Friday 21 August 2015

Bottoms Up



"It would have served me better to sit on the cash for 4 years, earn interest and then when the market halved in value I could have bought it then and I would have tripled my money today instead of just doubling it. That sounds great in theory except that you have no idea when the next crisis will happen. Also how do you know where the low is?"




To market to market to buy a fat pig. Markets are making headlines for the wrong reasons at the moment. At the close of our market yesterday, we are officially down for the year. Our market was not alone though, the S&P 500 closed down 2.11% to also be in the red for the year and the Dow Jones Industrial Average closed at its lowest value for the year. Why is it that we always look at returns in terms of years? Is it a problem that the market (S&P 500) is down for this year but is up 90% over the last 5 years, if you were lucky and bought in March 2009 right when people felt the world was definitely ending, you would be up 200%.

What do you think the 10 year return has been considering the last two numbers given? If you bought an index tracker 10 years ago and then forgot about it you would be up 67% today. What! That works out to a whopping 5.4% return every year (there we go with the annual returns again). Most investors expect to double their money every 5 - 7 years if they put their money in the market. It is clear from the above numbers that when you invested makes a big difference to your long term performance.

Do we then just sit on cash and wait for the next, 'once in a generation' market pull back? No because what we are not including in the previous number is the impact that dividends make. Buying the index 10 years ago would result in you being up 109% today if we include dividends.

I am sure at least one person has had the following thought. Doubling your money in 10 years is not bad but not great. It would have served me better to sit on the cash for 4 years, earn interest and then when the market halved in value I could have bought it then and I would have tripled my money today instead of just doubling it. That sounds great in theory except that you have no idea when the next crisis will happen. Also how do you know where the low is? What will probably happen is that you will sit on the cash well past the bottom, regret that you missed the bottom and then continue to sit on cash for the next decade. Only buying at bottoms is a great investment strategy if we knew where the bottom is and if you were able to pull the trigger at the height of fear. What is the best way to buy at the bottom then? It is by adding regularly to your investments, that way some of your investments will be near or at the bottom. Also you are less concerned by the short term moves of the market, you are thinking long term, 20 - 30 years out where the effects of compounding really start to show. Think long term!

What is the current reason for all the selling in the markets at the moment? It would seem to be growth concerns from emerging markets, lead by China. The latest manufacturing numbers out of China showed the industry shrunk by more than people expected. So people have been concerned about the growth prospects for emerging markets, resulting in them selling assets situated in those regions and taking money out of them. The result is a weakening of EM currencies and a strengthening of the Dollar, in particular. A weak currency means that EM countries are suddenly more competitive globally because their products are now cheaper and imports are more expensive. Which going forward may boost EM growth levels again.




Company corner

We had numbers from Grindrod this morning, Announcement For The Six Months Ended 30 June 2015. Headline Earnings were up 2% but due to there being extra shares in issue the HEPS are down 16%. Revenues were also down 16% though. The lower oil price helped the liquid shipping division but lower commodity prices hurt the port and rail sides of the business.




Truworths released their Preliminary Report On The Audited Group Annual Results For The 52 Weeks Ended 28 June 2015. Comparable sales were up 1.3%, merchandise sales were up 8% and HEPS were up 3%. The market liked what it saw with the stock jumping 10%. Out of the retailers they are most exposed to interest rates going up given that 70% of sales are on credit. Having said that, over the last year their net bad debt to credit sales improved from 8% to 7.9%.




Yesterday we saw the Rand break the R/$ 13.00 level for the first time since 2008 and it is one of the main reasons that the Sasol share price has been fairly stable in the face of a dropping oil price. Brent crude is currently sitting at $46.33 a barrel and seems like it could go further down due to inventory levels being at record highs. If the Rand recovers from these levels it could get very ugly for the Sasol share price over the short run. Here is what the Demand and Supply situation looks like at the moment, courtesy of WSJ:






Linkfest, lap it up

As organisations ascribe more and more value to their employees and as employees want more work and life balance, we are seeing traditional working hours getting shaken up - Uniqlo says it will test out a four-day work week

Deez Nuts highlights the problem with stats in general, people lie! When being polled, people don't want to look stupid or they give you the answer that they think you want to hear. It probably also points to a problem with the current political system, where people vote for a party just because they always do. It doesn't matter what the persons credentials are - The success of Deez Nuts shows why you shouldn't trust US election polls

I wonder if you will get a sensation of flying while floating in the water looking down? I'm sure that there are many people who would not trust swimming in a pool with a glass bottom - A suspended, all-glass "sky pool" is coming to London-and it looks awesome.

A reminder that my reality is not your reality. Depending where you work and where you stay, your view of what the world looks like is very different. In South Africa we have a dual economy so my reality is definitely not the same as someone who works in the mines and lives in the rural areas of the platinum belt - Your view of the economy is coloured by where you live




Home again, home again, jiggety-jog. The downward direction set last week has continued today, the Top 40 is now down over 10% from its highs. The only sector that is absolutely flying at the moment is the Gold miners, up another 5.8% today. They are still down 8% for the year, so they will need another two days like this to break even.




Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

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