Investment Principles

MoneyMarketing has some interesting reading presented by Kokkie Kooyman: “Kooyman says that the sequence of good and bad years in the market is irrelevant. “It is rather more important to focus on a sound investment framework and philosophy and apply it consistently.”

Insured Investment Brokers proudly identify with this view point and apply this principle very rigidly through a well managed process which we believe is light years ahead of the Industry in terms of our interconnectivity, very highly skilled people and systems driving and managing the process as well as most sophisticated research teams and experts working around the clock to utilize investment opportunities but also protecting investments during volatile periods in the market.

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Today’s newsletter features some thoughts from Sanlam’s Kokkie Kooyman on global trends and we have investment tips from Mark Mobius

Trends on the global scene.

 There will be ups and downs but the sequence of these does not matter, according to Kokkie Kooyman, Global Fund Manager at Sanlam. Kooyman was speaking at the Legae Capital hedge fund conference in association with Blue Ink Investments. Kooyman spoke about global trends, the deleveraging that is currently taking place and the challenges facing emerging economies.

The sequence of events does not matter, sound investing principles do

Kooyman and his team have been looking at Warren Buffet’s annual investor letters and his track record. In the 52 years of the S&P, there have only been four in which Buffet has not beaten the Index. Buffet’s reviews date back to 1958 and his message has remained consistent.  There will be ups and downs and there will be in between phases in the market.

Kooyman quoted from a 1962 letter – “I haven’t any notion as to the sequence in which these will occur, nor do I think it is of any great importance in the long term.”

Buffet has several ground rules for investors – one is that he will communicate with you at most once a year and another is that performance is not measured over any time less than three years.

Kooyman says that the sequence of good and bad years in the market is irrelevant. “It is rather more important to focus on a sound investment framework and philosophy and apply it consistently.”

Deleveraging taking place

One of the global themes Kooyman identified is that of the deleveraging that is currently taking place.

In the last five years there has been tremendous financial innovation and a lot of gearing. As a simplified example Kooyman uses the case of banks – normal leveraging would be 1 for 10 so for every $1 of capital a bank has they would loan $10. In some cases there are now banks that have a ratio of 1 to 50. There is now pressure on banks to revert to 1 to 10, and this can be done either by raising new capital or reducing loans. Banks are currently following both routes and a lot of deleveraging has taken place. By default this has to mean that “economic growth must just suffer. And no one knows how long this process will take.”

Kooyman says that US banking shares have shown enormous volatility and he cautions to not take market movements as a reflection of what is happening in the economy – ‘there are some sideshows and don’t get distracted by these.’ Deleveraging is set to continue for a while in the US, UK and European markets.

In the US currently there is an 11 month stock of unsold houses (ie it will take 11 months to sell all the for sale properties). This is leading to price competition and US house prices are now very attractive. US consumers, however, do not have ready access to credit to purchase.

Kooyman says there are now cases of European housing tours to the US to view and purchase at these attractive prices.

How long will it continue – Kooyman says that while the outlook is negative, this is already priced into the market.  “No one can say how long it will last or when it will pass.” Kooyman says it is likely that we are near or at the bottom but the length of stay at the bottom is unknown.

Two worlds apart

But essentially we live in two worlds – the US, UK, Ireland and Spain where it is unlikely that there will be inflation and the emerging markets where there is inflationary pressure. Kooyman believes that the structural differences remain favourable for emerging markets.

Emerging markets also have significantly lower levels of financial product penetration. And while this is growing as these financial markets develop, it is still at low levels. 

For emerging markets inflation is an issue and how they choose to deal with this. His view is that most will have to raise interest rates, with the possible exceptions of Turkey, Brazil and South Africa who have already implemented rate hikes fairly aggressively.

Today’s investment thoughts come from FLASH INFO from Franklin Templeton Investments and are 25 investment rules from Mark Mobius.

Mobius says that “there is no simple secret, no single blueprint, no rigid road map, that guarantees long term success as a global investor.”

But it would help to follow some simple rules, such as:

  1. Your best protection is diversification.
  2. Taking risks is what you get paid for.
  3. If you want to gain exposure to the world’s fastest growing economies, you’ve got to take the plunge into emerging markets.
  4. High volatility is a characteristic of all markets, even more mature ones.
  5. If you factor emotion out of the equation, and base your strategy on long-term fundamentals, you can win when markets fall and when they rise.
  6. Wait five years, and call me in the morning.
  7. Bad times can be good times.
  8. Lies can be as revealing as pure, honest truth, provided you know what cues to be looking and listening for.
  9. By the time most of the data prepared by multinational institutions and governments becomes available, it’s already factored in stock prices.
  10. Buy ‘good’ stock in ‘bad’ times and ‘bad’ stock in ‘good’ times.
  11. Times that people think are bad are often good.
  12. Stocks that people think are bad are often good.
  13. Countries that make it easy for travellers to enter tend to be friendly to foreign investment.
  14. The quality of management is paramount.
  15. Buy wet (liquid) stocks in wet (liquid) countries, not ‘dry’ (illiquid) stocks in ‘dry’ (illiquid) countries.
  16. Patience is more than its own (just) reward.
  17. Long-term planning pays.
  18. The time of maximum pessimism is the best time to buy.
  19. The time of maximum optimism is the best time to sell.
  20. If you can see light at the end of the tunnel, it’s too late to buy or sell.
  21. You earn dividends by discounting a market’s ‘emotional quotient.’
  22. Buy stocks whose prices are going down, not up.
  23. If a market is down 20 per cent or more from a recent peak and value can be seen, start loading up.
  24. Time heals most ills.
  25. Privatisation primes the pump.

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