Is your in­vest­ment ‘chok­ing’?

Cricket World Cup pro­vided in­ter­est­ing in­sights into risk and re­turn

Finweek English Edition - - MONEYCLINIC -

SOUTH AFRICAN cricket fans are in mourn­ing as their side again blew an op­por­tu­nity to se­cure a Cricket World Cup ti­tle. With stock mar­kets also in tur­moil glob­ally, Finweek thought it would be en­ter­tain­ing to dis­cover whether it was more prof­itable to in­vest in the mar­ket or back your favourite cricket cap­tain.

Our cri­te­ria were pretty sim­ple: what was your re­turn if you in­vested R2 500 in eight ma­jor JSE stocks or the Sa­trix RAFI (fun­da­men­tal) in­dex and would you have made money back­ing your pre­ferred cricket cap­tain? As you can see from the ta­ble, shares haven’t been the best place for your money to be since the start of this year. Only Sa­sol CEO Pat Davies proved a worth­while cap­tain, de­liv­er­ing 9% re­turn for share­hold­ers – helped by a volatile oil price. Your next best re­turn was from Bri­tish Amer­i­can To­bacco, which de­liv­ered just un­der 4%.

If you’d in­vested in the Sa­trix RAFI or BHP Bil­li­ton you’d be slightly in the red; and if you’d put your money into Stan­dard Bank you couldn’t be faulted for won­der­ing whether the bank and the Proteas traded their brains trust over Christ­mas.

So would you have made any money tak­ing a punt on your favourite cricket cap­tain? That was slightly tougher to cal­cu­late, but es­sen­tially we as­sumed a punter would start with R2 500 and would con­sis­tently bet the full amount on his favourite cap­tain and bank the prof­its. If he had a los­ing fix­ture the punter would then tap into that profit pool to get back into the bet­ting process. In the­ory, if you lost two games in a row you were out.

Armed with odds sup­plied by Volt­ it would ap­pear pun­ters would have done very well back­ing In­dia from the word go. One of the early favourites, In­dia has de­liv­ered a 193% re­turn, while back­ing an out­lier such as New Zealand lost you 99% of your money – end­ing up with a pal­try R41.

Purists will ar­gue you can’t com­pare sports bet­ting and in­vest­ing but the above ex­am­ple re­veals two in­ter­est­ing as­pects: first, it re­in­forces that look­ing for out­liers or out­side bets to gen­er­ate con­sis­tent re­turns doesn’t al­ways pro­duce the de­sired re­sults when the favourites are de­liv­er­ing on the goods. Paul Theron, of as­set man­age­ment firm Ves­tact, has of­ten told our read­ers the favourites trade on su­pe­rior earn­ings mul­ti­ples than less

GRAEME SMITH Hard to swal­low

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