Can you describe your portfolio of equity investments?
Largely diversified. However, as a consequence of the strategy mentioned below, my long-term equity portfolio has over time become skewed towards Kumba, Exxaro, Old Mutual Group and Santam. Such stocks are significant niche players, and offer high dividend streams. Relative to the indices I also have underweighted positions in other high-cap stocks such as Richemont, Naspers and SABMiller.
How did you select these companies and what do you look for as an investor?
Firstly, my equity investments have to be understood in the context of a broader portfolio that includes bonds and other asset classes both here and abroad. While I do mix the asset allocation to suit evolving economic conditions – for instance, I may hedge or lever my exposures in my short-term portfolio – at the moment I have 65% of my South African portfolio in JSE equities.
My principle view is to buy stocks for the long term: in essence, I buy with a view to never selling and indeed seldom do. I therefore look for stocks which have long-term staying power over a number of criteria. A second aspect of my strategy is compounding: I always reinvest dividends into the same stock – but often delay the re-investment to take advantage of price movements through the next reporting quarter.
Over the long-term the compounding strategy works well but does have the effect of skewing the portfolio towards higher-yielding equities. With a long-term view, given the long-term bull market that we have experienced when there is a significant price mark down, diversified quality tends to recover swiftly. In addition I always keep a certain percentage of this portfolio liquid in order to take advantage of such opportunities (and to take advantage of specific corporate actions).
As to choosing specific stocks, I look for companies that already have a demonstrated dominance of their niche (rather than promises of growth), and have consistent positive price momentum. Having chosen a company based on its fundamentals I then estimate a value line using my own criteria and time my purchase when the market value approximates that valuation. Should a stock not reach a price that I perceive as acceptable, I do not buy.
What returns have you had to date?
Over the past decade my returns have been in excess of 24% a year, though I do not anticipate such high returns in the near future. As a consequence of taking a long-term view it becomes unnecessary to calculate the returns per stock: I simply look at the net asset value of the portfolio adjusted by cash-flows. As I am continuously in the market I can make adjustments whenever necessary.
When one takes a long-term view, you need to view the market from a very different perspective. Over extended periods of time equity markets tend to go up and up – but the investor should be aware that over 40% of the return on long-term portfolios comes from dividends and corporate actions.
Short of an existential crisis and subject to volatility, the macro-economic environment and the interest rate set-up ensures that South African equities should remain attractive for the next few years.
With a good stock selection and by carefully managing dividend flows, one is able to outperform quoted non-total return indices such as the JSE ALSI40. Additional corporate actions such as splits, M&A, in specie dividends and special dividends, when well managed, offer a significant boost to returns.
Hedging is a key decision that needs to be constantly re-evaluated and is a vital weapon in the armory. In 2008 I hedged too early and missed a lot of the upside when I judged that the market had got ahead of itself. Initially it seemed like an expensive mistake – but when the markets cracked the decision was proven correct. In that respect long-term portfolios are a little like piloting an oil tanker!
Who is Mark Wilkes?
Mark Wilkes was among the first traders to take the South African RPE exams (MIFM number 01) and traded bond futures on the first day of futures trading in South Africa. He has traded equities and equity derivatives for several years on the floor of the JSE and traded independently across multiple markets for a number of years.
His main areas of interest are firstly, macro fund management perspectives dealing with the inter-relationships between currencies, commodities and key market indices internationally, and secondly, principal South African equities and ZAR based assets. The combination of these two complement both the spread and CFD offerings made by GT247.
Wilkes has a broad and deep knowledge of the South African market and will always have a trading view responding to current market developments backed up by technical considerations.
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.
5 Insider Tips Every Trader Needs to Know
Here are five insider tips that every trader needs to know.
Like in every profession, there are a lot of figures circulating regarding how many forex traders actually make money, and how many traders lose more money than they earn. We are not going to launch into speculations that we can’t prove with accurate statistics. However, there is one thing we can say without citing any official sources: there are more people losing money than those earning.
Why? The answer can be found in the annals of human psychology. Some go into forex expecting to get rich overnight, while others do not (understandably) have the time to dedicate themselves fully to this activity. So what can you do, concretely, to join the group of people earning money? Here are five insider tips that every trader needs to know.
1. Choose a Methodology and Stick With It
Even before executing your first trade, you need to have a rough idea on what you will base your decisions on. In this sense, you must know what intel you will need to make the appropriate decision, like when to enter and exit a trade, which timeframes are the best (more on that later) and so on and so forth.
Some people are partial toward fundamental factors (foreign investments, inflation, unemployment rates, and other economic indicators), coupled with a chart, for executing a trade. Others prefer the raw numbers and stats of technical analysis.
But, whichever methodology you choose, make sure to be consistent and that it is adaptive, as there is no objective way to tell if one is truly better than the other. The most important thing to consider is whether or not your methodology and the strategies built around it are adaptive enough to keep up with the changing dynamics of the forex market.
2. Always Calculate Your Expectancy
Expectancy is a formula that traders use to determine how reliable their trading system is. It involves going back in time to your previous trades (a journal will come in handy here), measuring how many traders were winners versus losers, and then finding out how profitable your winning trades were as opposed to how much money was lost after bad trades. The formula is as follows:
E=[1+(W/L) x P – 1, wherein W is the average winning trade, L represents Average Losing Trade, while P is Percentage Win Ratio.
3. Define Your Trading Goals and Build a Strategy Fitting of Your Personality
Most forex beginners come into the market thinking that they know everything that one could possibly know, without any sort of long term plan or concrete goals. This is the one mistake that eventually leads most traders to quit forex, because the reality of the market – and the trade itself – will hit them straight on sooner rather than later.
Therefore, the first thing you need to do is set a couple of goals. Start small and realistic at first – do not set yourself for winning a ridiculous amount of money in the first months because you will be sorely disappointed.
After setting the goals, you can start looking at various trading strategies and see which ones will help you achieve these goals and, most importantly, whether or not they are a good fit for your personality.
Some helpful questions to ask in this case are in the lines of ‘’Do I feel comfortable holding positions overnight?’’ or ‘’How much risk am I willing to assume for a given trade?’’, ‘’Am I more comfortable following a trend or betting against it?’’, ‘’Will I trade to gain some additional income, or full time?’’. Another equally viable method which will help you asses your strengths and weaknesses is doing a personal SWOT analysis.
4. Make use of Multi Time Frame Analysis
Regardless of whether you are a swing, day or long term position trader, it is highly recommended you always approach trading in a top-down fashion. This technique involves starting with a higher time frame chart and gradually zooming down to your current trading time frame chart. By doing this, you can get a ‘’big picture’’ view of the price action.
This tip is important because many traders commit the grave error of building their trading decisions around the time frame in which they are currently trading. For instance, when a trader sees a hammer candlestick pattern on a five-hour chart, they push forward with the trade without considering what might happen in the following time frame. What you are doing here is similar to a game of chess – you have to think a few steps ahead and choose your forex trading products and tools wisely in order to land a successful trade.
5. Do Not Use More Indicators Than Necessary
Indicators are simply visual representations of market realities that show things such as price movements, patterns and the like. As useful as they are, after trading for a while, you will soon realise that at some point they become quite counterproductive.
Many traders will tell you that the only indicator that you need is price, and everything else is there just to make one understand how the market got to that point. And since succeeding in the forex market is mostly about getting in on a trend before anyone else spots it, you can probably guess why over-crowding your monitor with indicators is not such a good idea.
Whatever some might tell you, forex is not a walk in the park. Like everything in life, it takes hard work and dedication to reach the point where you can state without doubt that you have achieved excellence. However, even the most dedicated and hard-working traders need a push in the right direction in the form of some lesser known insider tips that only traders will know. Hopefully, the tips in this article will provide you with the insight necessary to take your trading efforts to the next level.
Time For An Alternative Investment Approach
The age of high-risk, high-reward thinking may be all but done, for now.
For years the investment formula applied by investors has been to craft a diversified portfolio of assets weighted more towards equities. It made sense to build a foundation on safe, low-risk, low-return capital preservation investments and, depending on your age, allocate a relatively larger portion of your investable income into higher risk, higher return equities.
But is this justified in the local context? While global equity markets have enjoyed a decade-long bull run following the 2008-2009 financial crisis, consistently delivering 10% to 15% annual returns, the JSE has been a perennial under-performer over the last four to five years.
Despite this fact, significant investor capital has continued to flow into local equities, either directly into stocks or via unit trusts, ETFs and endowments. And now amid more volatile global economic conditions, where global indexes have come off record highs in early 2018, local equities are still projected to underperform in the medium-term as the market correction that many predicted gathers momentum.
This shift is symptomatic of the volatility that currently characterises global markets as Brexit plays out, trade wars intensify, and widespread socio-political instability creates systemic economic risks. Yet, investors are still being advised to put their money into higher-risk vehicles.
Further compounding the issue is the fact that the country’s exchanges are dominated by a few large entities, which are all negatively impacted by the country’s dire economic situation. This means local investors must also contend with concentrated risk.
Despite these threats, many financial advisors have stuck to the traditional investment playbook by telling clients to “stay calm and remain invested in equities.” But given the prevailing market conditions, investors can realise better returns from investment opportunities that break from this conventional approach.
Returns from various fixed-rate investments, for example, have and continue to outperform equity investments, and do so without the associated risks.
While reducing risk is not necessarily a key concern for naturally risk-included entrepreneurs, when it comes to investing our hard-earned money we have the power to manage that risk. So, forget the old, pervasive attitude of “no risk, no reward.” It’s dated and, quite frankly, unwarranted.
The new reality is that fixed-term, low-risk investments have become among the best-performing asset classes — a fact that is tearing at the foundations of conventional investment advice. Entrenched beliefs must therefore be challenged, especially when investments that offer security can match or outperform high-risk options such as equities.
So, what are our options, given that fixed-rate investment options currently abound? Well, before diving into a vanilla offering from a bank, consider what your capital is secured against.
Banks generate their returns by lending out pooled deposits in the form of loans and credit. Some of this lending is secured, much of it is not. This can introduce risk into your investment, because the ability of debtors to repay debt is often compromised in a struggling economy, and bad debts will impact the returns that a bank can offer depositors.
Forward-looking secured investments, on the other hand, offer a set rate for five years and are secured against a variety of assets, like Fedgroup’s Secured Investment in participation bonds, which removes significant risk from the equation. These types of collective investment schemes are also regulated to protect investors.
While it may not be prudent to completely disinvest from the local stock market, there is a case to be made to be more circumspect with future investments, matured investments, or that portion of your portfolio that is earmarked for reallocation. With this money, an investment that delivers both capital security and a high, fixed rate of return might well prove more attractive than the traditional wisdom of local equities.
The guaranteed, low-risk returns currently offered by fixed-rate investments have transformed these products from fringe options into mainstream investment vehicles that can no longer be ignored. With the chance to outperform the average equity investor, isn’t it time to rethink your conventional investment approach and consider the lucrative and, more importantly in such volatile times, secure opportunities offered by these alternative investment options?
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