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    Are you too Busy?

    Why is it that many people never obtain the very financial independence that they often desperately desire? There are many reasons. Often though it’s as simple as not getting started on a proper process. Many people think the process is just too risky, or too complicated. But the biggest reason is probably procrastination in simple planning ones wealth.

    I spent part of the day today phoning a few people who had previously contacted me to discuss their personal investment strategy. The common thread was yes, thanks we need to do something, but I have just not got around to it yet.

    It’s understandable. Busy - ness is the order of the day. Working in your own business or for a company, the hours seem to melt away as the workload piles up. It’s very easy to get caught up in the daily operational issues, and spend no time whatsoever on long term strategy.

    For most people achieving financial independence and maximising investment returns is unlikely to happen by putting away R2000 / month into a retirement annuity and hoping for the best at age 65.

    I have found that those investors that have the best opportunity for financial independence are those that:

    1. Spend the bulk of their time building up their own business, which they either sell off one day to generate a lump sum, or where it generates a lot of cash flow that they can divert into building up their investment portfolio.

    2. As employees, develop themselves to middle to senior management level, where they either receive profit shares, share options or the ability to buy equity.

    Granted many people only retire with a company pension fund, without having had the opportunity for either option above. For these investors, it’s just tighter.

    It’s the large “once off” payments from the sale of a business, profit share, dividends, annual bonuses, sales bonus, and share options etc that must be invested, in addition to any pension fund, which will compound up to generate real wealth if looked after properly.

    BUT investors must have a strategic plan of action before that event arises. i.e. an existing framework, so that making a decision is relatively easy.

    It’s almost the middle of 2007. With the prices of both shares and property having boomed, there are many that have take full advantage, received a large lump sum of cash and now need to make some serious decisions. If you have a strategic plan, then it will be relatively easy. If you need to get to this point and discuss the management of this for long term wealth generation, then contact me on ian@seedinvestments.co.za

    Kind regards

    Ian de Lange

    Permalink2007-05-31, 18:01:43, by ian Email , Leave a comment

    Hedge Funds 101

    We have been looking at hedge funds for some time now. In recent months there has been some highlighting of these funds in the press. The one off blow ups always make headline news, and these only serve to scare away investors. The result is that hedge fund industry both locally and abroad is often seen as opaque.

    While there is a lot of debate as to whether a hedge fund is a separate asset class in and by itself, or merely different ways of managing available asset classes, the important question always is do you have a very clear understanding of what you are investing into?

    I mentioned a while back of the multi asset class strategy that the US Yale Endowment follows. One of their bigger allocations has been to hedge funds. This was long before they became popular across the globe.

    I think that the biggest “problem” with hedge funds is that there is no uniformity. Each one is managed differently. Unlike collective investments, where there are clear and established guidelines, a hedge fund establishes its own guidelines from the outside. These will be contained in a mandate document.

    So how are they structured?

    Well in South Africa most are set up as a limited liability partnership, a trust or a variable rate debenture company. In South African law a partnership is limited to 20 partners, and so this is restrictive as to the number of investors.

    It’s important to know that the Financial Services Board does not approve any hedge funds as yet. The main reason is that there is no enabling legislation, and so while various participants in the hedge fund industry including AIMA (The Alternate Investment Management Association) have been meeting with the FSB for some years now, no enabling legislation has been promulgated.

    Each fund, however structured, does have a manager managing the fund. Locally these managers are all approved as investment managers by the FSB.

    From the inception however, such funds were private pools of money and even in the US, in the 1950’s Warren Buffett established a private partnership and ran what can be described as a hedge fund.

    The catch all phrase hedge fund is problematic, because very few funds are pure hedge funds, i.e. actually hedging out market risk. I will spend some time in future articles discussing some of the various strategies and approaches used by funds.

    As investment advisors and managers to private clients, we must look at all available options. The critical issue always is the people behind the business. As with a company, where the management is key to long term performance, so with various management companies, the people behind the business are key.

    Kind regards

    Ian de Lange

    Permalink2007-05-30, 17:29:45, by ian Email , Leave a comment

    Oh those Life Companies

    When dealing with clients we always take the time to get updated details of their existing “investments”, i.e. range of policies. Far too often than not, these are poorly structured or poorly performing and we need to take time to see if we can consolidate them and get them working in line with a total Investment Strategy. The theory is fine; the mechanics are not always that easy.

    Carte Blanche had a follow up expose this week on poorly treated clients at the mercy of financial institutions. For various reasons they had had their policy accounts debited and had taken their complaints to the adjudicator. Life companies unhappy with Pension fund Adjudicator rulings took the matter further to the High Court.

    I can honestly feel for everyone that has a bunch of policies and has had to have any dealings with these companies. The problems start to come in on the inflexible nature of policies.

    Where legislation does allow for a process of transfer from one life company to another, then mechanics and the required paperwork is a daunting one.

    In many cases the investment policy is correctly positioned and needs to remain in place. But where there is clearly a problem and an investor needs to maximise their total investment strategy, this is when problems can start to set in. This often means consolidating weak performing elements.

    Unfortunately many times, investors have a range of existing policies, but the difficulty of obtaining values, the restrictions on moving, and switching underlying asset allocation etc, results in general apathy.

    The disturbing trend that we find is the number of investors that have had no further dealings with any advisor once they had parted with their funds. Even where the investor has had the ability to adjust asset allocation, we find problems like 100% cash allocation or 100% offshore etc.

    The truth is that in 95% of the cases, investors were sold something. No one formulated a total investment strategy framework and then worked on what was required. The product may have looked good at the time. Now 3 years or 7 years down the line, the investor has no-one to talk to about it. The salesman is long gone, and waiting half an hour on the phone to get updated values is no fun.

    What makes me mad is the aggregated value of capital lying around that is not being maximised.

    Whether it’s medium net worth or high net worth, most investors that we come across have underperforming assets. If you find yourself in this position, with assets all over the place, it’s probably time to put together a total investment strategy and cut out all the complexity, then contact me on ian@seedinvestments.co.za

    Kind regards

    Ian de Lange

    Permalink2007-05-29, 17:15:03, by ian Email , Leave a comment

    Activity in the resource market

    The numbers in the Resources businesses around the world are truly phenomenal. The resource market has surged up from a low margin business 6 and 7 years ago, to a position now where resource operations are spewing cash. Today Investec announced a strategic alliance with Brian Gilbertson’s company, Pallinghurst.

    With the prices of resources continuing ever higher on a combination of supply squeeze and strong demand, all resource operations are spewing out excess profits. This has allowed bigger and bigger global deals.

    Today Investec announced a co-operation agreement with Pallinghurst Resources and AMCI Cons Mining. The deal sees Brian Gilbertson link up with Investec, and look for opportunities in the natural resource sector. He has extensive experience after heading Gencor, listing this in London as Billiton and then merging it with Australia’s BHP to form the giant BHP Billiton.

    Investec will bring financing and investment banking skills. The third party is AMCI Cons Mining, which is an affiliate of American Metals and Coal International Inc, which was founded in 1986. The investment group hopes to invest up to $1,5 billion.

    Locally we even miss some of the deals that are going on. Canada’s Lion Ore with operations in Botswana in nickel, was initially bid at $C18.50. The Russian giant, Norilsk Nickel came in with a bid at $C21,50/share for Lion Ore. Swiss mining group, Xstrata, which is headed up by Mick Davis, ex right hand man to Brian Gilbertson, was forced to up its bid to $C25. Norilsk upped its offer last week to $C27,50.

    A couple of months or so, the higher bid values the business at $7,6 billion, up a massive $2,6 billion.

    Xstrata extended the deadline on its bid to 7th June. These are massive increases in price which competitors are willing to pay and will continue to fuel the prices of the resource operations. There is a supply shortage to feed the demand, and growth by acquisition is the new game for these giants.

    The way the costings of some of these companies work, is to credit operating costs, with revenue generated on by-products. So for instance where a platinum company produces gold, it may use the revenue from gold, its by-product, to credit the cost of extracting platinum. With all prices so high, some operations are running with negative costs of production for their core product.

    With ultra low, and in some cases negative costs, one can understand the absolute scramble for natural resources, including through acquisition at ridiculous prices. There is also scramble for new mines to come on stream, which will eventually catch up to meet the strong demand. But until then prices will remain very hot.

    Except for the gold index, all the main indices ended stronger, on the back of strong global markets. It looks like investors don’t need to be too scared just yet. Rather use this time to establish your longer term strategic investment plan.

    Kind regards

    Ian de Lange

    Permalink2007-05-28, 17:51:22, by ian Email , Leave a comment

    Presentations of the past week...

    We attended a number of presentations this week. From regulatory compliance, local asset managers right through to a Chinese market presentation and an offshore fund of hedge fund manager. Here are a few interesting points to note.

    1.Regulations on financial services companies are tightening but we have said it in the past, one can’t merely go on whether the FSB approved a financial services provider. One has to do your own due diligence before embarking on investing. The Business Day commented today on closing the “Fidentia-like loopholes” suggesting that Treasury and the FSB will re-look at their processes.

    2.A presentation from an offshore chinese focused fund manager made the following points: Chinese growth will surprise on the upside, the state influence on business is slowly reducing and Chinese Yuan to keep on strengthening. It also now becomes important to have fluent Chinese speaking analysts on the investment teams if you think it is worth researching this market.

    3.Offshore Fund of Hedge Fund (FOHF) managers have always been actively looking for additional returns that are uncorrelated to the general equity market. Nowadays, many of these funds have a fairly high correlation to the MSCI – possibly due to the bull market. The question is “Will they be less exposed and uncorrelated if the market turns around?”. Some FOHF managers are looking elsewhere for returns like Insurance Linked Securities, Private Investments in Public Equities (PIPEs) etc. The important issue is to understand these investments and how they can protect your portfolio from potential losses when the listed equity market tumbles down at some point.

    At Seed we enjoy researching different asset classes and the likely pay-off profile they provide to our clients’ portfolios. If you would like to know more about our value proposition then please email Ian at ian@seedinvestments.co.za .

    Finally, but very important the JSE experienced an almost all red day and closed down 0.97% at 28 533.

    Enjoy the rugby!

    Vincent Heys

    Permalink2007-05-25, 18:04:49, by Mike Email , Leave a comment

    The JSE retreats slightly

    The JSE closed down 0.94% at 28813 with value traded at R10.34 billion. Declines led advances 221 to 162. Mining closed down 0.97% at 35590, while Industrials were down 1.04% at 24638 and financials ended the day off 0.91% at 25375.

    The best performing sectors of the day were Development Capital up 1.3% at 1116, Electronic & Electrical Equipment Index up 1.2% at 30904 and Travel & Leisure Index up 1.2% at 5148, while the worst were Support Services Index down 3.3% at 2288, Mobile Telecommunications down 2.9% at 159 and Telecommunications Index down 2.9% at 51575.

    There were 31 new 12 month highs today, including Mt-egle which closed up 11.1% at 2000, Assore up 10.6% at 26000 and newly listed Rolfes up 10% at 329. Others included Altron up 4,7% to 5225c and Didata up 1,79% to 797c

    Of the major stocks Anglo fell back just 0,9% to 41510c, Sasol flat at R263, MTN down 2,9% to R99 and Firstrand off 3,2% to 2405c.

    Best performers of the day were Assore up 10.64% at 26000, Rolfes up 10% to 329c, Topfix in the construction sector up 5,2% to 320c and Metmar up 4,8% to 430c.

    The Dow was unchanged at 13520.53 and the S&P 500 off 0.4% at 1516.50 a few moments ago.

    Gold was down 1.4% at $ 653.05/oz

    The rand was last trading at R 7.15 to the dollar, R 14.19 to the pound and R 9.60 to the Euro.


    Ian de Lange

    Permalink2007-05-24, 18:08:47, by ian Email , Leave a comment

    Global and local markets fly

    Global and local markets continued to fly today. It just does not get better than this. The JSE Ltd itself jumped up 7% to 7650c. The overall index gained 1,6% to 29087, up 458 points with Financials up 1,9% and Industrials up 1,55%.

    There were some very big moves with Netcare gaining 5,1% to 1650c

    Steinhoff up 4,3% to 2440c

    Numerous new highs including:

    Omnia up 4,7% to 7874c

    Kumba Iron Ore up 5% to R186.

    Pikwik, up 2,5% to 1601c

    Aveng up 3,2% to 5325c

    Invicta jumped 10,7% to R31

    The reason is simply more demand for equities than supply at the moment. There is big buying coming from offshore investors, with rumours that they may even own as much as 30% of the JSE Ltd. This company trades on an historical price to earnings of 48 times.

    It’s very expensive, but it’s a monopoly type company with a big moat around it. There is no restriction on any competitor entering the market, but for anyone to get to the scale of the JSE will either take years, or some sudden large shift in the way that this business is done.

    Some of the new companies such as Esor have performed exceptionally well in a market that is looking for growth stories. Esor reported annual results today. With its acquisition of Franki, the company has done well with headline EPS up 77% and a dividend of 6c per share declared. The price jumped just 1,25% to 565c.

    It’s a wonderful time to be invested, when other investors are willing to pay more and more each day for the same company.

    Its not quite 1998, but the signs are there. I discussed having a plan of action yesterday. When the risks APPEAR low, use this time to put overall plans in place.

    Europe and US markets are up today.

    The rand was slightly firmer against all currencies, last at R7,03/dollar.

    That’s all for today

    All the very best


    Ian de Lange

    Permalink2007-05-23, 17:40:25, by ian Email , Leave a comment

    Are you benchmarking your performance?

    The bull market continues and all investors over the last 4 plus years now and even those that were fully invested into the down 2002 and 2003 year are smiling. Things have never looked better. BUT the stampeding bull can mask a lot of inefficiency. What do you mean by this, you may ask?

    The correct asset allocation over the last 4 years has accounted for the broad based gains in the market. Yes there will always be some sectors that outperform others. It’s the very nature of values that move in cycles from cheap through to reasonable through to expensive.

    The bull market has provided investors with a double whammy of strong earnings growth (i.e. strong dividends) together with a re-rating of those earnings from an average of around 9 times to the current 16 time historical earnings.

    So theoretically a share purchased on earnings of say R5 in 2003, i.e. at R45 would now be worth R80 purely on the re-rating from a 9 times to 16 times earnings. In other words on average even if a company has not grown its earnings it has almost doubled its price.

    So while we find many investors with direct equity portfolios that have all done extremely well, we don’t find many investors who have taken the time to properly benchmark against what is achievable. I.e. active and professional fund managers.

    Many may be surprised at how well they have performed relative to professionals. But then need to drill down and look at some attribution of this performance. Did the higher performance come at a higher risk? For example was the portfolio concentrated on a few winning shares? Perhaps you bought Wesizwe at R4 or Basil Read at R6.

    Maybe the superior performance came from superior share selection and building a diversified portfolio at no greater market risk.

    The next question then is do you have a repeatable process. For example do you have a process to rank shares outside of your portfolio for possible inclusion in your portfolio? Do you continually look at the valuation of the shares within your portfolio for possible sale? Maybe you have Murray and Roberts at R70, but have not calculated what the implied growth rate is at this price.

    Do you have a process to sell what you have in your portfolio when a specific share reaches or exceeds its fair value or gets expensive?

    Ultimately every single private investor with a portfolio should be benchmarking against firstly the market returns. Then all investors should benchmark their portfolios against active managers to determine who is the best manager for their pool of funds.

    That is presuming in the first instance that they have a defined strategic asset allocation.

    38 shares at new highs and new 12 month highs today. The market remains a bull. Now is the time to put long term planning and structure in place. Make sure that you have a repeatable process through the cycle.

    All the very best

    Anyone wishing to discuss further, please don’t hesitate to contact me on ian@seedinvestments.co.za

    Kind regards

    Ian de Lange

    Permalink2007-05-22, 18:02:28, by ian Email , Leave a comment

    Are you trying to Invest with too much Noise?

    Is the level of noise and the ease of making money misleading investors into thinking that it’s all too easy? In the run up to the 1999 technology bubble and then collapse late 1999 and early 2000, 70% of all IT shares beat the overall index.

    While we are not bearish on the market, we do get concerned when very inexperienced investors are looking to augment their pension capital by both trading shares and then also derivatives positions. Trading a share is one thing but gearing up 10 times with a short dated future position is something altogether different.

    There will always be professional traders who can and will make good profits, but when truly novice investors are “playing futures” to make up capital, the outcome is inevitable.

    As a trader (as opposed to an investor), some of the attributes that you need:

    1. A sufficient pile of capital. If you need to trade to make the monthly rent payment from trading profits, forget it.
    2. The required level of skills and knowledge. If you don’t know the different between and option and a future, then first get the required knowledge. It will be a lot cheaper. Know that you are trading against extremely knowledge players with very sophisticated models.
    3. A defined set of trading rules. Trading on a whim or a hot tip may work a few times, but like the casino, when the odds are not in your favour, you WILL lose the longer you stay there.
    4. Money management skills.

    I am not a trader of markets, but I have seen enough and read enough to know that these are some of the basic requirements.

    Global markets are running high on lots of global liquidity and appetite for risk. It’s these exact ingredients that bull markets love. As the noise levels increase, so investors should become more and more wary, not more complacent.

    It’s a difficult one, because it’s at these times that a lot of money can be made.

    More noise typically means the quality of information is low. In fact where there is too much noise, value biased investors start to look for opportunities to sell and not to buy.

    Richard Bernstein said in “Navigate the Noise” that “Noise can disrupt your propensity to diversify and reduce your risk. It undermines goal setting and can lead to a tendency to take too much risk and to concentrate on the short term over the long term”

    For investors who are felling left out, or for those with portfolios that are too concentrated locally or one particular asset class, you need a long term investment strategy.

    Many retiring investors now also find themselves as having to become investors with their pension funds calculated on a defined contribution basis. If you find yourself in this position and need professional strategic planning and management, then contact me on ian@seedinvestments.co.za

    Kind regards

    Ian de Lange

    Permalink2007-05-21, 18:01:42, by ian Email , Leave a comment

    Alchemists of Finance

    All visitors to our offices in Century City comment on the building activity in the area, citing further anecdotes of very strong economic growth taking place in virtually all areas. Where is all the growth coming from and what is fuelling it?. Well the same questions are being asked across the globe.

    There is no question that some of the rocket fuel used to power growth, is encapsulated in an article in the Economist this week, titled “The alchemists of finance”.

    It kicks off by saying that global investment banks are taking ever more risk and are devising ever more sophisticated ways of spreading it to the multitudes. With ever more sophisticated ways of packaging risk and spreading it over a wider base of willing investors, more risk can be assumed.

    These global investment banks such as Goldman Sachs, Morgan Stanley, JP Morgan, Citigroup, Deutsche Bank etc have been party to ever more complex financing structures, which make use of leverage and risk sharing.

    The global economy has played along with Asia coming in as a cheap producer of final products to the West. This has kept retail consumer price inflation in check (largely) allowing global central banks to keep interest rates relatively low.

    The combination of low interest rates and appetite for higher and higher yields has allowed the investment banking market to flourish, in turn adding to the global liquidity.

    Global numbers are staggering, with ownership of shares and debt held in the US growing from 2,4 times GDP in 1995 to 3,3 times GDP in 2004. With the GDP of the US at around $12,5 trillion that’s growth in the financial ownership of some $11,2 trillion in 10 years.

    The Economist report says that this excludes the notional value of derivatives, which has soared to an estimated $370 trillion in June 2006 from $248 trillion 2 years earlier. Its these numbers that frighten central banks nervous of a possible blow out somewhere that will make the Long Term

    The massive increase in financial markets has benefited the top global investment banks with profits doubling in 2 years. Its been a boom period for owners of assets able to gear up on cheap credit. The investment bankers have ridden this wave well.

    Have a great weekend. Enjoy the rugby.

    Contact me if you want to discuss investment planning and management.

    All the best


    Ian de Lange

    Permalink2007-05-18, 20:55:19, by ian Email , Leave a comment

    Market Review

    With the higher level of corporate governance, directors have for some years now, had to disclose their dealings in their shares. It’s something that is followed with interest and while it can lead investors to believe that there is either value when directors are buying or lack of value when they are selling, it’s not always that accurate.

    Today I noticed that the director of Murray and Roberts selling a bunch of shares after exercising options. It’s interesting to see how far the price has come. Some options were priced at R6,93, now he his selling at R66,65/share.

    Some of the options were priced at R4,50 a share.

    The price has moved to new highs this week and today fell 1,68% to 6853c

    The ceo of Sanlam, Johan van Zyl, sold 25000 shares at R21,12. The price closed at R22

    The ceo of Enaleni, Trevor Edwards, sold some shares valued at around R3,2m.

    SAB Miller released annual results to March. This is now a truly global company with revenue up 22% to $18,6 billion and profit before tax of $2,8 billion up 14%. US cents per share up 10% to 120USc

    The cash generated gained 22% to $4 billion from $3,3 billion

    The share price fell just 29c to 16209c

    Investec also reported for the year to March with operating profit up 20% to GBP466 million. Headline EPS rose 28,8% to 52,3 pence. The price for Investec Ltd fell 1,8% to 9589c

    Kind regards

    Ian de Lange

    Permalink2007-05-17, 21:05:11, by ian Email , Leave a comment

    Pimco's Positive Position

    Pimco, Pacific Investment Management Company puts out a good monthly newsletter written by ceo, Bill Gross. This month, they seemed to have turned far more positive on global markets than they have ever been. This follows their annual three day internal forum. The conclusions that they come to now is to stop worrying and go along for the ride.

    The actual title is “How we learned to Stop Worrying (so much) and Love “Da Bomb””

    Their definition of "da bomb" is anything spectacular and enviable, and includes “globalisation and all its wondrous benefits – high growth, low inflation, accelerating profits, and benign interest rates.” Plus “information technology revolution, favourable government policies, including inflation targeting and lower taxes, a shift to freer low cost markets in China and India, as well as moves towards deregulation and lower trade barriers worldwide.”

    They say that their concerns in the past led them to underweight risk assets and especially global risk assets.

    The global economy has seen

    Global GDP growth up
    Profitability up
    Consumer price inflation remaining low
    Real government yields low

    Then as they say, add in a billion new workers into the global market and blend in technology advances, deregulation, low taxes, free trade and you have a recipe for accelerating returns to capital and diminishing returns to labour.

    The result is ongoing asset price growth and they see this continuing until it gets to bubble territory. And despite ongoing slowing of US economy due to housing problem or a possible US led trade policy reversal, which will irritate Asian exporters, the odds favour ongoing growth and the favourable market for most financial markets.

    They say that a bigger threat is not from slowing economic growth but an increase in inflationary pressures due in no small part to China/Asian demand for commodities. Not necessarily at this stage, but in time.

    As global investors look to rebalance out and away from US Treasuries, they expect real yields on US bonds to rise. I.e. negative for investors in global and especially bonds. This is particularly relevant for all holders of low yielding money market accounts around the world.

    This type of global economic environment is not conducive to a bond manager like Pimco. They recognise this and are trying to find appropriately priced “equity like” investments. They take a dim view of the US dollar relative to emerging market currencies.

    Bond holders are essentially lenders of capital and for many years now have not been adequately rewarded. As managers of these lenders they recognise that bond holders are not going to benefit as much as those who “own” the growth.

    It’s a concept that we have been starting to implement for our high net worth clients. That is investing fully into assets away from low yielding cash and bonds and into real assets, but with low correlation to keep the overall portfolio risk as low as possible yet positioned for longer term growth.

    If you would like a copy of this 8 page report, please e-mail me.

    If you are looking at a total strategic plan and management of your overall asset base, which takes into account these global markets and trends, please mail me for more details on what we provide to high net worth clients.

    All the very best

    Kind regards

    Ian de Lange

    Permalink2007-05-16, 17:29:04, by ian Email , Leave a comment

    Market Report

    The JSE fell back just 0.13% or 35 points at the close to 28059 with value traded at R 11.97 billion. Declines led advances 275 to 143. Mining gained 0.48% at 34464, while Industrials were down 0.38% at 23995 and financials ended the day down 0.87% at 24890. Gold shares gained 1,71%.

    This in fact was the best performing sector of the day, closing at 2716 as gold gained slightly to $672/oz.
    The rand was strong at R6,92/dollar.

    GoldFields was the strongest performer up 2,7% to R120
    Despite the negative market there were still 16 new 12 month highs today, including the new Monyetla property company which closed up 25% at 400, Quyn up 5.2% at 202 and Bell up 4.5% at 4075.

    Of the major stocks Anglo gained 0.65% at 39425, Sasol ended up 0.42% at 26020, Billiton put on 1.25% to 16570, while MTN was off 0.89% at 9951 and Angloplat lost 3.97% at 116200.

    Coronation Fund Managers reported profits for the 6 months to end of March of R187m, up 28%. The company’s EPS rose 49% to 36c and a maiden interim capital repayment of 20c was declared. The company has done well in the bull market, with assets now at R125 billion.

    The share price came back 10c to 890c

    Relative newcomer, WG Wearne released annual results to February. Revenue rose 79% and headline earnings up 76% to R26m with EPS up 27% and headline EPS up 35%. The share lost 5,1% to 557c.

    The Dow was up 0.5% at 13418.38 and the S&P 500 up 0.3% at 1507.83 a few moments ago.

    Gold was up 0.4% at $ 672.75/oz

    The rand was last trading at R 6.92 to the dollar, R 13.74 to the pound and R 9.42 to the Euro.

    That’s all for today

    Kind regards

    Ian de Lange

    Permalink2007-05-15, 17:32:55, by ian Email , Leave a comment

    Listening to Robert Kiyosaki

    I went along to a breakfast with Robert Kiyosaki today - along with another 150 or so. I have read some of his books and seen him present before. With all these knowledge people on markets and investing, I always try and look for nuggets of good information.

    I don’t necessarily agree with everything that they say, and always remember that they are excellent marketers, typically making good money from their self help books.

    He made a few very interesting points though.

    One important point was this “US dollar is not money but merely a currency.” The dollar was taken off the gold standard many years ago.

    It’s an important point. Many people look at a US$ or a R and think that this is money, or capital, but it’s a currency, which governments print with impunity. Because there is no need for a backing against such paper such as gold, there is no limit to the extent of printing.

    His point is that the US middle class has no savings, lots of debt and nearing retirement. He has valid concerns that the gap between the poor and the rich is far too big and growing.

    His classification of the four types of people in terms of their type of position as employees, self employed, businessmen and investors is very valid. Clearly while people in any one category can generate substantial wealth, it’s typically the businessmen that generate substantial wealth and then turn around and invest, either into new businesses or into various investments.

    A business has the ability to generate wealth far ahead of inflation over any period of time. We find that many of our clients are in this position as business owners. They either divert existing excess cash flows into building their investments or they sell out of businesses, diverting some of the capital to building their investments.

    Employees have a far more difficult task in generating substantial capital. All investors however need to own real assets and not depreciating assets.

    If you find yourself in any one of these categories, employee, self employed, business owner of investor you must have a plan. Kiyosaki says invest some time to educate yourself. This is crucial because many people rush ahead into one direction.

    That’s it for today.

    Enjoy the rugby and have a great weekend

    All the very best

    Kind regards

    Ian de Lange

    Permalink2007-05-11, 21:01:59, by ian Email , Leave a comment

    Investors especially Trusts should have an Investment Strategy

    I think all investors should have an investment strategy. OK everyone should at least give serious consideration to a defined strategy. There is not one definitive strategy for investing, just as a company can adopt one of a few different strategies. The importance is even more relevant for investors such as Trusts, where the trustees have certain fiduciary duties to beneficiaries.

    So what is a strategy?

    Perhaps we should first describe what is NOT a strategy. Some of the investment actions included under this category here could be:

    - Buying another townhouse because the last 3 property deals produced fantastic returns.

    - Investing into a unit trust because the performance has been number one of three years and they have the best adverts on TV.

    - Requesting the pension administrators to move your pension fund into low risk option because you are nervous of the market making these new highs and besides you are retiring in 4 years.

    - Starting to trade more actively on the market, using the gearing offered by derivatives because of the massive profits that one can make.

    So what is a strategy? Well I came across a few definitions. I think that it originates as a military term. A few definitions include:
    The science and art of using all the forces of a nation to execute approved plans as effectively as possible during peace or war.

    A strategy is a long term view mostly described as a high level framework on where the company wants to be in about 5 to 10 years or more.

    One from Harvard Business Review says it simply and to the point, “Strategy is discussing which opportunities a company (investor) will pursue and which it will pass by.”

    The FACT is that most investors don’t have an overriding investment strategy. Just as A US army may be tactical in its daily fighting on the streets of Bagdad; so many investors adopt a tactical approach, sniping at opportunities that look attractive.

    Investors MUST get strategic and this is even more so where there are fiduciary duties involved. Here I am specifically thinking about trusts. Many investors established trusts but continue to treat the assets as their own, not concerning themselves about planning.

    Increasingly there is a going to be a greater emphasis on the fiduciary duty of trustees and one simple question may well be. “Mr Trustee, please show me you long term plan for the trust assets. You do have a plan?”

    The fact is that many investors’ portfolios are structured inefficiently or have an inefficient strategy. What do I mean you may ask? Well this is where a portfolio incurs risk without being sufficiently rewarded with higher expected returns.

    An efficiently structured portfolio provides the highest possible expected return for a given level of risk. The risks are defined, the expected returns are defined and the portfolio is optimised. Clearly there are no guarantees, but a benchmark is established and reassessed on a regular basis.

    A professional investment consultant can define and outline such an overriding investment plan. For private investors whether you use a consultant or not, please look into defining a strategy. For trusts it may be appropriate to use a professional consultant.

    Kind regards

    Ian de Lange

    Contact me at ian@seedinvestments.co.za if you would like to discuss further.

    Permalink2007-05-10, 20:17:30, by ian Email , Leave a comment

    The JSE Report

    The JSE bounced up from losses on Tuesday, closing up 0.68% at 28354 with value traded at R8.42 billion. Advances led declines 235 to 158. Mining closed up 1.54% at 34848, while Industrials flat at 24279 and financials ended the day up 0.25% at 25213.

    The best performing sectors of the day were Venture Capital up 5.1% at 172, Development Capital up 4.8% at 1174 and Other Mineral Extractors up 2.3% at 7968, while the worst were Health Care Equipment & Services Index down 2.5% at 35479, Health Care Index down 1.6% at 22011 and Travel & Leisure Index down 1.2% at 5157.

    There were 20 new 12 month highs today, including Spescom which closed up 14.3% at 120, Nuclicks up 7.4% at 1600 and Paracon up 6.8% at 267. Other new highs included Famous Brands up 3% to 1880c and Trencor up 0,5% to 3579c.

    Of the major stocks MTN fell down just 0.2% at 10080 on big volumes, Billiton was up 3% at 16780, Anglo was up 1.9% at 39405, Sasol gained 0.87% at 25499, Old mutual ended down 0.61% at 2435.
    Best performers of the day were Spescom up 14.29% at 120, Village up 10.34% at 160 , some of the losing shares included Telemastr off 10.67% at 268 and Metmar off 6.17% at 380.

    The Dow was unchanged 0% at 13311.51 and the S&P 500 unchanged 0% at 1507.26 a few moments ago.

    Gold was down 0.4% at $ 681.45/oz

    The rand was last trading at R 6.88 to the dollar, R 13.74 to the pound and R 9.33 to the Euro.



    Permalink2007-05-09, 17:40:52, by ian Email , Leave a comment

    Buffett's earlier days

    There have been numerous books written on Buffett’s investment approach over the years. Writers know that they have a sure winner, when they add Buffett and investing in the same sentence. To the best of my knowledge however, Buffett has written no books. One book that I have written by John Train in 1980 and revised in 1987, called “The Money Masters”, discusses 9 investors, including Buffett, who was far less known at that stage.

    Unlike many writes, Train actually interviewed Buffett, and gleaned some interesting facts.

    Buffett, while at school with a friend reconditioned and let out pinball machines. They were making $50 a week and by the time he left high school he had acquired a forty acre farm for $1200 in Nebraska.

    Train makes the comment about Buffett’s abilities saying, “In short, of all the investors in this book, Buffett is the one who most perfectly understands the companies he owns stock in as businesses: living organisms with hearts, lungs, bones, muscles, arteries and nervous systems.”

    At age 25 in 1956, Buffett started his partnership. This was very similar to the hedge funds of today, which typically use a partnership as a structure. He received 25% of the profits above a 6% annual return on capital. He started this partnership in 1956 and after 13 years disbanded it, returning capital to the partners. It had grown to $100m and Buffett’s profit participation was worth around $25m.

    He had acquired and retained his 47% stake in Berkshire Hathaway.

    At the time of disbanding Buffett was concerned with market values, saying “I am out of step with present conditions”. Three years later after the partnership was liquidated, the market went into the 1973-1974 collapse.

    Its interesting that he noted at that stage, that Berkshire had a much easier time investing than most corporate buyers of other corporations because Berkshire was an investment company and quite small. It could buy small quantities and not for control and these could still make an impact on performance.

    Investors would do well to note this point. The price of compounding of superlative returns is that he now does not have that same luxury.

    It’s also interesting to see how some of his views have changed over time. At the time (early 1980’s), he commented on “long tail” reinsurance business, as a terrifying business. While he invested in short term insurance, his view on reinsurance was that obligations can pop up 20 years later with huge and unanticipated price tags. Now his greatest holding is in reinsurance through General Re and B-H Reinsurance.

    And its BIG business. In latest annual report he describes how Equitas, the company formed to bail out the Lloyd’s names, paid a $7,12 billion premium for exposure to future claims of $13,9 billion.

    40 years ago, Berkshire did not have the balance sheet to tolerate high risk reinsurance, now it has a monster balance sheet and if paid adequately, can afford to take on risk.

    I will leave there for now.

    Kind regards

    Ian de Lange

    Permalink2007-05-08, 20:51:05, by ian Email , Leave a comment

    The Famous Annual General Meeting

    We mentioned the now famous Annual general Meeting of Berkshire Hathaway in last week’s report. This is the company headed by Warren Buffett in the US. Annually thousands make their pilgrimage, and this year some 27 000 apparently attended this weekend’s events.

    One would not think that someone heading a US$170 billion company could have a problem. But he does. The company has some $46 billion cash to invest. Over many years now, he has built the business as a holding company of many diverse businesses.

    His approach is to buy a company outright, generally retaining the management in place. This has many advantages as it allows his Berkshire to stay relatively focused with its main job being as an allocator of capital. As his underlying businesses pay up excess cash to the holding company, so he has to find bigger and bigger deals.

    The “problem” he faces is a microcosm of the greater global investment markets. Far too much cash chasing limited good ideas. This is driving up asset prices globally. Unlike Buffett, who despite the cash holdings, has learned patience, for many investors the cash literally burns holes in their pockets.

    He knows that investing into an investment that is too expensive can hurt returns for a long time. It’s better to keep the cash and wait for the opportunities. But he is not sitting passively, but actively trying to find a large acquisition that can generate superior returns.

    For a long time, Buffett has espoused his concerns for derivatives. He repeated this again this weekend, saying that derivatives which operate on excessive borrowing, will invariably end in huge losses for many participants.

    He likes businesses with huge moats around them. I.e. businesses with high barriers to entry. High barrier businesses are price makers. They have some ability to protect and grow shareholder wealth. He expressed a possible interest in South African companies. Whether he has already been looking at potentials or not is not known.

    Nevertheless any possible or actual interest shown will provide further impetus to the market gains. The rand made fresh 2007 gains, pushing to R6,88/dollar. The JSE All Share index gained to new highs at 28797, up a further 0,5%. Anglos put on 2,1% to R405 with Billiton up 2,5% to 17152c

    Angloplat gained 2,44% to R1219.

    These mining share prices are closing at fresh highs on the back of possible corporate action. The mining businesses are in the sweet spot with massive demand for their output, generating phenomenal cash flows.

    Kind regards

    Ian de Lange

    Permalink2007-05-07, 20:24:51, by ian Email , Leave a comment

    Emotions Cost You

    Yesterday I spoke about my friends’ investment decisions. Sitting down and analysing where to invest is the first step to successful investing. The second step is to rigorously follow your plan, keeping emotions out of the equation. We are all affected in varying degrees by our emotions, but these only detract from performance over time.

    Our emotions tend to lead us to yesterday’s winners and other often sub-optimal decisions. Our actions are influenced mainly on recent past events, resulting in those investors who have made some good investments over the last few years believing that they have the necessary skill to outperform over the long term. Those who have made some poor investments tend to go into their shell and probably feel that investing is “just not my thing” and justify to themselves that they are better off staying out of the market. One should rather judge one’s ability over a long period.

    All successful investors spend time researching each of their investments, and only make an investment when the price is right. Another part of the research process is ascertaining what a good price to sell will be. Successful investors then, to a large extent, stick to their ‘exit price’ unless fundamentals change significantly in the interim. Having ‘rules’ to invest by (and sticking to them) helps to reduce the impact that emotion plays on the investment decision, and over time will add value to your portfolio (as long as your ‘rules’ are based on sound principles).

    If you religiously stick to your predetermined selling price you may miss out on some of the upside when you for example sell Company X when it was trading at R 45 a share (but now trading at over R 60). But if you had done your research and bought it at R 15 in 2005 (tripling your money in only 2 years!) you would be laughing all the way to the bank. In the meantime those people who see that the share price has done well over the last three years and jump onto the bandwagon (without research) will invariably be the ones who get burnt. They now need the price to go to R 135 over the next couple of years to be in the same position as the ‘smart investor’, while any pull back will be felt.

    Finding value is difficult, and sticking to your beliefs is tough especially when everyone around you is profiting from their speculative ‘investments’. If you have conviction, then follow your head and not your heart (or ears – with those ‘sure investments’). One only needs to be reminded of Warren Buffett liquidating his investment partnerships in 1969 at the peak of the market. He got out before the top, missed out on some of the upside, but more importantly missed out on the ensuing bear market.

    Speaking of Buffett, the Berkshire Hathaway AGM is this weekend in Omaha, Nebraska, USA, where some pearls of wisdom will no doubt be released to all those attending. Hopefully we’ll be able to share some of these pearls with you in due course.

    Here’s to investing with the head and not the heart. Have a good weekend.

    Kind regards,

    Mike Browne

    Permalink2007-05-04, 16:49:42, by Mike Email , Leave a comment

    What type of investment suits you?

    While catching up with some of my hockey friends (who are all university graduates, but not involved in the financial services industry) last night, I realised just how different people’s requirements are when it comes to investing! Everyone has different attitudes and ideas as to where they should invest their money. Sitting back and seeing how ‘non-investment’ people analyse their needs and their ability to stomach risk is interesting, and often amusing!

    Firstly you have the confident type (let’s call him Andrew), who has dabbled a bit in investing (the type of investment (shares/property/funds) is irrelevant here) and due to most asset classes appreciating significantly over the last 4 years or so has done well. Andrew will take risks, maybe go to the casino, and wants the full rewards of the risk, realising the potential to lose out. He will potentially be bitten hard when the markets turn if he doesn’t have a solid plan.

    On the other side of the spectrum is ‘Jon’, who is intelligent and has an excellent job, but doesn’t have much of an idea when it comes to investing. He is wary of entering the market, and is unsure of how invest or what to invest in. On further investigation I found out that Jon invested in the market a while back and got burnt, and so puts his monthly savings into a thirty two day call account, sure in the knowledge that he won’t lose his money.

    Both are intelligent and have first-rate jobs and if truth be told Jon is probably the smarter one! Both are in their twenties, and have ambitions to ‘Retire rich, retire young’, but if they hope to succeed then they need to make intelligent investment decisions, or get someone to make intelligent decisions for them.

    While you are young you are able to take risks like Andrew, but will be shooting yourself in the foot if take the ‘conservative cash’ option like Jon (which turns out to be a high risk strategy over long time periods). It would be equally foolish to jump straight into the market now (even if you have youth on your side!)

    As you approach your ideal retirement age, your investment decisions of the past will dictate how comfortably you will be able to retire, but if your current decisions aren’t based on a solid plan, you can end up eroding your hard earned pension/nest egg.

    Seed makes it our business to assess each individual’s circumstances and then come up with a plan to maximise your risk/reward profile. Even if you are naturally a risk-taker the optimal strategy may be a conservative one, conversely if you are naturally conservative in your investments, a more aggressive strategy may be optimal. Seed will give you an objective opinion, backed up by solid models.

    If you are unsure of where to should invest, or what your risk profile is, then email Ian de Lange at ian@seedinvestments.co.za and he’ll get back to you.

    I trust you have had an excellent short working week so far, and that Friday isn’t too long.

    Kind regards,

    Mike Browne

    Permalink2007-05-03, 17:15:06, by Mike Email , Leave a comment