Old Mutual vs Sanlam

Sanlam’s results presentation was refreshingly candid

Some sailors consider it bad luck to serve on ships whose names had been changed. History shows that it might not just be a silly superstition. Ships with changed names had sometimes been involved in piracy or something else.

Can this attitude apply to stock exchange-listed companies as much as to ships?

The frequent changes the proprietor of this publication has made to its name makes it hard work to detail how its market cap has dwindled while its once smaller rival Nasionale Pers thrived. So let’s pick on Old Mutual instead.

Some may argue that changing the share code from OML to OMU does not constitute a name change.

While most of us simply called the insurance group Old Mutual both before and after its split from Quilter, the company itself claims to be a new entity with a new name.

“With our debut results as Old Mutual Limited, I am pleased to report that we are on track to deliver on the commitments we have made to investors,” CEO Peter Moyo said in the company’s recent interim results statement.

By changing its share code, Old Mutual did circumvent a problem Gold Fields faced when it unbundled Sibanye. Bidvest encountered the same issue when it split from Bidcorp, as did Grindrod, more recently, when it separated from Grindrod Shipping. The unbundling created an alarming cliff-like drop in the share price graph.

Starting afresh with a new share code is an inelegant way for Old Mutual to circumvent a problem caused by the JSE not providing an “adjusted close” price. Stock exchanges in developed markets include in their historical data a column marked “adjusted close”. The latest price given is the same as the closing price, but past prices are changed to include dividend payments and matters such as share splits or consolidations. This provides a handy way for investors to check how much money they would have made or lost on a share by working back from the current price to a time in the past.

Yahoo, Google and others used to offer stock price data,

The JSE’s practice of making stock investing too expensive for ordinary people by charging for data has spread to the rest of the world

downloadable as spreadsheets, with an “adjusted close” column. But sadly, the JSE’s practice of making stock investing too expensive for ordinary people by charging for data has spread to the rest of the world.

The rising price and falling quality of stock price data are other reasons why retail investors should stick to investing in index-tracking exchange traded funds and steer clear of building poorly diversified portfolios out of individual companies.

The old adage that you should buy life insurers’ shares, not their products, comes from a time before the days of exchange traded funds, when the cheapest way to invest in something with underlying assets that were well diversified stocks and bonds was via life insurers.

For those who are going to invest in a life insurer rather than a well-diversified, global exchange traded fund, Sanlam’s recent results presentation will have been refreshing. CEO Ian Kirk spoke candidly about the mistakes the group has made, including “larger-than-benchmark exposure to Steinhoff”. He said: “Our portfolios were not well positioned for the run in the SA market post the political changes at the end of 2017 and the beginning of 2018.”

In contrast, corporate gobbledygook in recent life insurer results included “eight battlegrounds” for Old Mutual, “strat- egy refresh” for Liberty and “reset and grow” for MMI, while Discovery’s life insurance division “continued to enhance the impact of the shared-value model”.

In simple English, people have become increasingly disillusioned with the poor returns that are offered by assurance company products along with the high sales commissions their agents charge.

Sanlam is something of a hybrid here, selling both legacy products such as unit trusts and exchange trade funds via Satrix. Of the life insurers, Sanlam looks like the dinosaur with the best chances against younger upstarts like Sygnia.

An exception to the rule that changing names is bad luck for ships was the second vessel to ever circumnavigate the globe. It set out in 1577 as the Pelican and returned three years later as the Golden Hind.

Its captain, Francis Drake, landed in South America on the very spot where his predecessor, Ferdinand Magellan, had 58 years earlier erected gallows to execute mutineers. Drake decided this was an ideal spot to amuse his pirate crew by beheading the representative of their aristocratic financial backers.

As Magellan personally did not survive his voyage, Drake probably thought the odds of him having to account for this bloodthirsty act back home was negligible. But as his ship returned from its voyage around the world packed with Spanish loot, he decided it was best to rename it after the crest of the family whose secretary he had murdered.

Drake not only escaped punishment, he got knighted.

The Pelican was not a pirate ship before it got renamed, so maybe the usual rule did not apply. But the name change was still a clue that it had something to hide.