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Simon Shares

• NO show next week (18 Oct 18), I am holidaying.
• Remember the chart of the Top40 I posted a few weeks back, showing the trading range? We broken the range again, but this time to the downside and we're not almost 15% off the November 2015 highs. Not the end of the world, yet. We do however need to bounce back into that range ASAP.

There are now only 5 stocks with YTD gains within Top40: SOL 26%, AGL, 25%, BIL 23%, MND 11%, INL 5%

— Andrew Todd (@andrewbtodd) October 10, 2018

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Too small to matter

Portfolio construction is way more than just deciding which stocks to buy or sell. It's also valuations, about asset classes and position sizes.

The first question is how much of my portfolio should be passive, how much active (your own DIY investing or an active manager) and how much for trading? I always state that passive should be a minimum of 50%, this protects us from the follies of trying to beat the market either ourselves or with a supposed expert. The more we put towards passive the more certainty that we will at least match market return. Now sure we want to get rich quickly so we want to beat the market, trounce it. But the truth is that this is hard with the professional active industry seeing only some 15% of active managers beating our market.

Once we know how much (if any) we're putting into active we need to decide how this will work?

• An active fund manger or DIY or combination of both?
• How will we select the active manager or fund and how will we measure (and potentially fire) them?
• What about trading? Geared, ungeared? Equity or indices or FX?

Then we need to start deciding what shares we want to own. This process is slow, not only in the selection, but then also in the waiting for the prices that we want to buy at.

What is also very important here is how much of the share we should be buying. Any share needs to have a chunky enough size to be material but not so large that it could be catastrophic. I hold 10-12 individual shares within the 40% of my portfolio that is set side for my own active management making each share around 4% of the overall portfolio. With growth some shares may in time become more chunky and then I stop buying and in time may even have to sell down the position to avoid being over exposed.

I also need to monitor what's in my passive investments. For example Naspers (JSE code: NPN) is very large in Top40 ETF (except the equal weight ETF from CoreShares) so adding some active Naspers makes you likely over exposed to the stock.

But there is another issue, position sizes so small as to be meaningless. I often see a stock sitting at under 1% of a portfolio. Now even if this stock doubles in value it'll only add 1% to the overall portfolio.

Yet it is taking as much effort to select, research, read results, valuing and transact as a full size position. So same work but for less reward.

These small positions are sometimes dogs that have collapsed and investor is unwilling to sell in the misguided belief that one day it will return to its glory (spoiler alert - it won't, Sell the dogs).

But at other times they because of a lack of conviction. You want to own the stock, it seems hot and everybody is talking about it and you're afraid of missing out but you're also afraid of the risks. So you take a small insignificant stake to serve both fears. But investing is about conviction. Either like a stock and give it full weighting or don't buy it. No half measures.

Another potential reason for the small fry is legacy. Every portfolio starts small and when starting out we often buy stocks that in years to come we'll look back and wonder why we ever bought them. Yet there they sit, small and insignificant.

In all cases small fry must be dealt with. Either increase the position to a meaningful size (waiting for the right valuations) or sell it. Don't keep a stock that has no significance in your portfolio.

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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.

Simon Shares

This JSE Direct is proudly brought to you by IG, the specialists in CFD trading and a registered financial services provider.

• September was such a rough month that the best performing full equity fund in South Africa returned -0.4% for the month. Not a single full local equity fund was positive.
• Upcoming events
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Small cap pain

Small caps, we love them because when they get going - they go. Really go. Ten baggers are a dime a dozen when things are hot and markets are running.

But right now - not so much (see chart below) and here's why.

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Firstly small caps are typically very SA Inc focused due to their smallness. Now this is not 100% true as there are stocks with offshore exposure, but generally the statement holds. That being said the economy is struggling, recession, VAT increases, petrol prices etc. are all putting the kosh on the economy and hence SA Inc and smaller stocks.

The bad news is that I don't expect this to change any time soon. Make no mistake there are a bunch of high quality small caps at very attractive valuations. Companies that are not going to go bust and in many cases continue to make profits even in these tough times. The problem is that the same can be said of the large Top40 stocks. Sure some dogs in this index, but equally some really great companies at attractive valuations. Forward PE on the Top40 is 13x, cheapest I have seen it in a decade. Yet the selling continues.

Further before small caps start to run I'd expect the larger Top40 stocks to run hard, become expensive and then investors start hunting down the list and buying the small cap stocks. So with the large stocks not running we have little chance that small caps will start to run.

I hold a few small (and mid) cap stocks, and I continue to hold but I am not running in and buying, even at these levels. I have enough and I don't see them recovering any time soon.

[caption id="attachment_8634" align="aligncenter" width="1080"] MidCap weekly close 03Oct18[/caption]

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.

Simon Shares

• This JSE Direct is proudly brought to you by IG, the specialists in CFD trading and a registered financial services provider.’
• Alexander Forbes (JSE code: AFH) fires their CEO with zero f***s given.
• Nigeria making nice to MTN (JSE code: MTN) and Standard Bank (JSE code: SBK).
• Choppies (JSE code: CHP) snuck a late Friday SENS into the market stating that results would be late (again) and profits at least 20% lower (but no hard details as how much). No surprises that the market did not like and the stock got punished when we opened on Tuesday trading down at 25c. I never liked the stock and have repeatedly suggested investors stay away.
• Capitec* (JSE code: CPI) results were once again stellar with HEPS +20% and cost-to-income at 38%. The cost-to-income is edging higher, as expected, and was 36% last year. Likely will settle in the mid 40s. Active clients is now 10.5million.
• Top Broker awards were held on Tuesday evening. In the main category the winner was Standard Bank followed by Rand Swiss and ABSA. All the results will be in this weeks Financial Mail supplement, Investors Monthly.
• Friday is month and quarter end, so we may see some stock price ramping to make returns look prettier. But it has been a tough quarter for local investors.
• Wealthy Maths: Calculating cost per use
• OUTStanding money with Outvest: Long-term saving goals.
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* I hold ungeared positions.

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Are you buying?

I post a lot on Twitter, probably too much. Much of it is not opinion, they're just interesting charts or stats, especially of collapsing stocks (not many flying to the moon these days).

Almost every time I Tweet about a collapsing stock somebody asks "are you buying?". And the answer is pretty much always no.

The one theory is that at the right price any stock is attractive - so a collapsing price may well make an unloved stock worth buying. But I do not agree with that sentiment at all. I only want to own quality, no dogs in my portfolio. So for me it doesn't matter what the price is - I want nothing to do with the stock, in fact I want nothing to do with the vast majority of stocks on the JSE for one reason or another.

There are of course exceptions. The few stocks that I do love and will buy more of if the price were to collapse, but that list is small - around twelve at most.

There is another point here, FOMO, I have covered this before. The belief is often that a 'great' collapsing stock will rebound with vigour and those 'lucky' enough to have bough at the bottom will find themselves instantly rich. But this seldom happens. Most collapsed stocks remain collapsed for a long time - if not forever.

So follow me on Twitter, enjoy the charts and other stuff I post. But don't ask me if I am buying. Likely if I am, I will mention it in the Tweet or you can check my portfolio here.

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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.

Simon Shares

• CPI 4.9% vs 5.2%, rates on hold?
• Naspers (JSE code: NPN) unbundling Multichoice. About R5.5billion profit so market cap some R55billion on 10x PE. That puts them into the Top40. The theory that Multichoice is dead is very misplaced.
• Aspen (JSE code: APN) gives another update to the market trying to help investors make sense of their results, and the stock is off +9% at just over R170.
• JSE is looking for feedback "In response to a range of corporate scandals, speculation and innuendo that have characterised South African financial markets over the past year". Details here 
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Managing fallen angels

Those once unstoppable high flying stocks that have come back to earth with a thud, now what?

We have a lot in our market right now; Aspen (JSE code: APN), Steinhoff (JSE code: SNH), MTN (JSE code: MTN), EOH (JSE code: EOH) and many more.

Firstly understand the difference between cyclical and non-cyclical stocks. The former is resources, construction - those sectors that will always experience boom and bust and here we should really be long-term trading them rather then bottom draw investing in them.

Secondly is to be careful when buying our high flying, unstoppable non-cyclical stocks. I may love a stock but if it's above my idea of a fair rice I simple won't pay the price. I wait, sometimes waiting years, for prices to be at my levels and then I'll buy. Sometimes like with Richemont* (JSE code: CFR) this works well when I was buying in the 80's some two years back. Other times like Woolies* (JSE code: CFR) I was buying from around 8850c all the way down to 6250c odd and then I stopped as I had full weighting and yet the stock went still lower. So manage the price you pay, you do not want to be the person who paid +R440 for Aspen and if you were ideally you want that to be one of many price points you paid with an overall much lower average price.

But that all said these unstoppable angels do sometimes fall from grace, so lets delve into that.

The first question is if this is naked fraud or horrid business that we (the market) had missed. With Steinhoff the answer was an easy yes to fraud. With MTN the answer is more complicated but my view at the time of the first Nigerian issues was that this was a massive failure on the part of management and that markedly changed the investment case - so I exited.

Woolies the issue is over paying for David Jones and again messing up on women's fashion. Both repairable and not likely to be terminally damaging, albeit most definitely expensive.

But what of Aspen? I think that the stock had got well ahead of itself with a PE of almost 40x just two years ago, wildly expensive but supposedly justified by HEPS growth that was around 30% a year. However nothing grows at 30% a year and this is the error I think the market has made. Aspen is maturing, all successful companies mature and when they do they rerate in terms of valuations (PE) but with Aspen the market seems to have been caught by surprise.

So in short;

• Cyclical stocks are for trading.
• Buying price is very important. Don't overpay and ultimately stagger buying over many years (decades) to ensure a decent average price.
• Also stagger buying across many stocks, you don't want all your investment concentrated in a few stocks or sectors.
• Ask if this is as a result of a management error that is not terminal? If yes stay the course and maybe use the sell off to pick up some more - but again be carefull of being way over weight a single stock.
• Ask yourself if the fall off just a rerating / maturing of the business or as a result of real damage to the company (fraud, horrid management, etc.).
• Go back and check you initial notes from when you first bought the stock. What's changed and does that change make for a better (albeit different) investment or worse?

Lastly, never just shrug and say "how much worse can it get?". It can get a lot worse, Steinhoff offered a +2000c exit last December when the news broke. Now it sub 300c.

Last last point. Within a diverse portfolio not everything is always going up - unless it's a stonking bull market.

* I hold ungeared positions.

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Simon Shares

• Metrofile* (JSE code: MFL) results were a mixed bag with the reduced dividend expected but they are essentially going to almost halve the cover ratio over two years and that is more aggressive than expected. Growth was modest, but the results commentary was even ore modest. Two analysts I know spoke to management and both came away very confident of the stock and its prospects. A lot of talk is about the move to digital and the cloud and firstly Metrofile is well positioned there and secondly I have been hearing about paperless office for over 30 years.
• ADvTech* (JSE code: ADH) purchase of Monash University looks great but expensive. On a PE of around 39x that is chunky. However will be able to remove a fair bit of costs plugging central services into existing infrastructure the company has. It also gives them degree levels offerings which is a great step and so while not cheap I like the deal.

* I hold ungeared positions.

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Shares or cash for dividend?

Often a company will offer you shares instead of receiving a cash dividend. Assuming you still like the stock (if you don't, then why haven't you sold it?) I always take the shares. The exception could be if I think valuations are crazy and there are other stocks with much better valuations to buy. Then I'll take the cash.

By taking shares you save on brokerage, likely very saving but further often times a dividend is not enough to actually reinvest economically. My brokers minimum of R100 brokerage for a trade at 0.5% means that I need to do a R20k trade to get an effective 0.5% brokerage. Sure I can save up the dividends or add them to other cash I may have in the account - but taking the shares is easy and brokerage free.

For tax purposes the free shares reduces your base cost price as the new shares come in at zero cost, so you have same total base cost but extra shares effectively meaning average purchase price is now lower. When you sell this new lower base cost will be used for tax purposes.

However you'll save a little on tax as DWT is 20% (this is what you would have paid on the dividend) and maximin CGT is 18%.

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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.

Simon Shares

• MTN (JSE code: MTN). Woe is MTN, another $2billion for tax evasion. Is it a shake down? Maybe, maybe not. Truthfully we have no idea and it does cover the same period (2007-2015) of their previous Nigerian fine. I long ago sold my MTN shares and no interest in buying more.
• Steinhoff (JSE code: SNH) ex directors Jooste and La Grange have now both appeared before parliament and both blame everybody but themselves.
• Nice break out last week on the Top40, and then the retest and now we're back inside the range of 49-52k trading at 51,000 with ZAR at 15.46. Sure some if this is general EM issues but GDP data from Tuesday showing us in a recession is weighting heavy on markets. Where to next? Well let's see if 49k holds.
• Lots of talk about another drought locally in 2019, experts saying about 60% chance. Going to be rough, especially on food producer stocks (growing and makers).
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• Tax Tuesday: Medical aid tax deductions
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NAV, value or trap?

A listener asked about net asset value (NAV).

Often when watching I hear a lot of market analyst talk about discounts to Assets, sometimes they say its bad sometimes they say its good. What does it actually mean when they say a share is trading at a discount to its assets or NAV, how is it calculated and is it good or bad?

NAV is the break up value of a company. If all assets were turned into cash and all liabilities paid off, what's left? Divided by the number of shares is NAV per share and sometimes called book value. We then relate the NAV or book to the share price and get a ratio between price and NAV often called the price to book (P/B) ratio.

Also note the difference between tangible NAV which excludes intangible assets such as brand value and good will. I prefer tangible NAV.

As a rule a share trades at a premium to NAV as you're not buying the break up value of a company but the future earnings and cash flow. Different industries will have different premium, banks typically max out at around 2x while retailers at times 3-4x and miners anywhere from below 1 to 10x.

A valuation strategy is to consider stocks cheap when their NAV premium is lower than typical for that particular stock and lower than industry peers. Sasfin (JSE code: SFN) is a case in point. NAV is around 4400c and the longer term average is some 1.5x, so seems like a steal. Except the stock has now fallen to around 3400c!

Another strategy is to buy below NAV, essentially you're getting future earnings and cash flow for free. But is this value or value trap? Argent (JSE code: ART) has traded at around 50% below NAV forever and a day while The Don Group (now delisted) was at a chunky discount to NAV but that NAV kept melting away and the stock price kept on falling.

So a useful indicator but as always needs to be more than just one piece of data when buying a stock.

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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.

The SAFcoin saga continues (my initial stay story here and the follow up with legal threats here), I hope this will be the last. Neil Ferreira finally offered to answer my concerns and I sent him a list of 43 questions Sunday afternoon and he returned them on Wednesday, you can find the questions and answers here.

The tl;dr version;

While SAFcoin did answer a lot of my questions and clear up some issues the key issues remain. So I continue to warn people to stay away.

PTXTEN, been a rough, very rough, period for this ETF.

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Simon Shares

• Safcoin finally responded to my caution around their ‘coin’ with a lawyer’s letter. You can read our response and see the letter here.

One possible correction is the source of the coins. I stated that Neil Ferreira had created them via cryptocoincreator.com and he Tweeted me a link to Etherscan.io for Safcoin. Not sure if that means it wasn’t created by cryptocoincreator.com but the new information does suggest there are NOT 222billion coins in supply. The Etherscan.io link shows 10million coins total supply rather than the 5million the website has been promoting, but I see Neil Ferreira updated his white paper on the day of my initial podcast to reflect this new 10million coins in supply (as well as a number of other changes to the white paper).

@SimonPB Here is a link for further assurance that we are deploying all token transactions to the Ethereum block and by the time of launch all token purchases will correspond to the token tracker https://t.co/Kg2mRKFOYz— SAFCOIN (@SAFCOIN1) August 3, 2018

• Shoprite* (JSE code: SHP) results show a very tough environment hurt by a number of issues. One of these issues is low or negative product which hurts as base costs rise faster than products squeezing margins. But on that point the operating margin remained at 5.5%.

• The market is hating the CellC and Blue Label (JSE code: BLU) results and the stock is off 8% on Tuesday and another 10% today (Wednesday). Many are saying that it is over done with some 120c of core HEPS making for a PE of around 5x. Maybe it is a bargain but we have also seen bargains become even more so and eventually go bust and CellC certainly wants lots more cash. For me, I do not like telco’s so am not interested either way.

• Is Famous Brands* (JSE code: FBR) looking to exit their Gourmet Burger Kitchen misadventure in the UK? A SENS last week certainly seemed to indicate it and after promising to turn things around a trading update last week suggests it is still losing some R1.5millon a week. Exiting a bad investment is certainly something I support, but I also support people taking responsibility and the current CEO could claim he wasn’t he boss when this was done – but he was still a senior exec as COO. So any heads to roll? Truth is it is tricky because then a company may lose one or more high quality senior execs if we roll heads every time something goes wrong. But are they quality if they can err this large? Are there surely not other of equal quality who can replace them? Or is this a one off and something we should forgive them for? Truthfully it is a tricky question, but it needs to be transparently dealt with, not just swept under the carpet.

• S&P500 has hit it’s longest bull market ever. 3,453 days without a 20% correction (since March 9 2009).

• Understanding the SYGWD – a locally listed ETF making serious returns as apposed to our market.

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  • 30 August ~ JSE Power Hour: Practical trading setups and rules
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* I hold ungeared positions.

Alternative investments

We’re getting a lot of questions about the Fed Group impact farming offering as well as buying cows as alternative forms of investments. The questions are always if this is a good idea and my answer is generally – why?

I think there perhaps are two main reasons. Firstly, novelty. Who doesn’t want to own a hive of bees or a slice of a cow (not to be confused with a steak – that you eat). Second is that the local market has delivered zero returns over the last many years so we seek out other ways to generate returns.

Now sure, but the real point is where do these sort of investments fit because make no mistake they are alternative investments, or as Kristia would say on The Fat Wallet Show, stuff you buy with your FU money.
Alternative investments is that small section of your portfolio (5%? maybe 10% if you wanna be wild) that are outside of traditional investments such as we buy on stock exchanges. In the olden days you’d by gold, carpets, art or wine. Heck for a while in the 80’s it was all about buying shipping containers. These days it seems to all be about crypto currencies and now bees.

The theory here is that as alternative investments they are not correlated to normal investments so may survive crashes better. But in truth they often crash as much (if not more) as a crash reduces liquidity so the alternatives get sold as people need cash and alternatives being typically less liquid can crash harder.

It is also important to understand the risks here. The biggest risk is the newness. These may be backed by real institutions but this is totally new territory for everybody and we’re simple not sure how they end up turning out. Further we get all sorts of regulatory protection from listed assets and lastly we are simple not experts on these alternative investments so we have to rely on other ‘experts’ for guidance. As a last point the issuers of these alternative investments make reference to potential returns, but as always there are no guarantees on the returns at all. What happens if somebody else eats your cow or the bees fly away?

Personally I have no alternative investments. I don’t see how they’ll improve my portfolio and they add risks I am not an expert on.

Arrested Development is starting a Bee business.

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Simon Shares

• ZAR almost 15.50 early Monday morning on Lira rout. Improve to around 14.10 but now back at 14.60.
• Chart of the Top40 shows our market been moving sideways since February between 49,000 and 52,000. fairly small range that has made ALSI futures trend trading hard, very hard.

• [caption id="attachment_8270" align="aligncenter" width="1080"] Top40 going nowhere for last six months[/caption]Tencent (Hong Kong code: 0700) results saw revenue growing ahead of expectations up 39% but profit only up 25% (YoY figures for half year) and Naspers (JSE code: NPN) is off 6.5% (after being down some 10%) and Top40 -2.7%. 
• Esor (JSE code: ESR) goes into business rescue, so now we have two construction stocks in business rescue (Basil Read the other) with some looking very vulnerable and a number of others already gone. This sector remains a horror story.
• Pembury (JSE code: PEM) finally issue a trading update, months late, and it is a horror show. Stay away, well when it is unsuspended, stay away.
• Upcoming events
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When to buy more

What are some triggers to buy more of a stock? And how often? I am finding this hard especially once a stock has run a bit.

— Daniele Ferreira (@daniele_xyz) August 9, 2018

I run a few portfolios.

• ETF only, I buy monthly and every March I full up my tax-free and buy in one block. No timing considered.
• Lazy ETF, weekly charts trading ETFs using technical analysis. Sign up here.
• Long-term till death do us part portfolio. I use historic PE over last seven years buying when forward PE is below seven year average PE. Details here.
• Second tier portfolio. This is designed for small and mid cap stocks and this is where I want to focus today.

Firstly I find the stock. Quality is important as is growth prospects and I am not looking for 'hot' stocks or sectors. Boring with great potential and low current valuations with a potential holding period of a year to a decade.

Using Santova* (JSE code: SNV) as my example.

Non-asset based logistics company with their own software based in Durban. Always been very well run as witnessed by results and strong steady growth, both organic and by acquisition.

When I fist found it the stock was trading on a PE of around 5x with HEPS for the latest financial year being around 18c (price was 90c) and dividend of 2.5c.

I ask myself how easy to double that HEPS in 3-5 years? That requires growth in HEPS of some 15%-25% growth a year. For Santova, very easy.

Then I ask what a fair PE should be for this sort of stock? In the case of a logistics company I feel around 13x is fair with wild being 20x.
So if HEPS doubles (share price doubles) and PE moves to 13x from current 5x share price goes up another 160%. This takes a 90c stock to around 335c in 3-5 years.

Maths all adds up and I buy and wait. Often a very long wait hence I like a dividend to pay me while waiting.

HEPS growth comes in and slowly the PE starts to improve and HEPS is 44c for 2018 financial year while PE is now 9.7x and share price is 435c.

Do I add more? Well I do the same math again. Can earnings double in next 3-5 years (I think it can, meaning HEPS of 90c).

Has PE got space to expand? Yes I still think a 13x PE is fair which targets a share price of some 1170c.

Now a few extra thoughts.

• Firstly a fair PE here is 13x, but a wildly crazy PE is possible and could be 20x (50% of fair target PE). That would add another 50% potential price growth (share then 1755c). But I would only be adding to the position with the current PE well below the fair target (13x) in this case, ideally current PE at least a third below my fair PE, so around 9x.
• As important is the question about the actual business. Has it delivered? Does it continue to offer great promise? In other words, does the story from when I initially entered remain in force?

As the story and price continue to keep playing out I keep on holding and adding.

A last point. What will trigger the stock to move and rerate higher? Sure HEPS increases helps but the PE can stay stuck forever and I need both HEPS and PE to increase. hence I especially like stocks that pay a dividend as this pays me while holding and waiting.

* I hold ungeared positions.

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Simon Shares

• Fidelity in the US is no offering two of its index funds at zero fee. They do this partly perhaps as a loss leader but also they can generate revenue via script lending. I think we'll see negative fee funds (they'll pay you to hold) in time and even locally in South Africa zero fee funds are possible in time.
• Local July tractor sales came in at 525 units vs. 508 in July 2017.
• MTN (JSE code: MTN) results looked bleak. Even if you add all the 'one off issues' back into HEPS it's only 280c. As Ian Stiglingh pointed out on Twitter, we knew it would be a large miss as expectations (consensus) was for a large increase in HEPS and anything above 20% requires a trading update. So no update meant a miss.
• Apple (NYSE code: AAPL) is now worth $1trillion having listed in 1980 with a $1billion valuation and since then done almost 20% a year annualised return excluding dividends. On a PE of some 18x it is not even expensive compared to others such as Amazon on a PE some 5 times higher. I know Apples and Amazons, not really comparable and Apple has had it's ups and downs along the way.
• Wealth for three generations in one tax-free account
• 23 August ~ JSE Power Hour: Three Ramaphosa Rally Recovery Stocks
• 30 August ~ JSE Power Hour: Practical trading setups and rules
• 06 September ~ JSE Power Hour: Structuring your investment portfolio

Is it a buy?

No it is not. I have been asking and been asked this question for twenty-three years. Way back in the late 90's whenever somebody mentioned a stock on IRC or the email / user groups I belonged to I would ask if it was a buy. Mostly the answer was no, but even when it was yes - I never bought. So I totally understand the question.

These days when I Tweet about a stock I get the question and my answer is at best no. Even if it is a stock I am buying my answer would be "I am buying" (and my portfolio is online here). But that does not mean anybody else should be buying.

Here's why even shares I am buying are not always for anybody else.

• What's my risk profile compared to yours?
• What's my overall portfolio construct compared to yours?
• Our respective ages and so the list goes on.

What's my expectation and valuation compared to yours?

But I understand where the question comes from, heck I have asked it often enough of people. The market is frankly large, scary and unknown for everybody, especially a newbie. As a newbie we want some certainty and the 'experts' can in theory give us that certainty. Unless of course it is all those experts telling you to buy Steinhoff before the fraud news broke out into the open, and even then many rated it a buy stating that the assets were worth at least 2500c a share.

An important point here, just because a stock has fallen does not mean it is a buy. Again witness Steinhoff. But even with MTN. I don't like the sector or the stock regardless of price, so for me it is never a buy. Of course I could be wrong about the sector and the stock - that's what makes a market, different views.

Of course even if the 'expert' says yes buy it, one doesn't rush out and buy because we discover that that does not reduce the fear, the fear of losing money.

So here's how to get in as a newbie.

• Firstly get your tax-free account going. Buy some Exchange Traded Funds (ETFs) and forget about them.
• Then get some free cash for buying individual shares. Decide on sectors you think will be good investments and start digging around the shares in those sectors.
• Then when somebody says a stock is great (be it David Shapiro on BusinessDay TV, me on Twitter or whoever), you don't buy, but rather you use this as a trigger to do deeper research into that stock.
• You're still not buying, but you're learning and you're also building a list of shares worth keeping an eye on. You're tracking their prices and their results - all the while your tax-free portfolio is working away in the background.

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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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Simon Shares

• Jacques Magliolo and Business Consultants International (BCI). Two people have recently emailed me about this gent and his company specifically about the FSB warning against him and the company in September 2017. One emailer has already lost money the other wanted to know if he should worry about this as he wanted to invest money. Simple answer is always do a Google search before invest and if you find a FSB (or FSCA as they're now called), be very worried and run away. 
• Last week I warned to stay away from Safcoin and offered them the right to reply. I have heard nothing back from them so I assume they happy with what I said? Further Twitter has dug up a lot more making the whole Safcoin even more dodge.
• Lots of panic about the Tuesday evening statement from President Ramaphosa regarding land restitution without compensation. My advice (and this always holds true). Before checking the screaming Twitter and media headlines read the actual statement and while you're at it also read the ANC statement from the 2017 elective conference at Nasrec.
• I am getting a lot of questions about impact farming from, specifically the offering from the Fed Group. A few questions in return. Counter party risk is likely very low here, the Fed Group are legit but that doesn't mean the impact can't go bust - just that Fed Group unlikely to run away with your money. Bigger question is why do you want to start investing in alternative investments? The returns are more or less in line with long term JSE returns, but they have to be at a higher risk (less over sight, niche, new etc.). At best this really is for your FU money that you would otherwise use to invest into Whisky and then drink one dark night.
• Ellies (JSE code: ELI) results show HEPS of some 8c while price is 32c - a historic PE of 4x. They looking good but aren't totally out of the woods and this is a risky punt.
• Wealthy Maths: How to calculate VAT
• The Fat Wallet Show - How to buy a house
• Upcoming events
  • 23 August ~ JSE Power Hour: Three Ramaphosa Rally Recovery Stocks
  • 30 August ~ JSE Power Hour: Practical trading setups and rules

Keep winners. Sell losers

From time to time people ask me about their portfolio. In all cases they wanted to sell their winners and keep the losers.

I've been there. In the late 90's I was off on a holiday and needing some money figured I'd sell one of the two warrants I held. One was a winner and the other a loser, so I sold the winner. The emotional reason was simple. Sell the winner to lock in the emotional thrill of a winner and keep the loser in the hope it'll become a winner and I won't have to have the emotional hit of a loser.

Of course this logic was kinda like marrying your ex.

The wining position is what we should be keeping. It is winning which means we're on the right track and the loser is showing us we're wrong and we should get off that track.

My trick for selling losers is simple. Sell it, delete it off your watch list and never look at it again. Go so far that if I am talking about it here, jump ahead. If BusinessDay TV talks about it, mute the sound for a few minutes. Just get it out of your life. This we we have no FOMO.

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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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Simon Shares

• Steinhoff (JSE code: SNH) almost 400c then under 200c. If you're in SNH understand you are trading it, this is not a recovery story. Nothing wrong with trading but rule 1 is stop loss and rule 2 is profit. Don't forget either.
• Blue Label (JSE code: BLU) back below 900c. I have no idea what the story is here regarding the collapsed share price and neither does anybody I speak to. Results due late August and a trading update in the next week or two. Best is to wait for clarity from the results.
• Kumba (JSE code: KIO) results show what happens when everything comes together for a single commodity stock - cash flow galore and dividends. They're paying 1451c for the first six months.
• Sabvest N (JSE code: SVN) is doing a book build for two of their larger investors who want to exit. They are a holding company and the price is a discount to net asset value (NAV) of about 36% when a typical discount would be 15%-20%. This book build should improve liquidity and ideally help close the discount gap, but first have a look at their underlying companies they hold because while a steep discount is nice, they holdings are ultimately what you are buying.
• OUTStanding Money: Why do I want money?
• Investing in BBBEE schemes.
• Upcoming events
  • 23 August ~ JSE Power Hour: Three Ramaphosa Rally Recovery Stocks 
  • 30 August ~ JSE Power Hour: Practical trading setups and rules 

Safcoin - stay away

I first saw them on my Google news feed, a promoted story on IOL.

Safcoin, not illegal but going to end in tears. That I guarantee. They're pre-selling 500,000 in an ICO at R70, then there are another 5million. In short the market will be flooded with these coins that have no use and sellers will drive the price to zero. Stay away.

Read their white paper and then compare it to the white paper for Ripple or Ethereum. This white paper is just marketing material.
Where does the money from the ICO go? A white paper should detail expenses etc. With Safcoin we can only assume that the R35million (500k coins at R70) goes to the founder (Neil Ferreira).

What of the other 5million coins? Who holds them? Again I assume Neil Ferreira. What I also don't know is are the initial 500k ICO coins included in the 5million or added on top?

How do I mine them?

Who is the team behind Safcoin? On Twitter Neil Ferreira said they had a team of 12, but no mention of who this team is and typically one trumpets your team for their expertise.

Who are the auditors? On Twitter Neil Ferreira said they were SmartDec Moscow Russia but we have no confirmation of this, have asked them on Twitter, as yet no reply.

Coin limit is apparently 5.5million, but when you check the website he used to create them (yip not their own code even though they claim 12 people involved) it says 222billion coins. That's about US$1trillion! Heck out government should start a coin and clear our national debt.

Ask you self what problem does this new coin solve? If it is not solving a problem then why will anybody want to buy it? No buyers equals over supply and price crash.

Consider the fact that over half of new ICOs fail, and this is a conservative estimate. I have seen stats that suggest less than 10% of ICOs ever get to market.

Scams, Scoundrels And Multimillion-Dollar Frauds: How To Check An ICO Isn't A Con

They mention they will list on local exchanges. Which?

Smarter people then me asked on twitter (with no answers);

• What mining algorithm does your blockchain use?
• What is the consensus algorithm used by the project and how was it picked?
• Where do the tokens fall on the Howey Test?

You get paid a 5% referral fee if you send people. Referrals always bother me, they smack of pyramid schemes.

As I said up front, not illegal. But before you rush off with your hard earned money, do some homework and 5 minutes on this coins offering and it is not going to make anybody a single cent - except for Neil Ferreira. On listing Neil Ferreira could use his income from ICO sales to be an active buyer pushing the price higher, but this never works for long as eventually one runs out of money and real demand reverts to what it really is - and here it likely is zero.

I could go on and on with the issues about this new coin. Short version remains - stay away.

Another local crypto scam, this time called Safcoin

/ 500k offered at R70 = R35m (nice work if you can get it)
/ After ICO 5m will flood market
/ No details on how I can mine
/ Paying referrals (always dodge)
/ Lots of paid copy (such as link below)https://t.co/PqoZyHyIsq

— Simon Brown (@SimonPB) July 24, 2018

JSE – The JSE is a registered trademark of the JSE Limited.

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Simon Shares

• I was at the Mandela Lecture on Tuesday at which Barack Obama spoke. A special day. A truly talented orator and a speech well worth watching.
• Famous Brands* (JSE code: FBR) CFO quits. Now directors are always quitting, but the CFO when you have indigestion from a over priced UK burger?
• JSE (JSE code: JSE) trading update is strong. HEPS to be 30%-40% higher. In part thanks to a tax credit, retrenchments from last year kicking in the savings but also they say increased revenue.
• Rand slowly moving stronger. According to the big mac index, it should be R5.63/US$! 
• A listener asked abut Group 5 (JSE code: GRF). A nasty chart and this after a R1.6bn offer by Greenbay (JSE code: GRP) for their European Toll assets they now have a market cap of some R120million. This suggests the rest of the group is totally bankrupt, which it may be and while it appears to offer great value, this is a globally tough sector I continue to stay well away from.
• Platinum around $820, lowest price since the post bubble crash in 2008 and before that 2004. Wayne McCurrie says on Twitter there is also the biggest net short position since 1999. This is a horror for the miners and another sector to stay well away from until we see some decent upside price action. Not just a few $ higher, a real sustained looking rally.
• Cash Club: Forget about the Joneses

Make habits not goals

We tend to focus on goals. I want to be a millionaire, a billionaire. I want to be a successful trader. I want to invest like Buffett and so on.

But we do it wrong forgetting the steps to reaching the goal. These steps are the habits that ensure success.

If your goal is to run a marathon, you don't start off one cold morning at the start line for a 42.2km run. You start with getting off your couch and trying a small walk to the other couch. Then maybe a short jog to the bottle store for supplies and so on until one day you do complete a full marathon.

The large scary goals are seldom achieved because they are mono focused and overly large. So large in fact that we forget that a goal is actually a series of small steps that taken together get us through the journey.

So instead of large scary goals, focus on forming habits. Winning habits that will help us reach the end. Habits that in time will become second nature to us.

Focus on the small steps. Improve them. Review your trading and investing, where are you make mistakes? How do you improve and stop the mistakes? Focus on single issues that are holding you back and find ways for you to do them better. Focus on one or two small things until you're a master, then move onto the next one or two areas. You'll never run out of things to improve and you'll always be getting better.

Do perfect trades. Become ruthless with stop losses. Only buy quality. And so on.

Identify your problems and work to fix them.

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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Simon Shares

• JSE Direct is ten years old. Started 8 July 2008 on Classic FM.
• Aton out smartens Aveng (JSE code: AEG) and Murray and Roberts (JSE code: MUR) with a 25.4% in Aveng that can effectively block any special resolutions such as a take over. Alternative if the deal between MUR and AEG goes ahead, Aton will get MUR shares as a AEG shareholder which should ensure they end up with 50% +1 and in complete control at MUR.
• Torre (JSE code: TOR) is maybe delisting. There will be a shareholder vote and if it passes you'll either get the money or remain a shareholder but in an unlisted company. The later is a horrid idea as liquidity and price discovery is typically zero. I Also think we'll likely see more small cap stocks delisting.
• What can you do?
  • Vote. There will be a vote by shareholders and you have every right to vote against it and as a delisting requires a special resolution 75% +1 is the required minimum to pass.
    • Organise. Find other small shareholders (easier said than done) and get them to vote against.
    • Talk to management and large shareholders. You may be a small shareholder but you have your rights and potential influence.
    • Fight against interested parties voting.
    • Using above also try and get the price raised.
    • At the end of the day, if you're in the minority you lose. That's how voting works.
• OUTstanding money: Saving tax-free
• Upcoming events;
  • Investing in BEE

Inside Easy Equity users

Easy Equity recently did a user survey with over 6,000 responses and I sat down with Charles Savage (CEO of Purple Group & Easy Equities) to chat around he main findings.

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Simon Shares

• Steinhoff (JSE code: SNH) results = nasty.
• Aveng (JSE code: AEG) get their money and price falls to 9c.
• Top40 vs. Rafi.
• The most tax efficient entities
• Upcoming events;
  • Investing in BEE

Inside the robo advisor

Robo advisors are all the rage these days but I wanted to know what's inside the robo so I sat down with Grant Locke, head of OutVest for a geeky understanding about how it all works.

SE – The JSE is a registered trademark of the JSE Limited.

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Simon Shares

• Markets have been falling, and the world has not been ending.
• Long4Life* (JSE code: L4L) has announced a purchase of Rage for R3.915billion with EBITDA of R360million. That's expensive and as they're issuing new shares for much of the payment also a chunky dilution. Management say the deal is not yet a done deal.
• Steinhoff (JSE code: SNH) results are due on Friday. They may not arrive and if they do they're going to create all sorts of excitement. But don't get sucked in, SNH remains a trading stock and nothing more. Reports I am hearing from VBE is that they consider the company bankrupt, and that's before the billions VBE hope to secure for shareholders.
• The Tekkie Town sellers continue their fight with Steinhoff Retail Africa (JSE code: SRR) and it's messy and it also suggests that maybe Markus Jooste wasn't the only problem at Steinhoff?
• BusinessDay is reporting that Christo Wiese has sold another chunk of his Shoprite* (JSE code: SHP) shares. This time via a book build to institutions, not via open market and leaving him with about 14% of the company.
• OUTstanding money: Getting rich takes time, not money
• Year-to-date going nowhere
• Debt in high-income households
• When to sell long-term investments
• Upcoming events;
  • Investing in BEE

* I hold ungeared positions.

Pricing power

Some industries have zero pricing power such as the mining industry who are price takers - a horrid space to be as your costs rise and you have zero control over income. Sure you can increase production to try manage income, but that often impacts supply driving prices lower as we see in the platinum industry.

Construction also has very little pricing power when building something is now pretty much just a commodity with stiff competition all competing for the same contract with price being the only key difference.

Telcos have little real pricing power as data is data so they are trying to make it all about the added extras.

I like to invest in industries that can determine their own prices to varying degrees.

Luxury cars are priced more on what the market will bear rather then actual cost of manufacturing. This is great for margins and profits but tough to sustain.

Luxury jewelry is the same, price is more about status and looks then cost to produce.

Burgers for example have pricing power but it is limited by two factors. What the customer can pay and what the other burger seller is charging. But you do have a fair degree of power ~ just be careful of UK gourmet burgers:).

Retail also has fair pricing power albeit to different degrees. Luxury certainly has more power than consumer staples, but the later has power in that they are staples.

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Simon Shares

• Basil Read (JSE code: BSR) has filed for business rescue and nobody should be surprised. Blaming government and labour is also weak, construction is a weak industry and only really boomed in the lead up to the world cup in 2010 (not forgetting the price fixing). Of concern was that the stock was not suspended until Monday lunch time and it turns out it a settlement issue. Apparently "Someone bought BSR at 1c in on Friday now it turns out the seller does not have the stock. JSE trying to reverse."
• Liberty (JSE code: LBH) got hacked. Exact details are scarce as I record, the company is saying it was "largely emails and possible attachments" and that no clients have lost money. Well maybe not yet. But you email all sorts of personally stuff to a long-term insurer; bank details, residential address, medical, etc. That frankly puts clients at risk. Bigger picture is that our future unfortunately includes us being hacked sooner or later.
• PPC (JSE code: PPC) results were not exciting and they have challenges. Local is weak, DRC is having issues already. Not a stock I would want to be holding.
• I honestly am not sure what the deal is with trade wars. Not in the sense of if Trump is serious or when they'll happen nor to who or what. But if they do happen they are bad - end of story.
• The Rand is under all sorts of pressure and the hysteria is out in force. So to clear some of it. We're not at risk of an emergency rate hike. This is not because of local protests, land expropriation, it is a general Emerging Market (EM) rout right now. But it is looking ugly for EMs with currencies and markets under pressure as investors flee. Will this get worse, a little or a lot? No idea. So as always here's what we do; as a trader - obey your stops. As an investor - don't panic and buy quality and great prices, but no rush.
• A question on investment club tax
• OUTstanding money: What is investing?
• Tech ETFs by a tech guru
• Upcoming events;
  • JSE Power Hour: When to sell long-term investments

The smart money myth

I hear it all the time - the smart money which typically seems to translate into somebody with lots of money. A big trade goes through the market and everybody is talking about smart money? There is no smart money. Money does not talk and having lots of it doesn't make somebody smarter than anybody with less.

So why did Christo Wieses money warn him?

Also witness Steinhoff (JSE code: SNH). Including preference shares total value was some R300billion now a few million and the smart money all owned it up at the lofty levels. When the story broke Coronation (JSE code: CML) wrote a long letter saying they were holding on as all will be fine. Yet news last week is that they have bailed. They did the same with African Bank (JSE code: bankrupt)

Read Fooled by Randomness by Nassim Taleb. We ascribe behaviours to money and people with lots of it that is simple seldom true.

There is no smart money, just money. You can of course make smart money decisions and that would include not blindly following anybody.

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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

Simon Shares

Stor-age (JSE code: SSS) results were totally solid and in a very niche property space that is doing very well. When they listed a few people recommended them to me and I wasn't convinced. Well I was wrong.

Sasol* (JSE code: SOL) was one of the first stocks I ever bought and my longest holding in my 'til death do us part' portfolio having first bought it around 1994. A few years ago I gave serious thought to exiting, but held on albeit deciding not to add any more to my portfolio. But I have been thinking and digging and frankly it is a change company and looking good. The Lake Charles project has been a mess in terms of cost over runs, but it is now nearing completion and that means two important points. Firstly, no more spend on the development and secondly in a few years the profits will start to flow from the project (even if they're not as great as promised). So I am starting to buy again, however my usual pricing methodology doesn't work here for two reasons. Massively cyclical always breaks my method and Lake Charles changes things. So asking around the view seems to be that HEPS of some R60 is possible for 2021 and if we apply the average PE of 9.3 that equals a price of R558, so that's my fair value and I am happy to buy at the current R488.

Help, I've lost money!

OUTstanding Money: Types of savings

* I hold ungeared positions.

I don't own offshore

In the last few weeks a number of people have asked me about what offshore shares I own. The answer is simple, none. I do own a small holding in VOO which I bought in 2002 with some offshore money I earned, but that's it.

Here's the thing, I know a lot about the local market and a little about even the smallest shares on the JSE. I have spent literally decades investing and trading on the JSE and hence decades building my knowledge of our market. Further it certainly helps that it is a small market, so it makes life easier and let's not forget that watching and studying the JSE is in part my job.

But as soon as I step offshore the size and complexity of the market is frankly over whelming. The NYSE has three times more ETFs then the JSE has stocks. Globally there are some 100,000 stocks. How does one select which are the best of the best? This is more than a full time job, this is a full time job for a full sized team.

Chatting to somebody recently they mentioned they wanted to buy Honda. I have no idea if it is a good stock or not. But what of the other US motor companies (Fiat Chrysler, Ford, General Motors, Tesla, Toyota) and then what of those listed in Europe where there are even more listed? Does Japan have any listed? Suddenly you have to be an expert on dozens of motor stocks to decide if the one you want is the out and out global winner.

Now I know the response. In the above example we don't have a single motor company we can invest in. Our Tech stocks are frankly wildly boring and disappointing, Naspers (JSE code: NPN) the exception, a lucky exception. Our market is small in more than just number of stocks, it is also small in terms of industries. But we can buy a tech ETF, and yes we can't buy a motor company ETF. But I am comfortable with that because frankly the risk is I buy the wrong motor company anyway.

Am I being lazy? Maybe. Or maybe I am being realistic abut my abilities and time available to become an expert.

These days I get offshore exposure via dual listed and global companies and locally listed offshore ETFs, keeping it nice and simple.

Another issue with offshore is costs, it is a lot cheaper investing offshore then it has ever been for South Africans. But it is still not cheap and with offshore assets you now also need a second will in the country in which those assets are held. More costs and more complexity.

Here's a random stat to show how little we know. Google (Alphabet) and Dominos Pizza both listed in 2004. Which has a better return since listing?

Two revolutionary companies went public in the summer of 2004. These are their returns...
Google (Alphabet): +2,020%
Domino's Pizza: +3,607% pic.twitter.com/SOtqOHjM4a

— Charlie Bilello (@charliebilello) May 29, 2018

123

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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.

Curro AGM; titbit. At 53% current capacity utilisation COH made 49cps in FY17. With NO NEW SPEND CEO says if it was at 90% utilisation FY17 earnings would have been 201cps showing how growing into latent built capacity can now power Curro's earnings growth ahead

— Small Talk Daily (@SmallTalkDaily) June 4, 2018

• OUTstanding money: Choosing between saving and investing
• Upcoming events;
  • JSE Power Hour: When to sell long-term investments 

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.

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• OUTstanding money: Saving and investing are not the same
• How to be financially independent with Patrick McKay
• Finding dividend superstars
• Upcoming events;
  
  • JSE Power Hour: How to identify quality stocks

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.

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Simon Shares

• I am traveling again this week so recording on Monday.
• Consolidated Infrastructure Group (JSE code: CIL) seems to have a life line albeit existing shareholders will be diluted by some 50%. With the issue at 400c and the share below that price no need to follow your rights, just buy in the open market if you want.
• Upcoming events;
  • JSE Power Hour: How to profit from SA mining
  • JSE Power Hour: How to identify quality stocks

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.

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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.

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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;
  • Fat Wallet 100th celebration 
  • JSE Power Hour: How to profit from SA mining 
  • JSE Power Hour: How to identify quality stocks 

* 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.

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.

• Subscriber to our feed here
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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.