Sunday 29 May 2016

[Sunday Update] Tigerbrands, Reunert and Mr Price announce dividends

I must be on a roll as this my second post today. This last week saw Mr. Price (MRP), Reunert (RLO) and Tiger Brands (TBS) declare dividends.
  • MRP increased DPS by 14%
  • RLO increased DPS by 8%
  • TBS increased DPS by 7%
Here is this week's table:

Disclaimer: I have tried my best to ensure that the table above is accurate. It is based on factual data and does not contain any recommendations. Errors and Omissions are Excluded (E&OE).

[Fun] I can't invest now because...

The latest scandal involving Mr. Zuma is the buying of many of his wives' cars with police budget money. We have already experienced Nklanda and Nenegate. South Africa screams political risk (although, I believe this risk is exaggerated). Sure, some have calculated the cost of Nenegate at North of R500bn. This is all short-term market fluctuations, of course.

Many want to take money offshore. Is this the best solution? It certainly isn't the only solution, that's for sure. We can look north to our neighbours, Zimbabwe, for some clues. What would have happened if you invested in the ZSE industrial index? Would you have lost all your money? Inflation was rampant, the Zim Dollar worthless. Surely, investing in stocks was too RISKY!

Have a look at this chart:

Wow, stocks revalued in line with the currency and level of prices. If you had stayed in the "safe-haven" of cash, it would now be worthless. I know this is one example, but it shows that investing in stocks is perhaps the best way of hedging against an inept president (Mr. Mugabe, in this case).

Even in USD terms, the market held its value (there is a spike over a couple of days to 600, but my guess this was while the market was working out what was going on in Zim. The point is that the market was pretty flat for the year of all this turmoil).

Sure, some companies would have faltered and there is still a risk of confiscation of assets but maybe the risk posed to stocks by SA political risk is not as great as people think. As with anything, time will only tell. I thought these charts were interesting, nonetheless.

I got the charts and inspiration from this Financial Times article.

Sunday 22 May 2016

[Sunday Update] A little more excitement - 22 May 2016

For all you thrill seekers out
there, we had a fair bit of dividend action this past week. The following companies declared results:
  • Investec plc grew its final dividend by 5% in GBP to 11.5p
  • Life Healthcare grew its interim dividend by 7.4%
  • Spar increased its  dividend by 6.7%
  • Vodacom declared a R4.00 per share dividend which was flat on last year.
Tiger Brands and Mr. Price both report this week.

For regular updates follow my blog.

Here is the table with the new dividend information:

Thursday 19 May 2016

[Opinion] The case for active management

Let's get one thing out the way. There is no strong case for active management. It is costly and underperforms its passive counterpart on average. But can some forms of active management be beneficial? I think so. Active management must be low-cost and long-term to add any value. It is for this reason that you won't find many unit trusts/mutual funds that tick these boxes. Asset managers are in it to make money, not to grow investors' wealth (although many will try to convince you otherwise).
A good way to illustrate this is to tell you about John Bogle. John Bogle is the founder and former CEO of the Vanguard Group. Vanguard is famous for indexing. Mr. Bogle is arguably the world's foremost proponent on the merits of passive investing. It is because of this that I was intrigued to see to see his views on the Wellington Fund (One of Vanguard's active funds). In his book, The Clash of the Cultures, Mr. Bogle highlighted the following:

"It's a real world chronicle that describes the impact on individual investors in the Fund as it moved from one culture to the other, and then came home again. Wellington's rise from 1928 to 1966 succeeded because it focused on long-term investment. When the Fund turned its focus to speculation in 1966, it was soon hit by the 1973-1974 market crash and experienced dramatic declines in returns. Its renaissance begain in 1978 when it went "back to the future", and returned to its original focus on investment, establishing firm guidelines on the balance between dividend-paying stocks and investment-grade bonds."
When the Fund turned to speculation it became short-term focused and doubled its annual portfolio turnover (which increases costs). An excerpt from the Fund's 1967 Annual Report is as follows:
"Obviously times change. We decided we too should change to the bring the portfolio more in line with modern concepts and opportunities"
If your investment manager ever says something like the above then run for the hills. "Modern concepts" is code for chasing the latest investment fads while finding "opportunities" means trading in and out of positions in investments. These are both things you would hope an investment manager would avoid.

Mr. Bogle goes on to name the key ingredients of success as:
"Long-term focus, clarity of strategy, wide diversification, rigid rules for portfolio selection, and yes, minimal costs."
So if you are going to follow an active approach, you had better consider Bogle's ingredients. A dividend growth strategy is one that has these ingredients. To learn more about dividend growth investing get yourself a copy of Forget the Noise from Amazon and follow my blog for regular updates.

October 2016 Update:

Let me be clear. I am not saying that dividend investing is necessarily better than passive investing. I am saying that dividend investing can also achieve an investor's long-term goals. I prefer dividend investing as I like the idea of building a sustainable income stream. I spend a couple of hours a week on my investment portfolio and evaluate how I am progressing towards my goal of building a retirement income stream.

Follow Geoff Noble on Twitter or LinkedIn

Sunday 15 May 2016

[Sunday Update] Dividends and more - 15 May 2016

Sunday night's update is here. I don't like to talk about prices but there was a bit of a pull-back this week (cool industry speak for saying prices went down). The average historic yield of the portfolio increased because of this (remember, if prices go down, yields go up).

You can subscribe to these weekly updates and more by clicking here (Link takes you to Google Feedburner. Once subscribed you should receive a confirmation email. If not, check your junk email folder.)

Disclaimer: I have tried my best to ensure that the table above is accurate. It is based on factual data and does not contain any recommendations. Errors and Omissions are Excluded (E&OE).

Wednesday 11 May 2016

[Opinion] Hmm, I wonder if the active managers picked right?

This post is a bit of fun. I was thinking about two similar companies in South Africa.
  • Truworths
  • Foschini
Yes, I hear you. There are differences between the two but they are both credit clothing retailers. Stop nitpicking. My thought experiment was as follows: over the very long run, these companies should pretty much perform the same. Good management teams will come and go, buyers will get clothing lines right and buyers will get them wrong from season to season. I was wondering year on year whether the market (read: "clever active managers") prefer one over the other. Namely, is there sometimes a "flavour of the month" element. I don't have a controlled scientific method of testing this (hence my reference to fun). I am using the rolling 12-month price return as a measure.


I mean that at any point in time (i.e. in a particular month) I look back 12 months and see what the percentage change between prices was. I then move on to the next month and do the calculation again.


Active managers will tend to buy which one they prefer and bid the price up. The results are interesting.

Explain the chart...

The green part is where the 12-month rolling return was higher for Foschini while the grey part is where Truworths was higher. A higher rolling return means active managers favoured one of the other. From the chart, it appears that there was a bit of a "flavour of the month" element.

Follow Geoff Noble on Twitter or LinkedIn

Sunday 8 May 2016

[Table] Weekly Dividend Update - 8 May 2016

Again, there is not much new to report this week. No companies in my universe declared results nor are any paying dividends this week.

Please see below for this week's yield and growth rates. I have added a new column for dividend cover which we discussed here. Dividend cover is a measure of how sustainable a dividend is. I still have to add longer term measures for growth (and indeed, dividend cover) but the data wrangling is taking a bit longer than expected. I have also embedded a Google sheets object in case you want to copy the data.

Disclaimer: I have tried my best to ensure that the table above is accurate. It is based on factual data and does not contain any recommendations. Errors and Omissions are Excluded (E&OE).

Tuesday 3 May 2016

[Opinion] What's the point of spending the whole day managing money?

I remember when I first started investing. I read everything I could on Warren Buffet. He was my idol. I also read "One Up On Wall Street" by Peter Lynch. In my opinion, I was armed with knowledge to find hidden gems of the stockmarket. All I needed to do was read every annual report I could find and dissect every company I thought could possibly be a sound investment. What was a sound investment?

Well, by this stage, I had learnt that the value of a company is the discounted value of its future cash flows (known as intrinsic value). A sound investment would be a company that has an intrinsic value well in excess of its quoted share price. "Well in excess" means you have a large enough "Margin of Safety" in case you grossly miscalculated your intrinsic value. Very elegant.

The problem is that finding companies this way takes a long time. A very long time. Most people don't have time to spend their lives analysing every nook and cranny of each investment they may or may not make (i.e. they have day jobs). What is the point of building wealth if you spend every spare second you have working on your portfolio?

The investment approach that requires the least effort is investing in passive index funds. This approach will suit most investors. It is low-cost and requires no monthly monitoring.

The second approach (the one I favour) is the create a portfolio of 20 to 25 income streams by buying shares directly. I write about this approach in "Forget the Noise". In a nutshell, you need to focus on two key metrics; dividend yield and dividend growth. Companies that pay above-average dividends who can grow these dividends ahead of inflation are the source of sustainable income streams.

I also don't trade in and out of these income streams to keep costs as low as possible (in my case they are comparable to index fund fees). This approach is a true long-term approach. Over my working life, I am working on replacing my salary with an income stream provided by investments. This approach also only takes a couple of hours every week. Simple enough.

Lastly, many may say that they outsource their investment management to highly-skilled and competent active managers. I'll be the first to agree that these managers are highly-skilled. Some of them are society's brightest minds. However, most of them cannot consistently deliver superior investment outcomes. They also charge very high fees. You get a double whammy, poor investment performance and high fees. Not an ideal combination.

Sunday 1 May 2016

[Table] Weekly Dividend Update - 1 May 2016

There is not much new to report this week. No companies in my universe declared results nor are any paying dividends this week.

MTN did release a cautionary announcement. The announcement merely highlighted that MTN continues to engage Nigerian authorities on the fine imposed.

Please see below for this week's yield and growth rates.

Disclaimer: I have tried my best to ensure that the table above is accurate. It is based on factual data and does not contain any recommendations. Errors and Omissions are Excluded (E&OE).