Saturday, 8 June 2019

The Four

I am reading The Four by Scott Galloway. I have read the first half which tells the story of Amazon, Apple, Facebook and Google. There is no doubt that these four companies have shaped the world over the last 20 years.

Should you own these in your portfolio? I think so (my opinion - do your own research). Sure, they sit on lofty multiples. For example, Amazon sits on a trailing 75x PE ratio. Yes, it has to shoot the lights out. It has to change the world. So far, it has done exactly that.

But guess what? I also own stocks such as Walmart. An old dinosaur to many.

Investing is about constructing a portfolio. Far too often we only talk about the stocks we should buy. A handful. A proper investment portfolio has more than a handful of stocks. A good investment portfolio should survive the multiple different futures.

I truly believe "The Four" will grow more powerful and continue to change the world. I could be wrong though and my investment portfolio takes this into account. The companies of tomorrow could actually be resurgent old dinosaurs or companies that haven't been founded yet. My point is that I have exposure to all of them.

I am not trying to have the best investment portfolio. I just want one that will grow a few percentage points ahead of inflation and one that will be around in 30 years time.

I'll leave the bold calls to the "pro's"...

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Tuesday, 4 June 2019

Back with a...

I am been very quiet. Truth is that I haven't really had much to write. This is probably due to a combination of laziness and being busy on other projects. Well, I am back now. Certainly not with a bang...

I spent the weekend at the Cape Town Coffee Festival. One of my businesses (RECUP South Africa) hired a stand and presented South Africa's first coffee cup exchange programme. The company's goal is to rid the world of single use coffee cups. I was overwhelmed by the support we received. People are certainly very conscious of the environmental impact of their coffee consumption.

With all the negativity in South Africa at the moment, it was refreshing to spend the weekend at such an awesome event.

Onto investing. Even though we got a shocking GDP number today, we shouldn't deviate from our plan. Why? Because your plan should withstand shocks such as poor GDP numbers. This means your investment portfolio shouldn't be reliant on any one country, market, company and/or industry.

As always, here is a guideline for your plan:
  • Invest your money in real assets (property, shares etc - if South Africa goes south, ZAR cash isn't going to worth very much. I feel real assets have a better chance of maintaining purchasing power.)
  • Build an offshore store of wealth or investment portfolio (heck, if you want to leave, it can be the start of you saving towards one of those Visa's you can buy in some European countries)
  • Have access to offshore cash in hard currency (USD, EUR or GBP). If you need to get on a plane then you have some rent and food money.
  • Start meditating (I am serious). Learn to deal with stress/anger that uncertainty in South Africa is causing you.
  • Lastly, on a sunny African day go for a walk on the promenade at your nearest beach and wonder is it all really that bad...
PS: I wrote this post on a Chromebook. This is Google's operating system. I am a proud Microsoft shareholder but always trying new tech!

Thursday, 28 March 2019

Wrong objective

I was an asset manager trying to beat the market. I learned over time that this was a pointless task. Surely, investors have an objective in mind and a portfolio should be aligned to this objective. Asset managers (active ones, in particular) don't care about investor objectives. The simply want to earn the highest return. This attitude is evident in the standard active manager defense of active investing. Namely, active managers give the usual "you are guaranteed to earn below average returns with passive" and "active gives you a chance to earn above average returns" arguments. I don't buy it.

I read a great article by Craig Gradidge which talks about these defenses. Craig is a financial planner I follow and admire. He calls it like he sees it. His article is aptly titled "How active managers convinced me to invest more in passive funds" and tells the story of the flimsiness of many active managers defenses helped to include more passive portfolios in his client portfolios. In fact, Craig uses both active and passive in client portfolios.

Craig succinctly sums up his views in the last paragraph of his article (text bolded by me):
"The reason active managers convinced me that I needed to increase my clients’ exposure to passive investments going forward, is that it has become clear to me that they do not fully understand my role as a financial adviser. Their responses to the debate were to play down everything that is important to me and my clients; building robust portfolios at a good price in order to achieve clearly defined investment objectives. Active AND passive funds can help us achieve that. No client has ever asked me to outperform the market. They almost always ask how much their investment portfolio will cost."
I could never understand why so many very clever people with lots of Bloomberg screens (portfolio managers and analysts) could never deliver outcomes desired by clients. It's the old client vs fund return argument. The fact that I now understand these clever people are chasing a different objective, makes things a little clearer.

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