Blue blood heartache
‘Poor performance of large cap blue chips destroyed most of JSE’s value’
“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words of consolation of investment advisers (actually, welfare advisers not so long ago) weren’t contained in those outdated top shares.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.