Professional Adviser or Assurance Agent
August 18, 2015
Aannames die moeder van alle mislukkings
June 6, 2016

Things to think about

Things to think about

I need to start off with an apology.  2015 was one of those years where days were not long enough and hours were just short of 60 minutes, hence the long silence from 2Cents.

Before I start on today’s topic, I have to share the sad news that Anèl Nel, the right hand of our business for the last 11 years, have decided that it is time for a new challenge, and will leave our service at the end of the month.  We wish her all the best on her future endeavours and we are certain that she will make a valuable contribution to her new employer.

So why “things to think about”?  Well, if you have not yet noticed, the world is going slightly haywire.  Donald Trump is actually being considered as the next president of the mightiest country in the world (brace yourselves).  People pay R 44 million for a quarter of a buffalo.  Crude oil trades at $30 per barrel.  In many developed countries, YOU have to pay the bank to keep your money (negative interest rates).  You are a racist if you paint your face purple and cover yourself with glitter, but not if you wear a t-shirt that says “ white people”.  People die on a daily basis from suicide bombings and it seems like global warming is progressing at an alarming speed, and so the list goes on…

Regular readers should know by now that we believe that chance favours the prepared mind. And if you are prepared to put the grey matter between your ears to good use, you are able to put yourself in a better position than when you don’t.  We strongly believe in compounding and that the long term impact of small improvements in your processes / life / health / business etc. would eventually make a significant difference to the quality of your life, health & finances.  A few things that you should consider and take a step further than first level intuition to arrive at proper answers, are the following:

1) You are poorer than you were a year ago

Make no mistake, the biggest proportion of South Africans are poorer today than they were a year ago, despite what your bank balance or statement of assets and liabilities says.  We are an imports driven economy and for this reason, it is very important what happens to our currency since we simply import inflation when the rand weakens compared to our major trading partners.  All of your South African assets’ values decrease immediately in global terms in a year like last year.  In truth, the more South African assets you own, the bigger the devastation of your wealth within the last year.  We still hold the opinion that most people are not diversified properly where asset allocation is concerned and is therefore not immune to the impoverishing effect of a constant declining currency.

Please see graph below to see how the 8 main asset classes performed over the past year.


2) The “open goal” opportunity to diversify off-shore is probably over

NOW everyone wants to talk about off-shore investments and if you look at the above you can probably not blame them.  I am of the opinion that this discussion is a little too late though.  If there are any funds that you wish to move off-shore, you need to be able to motivate with reasons other than your expectation that the rand will continue to depreciate by 25% per year.  I will be so bold as to say that any discussion about offshore investments, initiated only on the basis of recent Rand weakness, is misplaced and you would do better to talk about the weather or Super Rugby.

The coming budget speech is one of the most important ones to date (if not THE most important).  If Mr Gordhan can announce strict but meaningful steps to get treasury back on track and if there is enough credibility in the implementation of the measures, you may well see a considerable increase in rand value within the next couple of months.  Remember, a large part of the world’s capital markets is offering you 0% (and in some cases less than that) in return for placing your hard earned cash with them.  If the perception that South Africa is turning into a banana republic can be reversed, or even if the perception of the speed at which it is happening can be halted, there may be considerable inflows in our capital markets, even if it’s only short term flows.  The interest rates that South Africa offers together with the undervalued currency should appear very appealing to foreign investors, AS LONG AS they are confident that their capital is not at risk.

Unfortunately, the opposite is also true.  If the budget speech makes no effort to curb wasteful spending and corruption and the solution lies solely with the increased collection from companies and individuals (in other words higher personal and/or companies tax), then dark days await us on most fronts.

3) The basics have not changed

The basic principles of sensible investments have not changed, even though it might seem like it.  If you pay too much for something, be it a share, a property, a buffalo or currency, you are going to endure some pain in the future.  And if you have paid little enough for an asset (and your asset is not destroyed) then you will be able to say that it was a sensible investment at some point in the future, even though it might not feel so immediately (and sometimes for a long time) after your purchase.  It sounds logical, doesn’t it?  But the reason why most of us struggle to apply this principle is because we extrapolate the recent past into the future and cannot see that the status quo cannot be maintained.  The people who have paid R 44 million for a quarter of a buffalo, have hopefully arrived at the price by discounting the future proceeds of this buffalo and its descendants to a present value today (although I doubt the process was even this “scientific”).  The only problem with this reasoning is that the perceptual value (probably not a very realistic point of departure) of buffalo today is taken into account, but not the real value of buffalo.  The real value is the price for which you will sell the meat and horns or the price that someone will pay to hunt it.  The day that this realisation dawns on people, I would not want to own that quarter of the R 176 million buffalo.

4) 2016 not a year for hitting sixes

I might be wrong, but for most people, 2016 is going to be a tough year.  It is possibly not going to be one of those years where you can hit every delivery for a 6, but rather one where you need to start protecting your wickets.  If your business or the company that you work for is linked to the SA consumer’s wellbeing, then you might have to tighten your belt since the consumer will not have as much disposable income as in the past (because of various reasons, but amongst other things, a further rise in personal tax rates).  If you are in an exports industry, and you enjoyed record sales last year, maybe hold back on that order for the new BMW, because a reversed situation may be waiting for us where input costs are high, while prices are significantly lower.

If you barely make ends meet with your budget at the moment, do not wait until you are knee-deep in the you-know-what.  Make the necessary changes to your budget as soon as possible based on your actual expenses and see where you can cut.  Consider switching off your DSTV and spend more time with your family.  Try eating out less and review your life insurance, short term insurance and medical aid fund premiums to ensure that you are getting the best value for your money.  You would be surprised how much of your monthly expenses you can do without, without it affecting your quality of life.

The above may sound very cynical and pessimistic… my apologies, it was certainly not the intention.  I have always had the opinion that difficult economic circumstances have had a cleansing or sobering quality.  It has the ability to place a magnifying glass on poor business models, wastage, as well as poor personal financial management, and offers the opportunity to improve your business or personal financial affairs where you may have lost your way. Embrace the opportunity to spring clean your or your company’s finances within the coming months.

Disclaimer: Although all possible care was taken in the drafting of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone planning on taking any financial action based on this document, is strongly advised to first consult with their personal financial advisor. ProVérte Wealth & Risk Management is an authorised financial service provider with FSP no. 5966.


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Samuel Rossouw CFP®
(BCommHons; Adv PGDFP)
Wealth Manager


True to company culture, Samuel strives to build solid long term relationships with clients and has a meticulous way of identifying needs, defining goals and compiling an executable plan to reach one's goals. He firmly believes that one has to be a specialist in one's field to be able to add value, and continuous training & education is therefore paramount. To be objective and to have an independent approach to a client's planning is critical to make a difference.

Born & bred on a farm in the Montague region, Samuel matriculated in 2001 from Montague High School. He completed his BComm Honours degree in Business Management as well as his Postgraduate & Advanced Diploma in Financial Planning. Samuel is a CFP charter holder. Apart from a short stint at an agricultural company Samuel has spent his whole working career with ProVérte. Samuel is a shareholder and valuable member of the board of directors of ProVérte.