Friday 28 January 2005

IT’S NOT MY FAULT


How seriously are you taking the deputy president’s request that we citizens should “embrace members of the police service”? His reason for this display of affection is that “it had become a law-abiding establishment”. This is quite a gratifying piece of news, even if, we hope, a trifle superfluous. However, on this basis I am expecting my fair share of hugging too. Although I was away at the beach and the cricket quite a bit this month, the days that I did spend in the office were devoted to great chunks of particularly law-abiding behaviour.
It seems that compliance officers worldwide made a joint New Year resolution to prod us delinquent investors to get our paperwork into order. You know the sort of thing.  Copies of IDs and electricity bills and letters of authorisation and so on. All to be shuffled and dealt and filed and stored, ready for inspection. All boxes ticked.
Now, I know my clients, and for most of them, their idea of money laundering is limited to the odd bank note that remained in a shirt pocket through the medium hot wash and spin cycle. But my pleadings that I’d much rather spend the time being a stockbroker than a policemen were blown away by the news about some outfit called Riggs Bank in Washington. These guys, it seems, had a reputation for quality and prestigious clients, but nevertheless have just copped a $16m fine for having some rather shady customers of whom the US government disapproved.
And then my attention was drawn to the story about an analyst at a UK stockbroker who has been slapped with an equally chunky fine – presumably for faulty or misleading research. And here I am, writing away, being disrespectful, flippant, offensive and even worse, listing share names that I like or dislike and not a single line of disclaimer, disclosure or wealth warning in sight. At one research house I am told that a ten line research note might carry up to three pages of fine print, warning anyone foolish enough to read it that the research note was quite possibly useless. Another source tells of a firm where every email, letter and note has to be checked by a lawyer before the “SEND” button can be pressed. Who checks the lawyer, I wonder?
Today is the JSE’s month-end, and statements and portfolios will be prepared this weekend for mailing on Monday. It has been my habit since I arrived at Watermark, to write a small newsletter about the market for inclusion with those statements. I’m starting to wonder if that is wise. Are there any folk out there who are finished with blaming MacDonalds for making them fat or SAB for making them drunk or the mirror for making them ugly? What if my stock calls make them angry, or poor or even rich?
Any ideas I had of being hugged have now vanished. Especially as the market seems to be going down quite sharply this afternoon.
There will be no Tidemarks next week. Not because I’m scared, but because I’ll be in Grahamstown, carting crates and katunda up the stairs of the University residence where my daughter is to spend the year.
James Greener
28th January 2005

Friday 21 January 2005

BIRDIES AND BUY LISTS


I was very fortunate this Christmas to find under the tree a slim package with my name on the outside and the DVD of Robert’s Birds of SA on the inside. This turns out to be an exceptionally happy marriage of technology and information. The description and drawings of every bird are accompanied by photos, sound recordings and movies. And some clever software enables one to search and sort by every possible characteristic, habitat and habit. Even the notorious lbjs (little brown jobs) are starting to yield to this wonderful resource and the space for my own records is slowly filling up.
But on to serious stuff
I have been trying to act like a proper stockbroker and together with my colleagues have begun to compile a list of what we think should be hot this year. The key question is, as always, the currency. We agreed that while it ought to weaken, in fact we have no idea when it could do so and therefore chose to assume it will maintain its current relative stability. With that out of the way, we reached the surprising conclusion that the market as a whole is not greatly overvalued and that there may be some shares worth taking a look at. Of course if the dollar strengthens appreciably against our poor runt then you just have to shut your eyes pile into the resources. One simple way of doing this is to buy the New Rand ETF (exchange traded fund). Or even Metorex.
Naturally the main thing is to avoid ideas that end up destroying value. This is broker-speak for “don’t buy shares that go down”. When this happens most people face the possibility of making a loss. However, for one investor who was quoted in the paper this week, it merely “slows down some of our strategies”. Isn’t it wonderful what jargon can do? But even the best jargon can’t compete with a presidential pardon that removes all record of past crimes. This Alan Boesak affair is a pretty shabby one that does nothing for this country’s reputation. But at least we are miles better than Argentina, who were surprised when their foreign bond holders got upset with an offer of just 30 cents in the dollar. Now that’s destroying value!
There was certainly no shortage of things to write about this week. Did you notice the Joburg city notice calling for tenders to provide Metro Police with training in customer care? There are at least three topics in that piece of nonsense alone. As you see I certainly chose not to start with any cricketing remarks and, thanks to some pretty heavy rain over in Pretoria today, I shall not be ending with it either.
For those of you who read all the way to the end, hoping for the above-mentioned ideas, I can tell you that my own picks were headed by Nampak, African Life, Telkom and RMB Holdings. In the month-end newsletter that will accompany the statements and portfolios I shall be discussing a longer list gleaned from the whole firm.
So if you, like me, have not been invited to join the great and good at the economic talkfest at Davos this weekend, I hope that the sun will come out and at least we will be a lot warmer than the folks who have.
And there’s golf and tennis on too.

James Greener
21st January 2005

Friday 14 January 2005

STARTING THE YEAR GENTLY


It says here in the paper that only 45.1% of Joburg’s residents are satisfied with the city council and that this number is down around 5%, since it was last sampled a year ago. Well, if they were to poll the folk who have had to tackle the Bompas Road, Jan Smuts Avenue intersection where the traffic lights have been out for two days they would get a percentage way lower than that.
It would be considerably lower than the 25.4% total return that the All Share index delivered in 2004. This was so much better than anyone had predicted.  But when it come to statistics it is difficult enough to get even the historical numbers right. Just ask Stats SA about their manufacturing data.
Of course at share and sector level the results were widely scattered. This can be summarised by the fact that resources were down around 5% for the year while the financials and industrials were up almost 50%. This last number is pretty heroic stuff and one might think that this kind of surge must have stretched valuations somewhat. However, average year on year earnings growth in the financial and industrial sectors index is at an eyepopping 30%. This means that although these shares have re-rated very significantly since the 2003 lows, they are currently not yet hugely over valued. In my view one could continue to hold them while as always keeping a very wary eye on Wall Street.
The problem comes in trying to find any pockets of undervaluation for the new cash that always seems to appear at the start of a year. Some of that cash is coming from the tasty and chunky dividends that are flowing from the market. Companies are still reducing dividend cover and returning cash to shareholders as they too seem baffled by the problem of what to do with it.
I have wondered before why it is taking the boys from Barclays so long to make up their mind about whether to buy ABSA or not. But then, sitting at the cricket yesterday the answer came to me in a flash. There will not be any progress on this deal until the English cricket touring side leave. The ABSA corporate suite at Wanderers was full of slightly red gentlemen, conducting serious due diligence studies through the bottom of a beer glass. Compared to wading about in the rain-filled streets of their soggy isle there’s really no contest!
Which is why this first edition of Tidemarks for 2005 is early today. I am off to Wanderers myself in a few minutes. I trust that you enjoyed a safe and happy festive season and that the New Year will be healthy and prosperous.

James Greener
14th January 2005