There were plenty examples of the truth of that little saying this week. We saw marathon parties, soaring oil prices, shuffled cabinets, Chinese credit freezes, plunging precious metals, declining inflation, shocking rugby playing, volatile currencies, dubious Russian deals and then the news that the Karoo Mineral Water company had been saved from liquidation. Whew!
So what’s the investment strategy in the midst of all this turmoil?
Quite a few years ago when I entered the broking business from a science background I was lucky enough to join a firm that was the industry leader in using computers and mathematical methods for identifying relative value. I felt right at home and even added a few tools to the box of tricks they were using. However, alongside this comforting analytical approach I discovered a parallel universe of gossip, leaks, tips and bluff. As a non-golfer I was largely excluded from the main clearing house for this source of investment advice. The middle of a trout stream is not a suitable venue for the muttered aside, lifted eyebrow or shaking head. The fellow just looks as if he has been bust up by a big one.
Furthermore I discovered the power of the aphorism. It was, for example, a great shock to learn that a stock was going up only because there were “more buyers than sellers” and not going down because one’s rigorous research had unearthed a cash flow calamity in a significant subsidiary. The fact that “in a bull market no one needs analysts while in a bear market no one needs stock” was a blow to one’s self esteem. After a few years of absorbing these key investment tools, I myself suggested that things happen “sooner, faster and further” than you expect. And only half the time in the direction you have forecast. Of course I was delighted to be informed that the secret to investing was to “buy cheap and sell expensive – but not necessarily in that order”. Physics was never that simple.
However to return to the analyst in me for a moment, I can tell you that this past month’s All Share Index percentage performance figure (down almost 2.5%) would have been 50 basis points (0.5%) worse without taking dividends into account. Now there are two interesting points about this statistic. Firstly, that this April dividend contribution was larger than it was in March. This is unusual. March is normally the peak month for payouts. Was there a deliberate or even a distress-induced policy among the companies of delaying the dividends? Secondly, (but not perhaps a surprise) dividend contributions to the total return are running at about 10% lower than they were a year ago. I have previously described the price action of the all share index in the past few months as disappointing. And this scarcity of dividends is not helping very much either. So what can I say but “Sell in May, and go away”?
James Greener
30 April 2004
