Despite at one point being more than 10% down in August, the All Share Index actually delivered almost flat performance over the whole month. But today it seems that some or other economic measurement out of the States has disappointed or surprised or worried the talking heads and woosh it is all going down again. In parts of Euroland, the suits decided to ban naked short selling which can at times be just as exciting as it sounds. Watching bears getting stripped by bulls is not advisable for people who are easily shocked. The suits would be appalled to learn how many profit opportunities their ban will have created for the clever and swift.
This kind of meddling with the market by bureaucrats who believe they know what the price of everything like labour and assets ought to be usually has only a short-lived impact, particularly in reasonably liquid markets. Such markets soon adjust prices so that they more exactly reflect the current balance of supply and demand. But because labour markets involve voters, the price discovery process often takes far longer. A huge industry of securities analysts tries to make a living from determining the “appropriate” price for assets and then encouraging clients to buy the cheap ones and sell the expensive ones. Of course the value of a company can and does vary a great deal both because of the state of the business itself and equally importantly because the overall market mood and environment can change its opinion on the asset class or market sector. Much of the current volatility in the share markets today is due to the latter factor.
Even experienced market people are perplexed when the market’s reaction to similar news or data announced perhaps just months apart can have a completely different impact on sentiment and prices. Hence this old bear’s advice to avoid buying when relative valuations are high and to select those companies which are well run (as far as one can tell) and have a record of paying reasonable and regular dividends. Selling from a portfolio constructed over time in this way will be necessary only when it is clear that the management of a company have clearly and irredeemably lost the plot or been seduced by some unrealistic vision of the future.
July was a pretty cold month and for the first time since leaving Joburg we were running heaters and wondering if not building a fireplace had been a good idea. Nevertheless the country used less electricity in July than a year ago which is probably a good indicator that business activity was cool as well. The GDP results for the second quarter confirmed that the manufacturing sector is suffering a dreadful 2011 so far. Even if we and the rest of the world manage to avoid having our economies declared officially to be in recession again, most of us are definitely not feeling better off than at any other time in the recent past.
Isn’t a political party really similar to a club that you join and pay a subscription to in order to be among other people who wish to share the benefits and ethos of that club? Most of us would never consider joining a political party because they don’t seem to have a clubhouse and well-stocked bar with a big flat-screen TV for watching sport. So what’s the worst thing that your club can do to you if you break the rules? Throw you out? Is that really worth bringing downtown Joburg to a halt for?
The tallest tree in South Africa is a Sydney Bluegum and stands 80m high. This doesn’t upset just the environmentalists trying to rid us of invasive alien species. Haven’t we had quite enough of tall Aussies in the Tri-Nations casting shadows over our line outs? And in all the excitement about the ‘bokke setting off for the World Cup, few will have noticed that the Lions are still clear leaders at the top of the Currie Cup log.
James Greener
2nd September 2011
