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Posted: 3 April 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

 There is plenty of smarts and sophistication in the investing world. A real edge, which I hope you will develop, is the clarity and simplicity of doing better with your money, whatever level you are at.



Understand money. There are three kinds

- your capital (aka balance sheet or store of wealth),

- your earned income (your current (net) income from supply of goods or services, whether you are in business or employed), and

- your passive income - that delightful sustainable trickle from your capital, sometimes described as "second hand money".


I suspect we have participants in tickertalk with a focus on each of these - and the ones wise enough to use some of the second to start or grow the first, and who can also plough some of the third back in, will get wealthy fastest.


Keep it simple. In a way it isn’t about MONEY



–             Money has no (intrinsic) value. 

–             Money is just a medium of exchange – allowing transfer in time and space, and of goods/services.

–             Money is the Lowest Common Denominator. 


–             Its about getting money where you want it – look after what you have, know where you could end up, and ideally get some money to work for you – rather than the other way around. 

–             Money can be a means to an end – but shouldn’t be seen as an end in itself.



And good luck - its a journey, and you must enjoy it.




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Posted: 4 April 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

One has to love bankers. They say what they mean, and do what they say. And they surely live by the aphorisms both of Leonardo "Simplicity is the ultimate sophistication." and de Saint Exupery "It seems that perfection is attained not when there is nothing more to add, but when there is nothing more to remove."


So please enjoy this piece posted on Moneyweb from today's banking world:-


Xxxx Yyyyyyy, Ggggggggg Group head of asset, liability and capital management, has coined a new phrase to sum up the approach to the way it lends and draws advances. He calls it “portfolio tilt”. He referred to the results presentation where the term is defined in impenetrable bank speak.

“Portfolio tilt means maximising economic profit. EP  is one of the four key strategic focus areas of Ggggggg Group, a carefully structured, integral and holistic component of the group’s ‘manage for value’ emphasis, involving strategic portfolio management and client value management. In the group’s three-year business plan, granular targets have been formalised across the balance sheet and income statement, and cascaded down to each business unit.

“The targets are medium to long term, to be achieved over the next three to five years dependent on macro economic factors. They are intended to be somewhat aspirational and directional, aligned with the agreed portfolio tilts. Clearly to the extent that the market is not growing and/or is behaving irrationally, this will impact the timing by when the targeted tilts, and optional balance sheet shape and mix, is achieved.”

Crystal clear! Do you suppose a board remuneration committee would be able to work with the hitting and or the missing of said factor-constrained medium term granular target tilts? I feel sure you will agree that it is now completely clear that banks know how many people they need  (bank layoffs)  and how to pay their people  (CEO pay compared) 

For a taste of how bankers saw things in the 1950s, you may prefer  Why bankers bank











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Posted: 10 April 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

Or perhaps - can you live with them!


Many investors cannot live without forecasts.Either they want a plethora of detail for each holding, with sales, earnings, dividends, target prices etc etc - or if they are more aloof they may just want a "market return ' - (what the equity universe will do in the next year or similar).


So how practical is this? And how important?


Take a simple, "easy to model" company.


To forecast its earnings per share, you just need to predict its:-


- sales (so you need both price and volume)

- costs - fixed and variable by category with both external and internal rises and falls

- Interest charge (net), with allowance for interest on interest, and rate changes

- Working capital needs and gains

- Tax, both rate and timing

- Capital management in terms of cpapex, deals, dividends/buybacks


Say realistically a minimum of 12 parameters, but more likely 30 or more.


And say now on each one your ability to guesstimate it is high - you can always get within 10% of what actually eventuates. A big problem is that while you may be saved by compensating errors, you can also get your errors compounding. There is a sophisticated techinique called Monte Carlo simulation, whereby you could (if you knew the likely range on all the inputs), calculate the possible range on the output (earnings per share), but common sense tells you rather swiftly that the range of outcomes is wide. Very wide.


Then for the target price you just need to gauge the price-earnings ratio which the wider market will apply to that earnings figure on the date of interest, and BINGO - you can talk to a target price calculated to several decimal places. Wider. Much wider.


But this can be seriously comforting if you like figures to base your market positions on.


So how good are forecasts?- lets start with those from professionals.


Exhibit 1 (from James Bianco on Barry Ritholz' blog the Big Picture - ) show the US equity market analysts' efforts at predicting the aggregate earnings at the operating level on the SP500. As you can see, in the last 20 years, with all the fancy computers etc etc, the analysts, while right on several occasions, have in truth been consistently wrong on the same side. 






And in exhibit 2 from Franco Busetti in his seminal South African book the Effective Investor, one can see at a glance the constancy, but invalidity, of paid economists' forecasts of the rand/dollar exchange rate



As Franco writes in his book and in his blog post here on tickertalk:-



"Our largest investing mistakes often come not from wrong decisions but from right decisions based on wrong forecasts."


"The graph shows the R/$ exchange rate together with the Reuters Econometer consensus forecasts. The thick line shows the actual path of the R/$ exchange rate and the thin lines show the "consensus" forecast’s expected path for the rand at different times....The picture has many amusing aspects. Rand forecasts are always for depreciation. When the rand is depreciating, the consensus forecasts further depreciation; when the rand is appreciating, it forecasts a change to depreciation. Only the last five of the 126 forecasts shown here were for appreciation. Effectively, over a third of the forecasts shown (those from 2002 through 2004) were therefore forecasting a turning point in the currency (usually a very brave thing to do) and they were all wrong."

"Remember the Harvard Economic Society’s Weekly Letter of 16 Nov 1929: “A severe depression like that of 1920-21 is outside the range of possibility.”"

"..there is a feeling that one has to have forecasts, no matter how bad, in order to do valuations. Second, wrong forecasts are always subsequently justified, leading to the perennial hope that they should do better in future. Classic excuses along the lines of “It would have been correct except for … (some factor) which happened and was unpredictable”, “It was almost right, except for...” or “It's still going to happen!”"

"Forecasting is intrinsically very difficult and the results are therefore usually poor. Consensus forecasts tend to anchor, use blind extrapolation, ignore fundamentals and mean reversion and are frequently irrational. The time we spend trying to make very accurate earnings and dividend forecasts is disproportionally large relative to their influence on valuations. We should spend more time analysing instead of attempting to forecast."



Read more at 




1. If you must have a forecast, make your own. If you didn't know what a faceless forecaster, whose call is any way masked by "consensus", was thinking (or smoking?) as the forecast was made, how can you possibly use it? And if its wrong, who will you blame?


2. Think through the likelihood of your forecast being right, and then of that rightness making your decision to buy or sell the share be right.


3. Maybe think differently. Accept that you know little about the present and less about the future.


4. Try the "Jupiter Portfolio" approach. If a little green man came on a space ship, could see everything, but was humble and wise enough to know forecasts wouldn't help him - what would he put into his portfolio. And why?












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Posted: 11 April 2012 - 2 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

Tweeted by

Bidvest’s upcoming interim dividend payment of 280cps (16 Apr) is the first dividend subject to a 15% dividend withholding tax.


Yes, it has started - a 65% increase in the taxes you will pay on your private dividends.

See the maths here:- 


And there are some exemptions - which appear to be dominated in rands and cents relief by the pension funds - one hopes that the managers of those funds are not being protected unnecessarily!







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Posted: 12 April 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

Our retailers' shares have flown of late, with Shoprite's leadership in volume and margin driving up its return on equity (ROE) which the market rightly rewarded with share price rises. Shoprite also attracted speculation of a bid - with Walmart often cited.


Walmart, however,  ended up doing a deal with Massmart, and after the bid euphoria (and was that some euphoria too for chaps like Grant Pattison and Guy Hayward who made a nice few bob?) the Massmart share price remains strong as the market now looks to Walmart skills and buying power to crank out still better results.


And Woolies has overtaken both in the last year!


So at present, if you had held a mixed basket of cash and credit retailers on the JSE, your holdings' price action over the last year and current PE ratio would be like this:-



Cash players:-


Shoprite +32%,                         PE of 24.5X

Massmart up 16%,                  PE of 34.2X

Woolies up 74.6%                   PE of 19.6X

Spar up 24%                            PE of 21.3X


Credit players:-


JDG down 3.4%                      PE of 11.0X

Lewis down 3.5%                   PE of 9.2X


Here is a chart showing the evolution of price and PE for Woolies over the last year. The price is the thinner red line, scaled to the right axis in % from base, and the PE ratio the fatter blue line scaled to the left.





Compare that with Lewis (same format):-





Now I don't want to mislead you, but if enough people take those lovely profits that have accrued on their cash retailers' shares, and look to the credit guys - kazzammm - the rotation may just swap hot and cold right around! (Here are the same graphs for all six companies. user_uploads/retail price and pe ratios 12 apr 2012.pdf )


And if you still feel its wise to pay a 20X or 30X multiple for a shop share - play a bit with this easy interactive PEG tool, to get your head around the sustained growth that is needed to justify paying so much for a profit unit. Not growth this year, which may be easy, but growth "for ever and ever amen".


Fantastic PEG tool 









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Posted: 30 April 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

This was posted here at the time of the ANC's 100th. It is still disturbingly valid, as 27 April passes...




The 100th birthday of what is now called the ANC has been duly celebrated, and we would like to join those who shared the joy, and thank the ANC for the peaceful revolution (what was that beautiful chirp at Bloem about "we sang much more than we fought"?)  that has improved so many lives.


But 2012 also sees the 18th birthday of the current regime!


And at eighteen, one can no longer get away with claiming youthful insouciance when failures arise consistently.


So, a birthday wish for the RSA government:-


At eighteen, today's realistic teenagers should be expected to be:- cleaning their own rooms; shaved/showered/neatly turned out; doing odd jobs for pocket money (at least); and they should be listening, diligently to gain from the wisdom of their elders and betters, but also discerningly, so as not to blindly follow that from that of their "drunken uncles"! Plus they should be either working on the succesful, long term, reinvestment of their inheritance (if so lucky) or figuring out a way to grow an asset base (if less so). And South Africa's pivotal asset base is not platinum or iron or the long gone gold and diamonds, it is PEOPLE - so even more cogently than in the illustration of the surly teen, please get our people educated - realistically seeing and aiming at the future, with a pragmatic skills mix which can do tasks, trades, professions, and leadership. And which can handle all the unkowns of the future!


Best of luck!

T Talk


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