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Leveraging a Gold Bull Market

Gold: No proudly South African investor should be without some in their portfolio.

Eamonn Ryan

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Prior to a decade ago gold hovered interminably in the $250-$300 range, suggesting that at today’s gold price of about $1 750 (at year end) all the easy money had already been made.

Not so. While the perception might be that gold is at the end of a decade long bull run, Standard Bank head of commodity research, Walter de Wet points out that in real terms it has yet to regain the level of 1980, when it reached $900/oz.

“Gold’s strength is that it has historically been a dependable hedge against inflation and a good alternative asset class having performed well during several recessions. It has kept its value even during recent economic slowdowns when equities and other assets tumbled in unison,” says De Wet.

In reality, behind this apparent conformity to trend, the fundamentals of gold have altered substantially. “Gold used to follow the trade-weighted dollar closely until July 2002, at which time the synchronisation broke down. A number of factors brought about this delinking: China’s economic rise and consequent trade surpluses; the establishment of the Eurozone which enabled countries which otherwise could not do so to issue debt at very low rates; and the development of exchange traded funds (ETFs) in gold which meant instruments did not have to be directly backed by hard assets,” explains De Wet.

Government bailouts supporting gold price

“Today, what is supporting the gold price is the fact that it now tracks global liquidity rather than the US dollar.” It is widely expected that current economic conditions support a continuation of the sharp rise in global liquidity for at least the next three to four years, through mechanisms such as quantitative easing. “In this scenario, what then is a fair value for gold? We believe global liquidity issues alone will justify an average gold price around $1 600/oz, on top of which is physical demand.” Standard Bank expects gold to average $1 895/oz during 2012 and peak at $2 200/oz during the first quarter of 2012 if expectations of a recession materialise.

“We foresee growing global liquidity until such time as China stops being the ‘debt buyer of last resort’ which it effectively has been by running massive trade surpluses — something which will continue until at least 2014/15.

“Even when real interest rates begin to rise globally, we still see the gold price continue increasing. In addition, we expect physical demand to remain strong, as it did during the fourth quarter of 2011,” says De Wet.

In fact, the price of gold needs to remain at least at the level of $1 600/oz because Standard Bank expects costs of production to rise from their current level of $1 150/oz to about $1 600/oz by 2015.

“The short-term risks to the global economy are credit risks and this is also positive for gold which carries no credit risk. In addition, we expect the European Central Bank to embark on some form of liquidity support (quantitative easing) which will underpin gold.”

Central banks are today’s major buyers of gold. De Wet explains that the graphs of most hard currencies showed a gradual debasing over time, so that gold was seen both as a more attractive reserve currency and as an important component of currency diversification for central banks.

Gold ETF is safe investment, but equities are interesting too

Having made the decision to buy gold in order to diversify one’s portfolio, Daniel Sacks, a fund manager at Investec Asset Management, thereafter recommends the simple expedient of buying the gold ETF – it’s the same as having physical gold without having to get your fingernails dirty.

However, gold equities also currently offer exceptional value. “Gold shares traditionally have a gearing to the gold price, whereas over the past quarter they have lagged the gold price increase, creating an arbitrage opportunity,” says Sacks.

Whereas the gold price has surged 20% and earnings have gone up by three times that amount, the price of listed gold companies has not budged. This places them on a favourable valuation of eight to nine times forward price/earnings ratios, well below the average of the JSE.

“This is a very low forward valuation,” says Sacks.

Investec favours AngloGold and Goldfields over Harmony – the JSE’s remaining three listed stocks. While Standard Bank projects rising costs of global production, Investec believes this is less the case among South African miners as production is falling, which tends to aid cost containment.

“In South Africa, most of the cost rises are behind us, and the inflationary costs such as labour and electricity are quantifiable.” As to why the cost of gold equities has not risen in tandem with the gold price, Sacks says it may reflect a market fear that the gold price will collapse.

“We don’t think that’s a likely scenario. We see the factors that have driven the gold price continuing into the future. So there is a strong case for holding gold: at a minimum we see a continuation of the trend that gold has increased by an average of 15% a year,” adds Sacks.

Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.

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11 Things You Need To Know About Bitcoin

The cryptocurrency has had a tumultuous existence so far.

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Gold Bitcoin Coin

11 Bits about Bitcoin

Even the most tech savvy among us have a hard time wrapping their heads around Bitcoin. It’s a hot topic and a frequent point of discussion among investors, entrepreneurs and stock traders, so you should want to know all about it.

For starters, here’s an overly simplified explanation of Bitcoin: It’s a digital currency (there are more than 800 now) that isn’t controlled by a central authority such as a government or bank. It’s created by “miners,” who use computers and specialised hardware to process transactions, secure the currency’s network and collect bitcoins in exchange. Supporters say it allows for more secure transactions over the internet. That’s in part due to blockchain, a technology that records cryptocurrency transactions chronologically in a public digital ledger.

Bitcoin is only eight and a half years old, but it’s the oldest and most highly valued cryptocurrency out there. In such a short time, it’s had a rocky and controversial history, but it’s also attracted a fair share of high-profile supporters.

Related: 6 Rookie Investor Mistakes You Must Avoid For Profitable Investing

Click through to read 11 bits about Bitcoin that will make you at least sound like you know what you’re talking about next time it inevitably comes up.

The birth of Bitcoin

birth-of-bitcoin

Starting point at 2008

The origins of bitcoin trace back to 2008, when its creator, who went by the pseudonym Satoshi Nakamoto, published a proof of concept for Bitcoin. The proof was then published to a cryptocurrency mailing list in 2009. Nakamoto left the project in 2010 and disappeared, but other developers picked up the work. Bitcoin’s birthday is Jan. 3, when Nakamoto mined the first 50 units of the currency.

An elusive creator

elusive

No one really knows

The true identity of Bitcoin’s creator has never been confirmed. Newsweek claimed to have found Bitcoin’s creator in 2014, identifying Temple City, Calif, resident Dorian Satoshi Nakamoto. He has vigorously denied it. In 2015, an Australian entrepreneur named Craig Wright said he was Bitcoin’s creator, but he couldn’t produce the evidence to support his claim. Whoever Nakamoto is, that person is very rich, as the creator is estimated to have mined a million bitcoins in the currency’s early days.

Very expensive pizza

pizza

We wonder what was on the pizza?

The first transaction involving bitcoin was reported on May 22, 2010, when a programmer identified as Laszlo Hanyecz said he “successfully traded 10,000 bitcoins for pizza.” As of Aug. 28, 2017, 10,000 bitcoins are worth about $43 million.

You can spend bitcoins

spend-bitcoins

How to spend your bitcoins

While it may not seem like it, people continue to use bitcoins to buy stuff. The largest businesses to accept the cryptocurrency include Overstock.comExpediaNewegg and Dish.

Related: Fintech: Fusing Finance And Technology

Federal Bureau of Bitcoin

Federal Bureau of Bitcoin

The banning of Bitcoins

At one point, the U.S. government was one of the largest holders of bitcoin. In 2013, after the FBI shut down Silk Road, a darknet site where people could buy drugs and other illicit goods and services, it took over bitcoin wallets controlled by the site, one of which held 144,000 bitcoins. Investors have been making a killing by bidding on government-seized bitcoins.

A mountain-sized setback

Mt. Gox

Mt. Gox

In early 2014, Bitcoin suffered a devastating loss after the alleged hacking of Mt. Gox, a Japanese exchange. About $460 million of the currency (in 2014 value) was stolen. It was the largest loss of bitcoins ever and raised concerns about how secure the currency was.

The billionaires’ takes

warren-buffett

Warren Buffett

Warren Buffett, perhaps the most famous investor in the world, was not so keen on Bitcoin one of the only times he addressed the currency. “Stay away from it. It’s a mirage, basically,” he told CNBC. “The idea that it has some huge intrinsic value is a joke in my view.”

Fellow billionaire investor Jamie Dimon, chief executive of JPMorgan Chase, had even stronger words about Bitcoin: “You can’t have a business where people are going to invent a currency out of thin air. It won’t end well … someone is going to get killed and then the government is going to come down on it.”

But not all billionaires are against Bitcoin. Mark Cuban has said its value is inflated, but he recently invested in a venture capital fund that backs cryptocurrency. Richard Branson, however, has spoken more optimistically about it.

Related: The Currency Revolution

Wealthy twins and a smart teen

Cameron and Tyler Winklevoss

Cameron and Tyler Winklevoss

Other notable investors in Bitcoin include Cameron and Tyler Winklevoss (the Harvard-educated twins who sued Mark Zuckerberg claiming that Facebook was based on an idea they’d had). They invested $11 million into Bitcoin in 2013, an amount said to be about 1 percent of all bitcoins in circulation at that time. The Winklevoss twins have been petitioning the SEC to create a bitcoin exchange traded fund. The agency rejected the idea earlier this year.

Another is investor and entrepreneur Erik Finman, who invested $1,000 into Bitcoin when he was 14 years old and is now a millionaire.

Celebrities want in

ashton-kutcher-2017

Ashton Kutcher

Celebrities have also expressed enthusiasm for the cryptocurrency. Actor and Goop founder Gwyneth Paltrow advises Abra, a Bitcoin wallet, and Ashton Kutcher, Nas and Floyd Mayweather have all invested in Bitcoin start-ups.

Support from a big financial institution

Fidelity Investments

Fidelity Investments

In August 2017, Fidelity Investments became a rare standout among financial institutions in embracing Bitcoin and other cryptocurrencies. The company allows its clients to use the Fidelity website to view their bitcoin holdings held through digital wallet provider Coinbase.

“This is an experiment in the spirit of learning what these crypto assets are like and how our customers may want to interact with them,” Hadley Stern, senior vice president and managing director at Fidelity Labs, told Reuters.

A hard fork

Bitcoin Cash

Bitcoin Cash

On Aug. 1 2017, Bitcoin experienced what’s being called a “hard fork” as a result of a few issues, including the limited number of transactions that can be processed per second. Essentially, the cryptocurrency split into two, with Bitcoin Cash debuting.

Here’s how Rob Marvin of PCMag explains the situation:

“The Bitcoin fork speaks to a fundamental ideological rift over what’s more important: Preserving the decentralised nature and independent control of the Bitcoin network, or accelerating transaction speeds to make the cryptocurrency more viable for mainstream ecommerce and payments.” Bitcoin Cash allows larger blocks of currency and more transactions per second.

This article was originally posted here on Entrepreneur.com.

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9 Warren Buffett Quotes That Will Teach You More Than Just Investing

While he is one of the most famous investors in the world, his expertise goes beyond money.

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Check out these nine quotes on time, success, mindset and more

There’s more to learn than finance from one of today’s most famous investors, Warren Buffett. In fact, the businessman, financial guru and philanthropist can teach you a thing or two about life. From taking risks to coping with change, Buffett’s expertise that expands far beyond stocks and dollar signs.

From a young age, the billionaire investor was destined for success – selling garbage bags to neighbors and delivering newspapers. By age 15, Buffett was already worth thousands of dollars and investing in real estate.

However, fast forward nearly 70 years and the “Oracle of Omaha” is now worth a whopping $77 billion, according to Forbes, making him currently the second richest person in the world (behind only Bill Gates). There’s much to learn from Buffett too.

Related: 5 Worthwhile Investment Lessons I Learned From Warren Buffett

On time

warren-buffett

Warren Buffett

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.” – Warren Buffett

On risk

Warren Buffett

Warren Buffett on risk management

“I don’t look to jump over seven-foot bars: I look around for one-foot bars that I can step over.” – Warren Buffett

On change

warren-buffett

Be the change you want to see in the world

“The most important thing to do if you find yourself in a hole is to stop digging.” – Warren Buffett

Related: 5 Things Warren Buffett Does After Work

On success

Warren-Buffett

What you need to know about success

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett

On empowerment

Warren-Buffett-billionaire-successful-entrepreneur

Image Credit: Art Streiber

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” – Warren Buffett

On opportunity

Warren-Buffett-problem-solving

When looking for an opportunity…

“You do things when the opportunities come along.” – Warren Buffett

On mindset

Warren-Buffett-billionaire-close-up

Mindset management

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

On leadership

Warren Buffett

Warren Buffett

“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett

On motivation

Warren Buffett

Look for motivation

“Predicting rain doesn’t count. Building arks does.” – Warren Buffett

This article was originally posted here on Entrepreneur.com.

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5 Worthwhile Investment Lessons I Learned From Warren Buffett

Patience in long-term investing is one lesson. Investing in what you understand is another – the reason Buffett steers clear of tech.

Toby Nwazor

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It’s one thing to be a good investor; it is quite another to know how to teach investing. Warren Buffett is spectacular at both and has over 50 years worth of financial and investment success to prove it. Nicknamed the Oracle of Omaha, Buffett may not be the richest man in the world, but he is, by a great margin, the planet’s wealthiest investor.

He also dishes out free and priceless investment advice whenever he can, mostly through his annual letter to shareholders. His sage words of advice can benefit everyone across the investment spectrum, from the Class A shareholders of Berkshire Hathaway to the average investor involved in low-key passive income investing.

Here are a few of these lessons Buffett has offered throughout the years that may help you, too, become a better investor.

1Develop an investment mindset

It’s true that any of us can become investors, but not all of us can own and manage our investments ourselves. For that, we’d need a fully equipped investor’s mindset. And that means putting in thousands of hours of intentional study to build your investment-skill level and mental aptitude.

Related: Why Warren Buffett Doesn’t Worry

2There’s a power to practicing patience in long-term investing

Whenever Buffett uses the word “investment,” he specifically excludes speculators who are in the habit of hit-and-run investment (meaning purchasing, then selling off investments at the slightest northward tick in value).

This is why the Buffett-led Berkshire Hathaway has never split its Class A shares (which as of March were worth $258,000 per share) and only created Class B shares to discourage the creation of unit trusts. One of Buffett’s famous statements, which alludes to his preference for long-term investments, is:

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”

A real investor, in short, does not merely speculate; he or she makes informed and intelligent investment decisions and rides it for the long haul. That kind of investor eventually ends up with more success than the short-term kind. Case in point: Berkshire Hathaway’s 2014 letter to shareholders disclosed that in the period extending from 1964 to that year, 2014, the company claimed an overall 751,113 percent gain.

3Prioritise value over money

Ferrari

Sometimes, the amount of money we spend on something and the value we get back from our purchased item do not correlate. Just because you purchased a Ferrari for $400,000 doesn’t mean that your overall quality of life will improve because of the car you drive.

Many people make the mistake of ascribing ultimate value to money. Buffett disagrees. An investor understands that the market prices of commodities and stocks are driven by demand, supply and general market sentiment about the company or commodity in question.

Related: Billionaire Buffett’s 2-List Success Recipe

Buffett has a general formula for investing, especially in stocks. He suggests that the best time to invest in any business is when the price of its stock is lower than its intrinsic value. In simple terms, you should invest in companies when they are undervalued.

4The human factor plays a big role in investing

Buffett’s decades of consistent success are further proof that the now largely discredited efficient market theory is flawed. Investing is both a science and an art, and Buffett believes that modern financial theory does not adequately take into consideration the artistic side of it – the human factor.

Human emotions and sentiment and intelligence affect the market much more than modern financial model is willing to admit. The latter makes things look too easy and straightforward, assuming that something that has never happened can happen.

The modern financial model leans more on past and present market data (physical science) than the human factor (behavioral science) when the reverse should be the case. Buffett has suggested that controlling the emotions is much more important. According to him, “Success in investing doesn’t correlate with IQ  … what you need is the temperament to control the urges that get other people into trouble in investing.”

5Invest in what you understand

Drawing on his “circle of competence” belief, Buffett advises that you “never invest in a business you cannot understand.” In other words, don’t choose businesses requiring knowledge outside your circle of competence, at least not until you have acquired sufficient knowledge to do so. Buffett lumps factors affecting a business into categories: The knowable, the unknowable, the important and the unimportant.

So, what he’s saying is that businesses are a good bet for investing only if their important factors are knowable – and known.

If you don’t have sufficient knowledge about a company, it becomes harder to hold long-term investments and predict what the company (and its industry) will look like a few years down the line.

Related: The Top 25 Self-Made Billionaires In the World

Buffett, for instance, usually stays away from tech industry businesses; he puts most of these businesses in the “too hard” pile on his desk. He refers to investing in businesses you do not understand as trying to jump over seven bars when you should be looking for a one-foot bar (a business you understand) that you can step over.

Clearly, the Oracle of Omaha, over the years, has found and profited from plenty of those one-bar businesses.

This article was originally posted here on Entrepreneur.com.

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