* I hold geared and ungeared positions.
This deal has been delayed due to a bungling of documents and the Annual General Meeting (AGM) will now be in late August with the unbundling happening in September.
Holders of Naspers have two options;
Remember that Naspers will hold some 73% of Prosus with the latter holding all non SA assets and being inward listed on the JSE.
The idea is that this will unlock value as local asset managers are unable to hold Naspers at full weighting, or even close to full weighting. So with Prosus being listed in Amsterdam we'll see more buying and hence the price will move higher and Naspers should also track higher but Prosus may move more and we may see a discount open between Prosus and Naspers, much as we see with TenCent and Naspers.
Which will do better?
In a perfect market they'll largely track each other, but the current +20% weighting of Naspers has limited asset managers to how much they can buy. So Naspers may close that discount gap. But the flip side is being listed on Amsterdam would see the gap stay wide with Porsus doing better. Net-net the value of the two should increase.
As a side note, if the net increase of the two is say 20% that could add as much as 4% to the Top40.
Prosus will immediately go into the same indices as Naspers and if the market cap is enough, will stay in the indices.
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I have a watch list of EM currencies, and they move. They move a lot. Some times in sync with each other, at other times just crazy all over the place.
But you will notice every time the Rand weakens the local politicians get blamed. Well what about when it strengthens? Tuesday saw it as the best preforming EM currency as it gained some 2% to 1450c. The truth is politicians have a lot less influence on the currency than they like to believe and then we give them credit for. The Rand moves and is also the preferred EM currency to trade due to its liquidity.
Sure when Ace Magashule talks about 'quantity easing' that's easy to pin the sudden Rand weakness on him. But for the vast majority of the time nobody actually has a clue and blaming the general grouping of politicians is easy - but lazy. Especially if we're not offering credit to them when it strengthens.
I also wonder about our countries obsession with the currency. I do think it's fair enough as it is, over the longer-term, a kind of vote on the country in that it tells us if money is flowing in or out. It also directly hits our pocket in the form of the petrol price. But do other EM countries have the same level of obsession? Anybody have any experience from traveling abroad?
But most often when the Rand moves nobody really has any idea as to why. So I asked Twitter and the range of responses shows that really nobody knows.
ZAR had a stormer of a day, gaining almost 2% at 14.51.
Who do we credit for this strength?#JSE— Simon Brown (@SimonPB) June 18, 2019
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I'll stop there because you get the picture, I want to talk of the warnings signs, why they get suspended and what hope is there for the future.
Depends on the why, many do eventually come back but battered and bruised. For now you're unable to sell (or buy) any shares and will have to wait for the listing to resume.
Usually way longer than management promise. If it's business rescue then it's probably forever. late results eventually they get it together, but it takes time, lots of it. Sensitive information is usually fairly quick to return to the market.
Watch for those late results. The JSE gives three months but then always gives an extra month, so effectively four. If a stock can't publish results within four months then why do you own it?
You're in a heap of pain. Either long or short you now can't get out and the best advice is to avoid trading stocks due to single event risk such as a share being suspended.
Why isn't Steinhoff (JSE code: SNH) suspended? Because they also trade on the German exchange and they have seriously lax rules, so they don't suspend. Suspending Steinhoff locally when it still trades in Europe would prejudice local shareholders.
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I'm getting the calls again, two different scams but same as they're trying to rob you of your hard earned money.
The first is local offering you super smart trading software for a crazy high price that'll generate amazing returns (usually 30%-50% every six months).
The software also comes with great training, but if it's so great why isn't the call center agent trading up a storm instead of cold calling me?
Importantly, software is often free or very cheap from your online stock broker. Or buy AmiBroker.com and get your data from InvestorData.co.za
Education is no longer something we should be paying for, there is a ton of high quality for free on the Internet, starting with Just One Lap, your stock broker, YouTube and so the list goes on.
The second is a call from offshore - you can tell immediately because of the lag when they speak.
Here they have a great stock for you to buy, an opportunity to get in early and reap huge returns.
Sometimes the scam here is to get you to open an account with some fly-by-night bucket shop that will disappear over night, taking your cash with them.
Mostly this scam is that have excess stock they need to off load. Maybe they under wrote a rights issue and ended up having to take a bunch. Or the stock is so illiquid they can't sell it in the market so they need to boiler room sell it.
Either way the question to ask is simple. If this is such a great deal why do they need to cold call half way across the world to sell it?
Surely such a great opportunity should have people queuing up outside their boiler room keen to buy?
In both cases, just put the phone down and move on. There is no money to be made here.
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Can we call it? Trades wars are here and nobody wins.
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Recording this on Wednesday afternoon, so voting is still on-going and I have no idea what the results will be. But some thoughts.
As a country fairly new to democracy we're really good at it and this is something to be very proud of, many countries (including supposed developed ones) are not nearly as good at democracy as we are. The IEC is world class and we accept the results. The majority party loses provinces, metros and the world doesn't end, we all just carry on. Sure there will be some messes in some places, but pretty much our voting is reflective of the will of the people.
On this point, if your party loses you don't get to call the winner voters idiots. People vote how they do for their own reasons. We don't all vote the same. That's democracy, if you don't like it there are plenty countries without democracy. I am already seeing some Tweets calling out voters of one or another party idiots. This smacks of immaturity and doesn't sit within democracy.
Polls leading up the election have mostly been in the same theme with the exception being the recent IRR polling data which has the ANC definitely losing Gauteng and likely losing nationally. But we fail to understand polling.
Markets have already run hard locally since the late 2018 lows but will likely like the results. Not as to who wins, more that we're good at democracy. The argument that a strong victory for the ANC will be good for markets is bogus and cooked up by people who simple do not understand the ANC process or constitution. Removing Ramaphosa before the next ANC elective conference in 2022 certainly is possible but it is exceedingly difficult and not likely to happen. Importantly the losers in an election always work against the winners, always. Nothing special there.
So markets will like the result, pretty much regardless how much the ANC wins by. But will they go much higher?
We're already up almost 11% year-to-date and sure we can end the year higher. Heck much higher. But turning around South Africa, jailing corruption, getting GDP going again. This will all take time, it can happen. It is already happening and has been since 14 February 2018.
Of course the wheels fall off if the wheels fall off globally.
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A great question in my inbox, why do some companies issues shares instead of cash for dividends and which should we take?
The why is simple enough, the company wants to pay the dividend but also wants to hang onto cash, usually because they have debt to pay off or a large deal pending. Pay the dividend with shares keeps some cash while still 'paying' a dividend.
This is a potential warning sign worth digging into. Why the shares rather than cash? Is liquidity dying, do they have debt problems? Maybe not, but dig around anyway just in case.
The trick is that these shares now have a perpetual right on all future profits, so they are more 'expensive' than cash which is why they're firstly not a great idea for the company and why I will usually take them as it's not just this dividend I get, but all future dividends as well.
Further if not every share holder takes the shares, then your economic interest in the company increases. Example, you own 20 of 100 shares = 20%. They issue a 5% dividend, that's 5 shares dividend in total, 1 goes to you, 3 to others and 1 shareholder takes cash, only 4 new shares issued. Now you have 21 of 104 shares = 20.2%.
We also save on brokerage if we take shares and typically they'll be issued at a slight discount (around 5%) to the share price.
As a rule I will take the shares unless I think the share price is way over priced, but the important consideration is the future dividends so I pretty much always take the shares.
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Unlisted shares, those not listed and trading on a recognised exchange such as the JSE.
There two ways we get unlisted shares;
Now if you're buying ahead of a possible listing you're most likely some form of venture or angel funding - fun, but the majority end in tears and even fewer actually ever get to list.
If you've held onto a delisted share it's likely because you think it's a great stock with great potential and this may well be true. Most stocks that are delisted are because they offer such great value that somebody ants to own the entire company not just a slice if it.
However unlisted bings its own problems;
Personally I have never owned an unlisted company (except my own) and I never would. Sure there is potential for great profits, but the truth is most often what you end up with is hassles, legal fees and ultimately losses.
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EOH (JSE code: EOH) states NAV of some R4.5billion. But R3.3billion is goodwill and so not really an asset and with EOH struggling for goodwill right now not really anything to write home about. So TNAV of some R1.1billion meaning EOH trading at more than double NAV while AdaptIT (JSE code: ADI) is trading below TNAV. So all the talk of EOH being below NAV and hence a great value is bogus.
Most recently Woolies* (JSE code: WHL) wrote off a third of the cost of the David Jones acquisition.
Now when goodwill is written down it hurts profits but the company will tell you this is not an issue as it is a non-cash charge. Correct, but of course it was cash (or script) when you paid for it.
As a rule, buying at or even below NAV (or even better TNAV) is a great strategy - except it is fraught with issues.
I was all over The Don Group as they traded below TNAV and that TNAV was buildings they owned in places like Sandton and Rosebank. But by the time they were done the TNAV had collapsed.
This is a critical point of any for of NAV.
ELB Group saw their TNAV collapse even as it was mostly cash, but a disaster of a contract saw them burn cash and now cash has gone and TNAV has collapsed as has the share price.
NAV, and especially TNAV is important, but it is not written in stone. So as with all numbers, we need to be careful of it. Discount to NAV/TNAV is not a buying reason. In fact no single metric is ever a reason for buying. We need a preponderance of evidence. https://justonelap.com/finding-long-term-investment-winners/
dd
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We're seeing a new trend on the JSE whereby stock prices are slaughtered after poor (or even just modest) results. Sure bad results have always hurt a share price, but it used to be that a 10% down day was a wildly bad day. Now however 10% is hardly even warming up with many stocks being hit way harder (think 30% down on Aspen results).
I think there are a bunch reasons for this new trend.
As investors we need to get used to this trend. Be good sellers (see last weeks podcast) and expect that even quality will disappoint the market at times and that disappointment will hurt. We need to be smart about when the issue is real or when it is just a knee jerk and short-term reaction.
But the bottom line is, expect the ride to be bumpier than usual. We need to remember that investing is for the long-term and that long-term is never in a straight line. We also need to remember that any stock can turn out to be trash and if it does we need to sell it regardless of how we feel about it, the loss or the potential. Trash is best trashed.
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Up coming events;
We tend to focus on the buying, enteries and selling at profit. But what of selling at a loss? Far to often i hear people state it has fallen too much and so there's no point in selling - this is false. Ignore the loss you already have and focus on the loss ahead of you. A stock that has fallen 90 can fall another 90% and when people ask where's the bottom? The answer is zero, until then it can always fall more.
A good sell is as good as a good entry. I exited most of my Calgro M3 (JSE code: CGR) at around 2100c but kept some only to watch it fall to under 1000c. I then finally sold the balance and now it's under 600c. It is never too late to sell and we need to become as good at selling as we are at buying.
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Up front let me state you're unlikely to be an investor in individual stocks and over a life time of investing never invest in what turns out to be a fraud. So far I have been lucky in that my only fraud was way back in the mid 90's (I can't even remember the name of the company) when the CEO suddenly rushed off to Australia and my loss was fairly modest (as I was poor), albeit I did make the horrid mistake of doubling up when the price had halved.
Back to Steinhoff, the PWC report is finally out. Three thousand pages and four thousand attachments, albeit we only got a ten page summary that detailed over R100billion in fraud over the 2009-2017 period. Profits for this period were only some R60billion and while the fraud number may include some double counting, it basically means Steinhoff (JSE code: SNH) was a ponzi from day one.
So how do we avoid being suckered into a ponzi scheme?
So what next? Well Steinhoff is bust, 100% bust. Sue they have some assets (such as c70% in Pepkor and Conforama and bankrupt Mattress Firm in the US) but the claims against the company are in excess of R200billion and current shareholders are last in line. The process will take a while, maybe a decade, and by the end there is nothing left for shareholders. If you're holding or buying Steinhoff, understand you're trading because you can't invest in a share that's going to zero.
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We live in wild times made possible by the internet and powerful computers in our pockets. Much of it is good with a fair amount of bad as well (think Twitter trolls), but for large old school companies it can be especially bad.
Firstly those rules are a lot more ethical. Consumers want to be treated fairly. Hey we always did, but we never really had any power. And that's the second and very important point, consumers now have power. That power comes via the Internet and very quickly a raging anger can over whelm any attempt to manage the message. Now sure often the raging anger is actually just a lynch mob and this is very much the dark downside of the Internet. But the upside is that consumers have power and they'll exercise that power. Sometimes for good and sometimes for bad.
A business needs to understand this. I remember attending a presentation on generational theory a decade back where the message was that millennials wanted ethical companies and would pay more to these companies. The flip is that they'll boycott a business they consider to be unethical. Now this is way more than just millennials, the issue is that millennials were given the power to firstly know a companies ethics and secondly do something about it.
Companies that are going to survive and thrive in this new world will have fairness and ethics at their core, and that's hard. It's easy to put that into a mission statement, but living it is something else entirely and often a company messes up. For example the news that a company will phase out plastic straws by 2022. Nice, but why so long? Simple because they're trying to protect profits. Fair enough but the ethical demanding consumer doesn't care about your corporate greed, they care about the planet.
The even harder issue is how do we manage this as an investor? Truth is we need a crisis to see how a business manages it and that is late in the process. But we can see glimmers of it via other means, such as the plastic straw example mentioned earlier. If a company is not putting the customer and ethics front and center they will eventually be in trouble.
Lastly as investor we need to not chase profits at any cost. We need to invest ethically as well, this means fair fees we're charged by providers. It also means exiting dodge companies even if we think there is money to be made. We also need to focus on ESG (environmental, social and governance) issues.
A very last point. Will Boeing survive? Of course. Will this hurt? Absolutely. Will it be a great investment going forward? No chance.
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The CoreShares Equal Weight Top40 ETF (JSE code: CSEW40) has long been a favourite of mine, but now CoreShares want to change the ETF to a multi factor ETF under the code SMART.
Those factors are;
I chatted to Chris Rule of CoreShares asking why the changes? What will the new methodology be and what's its attraction? Lastly how will the process work - including voting by existing holders of the ETF.
I initially was too thrilled with the changes as I like the equal weight methodology. But one of the key points for me is how many stocks I effectively get exposure to and this is illustrated by the chart below. with a generic Top40 ETF 12 stocks drive returns. In an equal weight Top40 all 40 stocks drive returns. The new SMART ETF will see 41 out of the 52 stock driving the returns. So I end up with a wide diverse ETF which is exactly what I want.
Kristia also wrote a blog post on the changes here.
Contact Core Shares;
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Managed funds are when you hand over your hard earned money to a third party to invest or trade on your behalf, supposedly with great returns in offer. Sure it works with the right processes in place, but it mostly carries huge risk.
Firstly let me state up front I have never heard of a FX or crypto managed fund making money. They've all been scams with the first indication is that you find them on Facebook offering huge returns. They have zero verifiable track record and zero regulation or audit processes.
Most trading managed fund accounts also end in tears.
So how do we find a managed fund? Well firstly a unit trust, hedge fund or ETF is a managed fund of sorts with tons or regulations protecting the investor. Why not use these? The issue is usually that we want a managed fund with grand returns, don't we all?
But seriously, some questions to ask;
The short answer is that if you want a managed fund, buy a collective investment scheme. No you won't get rich in a hurry, but you'll also likely not get ripped off either.
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In the past week I have seen three reports that all point to a drying up of liquidity on the JSE. Now sure some has likely moved to A2X, but not any significant amount. Bottom line liquidity has fallen fairly markedly and this has impacts, most notable on share price movements.
So where has it gone? Simple, investors are scared. Scared of elections. Sacred of EWC. Scared of an under pressure consumer. Scared of trades wars. Scared of no returns. Sacred of their shadow? So they are buying less leaving us with fewer buyers and sellers have mostly exited sitting on the sidelines with their cash.
This whole vanishing liquidity is markedly more acute in the mid and small cap space and it is hurting the stock prices. Even us small private investors hurt the stock as we exit and many are throwing in the towel and selling, pushing prices lower causing more to throw in the towel and sell.
This is typical in late stage bear markets (late stage bull markets see extreme high levels of liquidity).
So what do we do? Well we double our research and make sure we really do like the stock, and if we do - we hold. You can buy more but I think we're a long way from the end of the liquidity squeeze on the small and mid cap stocks. If you're wanting to buy into this low liquidity, be careful. Place bids in the market and wait to be hit, even cheeky bids lower down will potentially be hit. But don't expect liquidity to return tomorrow, it may - but it may take a while longer.
Further bad news for holders of small stocks is that when liquidity returns it'll come into the large cap Top40 stocks first, then eventually filter down to the mid and small. Point is it will return one day, we just don't know which day.
As an aside, this impacts JSE earnings as they make money from data, listings and trades. less trades is less income with a fair fixed cost base.
Last important point. Liquidity is NOT an issue with Exchange Traded Funds (ETFs) as they have a market maker. The market maker is (supposed) to be consistently in the market either side of fair value with their bids and offers. So we can always get what we want at close to fair value.
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So Safcoin finally started trading in December and I thought I'd send a series of follow up questions to the founder, NeilFerreira about how it's all going, promises he'd made and some odd things I was seeing on their trading platform. I sent the questions early Monday asking for reply by Wednesday 10am, and he hasn't responded?
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Simon chats with Dino Zuccollo & Jonti Osher from Westbrooke Alternative Asset Management to really get to understand S12J.
The rules, risks, benefits, what to look out for and more.
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Every year March Ashton, Keith McLachlan and Simon Brown do a predictions show. Three wild and wooly predictions for the markets followed by a call on the Top40 and ZAR.
Every show starts with a review of the previous years predictions and you'll find them here.
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