Category Archives: Blog

A tale of two outlooks: Where to find value in the Market

It’s the best of times, it’s the worst of times, as Dickens might have said. At every conference and around every braai, South Africans are being told that everything’s going to the dogs.

Meanwhile, the same South Africans are relentlessly being told by the investment space that now is a great time, because opportunity is rife when most people are scared.

It can feel a bit like being the flag in a tug-of-war game. So, we’ve pulled together a few thoughts to help keep your sanity intact in this most, well, interesting of times.

Outlook 1 – Value isn’t a place, it’s a period

First, the good news – investors of the Warren Buffett philosophy of ‘sell when people are smiling, buy whenever everyone’s terrified’ have plenty to sink their teeth into. As Allan Gray noted recently, household name stocks like Apple and Netflix are currently overpriced, while just about everything else is really cheap to buy.

There is ample evidence to show that buying undervalued stocks at an uncertain time and holding on to them for a long time works. The current market or devaluation of certain stocks now really doesn’t matter very much.

In wealth creation, plenty of studies show that it’s not about who is currently winning the game but rather how long you’re in the game for.

Allan Gray’s Orbis Global Equity Fund, for example, has outperformed by an average of 4 percent, year on year for 29 years. However, this is an average – the fund underperformed several times in that period, sometimes by more than 10 percent. Yet those who’ve hung on since 1990 will find their stock worth triple its value when compared to investing in the benchmark for the same duration. This shows the shortfalls of following trends and changing allegiance too often in the investing game. In other words; it can be the best of times when markets seem like the worst they’ve ever been.

Outlook 2 – Investment growth tends to be non-linear

This outlook is in direct contradiction to anything you’re likely to hear around a braai. ‘My investment was worth X in January, it’s worth this much less now,’ most people fume. Or, they’ll ask for a fund’s performance figures in the past twelve months.

Most seem to think of it as a game of chess – you move forward one step or backwards one step, depending on the strength of the pieces in your arsenal, and whoever’s moving forward most is winning. This is like saying Autumn ‘wins’ over Summer come February – it fails to take into account the cyclical nature of markets and investing.

In this way, it’s safe to say that the investment game is frustrating and frightening if you don’t know the steps. Rather than chess, investment is more of a Foxtrot, and almost always works in a ‘two steps forward, two steps back, one more step backwards, one lateral shift no one quite understands and then four forwards’ pattern. It’s advancement, but not linear advancement. Look at nature. Where do you ever see organic growth being linear?

See for yourself which outlook works, but remember to always take full advantage of whatever ‘times’ you find yourself in.

(Source: www.allangray.co.za)

Trust issues – four things to check in your trust deed

Trusts as vehicles of wealth preservation have had some important regulatory changes over the past few years as authorities have attempted to shift them away from tax evasion and more towards a true, family-minded way to pass on assets.

Yet despite significant changes, most people only ever read a trust deed once in their life, and not even very thoroughly that one time.

Are all beneficiaries are protected?

It might sound like something from a bad family movie, but ensure the title deed explicitly states that trustees may not vote out important beneficiaries to disinherit them, for example your children or spouse. While you’re at it, make sure beneficiaries aren’t vaguely referred to as ‘Susan’ or something similar. Instead, give their full names and ID numbers.

What happens if widespread misfortune strikes?

Most people will write a trust deed, name their significant other and any children, then leave it at that. But what they don’t understand is that if there are no beneficiaries left of that trust deed, the funds automatically go to the state. It might be a horrible thought to ponder, but in the unlikely event of your and your direct beneficiaries all passing away at the same time, for example in an accident, you should name other next-in-line beneficiaries like, say, your parents, siblings or nieces and nephews.

Does it line up with your Will?

You don’t want your nearest and dearest facing legal battles in some hard times, so ensure that your Will explicitly supports your trust deed’s contents. In terms of if misfortune strikes and there may be some confusion in your Will as to beneficiaries, ensure that your Will states that other assets and amounts are to be placed in the trust.

Are properties of the Trust clearly nominated?

‘The yellow house’ or ‘our parents’ place’ is not good wording for property in a trust deed. South Africa’s The Trust Property Control Act requires a maintained asset register for the trust which includes location, value and the description of each asset. As most people’s most valuable asset is likely to be property, make sure this is very clearly stated with documents proving ownership.

Be clear, giving exact address and as much info as you can. Also, if you have more than one property or more than one trustee (which you should) be clear about which properties are held by which trustees.

Your starter guide to alternative investments

In the wake of very lacklustre JSE performance and plenty of uncertainty, many investors have started considering thinking… alternatively.

In a nutshell

Alternative investments are different to the standard stock market approach; investing in assets outside the usual asset classes or in companies outside of the JSE-listed crowd.

But can you invest alternatively? The first thing to note is that, like anything bespoke, alternative investing is far more expensive and less easily accessible than good ol’ equities. However, if you have significantly more cash than the average Joe and the financial know-how these alternatives can easily outperform the normal market.

Assuming you can, should you? Here, we break down some of the main and most popular alternative investment options:

Hedge funds

Hedge funds are by far the most common and easily accessible of the alternative investing options. Due to this, they enjoy better regulation and options than other alternative asset classes. They are smaller, boutique funds often operating with much higher fees than traditional equities investing. But hedge funds routinely beat equities in the returns stakes, although not as handily of late.

The phrase ‘hedging your bets’ explains what hedge funds do well – hedge funds have a unique ability to ‘hedge’ themselves so that the investors behind the hedge fund manager can do well whether a stock appreciates or depreciates.

Hedge funds are essentially an exclusive pool of investors aggressively investing in a variety of opportunities not often available to the mainstream market. This can suit investors who have money to spare (the minimum investment requirement for most funds is high – sometimes R1 million just to get in the door) and want a long-term investment vehicle that’s safer than the stock market that offers similar or higher returns.

Venture capital and private equity

Usually only available to private equity of venture capital funds themselves, this is long-term investment in promising businesses near the beginning of their lifespan, with a view to share in their success later down the road when the company is turning a profit.

Venture capital investing, specifically ‘seed round’ investing during which the company invested in is very young, is typically a long relationship with the funder in an advisory role to the business and an aid in growth.

Private equity, although often grouped with and sometimes mistaken for venture capital, is different. Private equity often buys out these companies wholly or in part and so is the primary decision-maker, rather than the advisor.

This is attractive because private equity traditionally outperforms equity. Options here are limited to those with a private equity fund registered with SAVCA.

Socio-economic investments

Even more rewarding than the idea of private equity can be socio-economic investing – which is putting in finance and sharing in the returns later, not in a company, but in the country. So-called ‘impact investing’, these investment alternatives address issues in society like infrastructure, education for lower classes, renewable energy innovation and the creation of low-cost houses, to name a few examples. Few funds offer such options as it’s still a relatively new concept for SA, but it’s a great vehicle for those who can access it and are looking to improve and contribute meaningfully to the world while making returns on their money at the same time.

It’s important to remember that alternative investing is generally more difficult, exclusive, expensive and time-consuming than the well-oiled default of listed stock market options or old-favourite vehicles like unit trusts. They’re also newer here in south Africa, with less variety and regulation for now because there is simply less demand. But if you’re something of a pioneer and you want something very long-term, it may be worth a try. Just be sure to talk to your financial advisor and consult your personal financial plan before making any sudden movements.

Mindfulness matters: how about a quarterly review?

Earlier in the year we spoke on the importance of mindfulness in our busy, digital world. Unfortunately, many of us have grand intentions at the beginning of the year, eating healthily and meditating and generally trying to get the year off to a good start, but after a few weeks that dedication peters out.

Businesses (and some individuals) like to run quarterly reviews on performance, such as how your investments performed in the first quarter. Why not do a quick lifestyle audit as well? How mindful are your various choices and can you regain the passion you had for these goals when the year began?

The benefit of quarterly mindfulness checks

The traditional New Year’s resolution actually puts a lot of pressure on oneself – the unreasonable expectation for someone to drum up enough passion, willpower and enthusiastic discipline in the beginning of a year that must last them 12 months. How many of us would consider operating companies that way? Or expect our financial advisor to know exactly how to help us all year through various changes after only one short chat in January? Far more reasonable is the idea of making the decision to effect small changes day by day, in the moment, and to schedule a loose quarterly check-in.

If you think quarterly mindfulness check-in’s are a good idea but don’t know where to start, or perhaps even what mindfulness really looks like, here are some questions to start you off:

Question 1: Do I spend my time and thoughts on what really matters to me?

Mindfulness posits that both the past and the future don’t exist and all you have is now. So, in the now, what kind of life are you living?

Many of us sweat the small stuff by fixating on things which aren’t our true priority, like stressing over our golf handicap or our waist size when what we truly care about is being a good parent, for example.

Stephen Covey in his classic The Seven Habits of Highly Effective People puts it this way: ‘imagine your funeral in detail. Your wife, children or family, work colleagues and a group you belonged to are all going to say a few words on what you achieved in your life as an individual, a family member, a worker and as a member of society. What would you want them to say? Are you living that?’

Many of us aren’t. For your lifestyle audit, jot down in a notebook what you think on and how much time you spend with your family vs work, on Facebook vs reading a book, outside versus inside etc. Are your thought and time investments reflecting what is truly valuable and meanginful to you? What could you do differently in this next quarter?

Question 2: Am I spending my money on what really matters?

Similarly, how are your funds being spent? Many of us spend significant funds on mindlessness which has a numbing effect, like too much junk food, retail therapy and empty entertainment. Mindfulness is about looking at what you really love and spending money on that – like on a family vacation or yoga lessons. It’s also about investing in things which will increase your mindfulness and mental ability, like books you can learn from or a stimulating new hobby. Spend less money and time on mindlessness and more on the opposite, and you’ll naturally find yourself feeling more energised, present and awake.

Question 3: Am I investing in myself as an asset?

Time and money are important resources, but they mean nothing without the capacity to use them wisely. How well are you feeding your body? How well are you feeding your mind? Are you getting the medical recommended amount of sleep and exercise for a healthy life? In short, are you adequately maintaining the asset that is you?

Almost all of us can improve in some way in this arena and are often set off course by the distractions that life presents. Set yourself some goals to carry out in the next quarter. These are most effective when small and simple, like unplugging from all screens and electronic devices 30 minutes before bed or like spending 5 minutes a day sitting outside enjoying nature when you have your tea.

Pick a couple and go for it.

Happy mindfulness!

The true cost of load shedding

Load shedding has cost all of us over the past few weeks, but do you know exactly how much?

Neither did we, until we did a little digging.

Cost to the economy at large

According to Chris Yelland, load shedding costs SA approximately R1 billion per stage, per day. Those Stage Four blackouts… they cost about R4 billion for each 24 hour period. That’s more than the national police service receives every year from government.

Investec’s Annabel Bishop says it’s even more dire than that – she estimates that it could have cost the country R2.4 trillion by the end of 2019’s first quarter, which is half of SA’s GDP, according to The South African.

Cost to business

Load shedding this year has been nothing short of brutal for business owners, with many struggling or even failing to keep their doors open in the tidal wave of load shedding-related costs and losses.

Among the chief things plaguing businesses are cost of business interruption, operating hours and the profit with them being lost, perishable stock damaged or expired and damage to electrical outputs when power surges and dips occur. Another newer trend is the rise of ‘load shedding burglaries’, in which criminals watch the schedule and hit workplaces during hours when security measures like electric fences are likely to be offline.

This obviously creates a negative feedback loop for both economy and enterprise. The less South Africa produces across various sectors, the less money is made and the more the rand weakens. The more the rand weakens, the harder it is to turn a profit as a local business and enough local business closing affects the rand further.

The hardest hit are undoubtedly the SMEs. The last time load shedding rolled around, SMEs voted load shedding the number one risk to small businesses in the 2015 SME survey. We can see why – numerous businesses have had to close down or scale back on operations due to loadshedding. They are the least likely to have generators and adequate insurance cover and the most dependent on the customers and vital profits likely to leave when the lights go out.

Cost to you as an individual

Because it affects the rand, long term savings vehicles like your investment portfolio or retirement fund is also almost definitely affected by load shedding – and for those very near retirement that can be a bitter pill to swallow indeed.
Food and steel-related products may also become more expensive, as manufacturers and farmers are feeling the pinch just like every other industry and may be forced t ratchet their prices up accordingly.

Large companies facing crippling increases in the cost of doing business may also roll out mass retrenchment if load shedding is not put to rights.

Remember, despite any short-term problems in the market like load shedding and its effects, it is still not wise to make financial decisions which may affect your portfolio based on impulse and emotion and without the advice of a trained financial advisor.

… Okay, but what are your parents’ retirement plans?

We often think about our own retirement plans, but these are actually not the ones most likely to hit you first. More urgent is the concept of knowing your parents’ retirement plans.

This is especially important if your parents are nearing the 65 years-old benchmark, but actually it’s vital to know at any time. Why? Because most of us, and especially the older generation, do not talk about money openly. So while you are living your life, there could be plans – or the lack of plans – that are going to majorly hit your finances once your folks retire.

The best thing to do is sit down and ask them plainly, getting as specific as possible. It can be an uncomfortable conversation to have, but forewarned is forearmed. Here are a couple of the most important questions:

When are you planning on retiring? Are you planning anything specific for then?
If your parents are planning to retire in just a few years or are in an industry with forced retirement and they don’t have enough savings… guess who’s going to fund that retirement? Best you know now.

Am I in your plans? Or am I the plan?
This is essentially the most crucial question. You need to know as soon as possible if you will need to take care of your parents. Until you have this conversation, you may have no idea that you’d subconsciously assumed your parents would give you their nest egg savings someday while they assumed they’d invest it on travel once they retired. That’s why these talks are so important.

Are there any debts?
This includes a home loan, medical bills, any existing student loans for you or your siblings that your parents took on and smaller things like cellphone contracts and clothing store accounts. Find out exactly what they owe and if they have the means to pay it back. This can also help you determine whether or not their ideas of retirement and if they have the funds are realistic. Again, try to seem helpful rather than probing as this is often a tough conversation for many parents.

Is there insurance and an updated Will?
Insurance gets a bad rap, but can be a huge relief if you know that your parents have adequate cover in place for the unforeseen ills of getting older, like sudden medical expenses, disability cover and even life insurance should they pass away. Check that both parents have adequate cover for all eventualities and, if they don’t, get them on it as soon as possible. Any retirement savings that are in place will get used to finance a crisis if there is no cover in place.

Also, unpleasant as it is to think about, if your parents are getting older you need to ensure that they each have a Last Will and Testament with up-to-date contents. It’s the only way for them to legally ensure their last wishes are complied with.

Do you understand that I’m asking these things because I care about you?
You’re probably thinking ‘this is a terrible idea’ at this point. Again, this conversation is uncomfortable for everyone 90 percent of the time. It’s natural for people to no want to talk about a time they’d be unable to feed themselves, and similarly you don’t want to feel cold-hearted. Just try broaching the subject lovingly and take it slow. It doesn’t need to all happen at once. It just needs to happen.

Can finances be a family affair?

Throughout the year there are clusters of holidays and long weekends when family comes to the fore. These moments are often an opportunity to step out of the frenetic hamster wheel of life, we now have long weekends and, for some, religious holidays to spend with those nearest and dearest to us. Which got us thinking – how much does your inner circle feature in your finances?

We often think of finances as a solitary thing, something for you to sort out alone – sometimes paying bills, sometimes lying awake worrying at 3am. You may nod your head thinking, ‘well that’s the way it has to be.’ But think about this: that is exactly what your parents, friends and family and sometimes even your spouse and children are going through, too. Do you want your sister lying awake worrying about her budget, all alone? Would she want that for you?

What if it didn’t have to be that way? Finances needn’t be a taboo subject and can be something the family can discuss all together. Share these conversations with those closest to you; your partner, your kids, your siblings, your parents, your grandparents and your grandchildren. Learn from their insight and teach them from yours. Then watch and see if you don’t all feel much closer by the end of the conversation.

Here’s one great place to start: at your next close family gathering, or long weekend, ask everyone to share a goal or a dream that they have. Then discuss how you can work together as a family to help that happen.

Not only could this be very useful for you in terms of financially planning for the future (like knowing your parents-in-law want to retire next year or your son has his eye on an expensive university) but it can also help ease the tension everyone typically feels about money all the time. The more you communicate and relate, the more you can dispel myths and fears about your future, your finances and the life you plan to live. You can plan for them, together, without the angst or the isolation that comes with how most people do it.

Even better, you can perhaps prioritise making someone else’s dream come true.

You see, love looks like something, and if you are able to splash out on horse-riding lessons for your child, it will send a powerful message that her dreams are important to you. So go on, try being someone else’s dream come true.

On the road: the best road trips for the long weekend season

It’s that time of year coming up again when the public holidays flow thick and fast for South Africa. With a country as beautiful as ours, the ideal solution could be a road trip.

Here are some of the best to get you out of the city and on the road.

Got three days? Enjoy the Garden Route
It’s an oldie but a goodie for a reason, especially if you stay on the coast. Even if you’ve done the Garden Route many times, there’s always a new wine farm to check out and side roads to take. Add horseback riding into the mix for some extra adventure.

Got four days? Hit the Midlands Meander
Durban is a holiday favourite but just a little too far away, for some, for a long weekend trip. The Natal Midlands, however, are a whole two hours closer to Johannesburg and boast some of the most extravagantly verdant greenery in the country. There are countless antique stores, cafes and curio shops to stop in and the prices are far lower than in Cape Town or Joburg.

Got nine days? Try Namibia
If you’ve never done a road trip to Namibia, you can’t possibly imagine how strikingly lovely the scenery is, how meditative the open, uncongested road and how friendly the people are once you get there. If you can fit in the extra drive, check out the Skeleton Coast – it’s on international tourists’ bucket lists for a reason.

Got ten days? Head to Botswana
In between the lush Okavango Delta and some of the best game reserves on the continent, Botswana is the ultimate road trip for a South African nature lover. Lush green bush, mighty rivers, striking sandy plains… Botswana has got it all. You’re unlikely to find cities as clean, unpretentious and well-run as Gaborone either.

There you have it, some of the best road trips to get your spirit of adventure without the exorbitant price of air tickets.

Teach your children well

It’s an overwhelming feeling most of us recall vividly – that first job, the first month of rent to pay and the exhilarating yet terrifying knowledge that we have to keep ourselves alive for the rest of the month for the very first time.

For those with children in school, a new experience awaits: watching your own child navigate those same hurdles. And yet, it doesn’t have to be a gauntlet for them like it was for us. In a few simple steps, you can set your child up to leave the nest more confident and wise than your own former self.

The younger they start, the better
You may feel that you want your children to grow up unencumbered by the stress of money. In fact, many parents who grew up in relatively poor circumstances want to lavish finances on their children to the point where they don’t even think about money…

Until they leave the house, that is.

It’s important to understand that the later a person starts to think about managing their own money, the scarier it is. Teaching your children the importance of rands and cents as early as possible is not only better for you, but significantly less stressful for them. As soon as your children are old enough to understand the value of money and the arithmetic behind counting coins, teach them how to draft a budget. Make it as fun as possible and empower them young with their pocket money.

… but don’t make it all about spending
Many savvy parents teach their children about money from a young age – but almost always with a mind to spending.

‘You can save up your R50 now instead of spending it on sweets today so that you can afford that game you want in two months’ time.’

While this does teach kids the vital importance of budgeting to an extent, it also tacitly enforces a zero-savings mindset. From as young as possible, teach kids that they should never spend all of their money and always have something in savings. For example, tell them that, if they save R5 in their piggy bank each month, you will give them R50 at the end of six months. If they leave that R50 where it is, they can get R100 at the end of the year. This alone will set your children up to succeed where many South Africans fail – having the benefit of compound interest from early on. Also offer your advice to help them pick out their first savings account and retirement or living annuity when they leave home.

Rainy day smarts
Also, emphasise the wisdom of having emergency savings separate to general savings. The benefits of a short-term safety net are numerous and ensure that, should something happen to you or to the economy, your child will able to weather the storm. This tip is often the hardest for parents to take because an important part of this with older children is letting them bump their heads a few times.

If they haven’t got emergency savings or insurance and they’re in a bumper bashing, for example, don’t just rush in to save the day. Ask them about what steps they had taken to safeguard against misfortune and let them see that it’s up to them and no one else to ensure that they thrive financially without getting crippled by twists of fate.

And remember: the better you teach your children financially now, the better they’ll be able to look after themselves – and you – later.

What Comrades runners can teach you about how to lead at work

In our modern world of convenience, there is something about marathons. People choosing the hard road, putting their physical and mental endurance to the test, is increasingly rare. With the Comrades season coming up soon, a few surprising parallels emerge for leaders. Read on to see what you can learn about excelling at your business from experienced marathon runners.

There’s no such thing as a quick win
Perhaps you could put it down to our easy 21st-century existence, but we all want success yesterday, not ten years from now. But for those of us who aren’t Bruce Fordyce, slow and steady really does win the race, in leadership and in life.

Many leaders want to impress shareholders, loved-ones and clients by being a rapidly rising star and getting enormous successes right out the gate. Unfortunately, those who pursue this usually neglect family, run roughshod over colleagues or staff who don’t want to work fifteen-hour days and even sacrifice their own health and sanity to achieve a hollow prize.

Marathon runners know that any true victory is made in the long haul over months and years of training without any recognition. Good leaders know it too.

Fortune favours the well-prepared
It seems counter-intuitive, but many otherwise rational leaders start a new project or a new business without ever really planning for the possibility that it might fail. It seems like negative, counterproductive thinking, right?

But ultramarathon runners have been doing this for years with one simple tool: visualisation. An experienced runner will not only physically prepare for an arduous race, but mentally will imagine in detail the exact moment when it seems their legs are about to give way or they think of quitting.

They then prepare a strategy of exactly how they’re going to keep themselves going. It’s a great lesson for business leaders too. Don’t just imagine the day when the champagne and bouquets are passed around, imagine the 4am worries and the crippling doubts and get a strategy to deal with it before it happens.

Uncommon leadership advice: be here
Forward thinking can only rake you so far, and many marathon runners will tell you that it’s not always the best idea. Think about it – you’re on the starting line, the gun goes… and you envision the hours and hours of hell ahead of you. It’s enough to make anyone turn around and go home.

Instead, Comrades runners need to learn to plan for the worst but, once they’re in the race, just focus on putting one foot in front of the other. How do you climb a mountain? One step at a time. Same with marathons, same with leadership.

Another benefit of being present as a leader is being more engaged with your team. It’s tough for someone thinking of 11 months’ time to ask themselves how their staff are doing right now and what they need to put in their best performance. Be present, but also think about others’ present states. A happy team is a productive one, after all.

Have a great week and remember – life is about the journey and not the destination. Focus on running well, leading well, and you’ll be just fine.