Loyal readers will have realised that I carefully avoid making any call on a specific share in these notes. The reason for this is that I could not bear having to append a four and half page disclaimer that states what people should already suspect: that in all probability the recommendation is wrong and is potentially dangerous to their wealth. A few analysts do have an excellent knowledge and understanding of various industries and companies and their research is often interesting and revealing. However, I also firmly believe that this insight will never reliably result in an accurate prediction of earnings, dividends or share price behaviour. Obviously, the idea of tacking a disclaimer on to items of investment research has grown out of an acknowledgement of this chronic unreliability. If we were always right we would not have to say “sorry” and we would also probably not be peddling shares but negotiating to buy another island paradise with his and hers harbours.
Therefore, I shall not mention the name of the bank that has recently published its interim report with which I spent a few minutes and a calculator. I was interested to see that the traditional business of borrowing money at a low interest rate and lending it at a higher one contributes less than a fifth of the bank’s income. Furthermore, the lending side has proved to be rather dodgy. The bank felt it prudent to set aside well over a billion rand in case the borrowers should prove forgetful about their obligations to repay. This “just-in-case” money is given the wonderfully coy name of an “impairment charge”. Recall, as well, that government a few months ago fretted in public about the spread between these two interest rates and it is little wonder that the bank’s most lucrative arm is the one that does “investment management and life insurance activities”.
I rarely attend those presentations given for the fraternity of proper analysts. However, one company always hosts their affair at a rather grand watering hole high up on the Westcliff ridge. If the weather is fine it is a good opportunity to see the progress of the spring blossom across the suburbs and to hear how the shipping business is doing. Very well, is the answer, but the CEO is puzzled that the investors do not share his optimism and is frustrated that the share suffers a low rating. Maybe we are just not a seafaring nation and prefer buying shares in holes in the ground.
And not just deep holes. The construction sector index has been flying (up more than 10% this month already) as the country pours money into bricks and mortar. One of the shipping company’s busiest routes is bringing cement from China to SA. But have you noticed that the squabble about where the Gautrain money will come from is still going on? In fact minor battles are breaking out all over the place. Eskom appears to be disputing just how dark and cold it was in Cape Town this winter. Telkom is unmoved by complaints about lack of bandwidth. South Africa’s display of beetroot, garlic and African potatoes (what are these?) at the Aids conference in Toronto has raised tempers. And the oil companies are pointing out the age-old fact that if you want less of something you just have to tax it.
Perhaps we need to tax All Black and Wallaby tries. Enjoy the weekend and keep an eye on that currency. It looks skittish.
James Greener
18th August 2006
