CRE­AT­ING WEALTH

Finweek English Edition - - Creating wealth - LET­TERS TO

NEG­A­TIVE RA­TIOS I WISH YOU’D ex­plain how any com­pany can have a neg­a­tive price:earn­ings ra­tio. I can’t see that at all. All com­pa­nies have some earn­ings and all have a share price, so how can the p: e num­ber have a mi­nus sign in front? Also, that up­sets my cal­cu­la­tions when I try to de­ter­mine the sec­tor av­er­age p:e.

DAVE KER­SHAW, Benoni

THE MAT­TER OF a neg­a­tive p:e ra­tio and the dis­tor­tion it causes to the sec­tor’s av­er­age p:e and the mar­ket as a whole have long trou­bled us. Fin­week has dis­cussed it with the JSE’s Jan­nie Im­mel­man, but he’s con­vinced that it does have some math­e­mat­i­cal merit. The in­ter­na­tional lit­er­a­ture shows that you can cal­cu­late 8/-2, but the re­sult is mean­ing­less for the pur­poses of p:e. The greater the loss, the lower the neg­a­tive p:e be­comes; and the smaller the loss, the larger the neg­a­tive p:e. It makes no sense.

How­ever, the JSE as­sures us that the av­er­ages for a sec­tor are cal­cu­lated by adding all the dif­fer­ent rand prof­its and losses of the com­pa­nies in the sec­tor and then di­vid­ing by the to­tal rand cap­i­tal­i­sa­tion of the sec­tor. That ob­vi­ates the prob­lem of only cal­cu­lat­ing the av­er­age where there are neg­a­tive p:es. PRICED OUT IN A RE­CENT re­port on sav­ing to buy re­tail­ers in Septem­ber, Vic de Klerk’s chart didn’t in­clude Mr Price. Was there any spe­cific rea­son for that or would your re­port still ap­ply?

CALVIN FEN­NELL, Dur­ban

MR PRICE IS a won­der­ful share. We wanted to re­strict the ta­ble to 10 shares, and it fell just short in terms of mar­ket cap­i­tal­i­sa­tion. If I had to choose my favourites, Mr Price would cer­tainly be in the top three. SA­TRIX SAFE AS EVER FIN­WEEK RE­CENTLY SANG the praises of Sa­trix in­vest­ments. I’ve been in­vest­ing in Sa­trix 40 on a monthly ba­sis since 2001. The value of my in­vest­ment is now around R200 000. I also have in­vest­ments in other stock ex­change-linked prod­ucts (via a recog­nised con­sult­ing firm). I’m a pen­sioner and I re­ceive a monthly pen­sion from an es­tab­lished pen­sion fund.

Re­cent re­ports about the Fi­den­tia de­ba­cle and the pos­si­ble in­volve­ment of Sa­trix funds have dis­turbed me. Is there a real dan­ger and should I get rid of my in­vest­ment?

ED­DIE STRY­DOM, Via email

ONE OF FI­DEN­TIA’S sub­sidiaries did some ad­min­is­tra­tive work for Sa­trix. That’s now ended and Sa­trix is just as safe as ever. To set your mind at rest, go to sa­trix.co.za and see Sa­trix CEO Mike Brown’s full ex­pla­na­tion there. There’s noth­ing to be wor­ried about.

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