To my mind

Finweek English Edition - - Front Page - COLLEEN NAUDÉ colleenn@fin­week.co.za

“TO BE, OR NOT TO BE: that is the ques­tion: Whether ’tis no­bler in the mind to suf­fer the slings and ar­rows of ou­tra­geous for­tune, or to take to arms against a sea of trou­bles, and by op­pos­ing end them?”

The cur­rent fi­nan­cial and eco­nomic cli­mate very def­i­nitely has un­der­tones of Hamlet’s fa­mous so­lil­o­quy. Do you in­vest or not? Are we in a re­ces­sion or not? The an­swers to both fi­nan­cial dilem­mas are far less ob­vi­ous than the two clear op­tions fac­ing Hamlet in his ex­is­ten­tial cri­sis. In fact, the many – and some­times to­tally con­tra­dic­tory – views and the­o­ries put for­ward by in­vest­ment spe­cial­ists and economists about the cur­rent state of the share mar­kets and economies re­sem­ble leaves scurrying be­fore the wind. And con­fused in­vestors are sup­posed to make sense of this.

In the tur­moil of the fi­nan­cial world there’s much dis­agree­ment over the ex­tent of the down­turn, how long it will last and whether we are in fact in a global re­ces­sion.

How­ever, Price­wa­ter­house­Coop­ers eco­nomic ad­viser Roelof Botha says the lib­eral use of the “R” word could in­deed feed neg­a­tive sen­ti­ment to the point where it could bring a coun­try’s econ­omy to its knees. In a col­umn in Sake24 Botha uses a graph to il­lus­trate that the In­ter­na­tional Mon­e­tary Fund doesn’t fore­see a re­ces­sion in any of the world’s lead­ing economies, es­pe­cially not in emerg­ing mar­kets. On the other hand, In­vest­ment So­lu­tions econ­o­mist Chris Hart says the can­cel­la­tion of large projects in the min­ing and build­ing sec­tors in­di­cates SA is fac­ing a re­ces­sion in gross do­mes­tic fixed in­vest­ment.

The fierce­ness with which the fi­nan­cial en­vi­ron­ment world­wide im­ploded wrong­footed even an ex­pe­ri­enced busi­ness­man such as FirstRand Group chair­man GT Fer­reira. Though he warned share­hold­ers a year ago not to ex­pect a re­peat of the group’s ex­cel­lent 2007 re­sults, he didn’t fore­see the re­cent “car­nage” in the fi­nan­cial mar­kets.

It’s al­ways been the gen­eral view in in­vest­ment cir­cles that a slaugh­ter such as this – in which the share prices of qual­ity com­pa­nies come tum­bling down – cre­ates ex­cel­lent buy­ing op­por­tu­ni­ties. But last week, sea­soned fi­nan­cial jour­nal­ist and share trader Vic de Klerk poured cold wa­ter on that line of thought. He warned that so-called value shares could ac­tu­ally be “black value holes” that con­tinue to tum­ble af­ter you’ve bought them. This week De Klerk goes one step fur­ther and ques­tions War­ren Buf­fett’s tra­di­tional in­vest­ment strat­egy, which has al­ways been re­garded as the winning strat­egy for longterm in­vestors. A buy-and-hold strat­egy, with blue chips mak­ing up around 70% of a port­fo­lio, no longer works, says de Klerk.

For the JSE’s all-share in­dex to re­cover to the level of 32 000, the share prices of the big guns in the in­dex should at least dou­ble, but prefer­ably in­crease by 200% to 300%.

De Klerk says that can only hap­pen if there’s a ru­n­away de­mand for com­modi­ties, as was the case un­til about six months ago. And he’s not op­ti­mistic about such a sce­nario in the fore­see­able fu­ture.

In an ef­fort to make sense of all the neg­a­tive news, some in­vestors are looking at the rel­a­tive strength of shares, cal­cu­lated by di­vid­ing the share price by an in­dex. That will sin­gle out a share such as Shoprite, as pointed out on page 66.

There are a num­ber of other shares in­vestors can con­sider in th­ese con­fused times, as is shown by the choices of var­i­ous ex­perts ap­proached for our cover story. But their views are di­verse and some of their picks will stim­u­late lively de­bate.

Though one hopes the fi­nal out­come for in­vestors will not be akin to a Shake­spearean tragedy, the omi­nous chant­ing of the three witches in Macbeth – “Bub­ble, bub­ble, toil and trou­ble” – will cer­tainly con­tinue to per­vade global mar­kets for some time to come, as the head­line over a re­cent re­port in The Aus­tralian pre­dicted.

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