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This is the Sharenet company blog where we will bring you the latest news and events on the go at Sharenet, together with tips on using our site and our products.

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    Annual increase notice for 2015

    Dear Clients,

    As of 1 January 2015, the JSE will be instituting an increase across all their services. Sharenet, as from the same date (1 January 2015) will similarly be initiating an increase. We have managed to keep the increase down to 6.9% across our products and services with exception of the following services where the increase may differ or an increase was not applied:

      PowerStocks pricing for 2015:

    1) Existing monthly PowerStocks subs will increase to R659. Note that monthly payments are not available to new subscribers. Please see Bi-annual and Annual options below.
    2) Bi-Annual PowerStocks subs will increase to R3,954
    3) Annual PowerStocks subs will increase to R7,188
    4) Monthly Ultra subscribers will now pay R1,099 per month

      Online trading pricing for 2015:

    We are pleased to announce that neither our Sharenet Securities (at only 0.3% commission or R100 minimum - www.sharenetsecurities.co.za), nor our Sharenet CFDs offering (at only 0.2% on equity CFDs - www.sharenetcfds.co.za) has changed in price. There will be no increases passed on to these trading and investing services. For more information on either of these options, simply contact Sharenet and we'd be happy to help you.

    Then, don't forget that we're in festive season mode. If you've been meaning to learn more about the markets through our Stock Exchange Course, planning on purchasing charting software or take advantage of securing 2014 prices on PowerStocks in order to avoid the 2015 increase, take advantage of our year-end Christmas sale NOW ON until 15th December 2014. Visit the following page for more information. www.sharenet.co.za/sale

    We welcome any and all suggestions which could help us improve our service and encourage you to send these through to support@sharenet.co.za

    Thank you for your continued support and business.
    The Sharenet Team

    Permalink2014-11-28, 10:26:46, by Natalie Email , Leave a comment

    Seed weekly - The risk is to the Downside

    A previous article looked at why capital protection is an important factor when choosing a fund manager. Today we distinguish between good and bad volatility. In short, the volatility of the fund indicates how predictable the returns are. When a fund’s volatility is low, the monthly returns are very close to the average return over the period you are looking at (i.e. relatively predictable). The volatility of the fund is typically measured by standard deviation, how the much the monthly returns deviate from the average return. A money market fund will normally have low volatility. The opposite is true for equity funds whose volatility tends to be high, and the return predictability very low, in the short term.

    The graph below shows the monthly returns of a money market fund compared to that of an equity fund over the past 5 years.

    The graph above shows how stable money market returns are compared to an equity fund. The graph below shows the standard deviation of the funds.

    But not all volatility is bad. Standard deviation takes into account up and downside volatility, but as investor you should be more concerned with downside volatility or loss standard deviation.

    The graph below shows the monthly return distribution of 3 equity funds over the past 5 years.

    Let’s first look at some statistics of the funds

    Fund 1’s returns are the most concentrated compared to the other two funds. The fund does have a few months that are on the edges, but most months were between -2% and 2%. The fund also had the least number of negative months.

    The returns for Fund 2 are slightly more spread out than Fund 1, but Fund 2’s returns are much more uniformly spread between -3% and 5%. The returns aren’t as concentrated as Fund 1. Fund 2 also has the highest average monthly return.

    Fund 3 is the most spread out and also has the most negative months. The fund also had the lowest month return (-10.1%).

    The graphs below plot the standard deviation (left) and loss standard deviation (right)

    Because Fund 1’s returns are much more concentrated around the average return, its standard deviation is lower than the other two funds. Fund 2 and Funds 3 returns are almost equally spread out from the average monthly returns. That is why their standard deviation is similar, despite Fund 2 having more positive months than Fund 3.

    This is why it is better to look at the loss standard deviation instead of only the normal standard deviation. On the right had side we can see that Fund 1 and Fund 2 loss standard deviation is very similar. The additional volatility of Fund 2, compared to Fund 1, is due to spread out of its positive months.

    On the normal standard deviation and loss standard deviation, Fund 3 comes off the worst. The returns for the fund are most unpredictable and the chances of having a negative month are the highest.

    Based solely on the quantitative information above we will tend to make use of Fund 2 in our solutions. While the fund’s returns may be more volatile than the other two funds, the volatility is mostly on the positive side. Naturally, in reality our process looks more in depth at both the quants and large emphasis is placed on the qualitative research before making use of any fund in our solutions.

    Kind regards,

    Gerbrandt Kruger

    021 914 4966

    Permalink2014-11-25, 09:43:52, by Mike Email , Leave a comment

    Seed weekly - A Longer Term Perspective on Asset Class Returns

    Because investors are inundated with news flow, which very easily results in myopic behaviour, it is often useful to take a step back from time to time and have a good look at the bigger picture. SBG Securities have produced an in depth report on the returns that the various asset classes have produced over time in South Africa.

    With no shortage of opportunities, investors have a wide choice as to what to do with their savings. Within a South African context, some of the main asset classes include money market, bonds, listed property, and listed shares. Analysing history is but one part of the process in trying to determine what investors can expect into the future.

    The chart below provides a long term view of the returns across the main asset classes. Over 54 years from 1960 to the end of 2013, the arithmetic total return from equities came in at 19.5%, far exceeding the returns from bonds and cash and producing an 11.2% real return. Over meaningful periods of time, the total return from equities has been found to be in a range from 17% to 21%.

    Chart 1: Asset Class Performance (1960-2013)

    When measured over the last 38 years, to also include the total return from listed property, listed equities still outperformed in most measured periods, except for over the last 15 years, where an investment into listed property would have produced 21.3% against the 20.7% for equities.

    The chart below, over the shorter period of 38 years, also includes gold and the total return derived from “investing” into ones’ mortgage bond.

    Chart 2: Asset Class Performance – 38 years (1976 – 2013)

    What is noteworthy is that South Africa has had a tumultuous time against which these superior returns from listed equities were generated. Some of the negatives included inflation rising to double digits from mid-1970’s to early 1990’s, prescribed investments into government bonds from mid-1960’s to late 1980’s for pension funds, the debt standstill crisis in mid-1980’s and then the move from apartheid to a democracy in 1994. Over the last 20 years, while operating a democracy, there has also been no shortage of both local and global issues, including the Asian crisis in 1997, and then the 2007-2008 global financial crisis, which resulted in the single biggest decline in listed equities in a calendar year of 28.3%.

    It is a common fact that the returns from listed equities are volatile - one year returns have varied from negative 28% (2008) to a positive 137% (1999). It is this single fact that continues to keep many investors from being adequately invested. However, for those investors that can afford to adopt a horizon of at least 5 years, there have been no 5 year rolling periods since 1960 where investors have experienced a negative return in nominal terms.

    The cumulative effect of a truly long term investor is astounding. SBG Securities have calculated that R100 in 1960 adjusted for inflation would be the equivalent of R7 000 today. An investor that had kept his money in the money market and reinvested the interest (also assuming no tax) would have turned his R100 into R14 000, while an investor compounding his investment on the JSE would be worth some R520 000.

    The material difference in returns between “low risk” cash and bonds, on the one hand, and listed equities, on the other, means that all investors must give serious consideration to including them as a core component of their portfolio. Just what percentage this should be is largely dependent on one’s time horizon. The longer that investment horizon naturally the greater that weighting should be.

    Kind regards,

    Ian de Lange

    021 914 4966

    Permalink2014-11-18, 11:13:18, by Mike Email , Leave a comment

    Seed weekly - Bond ValuationsSeed Weekly - The more things change... The more they stay the same

    Those of you who know me, or have seen my photo, will know that whilst I am not “follicle impaired” like a lot of men my age, there is definitely a lot more salt than pepper on my head.

    One of the main reasons for the abundance of grey is the fact that the returns in financial products are seldom linear (i.e. they don’t move up in a straight line).

    One of the most common products that financial planners use for long term growth is Multi Asset High Equity Funds which we used to call Balanced Funds. Below, I have attached a graph showing the average high equity manager’s growth from December 1998 to date along with pre-tax money market returns and CPI. You will see that the growth in this investment over this period has been in excess of 700%. While nobody will disagree that this growth is more than acceptable, I would like to highlight a few areas which caused most of the aforementioned grey hairs.

    If you look at the period from February 2000 to November 2000 nothing seems to be wrong. However, if you analyse the results for this period you will see than investors lost 1% over 9 months, when money market yielded 7.5% for the same period. The number of calls I got from clients wanting to switch out of their high equity investment to money market was incredible. The second period of concern, which also looks fairly innocuous now in hindsight, was from June 2002 to April 2003. In this 10 month period investors really started wondering about the wisdom of investing in balanced funds because they were down 6% in 10 months and my task as a Financial Coach/ Wealth Manager was really difficult because a lot of clients I had persuaded to stay in the Investment in 2000 were now really worried, fortunately we had a good run after that and markets increased beautifully. Then came 2007…. anybody who invested money in November 2007 would have lost 21.5% by February 2009. Imagine how many grey hairs this caused, both for me and my clients. But those clients that stuck it out were rewarded in spades with incredible growth for a number of years thereafter.

    I hear a number of you asking what is this reminiscing got to do with me and my investment now. The answer is quite simple: you may have noticed that the top of the graph has now had a downward tendency for the last couple of months and clients are starting to worry once more!

    The fact of the matter is I can’t say whether the next 10 months are going to be like the flat period we had in 2000, the slight drop we had in 2003 or the major fall we had in 2008. We could even have a nice upswing like we had after September 2011, the fact is, returns are never linear and returns will always be variable over short time frames. Investors need to have a clearly defined plan and stick to it through the ups and downs of the market, those that have done so in the past have been richly rewarded, those that have panicked (and panic was rationally justifiable in 2008) have missed out on incredible growth.

    Kind regards,

    Barry Hugo

    021 914 4966

    Permalink2014-11-11, 09:47:54, by Mike Email , Leave a comment

    Seed weekly - Investment greats – George Soros

    Our short bio on investments greats for today is George Soros – the legendary “man who broke the bank of England” hedge fund manager known for his large bets on macro-economic events.

    Photo: georgesoros.com

    Currently aged 84, and residing in New York, George Soros was born in Hungary. He survived the Nazi occupation of Budapest and thereafter fled the communist rule in Hungary in 1947 when he went to London as an impoverished student to study at the London School of Economics. There he studied philosophy and paid his way, working as a railway porter. In 1956 he moved to America and started working as an analyst and trader.

    In 1973, after some positions at New York based investment firms, Soros went on his own and started Soros Fund Management. Their flagship fund, The Quantum Fund, which he ran for almost two decades, reported annualised returns in excess of 30% from 1970 to 2000, one of the most successful hedge funds in history.

    He is known for his logical, yet abstract, investment style and has developed what he calls the theory of reflexivity. In its economic perspective it basically says that prices do in fact influence fundamentals, and that these newly influenced set of fundamentals then proceed to change expectations, thus influencing prices and the process continues in a self-reinforcing pattern. Because the pattern is self-reinforcing, markets tend towards disequilibrium. He believed that financial markets can at best be described as chaotic. Prices and currencies depend on people or traders (professional and non-professional) who buy and sell these assets. People often tend to act out of emotions rather than logical considerations.

    He is most known for his highly leveraged trades in the international currency markets. He was a short term speculator – making huge bets on the direction of financial markets. He was very aware of behavioural biases in the financial markets. "I rely a great deal on animal instincts." He was not shy to “move with the herd”, but always watched for an opportunity to get out in front and "make a killing." "It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."

    He would have an instinctive physical reaction about when to buy and sell; making his strategy a difficult model to emulate. “I'm only rich because I know when I'm wrong ... I basically have survived by recognizing my mistakes. I very often used to get backaches due to the fact that I was wrong. Whenever you are wrong you have to fight or [take] flight. When [I] make the decision, the backache goes away.”

    George Soros gained international notoriety when, in 16 September 1992 (aka “Black Wednesday”), he put a $ 10bn trade on a single currency speculation when shorting the British pound. He turned out to be right, and the trade generated a $ 1bn profit in one day. This trade is considered one of the greatest trades of all time. Later it was reported that his profit on the transaction almost reached $ 2bn. As a result, he is famously known as the "the man who broke the Bank of England."

    He has written a few books, his first and most famous being the Alchemy of Finance (1988).

    He is no longer managing his own money full-time, but his touch remains: last year, he apparently made a reported $ 1bn shorting the Japanese yen. Today he actively focuses his time on philanthropy and politics and you will see his views regularly on international news sites. He once wrote “My success in the financial markets has given me a greater degree of independence than most other people... This allows me to take a stand on controversial issues: In fact, it obliges me to do so because others cannot.”

    Upon receiving an honorary doctorate from Oxford University he said he wanted to be presented as follows: “I would like to be called a financial, philanthropic and philosophical speculator." Food for thought.

    Keep well,

    Lourens Rabé

    Investopedia, Forbes, Wikipedia, GeorgeSoros.com

    Permalink2014-11-04, 09:30:08, by Mike Email , Leave a comment