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JSE Direct with Simon Brown

Weekly podcast hosted by Simon Brown covering the JSE and listed companies.
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Now displaying: 2018
Jun 7, 2018

123


Simon Shares

  • Wildest story of the year. Imbalie (JSE code: ILE) is ditching beauty to become a miner via a reverse listing!
    Local GDP for Q1 2018 was a shocker at -2.2%. Expected was -0.5% and the number is usually shifted higher over time, but wowzer.
  • That all said, this was mostly driven by agriculture and frankly turning a country around is a slow process.
  • Delta Properties (JSE code: DLT) has me perplexed. On a dividend yield of around 15% and trading at around 30% discount to net asset value (NAV) it seems a screaming buy - but that assumes the market is wrong and I never want to be the one telling the market that. They mostly have government as a tenant and a lot of their leases are on a month-to-month basis. But government isn't going to suddenly move out but they may put pressure on rent increases. The company says there is a process recently put in place by government to start signing leases and this should reduce the month-to-month leases and lower lending costs. Am I missing a trick or is the market, as always, right?
  • Anthony Clark was at the Curro (JSE code: COH) annual general meeting (AGM) and tweeted that the company said with utilisation of 90% from the current +/-53% HEPS would be around 201c. So we have a marker for future earnings albeit no time line. That said even at 201c HEPS and a current price of 3000c that would put the stock on a PE of around 15x which to my mind is a fair valuation.

 

Stale bulls

In a recent Fat Wallet podcast Kristia commented again how her investments have done pretty much nothing over the last few years.

Now there is only one reason we buy any share, ETF or even derivative - too make money. But what happens if we don't make money or worse the price falls and we're losing money.

Now it depends in part what we bought. A derivative trader will stop out and indidiual share buyer may hold as they consider it quality and in time it will start moving while an ETF should in theory not worry about the short term and just continue holding. That's the theory.

But we get a phenomenon called stake bulls, especially with individual shares.

Lets take Aspen (JSE code: APN) as an example. It hit a price of almost R450 in January 2015 after trading at R100 for the first time just three years earlier and 1000c was hit for the first time in 2003. If you missed the initial run from 2003 you'd have felt aggrieved at missing out and you may have jumped in at R100. But many would have said no they'll wait for the pull back, a pull back that never really happened. Then after a price of almost R450 there is a serious pull back to almost R250 and many jumped in during that pull back. That was followed by another rally but only to R350 and now we're back at R250.

So having watched Aspen be one of the best stocks on the JSE you're now holding it and your price is under water. You're not happy and frankly you want shot of the share - but ideally at as small a loss as possible - you're a stale bull.

So now every time it rallies the stale bulls are ready to sell essentially capping the price.
We see this with a number of local shares and to a lesser degree with ETFs (lesser here as we're too small to really influence an entire index).

So what do we do?

  • Firstly, recognise yourself as a stale bull if you are one, set your exit price and act accordingly. The new bulls are not your problem.
  • Secondly, understand that if you are a new bull to a stock there may well be a lot of stake bulls lurking and this will make the rise higher a slow drawn out affair. That's fine, investing is about the long-term and if you hold quality it will in time preform.
  • If you're trading the share understand the going may be slow and sticky as stale bulls keep exiting.
  • Lastly if you're holding ETFs don't stress it. Sure over the last 3-5 years money in the bank has potentially beaten your ETF return. But again this is a long-term game and given time you'll make handsome profits.

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.

May 30, 2018

How to choose a stock broker

First off understand the difference between a stock broker and an FSP. The former is an exchange member and gets protection and regulations from the exchange. An FSP is regulated by the FSCA (formerly the FSB) interview with Charles Savage on how this works

It is very important that they are registered with a regulatory body. Even an offshore regulatory body is fine, but only if it is in a country in which you trust the laws. Avoid fly-by-nights registered in some second rate dodge country.

Also understand potential fees.

  • Brokerage. What you pay when you transact, also check if there is a minimum brokerage rate.
  • Admin fee charged monthly, quarterly or annually. Some brokers will waive this fee if certain number or value of trades is meet.
  • Live prices / charts. Some brokers give limited live prices and above that you'll pay.
  • Charting package. Many will have a 'lite' version included in admin fee with more advanced at additional cost.

Then what services do you want from your broker (using broker as generic term)?

  • No or very few frills. Just buying and selling functionality. No; stop loss facility, live prices, data, detailed research etc. Should be cheapest.
  • Frills for which you will incur higher fees (transaction and admin). Here's you'll likely get limited live prices, limit and @market orders, online charting, event invites, research and share data. This is the space most online brokers sit and the range of fees is wide so shop around.
  • Trading broker. Offering derivatives (CFD, futures & FX), live charts (at an extra fee). These are often stand along brokers but in some cases coupled with traditional online brokers.
  • Full service. This will include 'help' from the broker as to what you're buying selling. Here they'll usually want a large portfolio to make it worth their time.
  • Managed portfolio which the broker manages your portfolio within the mandate you set for them. They have full discretion as to what to buy or sell and again they'll want a large portfolio to make it worth their time.
  • Collective investment such as ETF or unit trust. You buy into the fund and they manage the money within the mandate, active (with different methodologies) or passive (again with different methodologies).

Do your research. Google the broker for reviews, check online forums and social media for complaints or praise. Ask others who they use and what they like / dislike about the broker. Take a trail to check out the user interface (if offered).

And before you all ask me, I use Standard OST and have done for almost 15 years. Not the cheapest but they meet all my needs.


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.

May 23, 2018
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Simon Shares

Make trading asymmetrical

I have spoken often before about how one of the huge benefits of investing is that a diversified portfolio is asymmetrical. You may have held some horrid share and lost 100% of its value. But 100% is the most you can lose and your winners can exceed 100%. In fact a true long-term portfolio will most definitely have many +100% winners so if you do get caught in a 100% loser - you're fine. The important point is that you need to be diverse and have more than one share and ideally a core of ETFs surrounded by a selection of 10-12 quality shares.

Now as a trader of leveraged products such as FX, CFDs or futures your potential loss in any trade can exceed 100%. The warning that loses can exceed your deposits is absolutely true and as such trading is symmetrical. Your winners can be offset by losers and you can end up going nowhere, or truthfully you end up losing money.

But a trading portfolio can be asymmetrical, if we have a strict stop loss we adhere to every time. EVERY time. Couple that with the 2% risk rule (never lose more than 2% of your capital in any one trade) and bingo - you have asymmetry in your trading portfolio as well.

This is the whole point of trading. We'll have a random dispersement of small losers and winners. A lot of break even trades with the occasional large winner but also the occasional large loser. Without the silent killers of; spread, slippage and costs, that portfolio would go sideways. All we have to do is ensure we NEVER have a large loser and boom, we're making money.

This points to the tree critical aspects of trading. Position size (2% rule), stop loss and capital.

Capital is important because if you have only a few thousand rands to trade with you cannot do proper position size hence ensuring you'll go broke.


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.

May 16, 2018

Would you buy it again?

Would you buy that share today if you didn't already own it?

If not, why not?

I'm talking about those dog shares again because we all have them. This week I pose a simple question to solve the problem.


Sometimes tech fails. This was one of those weeks, so a short show.


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.

 

May 9, 2018

Simon Shares

  • So a friend has a business that has been beset by fraud and is now bankrupt and is trying to find some new investors. They have no financial statements to show you and no real idea how bankrupt the company is or how bad the fraud was. Do you invest? So why scramble for busted JSE stocks?
    • Thanks to Kristia van Heerden for the analogy.
  • Libstar (JSE code: LBR) has listed on the JSE. The listing price was right at the bottom of the range at 1250c and opening trade was around 1200c and expensive. Historic PE is apparently around 26x and sub 20x is the maximum to pay, so 900c - 950c. Personally I am not looking to buy.
  • Long4Life* (JSE code: L4L) publish their first results and pay a dividend. The dividend is odd as they on a buying spree so why pay out cash? R1,7bn cash = about third market cap, HEPS 30c so on non cash market cap = PE of some 12x which is fair (compared to some it frankly deeply cheap).
  • Decent Santova* (JSE code: SNV) trading update, especially considering stronger Rand hurting with majority of earnings from offshore.
  • Back in March Naspers (JSE code NPN) sold US$9.8billion worth on Tencent shares and has now sold its Flipcart stake for US$2.2billion. That's a US$12billion (R150billion) pile of cash. Trader1137 on Twitter suggests maybe they'll use it to buy back some shares, would be about 10% of market cap.
  • The Berkshire Hathaway AGM was on Saturday and the audio is here
  • Upcoming events;

* I hold ungeared positions.

Fight the FOMO

Fear of missing out. Man this used to kill me when I started out in markets. It's a true killer as it makes us do irrational things. Pause for a moment, we have say 400 stocks listed on the JSE, your odds of picking the top performer over the next ten years is 0.25%. You're pretty much guaranteed to miss out. Globally 100,000 stocks so 0.001% chance.

Thing is hype and higher prices make us scared. Scared we picked the wrong stock. Scared we're missing out of becoming fabulously wealthy. We need the courage of our convictions and perhaps more importantly the courage to be wrong, often.

FOMO will make us do stupid things. We'll jump in with no real research. We'll jump in with no exit plan. We'll jump in at far to rich valuations.

Forgot about the flyers and focus on your plan. What are you investing for and how long is your investment horizon. Find quality stocks at good prices that meet your requirements. And if you find yourself suffering from FOMO remove yourself from the market (like over a weekend or on a internet free holiday) do solid research on the stock. Find the nay sayers and see what the counter argument is and try construct a real evidence based plan and a price you think is a fair one to pay.

There is another angle of FOMO I want to touch on as well. When you're in the stock (or crypto or whatever) and now feel you need to convince everybody else that they're missing out. Sure they may be, but truthfully they may have done their own research and decided it is not for them and you could both be right (different strokes for different folks). Not everything is for everybody. But more importantly is that assets need people to be missing out, that's how they go higher. For example Buffett was very late to Apple (Nasdaq code: AAPL) only building a stake in the last 18 months, a stake that is now over 5% of the company. If he'd bought back in say 2008 or 1998 he would not have been a large buyer over the last 18 months and make no mistake, his large buying, and the news of his stake, has sent the price higher. You need late comers. If everybody is in on day one then who pushes the price higher on day two?

Taking it a step further, the market needs disagreement otherwise nothing would happen. So don't hate on people who don't love your investments. See them as potential future price drivers.


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.

May 2, 2018

 

Simon Shares

  • Apple (Nasdaq code: AAPL) results show a maturing company as iPhone sales have decidedly slow. But they're far from down and out with app store sales, accessories etc. doing great and they still have a monster cash pile.
  • Rand under serious pressure trading out at R12.60/US$ after R11.50/US$ in late February. This is in large part due to US$ strength and it does not make me panic and change my long-term view of Rand strength.
  • Steinhoff (JSE code: SNH) below 200c.
  • In the 6 years to 2018, Barclays (LSE code: BARC) paid out £35.6billion for litigation, misconduct charges, bank levies, losses from asset sales etc. This is £1billion more than operating profit during the period!
  • Pembury (JSE code: PEM) has been suspended for late results as they struggle with some IFRS issues. I like the retirement idea, but the rush to list as a schools company was concerning and the share has been under pressure. Further the inability to publish what must be fairly simple results is more concern. Let them prove themselves before even bothering with the stock.
  • The Mouton family has just bought some R90million of PSG shares, I mentioned in my SA Inc video that they are the best indicator of value in the stock.
  • Six questions to ask before buying an ETF.
  • Foreign dividends.

Responsibility of knowledge

Knowledge is power but only if you share it.

Every year since 2007 I have been a speaker at the annual JSE Schools challenge prize giving in October and a key theme has always been - the responsibility of knowledge. This talk is aimed at school kids but it occurred to me that actually this part of the speech is actually relevant to everybody. Actually all the parts are but they're another podcast for another time.

As investors or traders or even if only a novice our knowledge on markets and investing is way more than the vast majority of people and that puts a responsibility on us - we need to share this knowledge.

This is less about hot tips, in fact leave the hot tips out of the equation. it is more about helping other people understand the market, ETFs and how it really can create wealth with no rocket science required.

Remember the average South African knows nothing about the market and is generally fearful of it and we can help change that and help create smarter and ultimately richer South Africans.

Tell them about tax-free. About ETFs, about fees killing returns. Tell them.

And even if you think you have no knowledge to share as you're still learning - wrong. You have way more than the average person. So get talking.


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.

Apr 25, 2018

Simon Shares

  • Libstar listing is proceeding and I am not taking part. I do think the market will love it but Google the private equity sellers (Abraaj) lots bad happening their and the company has declared a R800million pre listing dividend - while raising R1.5billion?
  • Consol has pulled their JSE listing citing "challenging market conditions". Have the market conditions really changed that much in the last few weeks or was the market just not excited by the listing?

Auditing - it's complicated

The local auditing profession is having a tough time of it with the Auditor General (Thembekile Makwetu) commenting on The Money Show with Bruce Whitfield he said that that the professions reputation was "in the gutter".

I wanted to understand what we as investor really can expect from an auditor? Are they to blame for Steinhoff (JSE code: SNH) and other recent collapses or is that beyond their scope?

Keith McLachlan, fund manager at Alpha Wealth, studied as an auditor and is now a fund manager so decided to have a short chat with him to get some perspective. The short chat ended up being a long chat and I suspect we missed a number of angles but one thing did stand out for me, the word "material".


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.

Apr 18, 2018

“Brought to you by Absa ETFs”

Simon Shares

  • EOH (JSE code: EOH) under pressure again trading at 5 year lows. The company claims it is because of false allegations published on some news website.
  • CPI in March was 3.8%, a great number but April has both VAT and petrol tax increases so we may have seen a low in CPI for a while.
  • Pallinghurst (JSE code: PGL) issue audited results but they use an auditor not accredited by the JSE so they don't count.
  • Mediclinic (JSE code: MEI) issued a solid trading update and the share is responding (they also got upgraded by Barclays over the weekend). I now expect the usual flurry of emails abut how I am missing out by not investing in healthcare stocks. I am indeed, but I am also missing out on the other 450 stocks I do not own. The stock market is no place for FOMO - it'll kill you.
  • Finding winning SA Inc. stocks.
  • Tax-free and saving for your child.

Price leads narrative

I heard this on a podcast I listen to, or maybe somebody tweeted it.

Hugely important. Those commenting on price action (myself included) are always doing so after the fact and most times trying to find a narrative that fits the price move. As humans we believe in order and we have an expectation that things happen for a reason. Now sure prices move for a reason, but there is every chance we're not privy to the reason. The short answer is that prices go up when there are more buyers than sellers, anything beyond that is trying to fit a narrative to a move.

As a trader we frankly don't care why they move. We simple wait for our entry and obey our stops.

As an investor price only matters when we're buying as this is all we control. Other than that it is results that matter.

So the narrative around price is fun, but it is not very useful.

We Get Mail

  • Brian
    • Is there a way I can find the names of ETFs that hold Santam?
  • Reino
    • You state that one can open an TFIA account for anybody from day one of birth, but only with an FSP. This TFIA you speak of will it be just an normal account at the bank like a cheque/savings account or will I be able to open one to trade ETF's through for my children?


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.

Apr 11, 2018

“Brought to you by Absa ETFs”

Simon Shares

  • SARS announces tax must be paid on Bitcoin profits - why is anybody surprised?
  • Sagarmatha (JSE code: SGT) listing on Friday, if they tick all the boxes. Some saying they should not be allowed to list but this fails to understand the role the JSE plays. They are regulatory gate keepers, not quality of profitability gate keepers.
  • Steinhoff (JSE code: SNH) now under 300c at 226c, well below late 1998 listing - all-time-low and the bad news just continues to drip out.
  • ETFs and the cost of the spread.
  • Living vs guaranteed annuities.
  • Upcoming events;

Liquidity risk

Homechoice (JSE code: HIL) keeps on putting out great results and cash generation but has almost zero liquidity (30 trades since 6 March and currently no offers to sell on market with last trade at 4700c and buyers at 1226c! This makes it uninvestable in my world as we'd essentially be buying into a quasi private equity arrangement as exiting would be almost (absolutely) impossible. But they did announce in the latest results they plan to improve liquidity and I'll keep an eye on this.

In the excitement of finding a great share we'll often over look the liquidity issue but I remember getting very badly caught in an illiquid stock way back in the day and while I could have held on I panicked and exited at a nasty loss.

Liquidity is not just the spread, which is a cost. But also the amount of volume being traded and we also have to remember that liquidity can disappear very quickly.

So two things to look for.

  1. What size spread are you having to cross to buy. A 1100c / 1500c is 400c and over 30%. I want spreads as tight as possible and certainly not more than 5% at worse.
  2. I want average daily value traded to be at least 30x the size I am buying so even if it dries up I can still get out without too much pain.

For traders liquidity even more important an I want spreads less than 1% and value traded 100x my trade size. This is because I want to have no impact when buying or selling (or as small as possible because there is never no impact) and I need the liquidity for very quick and efficient exits.

Last important point. Liquidity in terms of volume is not an issue for ETFs as the market maker ensures that they will have a bid and offer either side of fair value at all times. So while the ETF may not be trading it has the capacity to trade in larger volumes if required.



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.

Apr 8, 2018

If you secretly hate us but haven’t been able to find a different source of financial information, I have some great news! I found a Freakonomics Radio episode that summed up exactly the principles we champion on this show.

In this episode, Simon and I take the financial literacy survey. It’s only three questions, but understanding their answers will enable you to make great financial decisions. If this sounds vaguely familiar, you might be thinking of this podcast we did last year.

Here are the questions:

  1. Suppose you have R100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
    1. More than R102
    2. Exactly R102
    3. Less than R102
  2. Imagine that the interest rate on your savings account was 5% per year and inflation was 6% per year. After one year, how much would you be able to buy with the money in this account?
    1. More than today.
    2. Exactly the same as today.
    3. Less than today.
  3. Do you think the following statement is true or false: buying a single company stock usually provides a safer return than a collective investment scheme like an ETF or unit trust.

Win of the week: Rob has been coming to our events for ages. He has some ETF investments, but he’s been wanting to trade since the day I met him. This week, he sent this email:

Yes I have done my first trade and  bought my first bunch of shares (7 shares in total - some bits and bobs) (as oppose to ETFs)

I am not sure how I am supposed to feel!

Its bit like sex for the first time - did not know what to expect!


Frederick

My world has been turned upside down! I started listening to your podcast a week or so ago, and fok... my google is broken!! From googling sport all day I now spend endless nights and have sleepless nights on where to put my money and avoid tax as much as possible!

I use to think money is money and my RA is perfect and that life is sorted! I was wrong!

I have an RA (diversified wealth builder) with Sanlam. Any thoughts here please? My FEES (to my knowledge) is 0.65%.

It says “management fee at benchmark %”.

I put some money in monthly with a 10% annual increase. By retirement I should be paid out R11,5m.

Let’s say you live another lifetime after your working life, how much will you need? It’s possible to retire at 60 and live to 100.

https://justonelap.com/podcast-much-money-need/


Frank is trading Simon's Lazy system and wants to know if he can park his money somewhere while he waits for entries. He’s not earning interest on the money that he’s allocated for this trade.


Shamona wants to know if timeshare is worth it.

What are the pros and cons? What should I look out for when buying?


Entries to win Manage Your Money Like a Fucking Grownup. We want you to share the financial fact that blew your mind. We’ll be running this competition for one more week.

I asked author Sam Beckbessinger hers and she said on R10k per month, you’ll earn R19m in your  working life. Mine is that a low cost of living is basically the answer to all your problems.


Lesigisha wrote back after we sent him a shout-out last week.

Thank you so much for the great affirmation I received from the submission of my email, it really really went a long way in validating what I’m doing.

It’s hard to start on this journey, but after doing it for a while one does sometimes get despondent and wonder if this is worth it. Your affirmation has helped reinvigorate me and I go back to it every time someone says they’re waiting until they have a bigger shoe size before they can start making “real money decisions”.


Khuliso’s mind-blowing fact is that you don’t need huge amounts of money to invest. As a result of his mail I spent a lot of time thinking about kotas this morning.

The most mind-blowing fact was finding out that if I can afford to buy a kota (R23.00) or street wise 2 I can afford to invest in the JSE and create wealth.

Even though it's little money, over the long term it makes a difference. In my case the problem was lack of information rather than a lack of money to invest.

I am now very conscious about my spending habits. Whenever I buy takeaways in the back of my mind I keep on thinking of ETFs that I could be buying. When I look back, I see missed opportunities where I could have invested and build wealth.


Apr 4, 2018

“Brought to you by Absa ETFs”

Simon Shares

Spot the losers

Steinhoff (JSE code: SNH) announces that their property portfolio is only worth half what they thought. Boom there goes another R16billion. I cautioned when this story broke that bad news would be dripping out for a while, and so it continues with the immediate question being hat about their other property assets?

Grand Parade (JSE code: GPL) CEO has quit exiting immediately. Ms. Tasneem Karriem joined the company in 2015 and was made CEO last June. This is not good news and the stock is off 4% and trading at 2010 levels.

Nampak (JSE code: NPK) is selling their glass business after spending R938m to buy the 50% of the glass business it did not own. It has also spent billions on capital expenditure and now we wait to see what price it sells for. But an absolute disaster for the company and the share is back at 2010 levels.

NetCare (JSE code: NTC) is to exiting its UK operations after twelve years of absolute disaster and the share is trading at 2010 levels.

Ascendis Health (JSE code: ASC) is trading below its 2013 listing price and just off all-time lows at 938c.

You spot the problem?

Middling quality companies expanding and the wheels come off. Now sure there are likely many examples of other companies that did not lose their wheels. But as investors we have to make sure we own the right ones. It is also worth noting that as a small investor we can place a core of ETFs (+50%) for diversification and then we need only own 10-12 individual stocks in the 'til death do us part' portfolio. This gives us a huge edge on fund managers who typically need to own 30-50 stocks. We can focus like a laser on quality and spend most of our time finding reasons NOT to invest in a stock.



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.

Mar 28, 2018

“Brought to you by Absa ETFs”

Simon Shares

  • Back from holiday and with lots of ideas around what you do and don't like for JSE Direct. That said main comment was not to really change except maybe some experts occasionally on broad topics.
  • Markets falling and Top40 is down some 8% for the year so far. End of the world? Not likely. As always, traders know and obey your stops. Investors know your stocks and entry points.
  • Naspers (JSE code: NPN) is under R3k and off some 30% since the November highs and is in large part why our market is under water as it's the largest stock by a mile in the indices.
  • MPC cut repo rate by 0.25%, 4 members voted for the cut and three for no change. No discussion of a 0.5% cut. Interestingly the VAT increase effective on Sunday is expected to temporarily add 0.6% to inflation.
  • Moodys kept us out of junk and improved our outlook to stable from negative.
  • Anchor group (JSE code: ACG) results were bleak but seemingly the bad news is now behind them and the share is responding well, up some 50% since the lows of January and this is a stock pick from Anthony Clark

Can you pick a winning fund?

The latest SPIVA for SA is out and it is bleak reading for active managers in South Africa. Around 75% are beaten by the benchmark over one, three and five years.

  • Benchmark is Domestic Shareholder Weighted (DSW) capped or normal.

This means you have a 1 in 4 chance of picking an out preforming fund - very bleak odds.

So here's the question, and it is a real question. How does one pick the winning manager going forward? There most definitely will be those who out preform, some even consistently, but how do we spot them in advance? They themselves will tell you that past performance is no guarantee of future performance, and this is 100% true for a bunch of reasons.

  • Changes in personal. A winning manager leaves, is the replacement as good?
  • They had a few lucky calls or managed to avoid some disaster that beset the market. Skill or luck?
  • As they get larger it becomes harder as your investable universe shrinks.
  • I remember a Morningstar report from a few years ago looking at the US market that said the only reliable predictor of future returns was fees. The lower the fee the more likely the fund will out preform. This makes sense, but it is still not a full proof method.

I also know a number of people who chart unit trusts with fairly good success. Either just normal technical analysis or relative performance. Of course tax is an issue here.

If you have a method for picking winning funds let us know.



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.

Mar 14, 2018

“Brought to you by Absa ETFs”

300 shows, I haven't been making a fuss because it just feels old, very old. Add to that almost three years as a live radio show on Classic FM, starting from 8 July 2008. It's almost ten years of a weekly (albeit changing) show. We started life focusing outside the Top40 as the other shows seldom ever did anything in the small and mid cap space - then everybody did. So we have evolved over time. The question is where to next? Another ten years (truthfully that scares me). Send me your ideas on what we should or should not be doing.



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.

Mar 7, 2018

“Brought to you by Absa ETFs”

Simon Shares

Fallen angels (devils?)

When a share is hit by scandal it can take ages to recovery as investors shy away from the stock.

Some like Steinhoff (JSE code: SNH) will never recover due to the seemingly rampant fraud hat happened. Others like EOH may but will stay under 'caution' for a while as will the Resilient (JSE code: RES) stable of stocks. Others such as Capitec* (JSE code: CPI) will also struggle for a while but should shrug it off in time.

Tiger Brands (JSE code: TBS) has held up fairly well since the Listeriosis story broke on the weekend and is only back to November levels. But it could get real bad with almost 200 dead people, but markets seem to not be so concerned with these sort of issues. I remember Pioneer (JSE code: PFG) righting the bread fixing claims, eventually paying a R1billion fine and the share rocketed. In part it is the known vs. unknown. PFG struggled until the fine was agreed on, and TBS could well see its share price struggle until some sort of finality is reached - and that cold be years.

The concern is perception and some potential investors will stay away while existing holders may head for the hills and this means less buyers for the stock so less/slower upside.

Your strategy needs to ask if the scandal is terminal, long-term or merely a passing fad? Then remember if it is time to panic, panic quick.



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.

Feb 28, 2018

“Brought to you by Absa ETFs”

Simon Shares

  • The new cabinet is of course a compromise, that's the nature of our political system. But the important departments are markedly better hands (SOEs, treasury & mining).
  • New tax-free year kicks off today. R33,000 per year and transfer are now also possible.
  • Up coming events;

Leverage your investment portfolio

Borrowing money to increase your portfolio is something most investors ponder at some point, but two questions come up. How and what are the risks? The theory is easy, over the long-term equity markets do better than the cost of borrowing, but there is more to leverage then just that. So here are some options, with the risks involved.

  • Derivatives such as CFDs;
    • Easy enough. But costs and margin calls are real issues. Keep it small.
  • Home loan
    • Clean and simple if you can afford the repayments remembering that when markets collapse interest rates typically rise. Make sure you can make the repayments with higher interest rates and what if your income drops?
  • Personal loan
    • Banks don't like lending against shares and again can you afford the repayments? Also unsecured loans typically attract higher interest rates meaning the numbers no longer add up.
  • Margin
    • Some brokers will lend against a portfolio with the amounts varying depending on the shares being used as collateral. The risk here is that loan amounts may be adjusted and you may be squeezed out.

Personally I have leveraged my portfolio once. In 2008 I maxed out my bond to add to my portfolio. It worked and I slept well enough but I have no plans to do so again.

On page 10 of his latest annual letter Warren Buffett writes "This table offers the strongest argument I can muster against ever using borrowed money to own stocks. There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions." 



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.

Feb 21, 2018

Brought to you by Absa ETFs” 

Simon Shares

  • Discovery* (JSE code: DSY) results were top notch and complicated as they always are. I own this stock as the business model really works, but as I have mentioned before the complexity adds risk. Risk I am happy with as most stocks I own have real simple business models.
  • JSE (JSE code: JSE) results show HEPS down 6%. But look at value being traded these days. R25billion a day has become a regular feature, last year average was around R15billion. That equals lots of extra revenue in this financial year.
  • Mining charter back to the drawing board. Good for local miners (of which we have very few).
  • January CPI dropped to 4.4%, interest cuts coming to a prime rate near you? But budget may add to inflation (fuel being the one, not directly but will increase transport costs so food inflation).
  • Up coming events;

* I Hold ungeared positions

#Budget2018

Firstly I think Cyril Ramaphosa may have played it real smart by letting Malusi Gigaba deliver the budget. He can now spend the next year claiming it was not his budget but a Zuma legacy budget.

Overall not the train smash expected but still lots of tax increases with R36billion of extra tax. Lots of cuts to spending, R86billion over three years and which has to actually happen.

  • VAT increased to 15% (first change since 1993), with 19 basic food items being zero-rated.
  • Cue everybody suddenly caring about how this will hurt the poor.
  • Wealthiest 30% of household contribute 85% of VAT revenue”. 
  • "The Old age, disability and care dependency grants will increase on 1 April 2018 from the existing R1600 by R90 to R1690 and by a further R10 to R1700 on 1st October 2018."

GDP growth 1.5% in 2018 and rising to 2.1% in 2020. I hope they are very wrong on this.

No changes to;

  • Dividend withholding tax (DWT)
  • CGT (40% inclusion rate with first R40k exempt)
  • Tax-free limits (annual or life time)

No Nuclear.

Retirement funds will be allowed to invest up to 40% outside of SA - 30% "offshore" and another 10% elsewhere in Africa.

JSE added 1.25% during the speech, USDZAR 8c and government bonds back at 8%, bond levels last seen three years ago.

For our investments. Consumers being taxed, no surprise. But with inflation dropping leading to prime rate likely heading lower I still like the SA Inc. investment thesis.

Overall - a good balancing act albeit still a tough budget. But could have been much worse and I think Moodys will not downgrade us on the back of it.



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.

Feb 14, 2018

Simon Shares

  • Market continues to wait for president Zuma to go. It is taking time but ejecting a leader usually does take time and markets are patient and way more interested in what is happen in the US with inflation data out after I have recorded this podcast. This will likely be the driver for now. When Zuma eventually goes, and he will go, then market can move on that info. It is messy (as politics usually is) but it just a matter of when, not if.
  • Oceana (JSE code: OCE) CEO quits to buy their boats?
  • Resilient, Nepi Rockcastle, ForstressB & Greenbay (JSE codes: RES, NRP, FFB & GRB) continue to flounder after 36One report surfaces. Was it leaked? Does that matter? Resilient have responded via SENS and a conference call and a FAQ - now the market gets to vote. http://resilient.co.za/faq.htm
  • New African property ETF.
  • RA, pension or provident fund by Carina Jooste.
  • Up-coming events

Avoid the big losers or risk your portfolio

 

Trading is really probability and all we have to do as traders is enter on time and then ensure no large losses. If we avoid the large losses those small profits and losses will cancel each other out and the occasional large winner will make all the profits. But we have to cut the large losers or else we go bust.

So why do we hang onto our losers?

  • Fear of the pain - we want the thrill of winner because then we're winners.
  • Fear of being wrong - measure by what you control (perfect trade challenge).
  • Fear of the money being gone - trade smaller size.

We Get Mail

  • Ruan
    • I am new to CFD trading and I see that with CFDs you qualify for dividends. How does it works?
  • Manoj
    • I am considering investing in the new CoreShares Global Dividend Aristocratic ETF that will launch on 22 February. However, I would obviously want to make sure that I am buying the share at fair value or at a discount. How would one ascertain whether the price is at fair value or a discount? Normally, one can use the P/E ratio to ascertain value. But, in the case of an EFT, this ratio is not available. Additionally, I am nervous about committing to purchase the ETF during the book build that ends on 15 February because I don't know the launch price. It this nervousness justified?


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.

Feb 7, 2018

Simon Shares

  • Dual CEOs at Investec (JSE codes: INL / INP)?
  • Market sells off and rebounds (a bit) and we're in correction territory (down 10%).
  • The falling property stocks of Resilient, Nepi Rockcastle, ForstressB & Greenbay (JSE codes: RES, NRP, FFB & GRB) continue to trade down at the low levels they hit when Viceroy concerns initially hit the market in early January.
  • Capitec* still under fire from Viceroy and share likely to be subdued for a while.
  • Brimstone (JSE code: BRN) has sold down their stakes in both Tiger Brands (JSE code: TBS) and Life Healthcare (JSE code: LHC). Now what will they do with the R750million cash?
  • Stress free tax year
  • Up-coming events

* I hold ungeared positions.

Section 12J (S12J)

Introduced in 2009 this enables a tax payer to invest into a startup (via the S12J fund, Section 12J Venture Capital Companies (VCC)) and claim it as a deduction on their tax return effectively reducing ones income by the amount invested. An important point is that the investment has to be held for 5 years or income becomes taxable.

In theory nice but with some buts;

  • Firstly investing in startups is high risk - of course it is.
  • That said you can invest in lower risk and more mature companies, know what you're investing into.
  • Exiting at the end of five years may be a challenge. How does one sell a stake in a startup? They could list but if not liquidity is going to be a potential problem. Check how the fund plans to manage this and how it has worked in the past.
  • Check the numbers very carefully. I've seen a lot S12J companies working the returns off R550k when you made a R1million investment. The theory is that they include the R450k tax saving into the return. Sure, but where did the R450k go?
  • Know what you're investing into. This is much harder then listed investments as they're startups and we have limited information and hence valuations are hard.
  • Get to grips with all the fees, all of them, in lots of detail.
  • Quality and track record of the VCC managers.
  • Bottom line is that there are good and bad in S12J. Make very sure you know which you're getting into.
  • Lastly, saving tax is never a good enough reason on its own for an investment.


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.

Jan 31, 2018

Viceroy charges into Capitec*

I think we're missing a point with this latest Viceroy report on Capitec. Sure we're proud of the business and if you're a shareholder you've made amazing returns. But we seem to be circling the wagons and shooting the messenger rather then actually discussing the merits of the report.

Two important thoughts to ponder.

What if Viceroy had published their Steinhoff report before Steinhoff admitted to their fraud, would we have believed them? Simple answer is no and we would have looked stupid when the company admitted the fraud.

A fund manager does their research in a company, decides it's a great sock. They buy it and then they go out into the world promoting the stock - talking it up in the media and notes to clients. How is this different from what Viceroy is doing (aside from Viceroy shorting rather then buying)?

Here are some others who have been asking questions about Capitec.

*I sold half my Capitec shares at R911.00 yesterday.

A last point is that with Capitec exposed as the Viceroy target suddenly the other contenders (Resilient stable, Aspen, etc) are now all forgiven. But hold on, when we were unsure who was next the market sold these stocks off aggressively - this tells us something important. It tells us the market is not confident about these stocks and we should take that warning seriously.

Here's a Periscope video I did just after the news broke.

Here's the Hebalife video.



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.

Jan 24, 2018

Global Dividend Aristocrats ETF

This week Simon chats to Chris Rule from CoreShares on their soon to be listed Global Dividend Aristocrats ETF. It uses dividends as a quality metric rather then searching for yield and much like the MSCI World ETFs we have locally it is concentrated in the US at 53% with Europe making up another 22% but it is light on tech.

You can book for the events here.



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.

Jan 17, 2018

Simon Shares

  • Aspen (JSE code: APN) being vice squeezed.
  • Woolies* (JSE code: WHL) trading update, "impact of a potential re-assessment of the carrying value of the David Jones assets". Watch out for the "goodwill write downs are not cash", true but they were paid for with cash.
  • Shoprite* (JSE code: SHP) update seemed lighter then I had expected, good but not awesome. That said market liked it and stock is up over 6% since the SENS.

* I hold ungeared positions.

New year resolutions for investors

"Everybody has a plan until they get punched in the face" Mike Tyson

  • Stop watching the prices. These are long term investments, check them every so often if you must but certainly not even weekly never mind intra-day.
  • Only own stocks that you have at least three strong reasons for owning and revisit these reasons at least once a year.
  • Sell the dogs in your portfolio, sell them now (I'll wait).
  • Sell anything that is not the best management and be very careful about what qualifies as best management (think Steinhoff).
  • Careful of complexity (again Steinhoff).
  • Miners and other cyclical stocks are never long term investments.
  • ETFs are best and easiest way to create wealth, always have a core of at least 50% ETFs in your portfolio.
  • Your first R33k invested every year must go into a low cost ETF tax-free account.
  • If you not regularly beating the market over a 1 and 3 year period. Stop trying and just buy ETFs.
  • Cost are a big killer.
  • Keep it simple.
  • Keep it diverse.


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.

Jan 10, 2018

Every year the first JSE Direct of the year is our annual predictions show. Marc Ashton, Keith McLachlan, Small/Midcap fund manager at Alpha Wealth and Just One Lap founder Simon Brown review their predictions from the previous year and make their top three predictions for 2018.

They then also make a call on the Top40 and ZAR/US$ for the year.

You can find the 2017 edition here.



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.

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