What should investors be using offshore investments for?
Clinton Sprong: One of the main reasons is for diversification. That means not having all one’s assets in South Africa. Furthermore, there are many global companies that provide access to international themes that are going to reshape the future like robotics, artificial intelligence, driverless cars and so on. One just can’t get access to these companies on the JSE.
Philip Smith: South Africa is a small, open economy that comprises approximately 0,4% of global GDP. By limiting your investments to South Africa your potential capital growth is entirely constrained by the vagaries of the local economy. It also means your investment is not able to benefit from the economic growth in more than 99% of the global economy. Similarly, the total market capitalisation of the JSE (approximately $1,11 trillion as of March 2018) is just over 1% of the total stock market capitalisation of all listed markets worldwide (approximately $100 trillion). So, by limiting your investments to the local market you miss out on the equity market performance of approximately 99% of the world. You are also not able to expose your investments to the truly rapidly growing tech stocks like Apple, Amazon or Samsung, as well as flagship global companies like Honda or Toyota. Of course, investing offshore does have a currency component to it, and by investing in offshore markets you are able to hedge against some of the volatility of the local currency. However, the main rationale for investing offshore should be about diversifying your portfolio rather than the rand alone.
David Nathanson: While all countries are subject to their own specific set of risks, emerging market countries are generally faced with greater political and currency uncertainty than developed countries, and South Africa is no exception. The biggest risk facing South Africa is its debt burden, which has doubled since the last global recession in 2008/09.
Excessive debt is the main culprit in any household, company or country that finds itself in financial trouble. In 2008/09, when the last global recession struck, South Africa was in a fairly strong financial position and managed to weather the storm. There was volatility, but no permanent destruction of wealth. Countries like Iceland and Greece were less fortunate: Their domestic stock exchanges have lost 70% and 80% respectively in USD over the last decade. More recently, Turkey and Brazil — countries in a similar position to South Africa — have found themselves in difficulty. Their domestic stock markets have lost 30% and 40% respectively in USD over the last decade. Over the same time period, the MSCI World Index has doubled in USD — global diversification would have served investors in these countries very well.
The point of these decade-long examples is to demonstrate the difference between temporary volatility and long-term wealth destruction. It is the latter that investors should be most concerned about, and this is the risk faced by anyone overexposed to one country, particularly an emerging market country with a heavy debt burden, capital controls and significant political risks.
From an investor perspective, the major risk is actually overexposure to South Africa, and the solution is to invest globally. According to the latest AfrAsia report, wealthy South Africans have 83% of their wealth concentrated in South Africa. Ask yourself, as a global investor, how much of your capital would you risk in any one country, specifically an emerging market that represents less than 1% of the world? No amount of optimism can justify 83%, or even half for that matter.
Fortunately, the case for global investment doesn’t hinge solely on an optimism or pessimism towards South Africa. The upside is that there is a whole world of opportunity out there that South Africans should be taking advantage of. We believe that a portfolio of our 30 best investment ideas chosen from 7 000 stocks globally is likely to be vastly superior in terms of quality, price and diversification when compared to a portfolio chosen from 100 stocks locally.
If the investor never plans to leave South Africa, or start a business overseas, is it advisable that they invest offshore? Why?
Clinton: Yes. Having most of one’s life savings and investments (house, car, pension fund, business etc) in South Africa means that investing offshore allows one to diversify risk and get exposure to world-class companies that are able to expand aggressively given their size, brands and distribution.
Does investing offshore give you a better return than investing locally?
Philip: Not necessarily. For example, if you are invested only in developed markets like the US or Europe then you are likely to get lower returns — at least in percentage terms — due to the fact that economic growth and inflation rates in these mature markets are much lower than their developing counterparts. Where you benefit by investing in developed economies is that you are exposed to hard currency returns and are also able to access truly blue chip, global stocks. However, if you invest in an emerging market fund, you could potentially get higher returns than those available in South Africa as many developing nation economies, particularly those in Asia, are growing at a much faster pace than South Africa, which is currently experiencing very slow economic growth.
Clinton: All markets move in cycles. Global equity markets have certainly provided superior returns over the past three to four years. Global economies have been growing at between 3% and 4% per annum versus a 0,5% and 1% growth in the South African economy, which lends itself to better returns from international companies.
David: A wider opportunity set can be a massive advantage if it is used correctly. This depends on whether or not you have a strong investment process, and on how you apply it. If you apply indiscriminate diversification, you shouldn’t expect superior returns, though you would reduce country-specific risks. If, instead, you apply a great investment process to choose your best ideas from a wider global opportunity set, you should expect these investments to do better than your best ideas chosen from the narrow local market. This can be done without sacrificing the benefits of global diversification.
For those investing offshore, what would be the benefits and risks of investing in emerging markets versus developed markets?
Philip: The advantage of investing in an emerging market fund is that you are able to gain exposure to high growth economies with significant scale like South Korea, India, China, Indonesia, Thailand and so on. These markets tend to have much faster rates of economic growth than developed markets and also tend to have fairly favourable long-term demographic underpinnings (i.e. a young population of aspirant consumers who are likely to help drive economic growth well into the future). However, the advantage that many developed markets have is that they still contain the bulk of the truly blue-chip global stocks and also offer arguably more stable, predictable currencies. Emerging markets tend to be highly reliant on exports to developed nations and anything that imperils that ability to export can immediately impact their currencies. In a global geopolitical environment where there is an increasing risk of trade wars, one only needs to look at recent developments with the Turkish lira, to see that emerging market currencies can be very vulnerable to external shocks, which can negatively impact your returns.
Clinton: Emerging markets have historically been attractive investment destinations as their economies have often grown in excess of developed markets. China for example has been growing in the high single digits for a decade. However, the risk of a South African investor investing in an emerging market is that it reduces the benefits of diversification, as in most cases if there is a crisis in one emerging market, all emerging markets, including South Africa are affected.
There are professionals advising people to invest in a global account when saving for their annual international vacation. Is this good advice? Is offshore investing for short, medium or long-term investing?
Clinton: An individual’s investment horizon is dependent on their needs, goals, and risk appetite. Depending on this there would not be a problem dividing one’s investment goals into short-, medium- and long-term ‘buckets’. One may find however that the short-term bucket has less exposure to growth assets like equities, while the long-term investments have a much higher weighting to equities to cater for better long-term growth prospects.
Philip: It’s advisable to save in the currency that you intend spending. So, if you’re planning on taking a holiday in Europe and are able to save monthly in euros then you can insure yourself against the risk of a sudden negative move in the rand rendering your holiday unaffordable. However, saving in foreign currency is not entirely fool-proof, as history has shown that the rand can experience both aggressive negative falls and dramatic pull backs. It is entirely possible that you could spend six months to a year saving in dollars or euros only to end up seeing the rand experience a bout of prolonged strengthening when you’re getting ready to take your overseas holiday. However, the safer of the two options is probably to save in the currency in which you intend spending the money, as it gives you an element of certainty that a sudden currency swing won’t leave you with less money than you anticipated.
(Infographic) The 10 Things You Should Cover In Every Investment Pitch
If you want to wow potential investors, you need to cover your bases.
If you’ve ever watched Entrepreneur’s original series, Elevator Pitch, then you’ve probably seen smart founders make dumb mistakes while pitching their ideas to potential investors. They might flub an answer or get tongue-tied, or they might just be a little boring. Other times, you might notice that something seemed off about a pitch, but you can’t quite put your finger on why.
Investors are gambling every time they put money into a new project or idea. Your job when pitching is to prove to them that you’re worth the risk. That means you’ll need to not only show them the possible upside of what they have to gain, but also be clear about what they could possibly expect to lose and their odds. In other words, you need to give them a holistic view of what you do, not just the one good idea.
You might have pitched an investor yourself and thought you crushed it, only to hear that the investor isn’t interested. If that’s the case, there’s a chance the pitch was missing one of 10 essential elements.
This infographic by Buffalo 7 breaks down 10 slides you should have in your next investment pitch deck. If you’re not presenting formally, though, you can still keep track of these aspects in your head and make sure you cover each one. They include:
- The vision, where you concisely explain your idea.
- The problem. Why is your vision necessary or helpful?
- The opportunity. What is the market size, and how can you position yourself to earn a share of it?
This is just the start, though. Check out the infographic below to see the rest of the slides you need when pitching investors.
This article was originally posted here on Entrepreneur.com.
‘Shark Tank’ Investors Reveal Top 5 Tips To Make Your Business Famous
Is your business worthy of fame? If so, pay attention to what the Sharks have to say …
Shark Tank enters its tenth season as popular as ever. Over the past decade, millions of people have watched fascinated as entrepreneurs pitched their business ideas and startups in the hopes of winning an investment and support from self-made millionaires and billionaires.
The multi-Emmy® Award-winning reality-based show has had a tremendous impact on the business world and has been a major influence on the increased popularity of becoming an entrepreneur. Over the years, the show has evolved into one of the world’s top platforms to launch a business and recently reached an astonishing $100 million in deals offered in the Tank.
I was recently invited to attend a private event hosted on the set of Shark Tank to celebrate their 10th season and met with all the Sharks and most of the guest Sharks for the current season. This year’s guest list includes luminaries:
- Charles Barkley, Hall of Fame NBA star and TV analyst
- Alex Rodriguez, legendary baseball player and businessman
- Rohan Oza, an iconic brand builder and marketing expert
- Sara Blakely, founder and owner of SPANX brand
- Matt Higgins, the co-founder and CEO of RSE Ventures and vice chairman of the Miami Dolphins
- Bethenny Frankel, TV celebrity, author, and founder of Skinnygirl brand
- Jamie Siminoff, the CEO of RING, who rejected an investment offer in season 5, but went on to sell his company to Amazon for a whopping $1 billion.
My better half was also invited, and we arrived promptly on time at Studio 24 inside of Sony Pictures Studios in Culver City, CA. We were greeted by the cordial staff who informed us that the Sharks were still filming the last takes of the day. After several minutes, we were invited to chat with the Sharks on the main floor where nervous entrepreneurs excitedly pitch their companies to the investors under the bright lights of the studio set.
I was curious to know what excited the Sharks the most about their tenth season and what they believed to be the best advice for an entrepreneur to help make their business famous.
1. Create an ingenious product
When asked, Lori Greiner said, “It’s a mix, right? Of smart marketing and ingenious product. For example, Scrub Daddy was a technology. So, taking that one sponge, which was revolutionary, changed the whole sponge arena. We now have, to date, 20 different SKUs, and we have 30,000 new retail locations and 170 million in sales. That’s what takes it from one idea to a global brand.”
Of course, skillfully promoting your product on a platform like QVC is another excellent way to make your business famous. The day after the Scrub Daddy episode aired, Greiner helped CEO Aaron Krause sell their entire inventory of 42,000 sponges in less than seven minutes on QVC.
2. Leverage social media marketing
During my chat with Bethenny Frankel, she stressed, “Social networking is so important. Also being a little bit disruptive now … and you have to be creative. You have to be creative. The President was the most disruptive candidate that there’s probably ever been in history. He got people’s attention, and young entrepreneurs need to get people’s attention in some way. So be a little disruptive.”
Matt Higgins responded, “I’d say that you have to understand social and digital marketing. You can’t survive unless you understand Instagram, Snapchat or all the tools out there. You have to be contemporary.”
Barbara Corcoran claimed, “Every one of us successful entrepreneurs, for the last two years, were phenomenal at social media. It’s true. No exceptions.”
No smart entrepreneur will deny the power of social media when it comes to making your company famous. With more than 2 billion people worldwide using some form of social media, any business can put their business in front of a large audience, especially if they can create content that goes viral.
3. Build a community
Daymond John stressed the value of building a community. “You’ve got to build a community,” stated John. “Nobody needs to buy anything new in this world. They only buy it because there’s some form of community and/or need that you are supplying for them.”
John speaks from experience. He built a successful clothing empire by creating a vast community of his own via his clothing brand FUBU. John wisely invested in celebrity endorsements, making him an early pioneer of modern influencer marketing.
If you lack the resources to build your own community from scratch, you can leverage the power of others. Partnering with influencers who have cultivated their own communities allows you to introduce your product or service to larger audiences. In fact, some consider Shark Tank to be the world’s largest business influencer platform.
4. Devise a publicity hook to win earned media coverage
Barbara Corcoran also said, “I’d say you need a publicity hook. Some hook, angle or gimmick that grabs the attention unfairly from your competitors.”
Remember, Shark Tank is a unique combination of reality television, business acumen, and entertainment. Doing something unique, different, or disruptive can get you significant media attention and abundant free publicity… especially if you’re able to leverage that publicity and captivate the show’s producers, who decide your fate as to whether you’ll appear on the show.
Regardless if you want to appear on Shark Tank or not, being featured in the media is a way to differentiate your business from the competition and reach a broader audience. Be creative and willing to take educated risks when it comes to getting noticed by the media. You should always be actively building relationships with media representatives and ask for their insights when formulating your plan.
5. Know your strengths and stay focused
When I asked for billionaire Mark Cuban’s insights, he thoughtfully replied, “Knowing your unique advantages, play to that, and your strengths. And focus. You know, what happens is very often people start with an idea, get a little bit of traction, then it gets hard. And when it gets hard, they start looking for other things to do as opposed to playing to their strengths. Because businesses aren’t supposed to be easy. You know, if they were easy everybody would already be rich, and we’d all be sitting on a beach somewhere. And so, when it gets tough, you gotta dig in and work hard. I’d say the final thing I’d add is that sales cures all. There’s never been a business that succeeded without sales. So, if you focus on selling … if you’re able to sell … and that’s something that is one of your core competencies, then you’ll be okay.”
These are wise words from one of the world’s few billionaires.
This article was originally posted here on Entrepreneur.com.
The Best Way To Get Your Teenager To Start Investing Right Now
Jeff Rose advises a young fan on where to start his investment journey.
In this video, Entrepreneur Network partner Jeff Rose talks about receiving a letter from a young investor, who is looking for advice on how to begin investing.
Rose talks about the act of actually doing the investing versus worrying about reading books or asking others about the process. Taking action gets the most results, since you are able to make mistakes and start the learning process. Taking action also leads to more experience, which is to say if you begin investing as a teen, you will be much more savvy about investing as a twenty-something.
In answering this young investor’s concern about investment direction – the fan hopes to balance short-term gain and long-term gain, as well as to establish some padding for a future business – Rose turns him in one specific direction: A Roth IRA. When he was younger, Rose didn’t even know what a stock was until far into his college years; during this time, he discovered the Roth IRA and learned of its compounding power, as well as the accessibility of an initial investment.
As another route, Rose also mentions starting a business. This path, Rose explains, will help you achieve the most return on investment.
Click on the video to hear more tips for a younger investor.
This article was originally posted here on Entrepreneur.com.