Blue blood heartache

‘Poor per­for­mance of large cap blue chips de­stroyed most of JSE’s value’

Finweek English Edition - - Cover -

“DON’T WORRY, sir, your port­fo­lio con­sists of only qual­ity shares of the big­gest com­pa­nies. Ev­ery­thing will come right in the end and, af­ter all, we’re long-term in­vestors,” were the words of con­so­la­tion from a top fi­nan­cial ad­viser I over­heard while wait­ing my turn to be given some con­so­la­tion.

Fear­fully, I looked at the list of our so­called top shares – the JSE’s big guns – and started won­der­ing whether the cause of much of the heartache and the stan­dard words of con­so­la­tion of in­vest­ment ad­vis­ers (ac­tu­ally, wel­fare ad­vis­ers not so long ago) weren’t con­tained in those outdated top shares. Split the ad­vice into three parts and think about it again.

On the JSE, the top 10 dom­i­nate af­fairs – and it’s sel­dom nec­es­sary to go out­side the top 20. Long-term port­fo­lios, gen­eral unit trusts, an­nu­ities, call them what you like, are tra­di­tion­ally and by def­i­ni­tion heav­ily in­vested in such shares. The weight of the lo­cal por­tion of many a man­aged port­fo­lio is be­tween 70% and 100% in those so-called top shares.

Per­haps that’s ac­tu­ally the great­est dan­ger and the trap we so eas­ily fall into. Some­times, per­haps too of­ten, those large, qual­ity shares reach the end of their in­vest­ment value without in­vestors or as­set man­agers re­al­is­ing it. The 30 shares in the Dow Jones are also top shares. This year, AIG, one of the world’s largest in­sur­ers, has al­ready dropped out of the in­dex. And Gen­eral Motors will be fol­low­ing soon.

Around 100 years ago, Beth­le­hem Steel was one of the cor­ner­stones of the US econ­omy and the cen­tral theme of many a tale about the Amer­i­can dream. It has long since dis­ap­peared from the Dow Jones.

“Ev­ery­thing will come right and, af­ter all, we’re long-term in­vestors.” Those are the cus­tom­ary words of con­so­la­tion. But, yes, ev­ery­thing may come right. But ev­ery­thing may also end up looking com­pletely dif­fer­ent. Many of us are prob­a­bly also won­der­ing whether the tra­di­tional War­ren Buf­fett in­vest­ment strat­egy of buy and hold is still valid. Go and look for an­swers to the words of con­so­la­tion in the re­cent high in share prices of the top shares com­pared to the cur­rent busi­ness en­vi­ron­ment. Think about what must hap­pen be­fore share prices can again rise to their pre­vi­ous peaks and then give some thought to the length of longterm in­vest­ments.

In the ta­ble, the shares bought for the long term in the past by the old Nats are in­di­cated by (n), while those pre­ferred by the United Party are marked (s). It now makes no dif­fer­ence. The big dam­age on the JSE over the past six months came from our big­gest qual­ity shares – the ones that are safe and held by long-term in­vestors.

There’s now bad news for long-term in­vestors. BHP Bil­li­ton’s share price, and es­pe­cially An­glo Amer­i­can’s, will not soon, if ever, re­cover to the record lev­els of June/ July this year.

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