Is the global economy one jot different to what it was this time last year? The three issues confronting the world in 2013 – just as in 2012 – are: the US economy, the Eurozone crisis and slowing growth in China.
South Africa, like other emerging economies that have seen sharply lower growth this year, remains hostage to the global environment, which has seen planet-wide growth slip for each of the past three years: 2010 (5%); 2011 (3,8%); 2012 (3,1%); and 2013 (projected 3,4%).
Most of these problems affect governments, and investment analysts are quick to point out that companies are doing better and in some cases are rated higher than their governments.
Subtle economic shifts have taken place during 2012 which means that – bar a Eurozone recession and looming US fiscal cliff – we’re heading for more peaceful waters than a year ago. In the US, consumers are doing better but the economy is running a deficit that is bigger than Greece’s. Though it’s not a focus at the moment, the US will have to go through a phase of austerity like that of Greece and other European countries.
Future growth levels for China are expected to be in the region of 7% – 8% rather than 11% – 12%. Brazil and India have also demonstrated rapidly cooling economies.
Paul Hansen, STANLIB Retail director, anticipates that two major trends of the past 18 months may be due for a switch. The first is falling global interest rates which can’t really fall any further; and the second is the weak resources sector on the back of falling commodity prices throughout 2012, which has probably now bottomed.
Low interest rates
Interest rates have been low for several years in developed economies but over the past 18 months key emerging markets such as China and Brazil also cut their rates. Last year, the bond market (still on a 30-year bull run) and listed properties were the beneficiaries of low interest rates but there’s no guarantee this will continue into 2013.
Hansen believes the low interest rate trend will “continue for a while” but doesn’t expect much more from either the overheating bond market or listed property, although over the shorter term because of a recent 9% correction, STANLIB is expecting a 13% return from South African listed property in the next 12 months.
“STANLIB still likes offshore listed property, partly because of rental growth and partly because of the good yields of 4% on shares,” he says.
However, investors should be wary of buying anything interest-rate or retail related: real retail sales growth is slowing. In September 2012 it slowed to 4,3% year-on-year, from 6,7% in August, the third
consecutive quarter of slowing growth since a 7,7% year-on-year peak in the final three months of 2011.
Pieter Koekemoer, head of personal investments at Coronation Fund Managers, lists the themes of the past year.
“The winning asset classes of the past year were listed property, and financial and industrial stocks. Property was the beneficiary of a very benign monetary policy, as well as the unexpected 50bps cut in the middle of the year, and the fact that property carries the promise of a growing yield, thanks to rental escalations.”
The losers were resources and commodity stocks. “Overall, the JSE ALSI increased about 25% over the last 12 months, while the financial and industrial indices leapt 40%, and the resources index was essentially flat,” says Koekemoer. Compared to the 2008 peak for most resources stocks, they are down on average 50% since then, with some as much as 70% – 80% down.
South African retailers have benefited most from the fall in commodity shares since the 2008 recession. Growth has been fuelled by foreign buyers, and since September 2008 the listed retail index has almost tripled in value. Resources on the other hand have fallen 9,6% as lower commodity prices have in some cases severely dented earnings.
Mr Price trades on a price:earnings ratio above 30. Shoprite and Woolworths are approaching that level, while Truworths and Foschini are trading in the mid to high teens.
Therefore, something to watch out for may be retail weakness and a resources index rebound, and here Hansen sees some chance for investors to make money in 2013, “particularly if the Chinese economy picks up.” Growth rates in China may still shrink but there are signs that the bottom has been reached.
Hansen adds: “Offshore markets are likely to continue their bull trend, boosted by Asian markets, which performed particularly badly in 2012, but which I expect to recover in 2013, especially the Chinese stock market.”
Koekemoer endorses this view, saying Coronation, in common with many fund managers, is at its maximum 25% offshore allowance. “Low interest rates are supporting equity prices and this is likely to remain the case at least until 2015.
In our own portfolio, we have no bonds, are underweight listed property and also underweight domestic equities. Sectors of the economy are under pressure, and the consumer boom has been primarily driven by credit extension. This means it’s hard to justify some of the current domestic p:e ratios.”
Last year’s winning shares
Tom de Lange, chief investment officer at Emperor Asset Managers, says: “Using a momentum approach, on our buying list last year were the following shares (returns for 2012 in brackets): EOH holdings (74%), Metair (59%), Woolworths (48%), BATS (46%), Coronation (22%), Life Healthcare (37%), Shoprite (37%), Mr Price (23%), AVI (34%), Tiger Brands (31%), Vodacom (19%), Cashbuild (23%), Foschini (18%), SAB Miller (19%) and Exxaro (23%). With gearing of 150%, we returned close to 40% for our clients, not too bad if you consider the JSE All Share Index returned around 14% (which incidentally is quite a normal return).
We missed out on Bell (58%), Capital & Counties (52%) and Old Mutual (32%). So where to put your money for 2013? De Lange lists this year’s potential winners as coming from three hot sectors: Consumers, Services and Food and Health.
The lagging sectors remain Platinum, Resources and Industrials. “Using the same momentum approach, on our buying list for 2013 would be: Metair, Pinnacle, Woolworths, Life Healthcare, Mr Price, Aspen, RMI Holdings, Famous Brands, Invicta, Assore, Old Mutual, AVI, Omnia, Imperial, Litha Healthcare, Cashbuild, Shoprite, Coronation, EOH, Naspers, Clicks and RMB Holdings.
There are a number of retail stocks in there, but remember the interest rate cycle won’t change any time soon, so it remains appealing under the momentum style of investing.
“Slightly further down the list but still worth considering would be PSG, Resilient, SAB Miller, Richemont, WBHO, FirstRand and City Lodge. If you have the appetite for smaller counters with higher volatility, you may also consider Ellies, Curro, Taste, Brait, Metrofile and Afrimat.
“Happy investing,” concludes De Lange.
2013 stock picks
The stock pick for 2013 by Asheen Rabilal, equity analyst at Sanlam Investment Management (SIM), is EMIRA. “Even though this stock has not been well liked in the market, SIM believes that EMIRA’s significant de-rating allows it to offer investors better potential upside than the stronger performing, and better known, larger cap property stocks.”
Invicta is selected by Olof Bergh, investment analyst at Sanlam Private Investments (SPI). “This importation and distribution business has hit SPI’s radar screen recently as it’s a high quality company, delivering consistently high returns at low levels of volatility and high levels of growth, relative to the overall market.”
Tom de Lange, chief investment officer at Emperor Asset Managers, picks the platinum sector as one to watch for 2013, though it’s already recovered 20% – 25% from its lows.
“Even though you can probably pick up resource and platinum shares now at attractive prices, it doesn’t mean that your portfolio is going to outperform the market. So for those investors who do have an appetite for these shares, buy them on the dips, exercise patience and remain underweight until they show decent momentum,” says De Lange.
His picks for the platinum sector are: Implats, Northam, Aquarius and Eastplats. For resources: Billiton, Kumba, Exxaro, Sasol and Assore.
De Lange adds: “Investors can find as many things to worry over now as this time last year. Last year, the three hot sectors were Consumers, Telecoms & IT and Food and Health. The lagging sectors were Resources, Industrials and Platinum. Property, Services and Financials were in nowhere territory.”
11 Things You Need To Know About Bitcoin
The cryptocurrency has had a tumultuous existence so far.
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.
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
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
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
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
Federal Bureau of Bitcoin
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
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, 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
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
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
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
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.
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.
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.
“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
“I don’t look to jump over seven-foot bars: I look around for one-foot bars that I can step over.” – Warren Buffett
“The most important thing to do if you find yourself in a hole is to stop digging.” – Warren Buffett
“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
“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
“You do things when the opportunities come along.” – Warren Buffett
“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
“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett
“Predicting rain doesn’t count. Building arks does.” – Warren Buffett
This article was originally posted here on Entrepreneur.com.
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.
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
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.
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.
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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