should be spent on hot chocolate and only four out of ten rand on ice-cream. This will help achieve the right blend of stock he needs to keep.

Even the best stock management system is not going to cater for “scorchers” and “freezers”. On these days he will curse that he had not got more ice-creams or hot chocolate while he is sitting with spare stock of the other product. But in berating himself he remembers that the alternative is just to sell ice-cream or just to sell hot chocolate. By adopting that approach he is going to have days when he could have made more, but also days when he makes absolutely nothing. By blending the two he is getting the best of both worlds although there will be times when he misses out on the jackpot. In the long run he has a better business and will make more money by diversifying effectively, even though at times if he had just stuck to ice-cream or hot chocolate that would have been better for him.

Most of us would have done the same if we were running the business. If this is so self evident why do we not apply this philosophy to our wealth creation strategy? All we need to do is replace hot chocolate and ice-cream with cash and equities.
There are times when you should have had equities on your shelf and there are times when you needed cash. Invariably these times differ and it is exceptionally difficult to determine when those times will be. With “appropriate” research you can do better than just guessing. It makes a great deal more sense however to have a blend between the two. You will miss the peaks but you will also miss the troughs. This balance will reduce your risk and effectively diversify your portfolio for better long-term returns. Remember there will be times that you are not selling ice-creams or not selling hot chocolate. However, you need to have them in stock because we do not know what tomorrow’s weather holds.

Don’t waver in your strategy. It will bring long-term success!

Toe ek sowat tien jaar gelede die beleggingswêreld betree het, het ek ʼn fassinerende gesprek met my ouma gevoer. Sy het my die belangrike les om nie al jou eiers in een mandjie te plaas nie, geleer. Dít het sy verduidelik, is die sleutel tot beleggingswelslae aangesien dit ʼn mens se risiko drasties verminder.
Om die punt toe te lig, het sy verduidelik dat sy haar geld in gelyke mate onder vier banke verdeel het.

Al haar geld was opvraagbaar of in ʼn vastedepositorekening afhangende van die koers deur die onderskeie banke betaalbaar, belê. Dié verspreiding van haar risko was vir my volkome sinvol. Dit was eers ietwat later dat ek tot ʼn besef van haar oordeelsfout gekom het. Die fout was dat sy haar risiko glad nie versprei het nie.

Om u eiers in twee mandjies te plaas, is nie voldoende nie. U moet u eiers in ʼn mandjie en ʼn uitgevoerde kissie plaas. Die mandjie sal meer kan dra, maar die kissie is veiliger. Indien u val wanneer u twee mandjies dra, is die gevare ewe groot. U sal baie veiliger met ʼn uitgevoerde kissie wees, maar sal nie so baie eiers kan dra nie. Dít is ʼn toepasliker verspreiding van risiko.

My ouma moes gediversifiseer het deur nie bloot al haar geld by banke te plaas nie, maar ook van die geld in aandele, eiendom of vastekoerseffekte te belê. Dit sou doelmatige diversifisering aan haar voorsien het. Werklike diversifisering vereis verspreiding van u bates onder beleggings met verskillende eienskappe wat verskillend van mekaar sal reageer. Die grootste uitdaging met betrekking tot diversifisering van ʼn beleggingsportefeulje is om te aanvaar dat u ʼn onderpresterende belegging in u portefeulje sal hê. Indien u nie behoorlik gediversifiseer het nie, stuur u op ʼn ramp af. ʼn Behoorlik gediversifiseerde portefeulje moet ʼn onderpresterende komponent bevat. Waardeer die voordele daarvan.

Beleggingsdiversifisering kan gepas deur die roomysverkoper by die waterkant toegelig word. Op ʼn warm dag staan mense in lang toue om roomys van hom te koop. Om ʼn ekstra inkomste te verdien en om sy risiko te verminder, besluit hy om sy besigheid te diversifiseer en om ook koeldrank te verkoop. Daardeur verhoog hy sy inkomste effens omdat van sy klante sowel ʼn roomys as ʼn koeldrank koop en nie-roomyseters nou sy drankies koop.

Hy is nou tevrede dat hy nog ʼn produktereeks by sy besigheid gevoeg het. Dié bykomende produktereeks sal egter nie sy probleem op ʼn koue dag wanneer mense nòg roomys nòg koeldrank wil koop nie, oplos nie. Om op ʼn koue dag nie ʼn inkomste te verdien nie, is ʼn groot besigheidsrisiko. In plaas van koeldrank te verkoop, behoort hy warm sjokolade te verkoop. Daardeur sou hy op koue dae warm sjokolade en op warm dae roomys kan verkoop. Dit is doelmatige diversifisering. Hy sal nou ʼn besigheid hê wat elke dag, die hele jaar deur, vir hom ʼn inkomste sal inbring.

As die lewe maar net sou eenvoudig was. Hy beskik nie oor onbeperkte kontant nie ten einde te verseker dat hy voldoende voorraad van sowel roomys as warm sjokolade vir die uiterste weersomstandighede het. Hoe kan hy voorbly om die regte voorraadbalans aan te hou? Indien daar dieselfde aantal warm dae as koue dae was, sou dit vir hom maklik wees om die helfte van sy geld op roomys en die ander helfte op warm sjokolade te spandeer. Dit is egter nie altyd maklik nie. Die weer in Kaapstad kan op sy beste onvoorspelbaar wees. Hy moet ʼn bietjie beplanning doen en inligting oor die gemiddelde aantal warm en koue dae per jaar verkry en sy voorraad dienooreenkomstig aankoop. Dit sou nog verstandiger vir hom wees om dié statistieke per seisoen en dan per maand te verkry en dienooreenkomstig op te tree. As ses uit tien dae koud is, behoort ses uit tien rand op warm sjokolade en slegs vier uit tien op roomys gespandeer te word. Dit sal help om die regte ewewig voorraad wat hy moet aanhou, te bereik.

Selfs die beste voorraadbestuurstelsel sal nie vir bloedig warm en vriesende dae voorsiening maak nie. Op sulke dae sal hy vloek dat hy nie meer roomys of warm sjokolade aangekoop het nie terwyl hy met oorskotvoorraad van die ander produk sit. Maar terwyl hy homself uitskel, sal hy onthou dat die alternatief sou wees om slegs roomys of slegs warm sjokolade te verkoop. Deur dié benadering te volg, sou hy dae hê waarop hy meer sou kon verdien, maar ook dae waarop hy absoluut niks sou verdien nie. Deur die twee te meng, trek hy voordeel uit albei moontlikhede ofskoon daar tye sal wees wanneer hy nie die groot slag sal slaan nie. Oor die langtermyn het hy ʼn beter besigheid en sal hy meer geld verdien deur doelmatige diversifisering ofskoon dit by tye vir hom beter sou gewees het indien hy by òf roomys òf warm sjokolade sou gebly het.

Die meerderheid van ons sou dieselfde gedoen het indien ons ʼn besigheid sou bedryf. As dit so voor die hand liggend is, hoekom pas ons nie dié lewensopvatting op ons welvaartskeppingstrategie toe nie? Al wat ons behoort te doen, is om warm sjokolade en roomys met kontant en aandele te vervang. Daar is tye wanneer u aandele op u rak behoort te hê, en daar is tye wanneer u kontant benodig. Dié tye sal sonder uitsondering verskil, en dit is uiters moeilik om te bepaal wanneer die tye sal gebeur. Met “toepaslike” navorsing kan ʼn mens meer doen as om bloot te raai. Dit is egter baie sinvoller om ʼn mengsel van die twee toe te pas. U sal die hoogtes, maar ook die laagtes, misloop. Dié balans sal u risiko verminder en u portefeulje doelmatig vir beter langtermyn opbrengste diversifiseer. Onthou dat daar tye sal wees wanneer u nie roomys of nie warm sjokolade sal verkoop nie. U sal egter voorraad van albei moet aanhou, omdat ons nie weet wat more se weer inhou nie.

Moenie oor u strategie huiwer nie. Dit sal u oor die langtermyn welslae bring!

This newsletter will find you in the midst of great volatility in the investment markets. Over the last five years we have often informed you of great principles to follow when markets take a turn for the worse. Although such times are never easy, it is precisely the time to stick to a proven investment strategy. We chose to appoint acsis as our portfolio advisors during 1999 because we embraced their investment philosophy and the principles they have applied to their portfolios since 1982. The choice to align with acsis has been vindicated, as we now have a track record in South Africa of almost 10 years.

It is during current times of volatility that we need to assess the basic principles of the acsis philosophy as described by the CEO of ipac Australia, Arun Abey, in his book How much is enough.

How do quality, value, diversity and time work?

QUALITY

First and most significantly, there is always a clearly identifiable reason why quality companies make profits and pay dividends and do so consistently. They are not slaves to market fashion. Typical attributes include sound longer-term earning potential, good returns on equity, capable management with a solid track record, a sound balance sheet and reliable core business franchises. They can be household names like Coca-Cola and IBM.

VALUE

The second principle of sensible investing, value, is a function of quality and price. There is a danger that shares in good, quality companies can be bid up to such high prices by optimistic investors that they cease to be good value.

Some of the most dangerous words in investment are, “You can’t go wrong buying…”. Some of the worst disasters have arisen from people paying too much for what are essentially quality assets.

Australian entrepreneur Alan Bond learned this the hard way. In the mid-1980s he bought Australia’s Nine TV Network from media mogul Kerry Packer for a huge sum. Within a few short years he sold it back to Packer for a fraction of the price. The Nine Network was a quality company both when Bond bought it and when he sold it. The difference was that Packer better understood its value.

The key to assessing value and quality is to know whether the asset can produce an attractive return, relative to its risk.

DIVERSITY

Diversification is such an obvious strategy that it is remarkable that so few investors follow it. It simply involves having investments across different asset classes, countries and funds. While many people start investing in a diversified portfolio, what typically happens is that they end up concentrating on those investments that have delivered the best returns. They gradually weed out investments that have suffered a bad 6–12 months. The portfolio is left with a few investments that have delivered high returns. Such behaviour was typical during the tech-bubble period. But when the crunch came, the result was devastating. For investors who retained small holdings in the affected companies and held a range of other investments, the impact was far less. Diversification is important because it provides access to a wide range of investment opportunities rather than focusing on one or two.

TIME

The ultimate test of a successful portfolio comes with time, and it is here that the numbers do tell the story. While the first three of the four principles were not fully rewarded in the late 1990s, they emerged once again with the collapse of the technology stock bubble. Investors who focused on the broader share market still suffered during one of the worst bear markets in history, but the pain was far less severe and the recovery far swifter. We also know that over the longer term, the stock market produced returns of inflation plus 7,5%. If we thus have a properly, scientifically diversified portfolio and our time horizon is more than 7 years we can expect to have the returns that will help us achieve our investment objective. We are proud to say that this is exactly what our strategic relationship with acsis has produced since inception in 1997.

U ontvang hierdie nuusbrief wanneer ons ons in ‘n tydperk van hoë volatiliteit in die beleggingsmarkte bevind. Oor die afgelope vyf jaar het ons u dikwels van gesonde beginsels ingelig wat gevolg moet word wanneer die markte ‘n insinking beleef. Alhoewel sulke tye altyd moeilik is, is dit juis die tyd om by ‘n bewese beleggingstrategie te bly. Ons het in 1999 besluit om acsis as ons portefeuljeadviseurs aan te stel omdat ons hulle beleggingstrategie en die beginsels waarvolgens hulle hul portefeuljes sedert 1982 bestuur het, onderskryf. Die keuse om met acsis saam te werk is reg bewys, aangesien ons nou ‘n baanrekord van bykans 10 jaar in Suid-Afrika het.

Dit is in sulke wisselvallige tye soos die huidige dat ons die basiese beginsels van acsis se filosofie, soos Arun Abey, die HUB van ipac Australië, dit in sy boek “How much is enough?” beskryf het, weereens onder oë moet neem.

Hoe kwaliteit, waarde, diversiteit en tyd werk

KWALITEIT

Die eerste en belangrikste punt is: Daar is altyd ‘n duidelik herkenbare rede waarom kwaliteit maatskappye deurlopend wins maak en dividende betaal. Hulle volg nie die mark slaafs na nie. Tipiese kenmerke sluit ‘n gesonde verdienpotensiaal op die langer termyn, goeie opbrengs op ekwiteit, bekwame bestuur met ‘n goeie baanrekord, ‘n gesonde balansstaat en ‘n betroubare kern van franchiseondernemings in. Hulle kan alombekende name soos Coca-Cola en IBM insluit.

WAARDE

Die tweede beginsel van verstandige belegging, naamlik waarde, is ‘n funksie van kwaliteit en prys. Die gevaar bestaan dat aandele in goeie, kwaliteit maatskappye deur optimistiese beleggers tot sulke hoë pryse opgejaag kan word dat hulle nie meer goeie waarde is nie.

Een van die gevaarlikste gesegdes in die beleggingswêreld is: “Jy kan nooit ‘n fout maak deur … te koop nie”. Sommige van die grootste rampe is daardeur veroorsaak dat mense te veel betaal het vir wat eintlik bates van goeie gehalte is.

Die Australiese ondernemer Alan Bond het dit op die moeilike manier geleer. In die middel van die tagtigerjare het hy die Australiese Nine TV Network by die mediamagnaat Gerry Packer vir ‘n reusebedrag gekoop. Binne net ‘n paar jaar het hy dit aan Packer terugverkoop – teen ‘n breukdeel van die koopprys. Nine Network was ‘n kwaliteit maatskappy toe Bond dit gekoop het, en ook toe hy dit terugverkoop het. Die verskil was bloot dat Packer die maatskappy se waarde beter verstaan het.

Die sleutel tot die bepaling van waarde en kwaliteit is om te weet of die bate ‘n aantreklike opbrengs vergeleke met sy risiko kan lewer.

DIVERSITEIT

Diversifisering is so ‘n ooglopende strategie dat dit vreemd is hoe min beleggers dit volg. Dis eenvoudig ‘n kwessie van die verspreiding van beleggings oor verskillende bateklasse, lande en fondse. Hoewel baie mense met ‘n gediversifiseerde portefeulje begin, konsentreer hulle tipies mettertyd op daardie beleggings wat die beste opbrengste gelewer het. Hulle raak geleidelik ontslae van beleggings wat oor 6 of 12 maande swak gevaar het. Uiteindelik het hulle slegs enkele beleggings wat hoë opbrengste gelewer het in hulle portefeulje oor. Sulke gedrag het in die tyd van die tegnologieborrel algemeen voorgekom. Maar toe die borrel bars was die gevolge verwoestend. Beleggers wat klein aandeelhoudings in die betrokke maatskappye gehad het, het baie minder gehawend daarvan af gekom. Diversifisering is belangrik omdat dit toegang tot ‘n wye reeks beleggingsmoontlikhede bied eerder as om op net een of twee te fokus.

TYD

Die uiteindelike toets vir ‘n geslaagde portefeulje is tyd, en dis waar die syfers die deurslag gee. Hoewel die eerste drie van die vier beginsels nie in die laat negentigerjare ten volle beloon is nie, het hulle na die ineenstorting van die tegnologieaandeleborrel weereens na vore gekom. Beleggers wat op die breër aandelemark gefokus het, het wel onder een van die kwaaiste daalmarkte in die geskiedenis deurgeloop, maar hulle skade was baie minder ernstig en die herstel baie vinniger. Ons weet ook dat die aandelemark op die langer termyn opbrengste van inflasie plus 7,5% opgelewer het. As ons dus ‘n behoorlik en wetenskaplik gediversifiseerde portefeulje het en ‘n tydshorison van meer as sewe jaar, dan kan ons opbrengste verwag wat ons sal help om ons beleggingsdoelwit te bereik.
Ons kan met trots bevestig dat dit presies is wat ons strategiese verhouding met acsis vanaf die begin in 1999 gelewer het.

Het u geweet?

Wanneer u aftree-annuïteit uitkeer is u nie verplig om u maandelikse pensioen van u bestaande versekeraar te koop nie. Baie min mense besef dat hulle kan kies om die maandelikse pensioen by enige versekerings- of beleggingsmaatskappy van hulle keuse te koop. Hulle hoef ook nie ‘n tradisionele pensioen te koop nie, een wat by dood na tien jaar verval; hulle kan kies om ‘m lewende annuïteit te koop waar by dood die totale waarde van die fonds na hulle gade oorgedra word en hy/sy steeds presies dieselfde inkomste sal ontvang as wat die oorlede gade ontvang het.