Simon Shares

• EOH (JSE code: EOH), so the collapse was because of directors margin calls that forced them to sell? This is an epic disaster, if it was my board I would fire them. A share price collapse has real consequences, especially for a company like EOH that uses their shares for acquisitions.
• Steinhoff (JSE code: SNH) mess continues but an interesting meme occurring in an attempt to make sure the asset managers take no blame. The same happened after African Bank, Enron and other notable corporate collapses. I not saying we should be jailing the asset managers but we should be asking hard questions and having the debate.
  • I am seeing more and more analysis on the fact that SNH was not quality, sure it is in some (but not all) cases after the fact but enough people are speaking out. Yet this low quality stock was valued at around R300billion at its peak and suggesting that it was impossible to tell is an outright lie as proved by many people being short and querying the numbers. Surely as an industry it is important to understand how this happened? Now some managers hunt out low quality as an investment theme, but they are the minority. Pretty much every asset manager will say they buy quality at a good price - but then I ask again, how did this low quality stock end up worth over R300billion?
  • As an industry we are the custodian of peoples retirements, savings and ultimately their dreams - we need to take this seriously and surely, at a minimum, the honest response when we get it spectacularly wrong is to reflect how we get it wrong? Instead I see all sorts of head in sand or finger pointing? Why? Too busy keeping the fees and buying luxury German sedans and Cape Town holiday homes?
• Likely this is the final JSE Direct for 2017. I have many more ideas but need to take a break. We'll be back with our predictions show in January with Marc Ashton and Keith Mclachlan and as always we'll start by scoring our 2017 predictions (find our 2017 predictions here)
• Position your portfolio for 2018 is online (video, audio and PDF).

Asymmetry of investing

The asymmetrical nature of investing is a huge boom to investors. A share we own can go to zero with a 100% loss, but the flip side is that it can up go up multiples of 100%. So even the occasional loser doesn't derail a diverse quality investment portfolio.

The two key points, diverse and quality. If you have only one stock you're at massive risk and if you have a basket of dogs then you're still in serious trouble.

But a collection of quality stocks can survive the occasional blow out as they others run and we only needs a few real winners to make it all work and market beating.

Now in an ideal world we'll never see a 100% blow out because when it's time to panic we'll panic quick, right?

A last word on the asymmetry of trading (as apposed to investing). We have no real floor on loses as we also have no real floor on gains. So it is not asymmetrical and so we have to make it so by being ruthless with stop losses. I have long said my trading success is due to my always taking the stop immediately no questions asked.

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Our signature yearend JSE Power Hour presented by Just One Lap founder, Simon Brown.

Simon looks at what he predicted last year before embarking on his 2018 predictions that include;

• Steinhoff (JSE code: SNH)
• Naspers (JSE code: NPN)
• Bitcoin (BTC)
• The December ANC elective conference, who'll win and how will this impact our market
• Junk status
• The R50billion tax hole looming in the February budget
• Interest rates
• The Rand
• International markets
• Commodities
• His preferred stocks and ETFs for 2018.

The PDF of the presentation is here and video here.

Simon Shares

Twitter poll for tonight's JSE Power Hour presentation ~ What's your expectation for the Top40 in 2018?

Time for my annual poll ..
What's your expectation for the Top40 in 2018 ?#JSE

— Simon Brown (@SimonPB) December 4, 2017

Steinhoff, where there's smoke

Markus Jooste has also quit Stenihoff (JSE code: SNH), Star (JSE code: SRR), PSG (JSE code: PSG) and Phumelela Gaming (JSE code: PHM) boards.

Steinhoff CFO and Star CEO Ben la Grange has quit as CEO of Star, but seemingly stays on at Steinhoff, for now.
It's an oldie but it always true. Where there's smoke theirs fire and locally that is Steinhoff. Forever people have been in one of two camps on this stock. They either loved it or didn't understand the financials and stayed well away. I have always been in the latter camp and recently the warnings have gotten dire and now the CEO is out, results delayed and an investigation by PwC to try and understand exactly what's happen.

Now hindsight is easy, but there has been a lot of smoke around Steinhoff for ages, enough to scare away any investor one would think. I warned as recently as a month ago about this.

For traders the lesson is simple. Don't try and catch falling knives. Sure sometimes it works but when it doesn't you blow up.

Wiese took some R122million SSF exposure in early November at 6146c. This is why we largely ignore director buying.
The company did a share buy back also in early November for about R4,8billion, now worth R1.2billion.

Also a lot of hating on ETFs as Steinhoff was 2.35% of the Swix (which is a truly horrid index) and 1.88% of the Top40. Frankly active fun damagers who liked the company probably had a lot more.

The 7th largest stock in the South African SWIX index is currently down 61% amidst accounting irregularities and resignation of the CEO. pic.twitter.com/NEqwrsBGwo

— Delphine Govender (@Delphine_DG) December 6, 2017

Of course everybody now wants to know if it is time to buy? The answer is no because we simple know nothing except that what we thought we knew is not true. Never blindly buy something where everything is simple unknown. Some saying they have 2500c odd value in Star, PSG & Kap, but then they also have debt that is likely about the same.

Viceroy Research has published their report in Steinhoff and it makes for scary reading.

Lastly, what to do if you hold Steinhoff? Sell. The 'it can't get worse' trope is a lie. It can get worse, it can go to zero.