2017 and the case for a low return environment

-By Thiart van Der Merwe

A prolonged, low-growth environment and no real returns from our market were the main talking points as we entered 2017. With constant negative press on corruption and a deteriorating political landscape, one can understand the inclination to be pessimistic.

Up to the midway point the pessimists were right. The stock market surprised us with a 7% uptick (locally) in July that started the rally that brings the total year-to-date return to 20%.

 

 

It was a Naspers story

Although it is not all that it seems: Naspers rose 75% in 2017 and dominates the JSE All Share Index in size, now more than 20% of that index. Without Naspers, index returns would have been more pedestrian.

The table below illustrates the returns excluding Naspers.

 

Ending Oct-2017 1 Year 3 Year
ALSI 20.1% 29.5%
SWIX 17.3% 28.2%
Naspers 52.8% 152.9%
ALSI ex Naspers 14.2% 18.6%
SWIX ex Naspers 9.3% 13.2%

 

Below are some important points on Naspers:

  • Naspers owns a 33% stake in Tencent, a Chinese investment firm that focuses on internet value add services. Tencent is listed and at the time of writing this article, the value of the stake is worth R2, 199 billion.
  • At the current share price Naspers is valued at R1, 670 billion. This means markets are discounting roughly R400 billion of Tencent’s value or discounting Naspers’s other assets.
  • If we strip out Tencent, Naspers has had a negative operating cash flow for the last two years of reporting, as illustrated below.

 

 

On a look-through basis, this would mean that the JSE All Share Index has more than 20% exposure to operations in Chinese tech firms. This serves as a good hedge against low growth and a weakening Rand. However, this is also a significant risk in a passive solution where flexibility is limited.

The article below gives great insight into Naspers.

Would You Bet Your Life Savings On A Chinese Internet Company?

Passive or index tracking products have benefited from the rise of Naspers – passive or index products have outperformed recently. Most active managers are not allowed to hold such large positions in one share.  From a risk perspective, they should have lower exposures in any event. The graph below compares 9 of the best known active equity funds to two passive index funds tracking the JSE Top 40 Index and the JSE All Share Index. Only one fund managed to outperform the Top 40 during 2017. Only 3 funds outperformed the All Share Index.

 

 

Should the Tencent story start to disappoint, there is significant risk in the Naspers share price and hence the local equity indices. Expectations from Tencent are high – it’s not hard to imagine that it could disappoint. When Naspers falters, active managers will outperform size-based indices because of their obligatory underweight positions.

 

It didn’t pay to ‘wait and see’

Many investors have adopted a ‘wait and see’ attitude. It is clear from the flows in and out of unit trusts – flows into money market funds or safe haven funds have increased. This has proven to be the wrong move.  Markets did unexpectedly well – even active managers with well diversified portfolios delivered above average performance. This shows again that there is a low correlation between politics and short-term market returns.  Investors are losing out.

 

Poor economic conditions do not equate to poor future market returns

The South African market is well diversified with growth predominantly coming from outside our borders. Poor local economic and political conditions do not necessarily equal poor market conditions.

In addition, the local market already discounts the continuation of poor economic conditions.  Listed companies also have significant cash reserves in the current environment. A good outcome in December at the ANC Conference could lead to an uptick in business confidence with a well-needed cash injection into our domestic market. The potential is also there for an uptick in SA Inc. (all the shares with predominantly local earnings). The Financial index is up only 7% in 2017. Financial stocks are directly impacted by credit rating downgrades and currency weakness. The index is trading at a Price to Earnings ratio of 14 which is considered cheap. Active managers will be able to adjust portfolios to respond to certain opportunities should SA Inc. head into a more positive direction.

Considering almost three years of below expected returns prior to July 2017, I leave you with the following quote: “The stock market is a device of transferring money from the impatient to the patient,” Warren Buffett.

 

Gifts full of mindfulness and meaning

-By Elke Zeki & Sunél Veldtman

There is too much unwanted stuff on the planet. Too much stuff polluting our oceans, our soil, our water and the air. Christmas is ahead of us and many are thinking about gifts for our family and friends. Many will mindlessly buy another pair of unwanted socks wrapped in pretty paper tied with big bows. Think about the waste (of paper) – never mind the unwanted socks.

The more stuff we have, the more responsibility we have. Consider the extra storage space, insurance and energy required to deal with all our stuff.

Why not make this Christmas a time for thoughtful gifting, not only to save our planet, but ourselves? Give a sustainable and eco-friendly gift that will create memories and moments for your loved ones. In general, think about experiences rather than goods, consumables over stuff that will still be in your cupboards, and glass or paper over plastic.

Parents are often the worst when it comes to gifts. As first-time parents, boy do we need to keep an eye on our shopping enthusiasm! Between my husband and I, and the rest of the family – we have filled our daughters room with toys and clothes and she’s not even two years old yet. I know it’s exciting becoming a parent or a grandparent, but we often get completely carried away when it comes to shopping and gifts.

I’ve realized that my daughter could care less about the designer outfits or the best new toy.  She destroys everything she wears and can entertain herself with the simplest thing (like a fridge magnet) for hours!  Over the past year I have deliberately given away many of her toys and tried to keep the shopping to a minimum. As a family, I’d like to change the way we consume and shop – be more sustainable and mindful.

 

With this is mind; here are a few gift ideas for kids for Christmas:

  1. Courses, classes, or activities.
  2. What about dance, art or music lessons? Older children might love a scuba diving course, a fishing trip, or tickets to a show, a movie or a concert.
  3. Arts and crafts – DIY gifts that get their creative expression flowing.
  4. A journal or a mindfulness coloring book
  5. Music. An iTunes voucher is a great gift, especially for a teen.
  6. What about a digital magazine subscription like National Geographic Kids?
  7. Recipe books that encourage healthy eating.
  8. What about putting together some baking supplies with a family favorite recipe? You’re not only promoting spending time together, but you’ll have something yummy to enjoy together when you’re done.
  9. Story books or search-the-picture books like Where’s Wally, or Where’s Waldo? Takealot have a great selection – see this link Takealot Store – Where’s Wally Books
  10. Building blocks, Lego, or puzzles. There are also great Lego books that stir up kids imaginations with building ideas.
  11. Outside activity toys – like a gardening set, bug box and magnifying glass, a tent or sandpit toys.
  12. What about a small Zen garden to help teach little ones to manage anxiety and emotions? There are great ideas all over Pinterest that show you how to make one. Here’s a link to get you going – Pinterest – DIY Zen garden ideas
  13. Got a budding scientist on your hands? What about a science kit and a few supplies to build their own DIY project?
  14. Scented play dough. There are great essential oil based play dough’s and stress balls out there for kids. Here’s some inspiration: Scented play dough inspiration
  15. Make your little one a dress up box with props from a local thrift store. Inexpressive fun that lasts a lifetime.
  16. Fine motor board. These provide endless fun for toddlers – and are recommended by occupational therapists. See more at this link Fine Motor Boards on Pinterest

Here are some more mindful, meaningful options to go under the Christmas tree:

For the coffee lover, who also likes to get coffee on the way to the office, school or gym, this eco coffee cup is the ideal gift. Skip the plastic or paper cups and buy this eco-friendly, bamboo cup. They come in many beautiful colours and sizes – one for each family member.

 

Read more about the eco cup here:

Visit the Eco Cup website

On the subject of coffee: why not buy a voucher for your loved ones from their favourite coffee shop? A treat at your expense. We love Motherland Coffee Company’s ‘Drink the Love’ concept. It’s their way of caring for those who work in the communities that produce their coffee – right through to us, the consumers. Buy a voucher, make a date, stick it on their board and enjoy quality time together with coffee and cake.

What about a vegetable gardening course or kit? Take a look at these fabulous options from Faithful To Nature. They have a great selection of heirloom seeds and herbs. Their Moonbloom Food Planting Calendar for 2018 will also make for a wonderful gift for the enthusiastic gardener in your family – Faithful to Nature – Gardening

Speaking of gardening… The Irene School of Garden Design offers a variety of courses for garden enthusiasts, designers and landscapers. It’s the only school offering part time, full time and short courses for garden design in South Africa.Take a look at their recent article on water wise gardening and get inspired to give someone you love a course or a water wise planting kit for Christmas. Garden Design School – Water Wise Gardening

Here is the link to their courses – Garden Design School – Courses

Artisanal courses are a wonderful gift option. Take a look at this bread-making course run by Crust and Crumb. Spend the day with a loved one learning how to make bread. Crust & Crumb – Take a bread making course

Eco friendly wrapping ideas. Scrap the conventional wrapping paper and get a roll of recycled brown paper, some organic cotton ribbons and have some fun. Look how beautifully newspaper and a ball of string can work too!

 

And finally – for those minimalist family members and friends, give a donation to a sustainable cause. Take a look at these two options:

For Good connects people to causes: For Good – Donate

Food and Trees For Africa is South Africa’s social and environmental enterprise improving lives and landscapes towards healthy people on a healthier planet, since 1990.Food and Trees For Africa

Kruiwa Community

– By Sunel Veldtman

A while ago I mentioned to my husband that I didn’t like the taste of lamb cooked on our gas braai. I prefer the smoky flavour of lamb done on a real wood fire. And so, the ‘kruiwa’ was born. (Kruiwa is the Afrikaans word for wheelbarrow.) He pulled out an old kruiwa from our store room, filled it with sand and wheeled it onto the middle of our lawn. We arranged our camping chairs around the fire. And we cooked the lamb on a real wood fire and sat around and spent a wonderful afternoon together talking to each other.

Then the kruiwa became our thing. We started having a kruiwa braai every Sunday night, after an afternoon working in the garden and a busy weekend, we would light the fire, pour a gin & tonic and watch the sun set. It became part of our routine. As my husband posted regular pictures on social media, people started asking for an invite to a kruiwa. Some of our friends began to invite themselves. They knew that, at a certain time on a Sunday night, there would be company around a fire in the middle of a busy city.

Sunday nights were not ideal for late nights and preparation for the week, especially not for our kids. We then moved kruiwa to a Friday night. Our friends know, that, come the end of the week, they can come to have a meal, to wind down and above all, to share the stories of their week. We don’t entertain. We open our home for a communal meal. Yet, somehow every Friday night, there is a feast. Someone pitches with meat from a favourite butcher, a new salad they’re trying out or occasionally a homemade pecan pie.

Sometimes we have many friends and loads of kids running around the garden. And other times, one couple pitches and we share an intimate evening. We now look forward to a Friday evening. If we’ve had a hectic week, a challenge or just an important story to share, we know there will be a time and a place. Conversations drift from politics or women’s rights to parenting or career challenges – our losses and our gains in the world. We have roared with laughter and we have cried, silently wiping tears from the corner of our eyes. We have celebrated life together and found a new appreciation for friendship. Our kids have become close and now beg their parents to pitch on a Friday night.

Our kruiwa nights have become an experiment in human connection in our time and place. Some of our friends have never accepted the standard, open invitation to arrive and join in. Some friends are keen and don’t want to miss out. Many around the kruiwa were strangers to each other but have gained new friendships over the year. They have become engaged in each other’s stories.

Kruiwa has become synonymous with connection. Somehow sitting around a fire with a few rickety camp chairs and blankets wrapped around us against the Highveld winter chill or fighting off mozzies in the summer, has created a space where people can connect. We have seen some friends beginning to heal from devastating loss and others’ stress uncoil slowly.

Adult friendships, especially for those in the midlife, can be a real challenge. Somehow sadly, our friendships are last in the line of priorities. We are starved of friendship time. Yet, there is so much research showing that we need connection; that it is the most important contributor to wellbeing. But, somehow, we neglect friendship and community. Somehow the stress of midlife careers, teenage children, changing physical realities and the world we live in, compels us to hibernate, to head in the opposite direction – away from people and connection. We have come to believe that alone time is the answer. Of course, there is a need for alone time, but not to the exclusion of community.

Our kruiwa has become a priority, a weekly non-negotiable diary inscription. We have learned that heading in the direction of people is healing and invigorating and uplifting. We have become friendship addicts.

Ps. If you’re a friend, know that you are invited to our kruiwa on a Friday night.

Pss. Alternatively, start your own version – any fire, even a candle light – whatever will bring community back to your world. I would love to hear your stories.

A worthwhile New Years’ resolution

-By Sunel Veldtman

New Years’ resolutions are so tiring. Few people stick to them. Loose weight. Spend less. Be more organised. And then we carry on after a few days or weeks just as we did before.

Better budgeting is high on the list of new years resolutions. Prioritising and limiting spending is key to financial freedom and wellness. Not only for those who have little but even more so for the wealthy.

Here are a few pointers to start a New Years’ resolution about your spending:

 

Spending plan vs. budget plan

Budgeting is such a negative concept. It sounds so restrictive. Why don’t we rather call it a spending plan? It is a positive concept. What can I spend my money on? Rather than how should I restrict my spending.

It puts you in control of the money flowing out of your bank account. Unless you live in absolute poverty and your basic needs are not met, you have wide open choices about your spending plan. And you need priorities like most people. We resent having to make choices but it is the reality of adulthood.

 

Start by looking back

Take three to six months’ worth of bank statements and categorise the expenses into broad areas like car/petrol, home, education, charity, travel/holidays and fun. This will quickly show you where your money is flowing. The numbers will tell you a story. Is this the story you want it to tell? Where is your money flowing?

 

Know what you value

Your money will only make you happy if it flows in the direction of your values. Do you know what you value? If you don’t, do an online values exercise.

If you value beauty make sure, that regardless of how tight your money situation is, you have some money to spend on this value. It might be one bunch of flowers or cards for writing birthday messages.

You might value security in which case you may want to build a fat bank balance to feel safe. Or you might value education, so you will be willing to sacrifice driving a nice car.

The importance of knowing what you value and arranging your spending around this, is that you feel in control. It was your choice.

It is your choice to prioritise certain spending over others as you give prioirty to your values. It is also helpful when you have a partner. Understanding how your values differ can help you have meaningful conversations.

 

Who is talking to you?

For many people, it feels like an outside voice prescribes how they should spend their money. It is true. Budgeting is where all our accumulated money messages come to play. If you have not been mindful about why you do what you do with your money, it is probably true for you. Think about the messages that play out in your bank balance. What are they? Think about message about risk taking, security or your career. Whose voices are talking to you when you spend your money? Parents, teachers, pastors or the boss?

When I received my first paycheck, my dad said to me, ‘It is not what you receive that will decide what you have left at the end of the month, it is how much you spend.’ This is a true and helpful message. I have also received other unhelpful messages that left me thinking that wealth is dangerous or detrimental to your life. These were unhelpful and harmful to me. I’ve had to let go of those messages.

Think about the messages playing out in your spending. Discard the ones that are no longer helpful.

 

Be mindful

Then as you spend, be mindful. Just take a few seconds to think about it. ‘I just spent R30 on a coffee.’ Or ‘R10 000 on new tyres for the car.’ ‘Or R1m on upgrading the holiday house.’ Do not judge your spending. Just let the thought enter your head.

And see what happens.

Happy spending in 2018.

 

 

 

Words Worth Reading

Productivity Is Really About What You Don’t Do

“The best productivity tip I ever got was the idea of a “stop-doing list” from Jim Collins. In this Age of Distraction, we’re all dodging and weaving between so much incoming information that what you don’t do on a daily basis has become as important—if not more—as what you do execute on.”

Here’s an excellent article about increasing your productivity by deciding what not to do. It’s about being creative so that you can maximise your time and do your best work. Some ideas might sound crazy, like: don’t read the news in the morning (or at all). Don’t schedule meetings in the morning. Don’t work past 6pm.

Getting Things Done