Sunday, 28 August 2016

[Sunday Update] Woolies rewards us

Woolies (WHL) provided us with good news this week. Annual DPS increased 27%. This number that trounces inflation. For those interested, here is a link to the SENS announcement.

Bid Corporation (unbundled from Bidvest) declared its first dividend (R2.41 per share). The SENS for BID can be found here.

I am making progress on expanding the list of companies in the Forget the Noise universe. I am just collecting the last few dividends. The list will be expanded to include the following companies:

BGA - Barclays Group Africa
CPI - Capitec
DSY - Discovery
FBR - Famous Brands
HCI - Hosken CI
IPL - Imperial
JSE - JSE Limited
MDC - Mediclinic
NED - Nedbank
NPN - Naspers
PFG - Pioneer Food Group
PIK - Pick 'n Pay
PWK - Pickwik
REM - Remgro
RMH - RMB Holdings
RMI - RMI Holdings
SHF - Steinhoff
SHP - Shoprite
SNT - Santam
TFG - Foschini
TKG - Telkom

These companies are not necessarily ones which I would invest in but I want to include historic dividend yield and growth information on as many shares as possible. The list will grow over time.

The existing list is shown below.



Written by: Geoff Noble
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Sunday, 21 August 2016

[Sunday Update] A quick update from Johannesburg

This week's update will be a short one as I am away. Truworths declared results this week. Annual DPS increased by an inflation-beating 12%. We will be back to normal next week. I hope to have expanded universe by then and provide you with a larger set of companies.

Here is this week's updated table:







Written by: Geoff Noble
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Sunday, 14 August 2016

[Sunday Update] Collecting dividends

Happy Sunday. I hope everyone has had an enjoyable weekend. It is time for the Forget the Noise weekly update. We have collected some more dividends which is always a plus.
  • British American Tobacco increased their interim dividend by 4% in GBP terms 
  • Old Mutual plc pretty much kept their first interim dividend flat (0.75%) in GBP terms
These results must be viewed in the context of UK inflation. (By the way, I have found a great statistics resource at Statista.com.) The 2016 number is half forecast and half actuals (i.e. we only have actuals to Q2 2016). The just is that the dividend results compare quite favourably with the current inflation situation in the UK.



Statistic: United Kingdom: Inflation rate from 2010 to 2020 (compared to the previous year) | Statista
Find more statistics at Statista

Another thing specific to note is Old Mutual is currently splitting itself into 4 businesses (known at the "Managed Separation". More on that here and here.

Lastly, here is this weeks table:


Written by: Geoff Noble
Follow me on Twitter or LinkedIn.
See disclaimer on right hand side. :)



Thursday, 11 August 2016

Filtering out the noise

Author Note: This blog is about “Forgetting the Noise”. I thought it would be appropriate to share a modified excerpt from my book.

Noise causes us to behave irrationally. It preys on our biases. The financial press is full of noise. Yes, the press. You can’t live with them but you can’t live without them. I will not be the first to highlight the damage the financial press causes. The Internet has certainly not helped matters. For all the good the Internet has done, it has been the worst thing for financial markets. Information (or rather “noise”) now travels at the speed of light, intoxicating its readers and convincing them to take action.

To protect yourself, you need a filter – a very good one. For some, this means not reading the financial press and not watching financial TV channels. Some (the lucky few) are still able to be consumers of the noise but possess the talent to ignore it.

Personally, I think I sit somewhere in the middle. I follow a little bit. I read one financial publication (The Economist) but tend not to watch any Bloomberg TV or CNBC. I don’t read the business newspapers either. I do, however, use certain web services which search product news and fundamental financial information on companies I am interested in (one of my filters for the noise). I also follow the SENS news service in South Africa, which publishes regulatory information, financial results and trading updates on South African listed companies.

The point is that you need to work out where you sit. If you suffer from FOMO (aka fear of missing out), then it may be best to shield yourself completely from the financial press. I would recommend erring on the side of doing more filtering out than less. We like to think we are immune to market fads and speculation, but the reality is that we fall victim to them more frequently than we think.

Noise makes you do stupid things. It makes you sell investments at the worst possible times. Noise is also comforting. We are always looking to find the causes of events or the reason for something happening.

I am the first to admit it is far easier to write the above than actually put it into to practice. I can guarantee you that at some point in your life, you are going to see an investment drop at least 20% from the price you paid for it. No matter what anyone says, this is a painful (but hopefully short-lived) experience. It is even more painful in magnitude than the corresponding amount of joy that we would experience if the investment doubled in value. Why is this the case? I put it down to my belief that we don’t like to lose and that we always expect to win – i.e. we believe that we make the best decisions. The academics call it loss aversion or prospect theory. Investopedia.com defines it as follows:
“A theory that people value gains and losses differently and, as such, will base decisions on perceived gains rather than perceived losses. Thus, if a person were given two equal choices, one expressed in terms of possible gains and the other in possible losses, people would choose the former.” 
Why am I telling you this? You need to devise the fail-proof filter I mentioned earlier. Here I am going to give you a list of steps that I refer to every time I start to get that sick-in-my-stomach “I can’t believe this is happening” feeling. You may find my list useful as-is, or you may want to add to it. The point is that you need something to refer to and prompt you to start thinking rationally again.

I ask myself the following questions:

  1. Is the sun going to rise tomorrow?
  2. Is it still better to have monetary assets than returning to the barter system?
  3. Are my investments’ earnings related to the level of prices in the world (e.g. inflation)?
  4. Do I have a diverse number of income streams so that I am not dependent on any one income stream? (i.e. do I own numerous companies in different industries?)
  5. Does my investment portfolio address all the other deep risks (i.e. risks other than inflation?)

If I can answer “Yes” to these five questions, then I carry on. No matter how many headlines I read about the dire state of the world and the unsustainability of this and that, I continue my investing strategy. You may argue that my list is too simple. This is intended. It is five questions I can ask myself quickly to check my state of mind.

For more on ignoring noise purchase a copy of Forget the Noise on Amazon.

Written by: Geoff Noble
Follow me on Twitter or LinkedIn.

Sunday, 7 August 2016

[Sunday Update] A busy week with MTN and election news

I am very happy with the outcome of the South African local elections. Not because I am a staunch supporter of any party but because it was the most competitive election in South Africa's short democratic history. I wrote about needing more than one strong party in South Africa here. It looks like we are on this path which I think is great for the country.

On the investing front, MTN declared interim results. The dividend was cut to R2.50 from R4.80 a year ago. The infamous MTN fine has been finalised. The end figure was one-third of the original fine. Even the reduced fine ($1.05bn) had a significant impact on earnings and the dividend. The good news is that management believe they may be able to exceed the forecast R7 per share full year dividend. A R7 per share DPS means that MTN is trading on a 5.4% forward yield. For those who want to read up more on the MTN results, here is the SENS announcement.

As always here is this week's table:


Friday, 5 August 2016

[Article] Keep educating yourself

We all know about Financial Capital. Often, we neglect our Human Capital. Here is a great article by Warren Ingram on self-investment. Educating yourself is very important. There are plenty of resources on the web which can help. Check out https://www.coursera.org/ and https://www.edx.org/ for some great online courses. And as always make sure you are reading lots of books!

Check out the article by following the link here: http://bit.ly/2aynplp

Thursday, 4 August 2016

[Opinion] Making your mark

I don't like politics. I don't really trust any politicians - yes, from any party. In fact, I like (and trust) the sum total of one politician. I vote every election because I think it is the right thing to do. We have just had the local elections in SA and I must say (anecdotally, at least) that I haven't seen so many people keen to make their mark.

In order for South Africa to succeed, I believe that there need to be at least two political parties who actually have any power. When one party wins by a landslide, it is not good for the country. In my opinion, leaders in South Africa (from all parties) need to be held accountable. This cannot happen when one party can do as they please with no one watching their every move.

(Aside: the complete opposite to this is Australia where they can't ever seem to elect a majority. They end up having elections every other year. The number of times they have changed Prime Minister would rival most Premier League side managerial shuffles. This is no good either.)

So in short, I think a competitive political landscape is good for South Africa long term. One party will win comfortably this time round but we are slowly seeing a more competitive landscape develop.

Also, someone needs to do something about the number of political parties in SA. I had to fold that ballot paper at least six times. Those poor trees! :)

Tuesday, 2 August 2016

[Article] Taking the shine off gold

I like growing cash flows. Because of this, I despise commodities. I believe commodities add no value to an investment portfolio. Many may disagree with me but let's agree to disagree. A friend passed on a great article by McClean Asset Management called Should Your Portfolio Include Commodities? I have reproduced some of the thoughts below but I would recommend reading the entire article. Copying and pasting can sometimes take things out of context!


We always seem to hear about commodities when they have done really well, which is no different than anything else in finance. Commodities differ from a lot of other strategies you hear about in one important way: they are, as their name indicates, commodities, which means they are standardized, interchangeable goods.
A barrel of West Texas Intermediate crude oil is exactly the same as any other barrel of West Texas Intermediate crude oil. An ounce of gold is the same as any other ounce of gold. Standardization lets the commodities markets operate effectively. Everyone knows exactly what is being bought and sold.
But commodities are just things. They don’t produce any value in and of themselves. They’re valuable, but they don’t create new economic activity. In short, they don’t increase the size of the pie. Buying a commodity is fundamentally different than investing in a company. Companies are going concerns. The whole point of a company is that it creates economic value (or at least it’s trying to). Companies want to increase the size of the pie.
In practical terms, this means that the long-term expected return of commodities is inflation. Commodities are basically moving along with inflation—at least over the long term. What makes people get so excited about commodities every once in a while is their massive volatility.
And after doing a whole lot of analysis they come up with the following conclusion:
When we break everything down, commodities don’t help us with any of the competing factors we look at during portfolio construction. They have lower long-term returns than short-term fixed income. They have higher volatility than the stock market. And they don’t help us hedge against inflation.
Unless we are able to predict what they are going to do going forward (and we certainly can’t), there is no reason to want them in your portfolio. In nearly all cases over the long term, commodities will lower your portfolio’s return and increase your portfolio’s volatility.
It may be boring, but the standard, broadly diversified stock and bond portfolio built around taking an appropriate amount of risk for you is still the best solution for helping you meeting your goals. And that’s what investing is all about—meeting your goals, not shooting for a high score.
I would like to echo that last line. Investing is about meeting goals - not being the best!

Monday, 1 August 2016

[Opinion] Investing too much at home

In Forget the Noise, I propose building an income stream by using a majority of South African-listed assets. I have been doing a lot of  reading recently which challenges this belief. There is, of course, a lot of noise in the SA press about "state capture", "corruption" and "Guptas". None of this noise is great but it is not the source of my worries. You see my worry is that South Africa is a tiny part of the global market. I am taking a massive bet on South Africa. The whole Middle East/Africa region only makes up 1.2% of the entire MSCI World index (i.e. South Africa is less than 1.2%). The average South African investor has far more than 1.2% invested in SA assets. (This so-called Home Country Bias is not unique to South Africa, either. See this Reformed Broker blog post.) Regulations such as Regulation 28 in South Africa do not help either as they only allow up to 25% of invested assets offshore.

The question I ask myself daily at the moment is whether I am right to invest mainly in South Africa or should I be sending more money offshore. In the Reformed Broker post, Josh Brown cites a Vanguard study* with some reasons for Home Country Bias:
  • Expectations. In one of the earliest studies on the topic, French and Poterba (1991) identified investors’ expectations about future returns in their home market as a key driver.
  • Preference for the familiar. Investors generally feel more comfortable with their home market and allocate investments accordingly, even if it results in a poorer risk/return trade-off for their portfolio.
  • Corporate governance. Dahlquist et al. (2002) suggested that corporate governance practices have a major impact.
  • Liability hedging. Stockton and Bosse (2015) illustrated that the need to hedge certain liabilities may lead to a home-country bias, especially in fixed income, but also perhaps in equities. This is because the ability to fund a clearly defined liability is increased when using assets that move in tandem with those liabilities. Similarly, domestic investor spending is often influenced more by domestic inflation and interest rates.
  • Multinational companies. Investors may feel that through investment in multinational companies, they will attain as much global diversification as they will need. But as global economies become more interconnected, it’s important to consider the extent to which investment in domestic companies provides exposure to foreign markets.
  • Currency. Many investors perceive foreign investments as inherently more risky than domestic holdings. For example, it is not uncommon to see investment providers’ websites or literature list foreign equities among the riskiest assets, despite the well-documented diversification benefits of including foreign securities in a diversified portfolio. Much of the volatility in foreign investing can be attributed to exchange-rate fluctuations, and the desire to avoid the influence of such movements could be an additional reason why investors allocate greater percentages of their portfolios to domestic securities.
In my case, the reason for my Home Country Bias is Liability Hedging. I want to build an income stream that is inflation-hedged. I still believe that this is a valid approach. What I do concede, however, is that I should pay more attention to building an offshore allocation that is more representative of the global economy. I am still pondering exactly what that allocation should look like. This has been a good exercise, though. We must continually test our beliefs and thinking.

*The buck stops here: The global case for strategic asset allocation and an examination of home bias Vanguard – July 2016

Disclaimer:
The views on this website are my own and do not convey the views of the organisation I work for. Nothing on this website constitutes financial advice. All content is mere opinion and is not based on anyone's specific circumstances and/or needs. It does not contain any recommendations. Use of any information on this website is at your own risk.