The asymmetrical nature of investing is a huge boom to investors. A share we own can go to zero with a 100% loss, but the flip side is that it can up go up multiples of 100%. So even the occasional loser doesn't derail a diverse quality investment portfolio.
The two key points, diverse and quality. If you have only one stock you're at massive risk and if you have a basket of dogs then you're still in serious trouble.
But a collection of quality stocks can survive the occasional blow out as they others run and we only needs a few real winners to make it all work and market beating.
Now in an ideal world we'll never see a 100% blow out because when it's time to panic we'll panic quick, right?
A last word on the asymmetry of trading (as apposed to investing). We have no real floor on loses as we also have no real floor on gains. So it is not asymmetrical and so we have to make it so by being ruthless with stop losses. I have long said my trading success is due to my always taking the stop immediately no questions asked.
JSE – The JSE is a registered trademark of the JSE Limited.
JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.
Our signature yearend JSE Power Hour presented by Just One Lap founder, Simon Brown.
Simon looks at what he predicted last year before embarking on his 2018 predictions that include;
Twitter poll for tonight's JSE Power Hour presentation ~ What's your expectation for the Top40 in 2018?
Time for my annual poll ..
What's your expectation for the Top40 in 2018 ?#JSE
— Simon Brown (@SimonPB) December 4, 2017
Markus Jooste has also quit Stenihoff (JSE code: SNH), Star (JSE code: SRR), PSG (JSE code: PSG) and Phumelela Gaming (JSE code: PHM) boards.
Steinhoff CFO and Star CEO Ben la Grange has quit as CEO of Star, but seemingly stays on at Steinhoff, for now.
It's an oldie but it always true. Where there's smoke theirs fire and locally that is Steinhoff. Forever people have been in one of two camps on this stock. They either loved it or didn't understand the financials and stayed well away. I have always been in the latter camp and recently the warnings have gotten dire and now the CEO is out, results delayed and an investigation by PwC to try and understand exactly what's happen.
Now hindsight is easy, but there has been a lot of smoke around Steinhoff for ages, enough to scare away any investor one would think. I warned as recently as a month ago about this.
For traders the lesson is simple. Don't try and catch falling knives. Sure sometimes it works but when it doesn't you blow up.
Wiese took some R122million SSF exposure in early November at 6146c. This is why we largely ignore director buying.
The company did a share buy back also in early November for about R4,8billion, now worth R1.2billion.
Also a lot of hating on ETFs as Steinhoff was 2.35% of the Swix (which is a truly horrid index) and 1.88% of the Top40. Frankly active fun damagers who liked the company probably had a lot more.
The 7th largest stock in the South African SWIX index is currently down 61% amidst accounting irregularities and resignation of the CEO. pic.twitter.com/NEqwrsBGwo
— Delphine Govender (@Delphine_DG) December 6, 2017
Of course everybody now wants to know if it is time to buy? The answer is no because we simple know nothing except that what we thought we knew is not true. Never blindly buy something where everything is simple unknown. Some saying they have 2500c odd value in Star, PSG & Kap, but then they also have debt that is likely about the same.
Lastly, what to do if you hold Steinhoff? Sell. The 'it can't get worse' trope is a lie. It can get worse, it can go to zero.