Portfolio construction involves balancing risk and return through diversification. The document discusses constructing portfolios using a combination of stocks to reduce overall risk compared to holding individual stocks. It provides examples showing how a portfolio with 50% allocation to two stocks achieves lower risk than either stock individually due to diversification. The document emphasizes diversifying across industries and stocks with low correlations to benefit from diversification and achieve more stable returns.
Moneyweb Investment Seminars - David Shapiromoneyweb
The document discusses the current state of the global economy and financial markets. It notes that while the light can be seen at the end of the tunnel, the global economy is still within it due to uncertainties persisting in developed economies like high unemployment and weak housing markets in the US. Emerging markets are forecasted to grow faster than advanced economies. The document also provides investment ideas and stock picks that may perform well in the difficult market environment.
Erwin Rode on Prospects for Property (Cape Town presentation)moneyweb
The document summarizes Erwin Rode's presentation at a Moneyweb seminar on October 6, 2011. It indicates that below-average economic growth is expected in South Africa for many years, residential property remains overpriced, shopping center cash flows face ongoing pressure, quality non-residential properties have moderate oversupply nationally but are not overpriced, listed funds' distributions over the next 3 years will slow to around 4% annually and may be negatively re-rated along with long-term bonds.
Rayjay Ambekar on valuations, asset allocation and marketsmoneyweb
The seminar discussed how the world still faces significant debt problems despite crisis being averted. It noted that debt levels remain too high relative to GDP in places like the US, and that saving rates are still low. Charts were presented showing rising debt levels in the US over time as well as declining private and public saving rates. Issues in Europe were also discussed along with how central bank balance sheets continue expanding. It was argued that loose monetary policies have helped drive up stock prices.
Piet Viljoen presented a Moneyweb seminar in October 2011. He discussed various topics related to investing such as quotes from Warren Buffett and JK Galbraith about remaining calm during periods of market madness. He provided suggestions for asset allocation splits between South African and offshore assets with a higher allocation to equities in developed offshore markets. Viljoen also commented on the relative valuations of different geographic equity markets, noting that Japan appeared very cheap at that time while the US still had potential for further declines.
The document is a report from First National Bank (FNB) that provides an analysis of property market trends in South Africa. It summarizes data on house prices, commercial property values, construction costs, demand and supply factors, and investment returns. The report finds that while house prices and commercial property values increased in recent years, the market is showing signs of weakness, with high supply, falling demand, and lengthening times for properties to sell. Total property returns have also started declining again in 2011.
1. The document discusses Erwin Rode's presentation on economic prospects for South Africa and the world.
2. Rode predicts that world and European growth will remain poor for many years, around 10 years, due to the ongoing financial crisis.
3. For South Africa, Rode forecasts lower growth in the coming years as a result of weak global growth and infrastructure constraints domestically, although China may provide some support. Taxes and tariffs are also expected to rise.
Moneyweb Investment Seminars - David Shapiromoneyweb
The document discusses the current state of the global economy and financial markets. It notes that while the light can be seen at the end of the tunnel, the global economy is still within it due to uncertainties persisting in developed economies like high unemployment and weak housing markets in the US. Emerging markets are forecasted to grow faster than advanced economies. The document also provides investment ideas and stock picks that may perform well in the difficult market environment.
Erwin Rode on Prospects for Property (Cape Town presentation)moneyweb
The document summarizes Erwin Rode's presentation at a Moneyweb seminar on October 6, 2011. It indicates that below-average economic growth is expected in South Africa for many years, residential property remains overpriced, shopping center cash flows face ongoing pressure, quality non-residential properties have moderate oversupply nationally but are not overpriced, listed funds' distributions over the next 3 years will slow to around 4% annually and may be negatively re-rated along with long-term bonds.
Rayjay Ambekar on valuations, asset allocation and marketsmoneyweb
The seminar discussed how the world still faces significant debt problems despite crisis being averted. It noted that debt levels remain too high relative to GDP in places like the US, and that saving rates are still low. Charts were presented showing rising debt levels in the US over time as well as declining private and public saving rates. Issues in Europe were also discussed along with how central bank balance sheets continue expanding. It was argued that loose monetary policies have helped drive up stock prices.
Piet Viljoen presented a Moneyweb seminar in October 2011. He discussed various topics related to investing such as quotes from Warren Buffett and JK Galbraith about remaining calm during periods of market madness. He provided suggestions for asset allocation splits between South African and offshore assets with a higher allocation to equities in developed offshore markets. Viljoen also commented on the relative valuations of different geographic equity markets, noting that Japan appeared very cheap at that time while the US still had potential for further declines.
The document is a report from First National Bank (FNB) that provides an analysis of property market trends in South Africa. It summarizes data on house prices, commercial property values, construction costs, demand and supply factors, and investment returns. The report finds that while house prices and commercial property values increased in recent years, the market is showing signs of weakness, with high supply, falling demand, and lengthening times for properties to sell. Total property returns have also started declining again in 2011.
1. The document discusses Erwin Rode's presentation on economic prospects for South Africa and the world.
2. Rode predicts that world and European growth will remain poor for many years, around 10 years, due to the ongoing financial crisis.
3. For South Africa, Rode forecasts lower growth in the coming years as a result of weak global growth and infrastructure constraints domestically, although China may provide some support. Taxes and tariffs are also expected to rise.
Wayne McCurrie on Fixed Income and Cash Investingmoneyweb
Fixed income and cash investing were to be discussed. The agenda included introductions to fixed income markets and cash investing, as well as broad asset allocations. Fixed income includes government, agency, corporate and municipal bonds. Cash investing provides capital preservation but returns are typically lower than inflation over time. Relative valuations of fixed income versus equities were to also be reviewed.
Moneyweb Investment Seminars - Peter Majormoneyweb
Volatility provides opportunities rather than representing risk alone. It allows multiple chances to gain from price movements by magnifying returns through leverage, though it also magnifies losses. While some assets like cash and bonds have relatively low historic volatility, equities and property have exhibited higher volatility but also higher long-term returns over periods of 20 years or more. Successful investing requires understanding how macroeconomic factors influence different asset classes in order to identify assets priced outside their norms and adjust allocations accordingly based on goals, rather than following the general market. Performance is the ultimate measure of an investment, not promises or explanations.
Moneyweb Investment Focus, with Discovery Invest (November 2009)moneyweb
The new normal - Alec Hogg, Moneyweb / Panning for gold in muddy waters - Kerrin Howard, Discovery Invest / Lessons learned from the collapse of Lehman Brothers - David Shapiro, Sasfin
The document summarizes Warren Buffett and Charlie Munger's advice on navigating the Great Recession from their annual shareholder meeting in 2009. Some key points they discussed include:
- Only buy when others are panicked during times of crisis, as Berkshire Hathaway is following Andrew Carnegie's playbook of investing to build businesses during downturns.
- Understand the durable competitive advantages of businesses and whether they will withstand downturns.
- Develop emotional stability and independent thinking to be a good long-term investor.
The document also reviews economic conditions and investment opportunities in developing markets like China, India, and South Africa compared to developed countries as they were seen to lead the
The document summarizes key points from Warren Buffett's annual Berkshire Hathaway shareholder meeting. It discusses Buffett's views on the financial crisis, stocks he favors, and things he dislikes. It also provides an overview of Berkshire Hathaway's succession plans and Buffett's thoughts on what should be taught in business schools.
Report from WEF Davos 2009 - Presentation by Alec Hogg, Moneywebmoneyweb
The World Economic Forum is committed to improving the global state and holds annual meetings in Davos to set the year's economic agenda. The 2009 meeting saw record attendance from CEOs and government leaders. Speakers discussed the state of the global recession and opportunities emerging from the economic crisis, emphasizing the need for global collaboration on issues like climate change, infrastructure development, and renewable energy. While some leaders expressed optimism that the economic downturn would be temporary, others warned that the worst impact may still be coming and that significant financial sector reforms would be needed. Overall the forum called for a renewed spirit of global cooperation and shared values to guide the world's response.
How to Invest in Cryptocurrency for Beginners: A Complete GuideDaniel
Cryptocurrency is digital money that operates independently of a central authority, utilizing cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies are decentralized and typically operate on a technology called blockchain. Each cryptocurrency transaction is recorded on a public ledger, ensuring transparency and security.
Cryptocurrencies can be used for various purposes, including online purchases, investment opportunities, and as a means of transferring value globally without the need for intermediaries like banks.
13 Jun 24 ILC Retirement Income Summit - slides.pptxILC- UK
ILC's Retirement Income Summit was hosted by M&G and supported by Canada Life. The event brought together key policymakers, influencers and experts to help identify policy priorities for the next Government and ensure more of us have access to a decent income in retirement.
Contributors included:
Jo Blanden, Professor in Economics, University of Surrey
Clive Bolton, CEO, Life Insurance M&G Plc
Jim Boyd, CEO, Equity Release Council
Molly Broome, Economist, Resolution Foundation
Nida Broughton, Co-Director of Economic Policy, Behavioural Insights Team
Jonathan Cribb, Associate Director and Head of Retirement, Savings, and Ageing, Institute for Fiscal Studies
Joanna Elson CBE, Chief Executive Officer, Independent Age
Tom Evans, Managing Director of Retirement, Canada Life
Steve Groves, Chair, Key Retirement Group
Tish Hanifan, Founder and Joint Chair of the Society of Later life Advisers
Sue Lewis, ILC Trustee
Siobhan Lough, Senior Consultant, Hymans Robertson
Mick McAteer, Co-Director, The Financial Inclusion Centre
Stuart McDonald MBE, Head of Longevity and Democratic Insights, LCP
Anusha Mittal, Managing Director, Individual Life and Pensions, M&G Life
Shelley Morris, Senior Project Manager, Living Pension, Living Wage Foundation
Sarah O'Grady, Journalist
Will Sherlock, Head of External Relations, M&G Plc
Daniela Silcock, Head of Policy Research, Pensions Policy Institute
David Sinclair, Chief Executive, ILC
Jordi Skilbeck, Senior Policy Advisor, Pensions and Lifetime Savings Association
Rt Hon Sir Stephen Timms, former Chair, Work & Pensions Committee
Nigel Waterson, ILC Trustee
Jackie Wells, Strategy and Policy Consultant, ILC Strategic Advisory Board
Dr. Alyce Su Cover Story - China's Investment Leadermsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
Budgeting as a Control Tool in Government Accounting in Nigeria
Being a Paper Presented at the Nigerian Maritime Administration and Safety Agency (NIMASA) Budget Office Staff at Sojourner Hotel, GRA, Ikeja Lagos on Saturday 8th June, 2024.
A toxic combination of 15 years of low growth, and four decades of high inequality, has left Britain poorer and falling behind its peers. Productivity growth is weak and public investment is low, while wages today are no higher than they were before the financial crisis. Britain needs a new economic strategy to lift itself out of stagnation.
Scotland is in many ways a microcosm of this challenge. It has become a hub for creative industries, is home to several world-class universities and a thriving community of businesses – strengths that need to be harness and leveraged. But it also has high levels of deprivation, with homelessness reaching a record high and nearly half a million people living in very deep poverty last year. Scotland won’t be truly thriving unless it finds ways to ensure that all its inhabitants benefit from growth and investment. This is the central challenge facing policy makers both in Holyrood and Westminster.
What should a new national economic strategy for Scotland include? What would the pursuit of stronger economic growth mean for local, national and UK-wide policy makers? How will economic change affect the jobs we do, the places we live and the businesses we work for? And what are the prospects for cities like Glasgow, and nations like Scotland, in rising to these challenges?
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
Wayne McCurrie on Fixed Income and Cash Investingmoneyweb
Fixed income and cash investing were to be discussed. The agenda included introductions to fixed income markets and cash investing, as well as broad asset allocations. Fixed income includes government, agency, corporate and municipal bonds. Cash investing provides capital preservation but returns are typically lower than inflation over time. Relative valuations of fixed income versus equities were to also be reviewed.
Moneyweb Investment Seminars - Peter Majormoneyweb
Volatility provides opportunities rather than representing risk alone. It allows multiple chances to gain from price movements by magnifying returns through leverage, though it also magnifies losses. While some assets like cash and bonds have relatively low historic volatility, equities and property have exhibited higher volatility but also higher long-term returns over periods of 20 years or more. Successful investing requires understanding how macroeconomic factors influence different asset classes in order to identify assets priced outside their norms and adjust allocations accordingly based on goals, rather than following the general market. Performance is the ultimate measure of an investment, not promises or explanations.
Moneyweb Investment Focus, with Discovery Invest (November 2009)moneyweb
The new normal - Alec Hogg, Moneyweb / Panning for gold in muddy waters - Kerrin Howard, Discovery Invest / Lessons learned from the collapse of Lehman Brothers - David Shapiro, Sasfin
The document summarizes Warren Buffett and Charlie Munger's advice on navigating the Great Recession from their annual shareholder meeting in 2009. Some key points they discussed include:
- Only buy when others are panicked during times of crisis, as Berkshire Hathaway is following Andrew Carnegie's playbook of investing to build businesses during downturns.
- Understand the durable competitive advantages of businesses and whether they will withstand downturns.
- Develop emotional stability and independent thinking to be a good long-term investor.
The document also reviews economic conditions and investment opportunities in developing markets like China, India, and South Africa compared to developed countries as they were seen to lead the
The document summarizes key points from Warren Buffett's annual Berkshire Hathaway shareholder meeting. It discusses Buffett's views on the financial crisis, stocks he favors, and things he dislikes. It also provides an overview of Berkshire Hathaway's succession plans and Buffett's thoughts on what should be taught in business schools.
Report from WEF Davos 2009 - Presentation by Alec Hogg, Moneywebmoneyweb
The World Economic Forum is committed to improving the global state and holds annual meetings in Davos to set the year's economic agenda. The 2009 meeting saw record attendance from CEOs and government leaders. Speakers discussed the state of the global recession and opportunities emerging from the economic crisis, emphasizing the need for global collaboration on issues like climate change, infrastructure development, and renewable energy. While some leaders expressed optimism that the economic downturn would be temporary, others warned that the worst impact may still be coming and that significant financial sector reforms would be needed. Overall the forum called for a renewed spirit of global cooperation and shared values to guide the world's response.
How to Invest in Cryptocurrency for Beginners: A Complete GuideDaniel
Cryptocurrency is digital money that operates independently of a central authority, utilizing cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies are decentralized and typically operate on a technology called blockchain. Each cryptocurrency transaction is recorded on a public ledger, ensuring transparency and security.
Cryptocurrencies can be used for various purposes, including online purchases, investment opportunities, and as a means of transferring value globally without the need for intermediaries like banks.
13 Jun 24 ILC Retirement Income Summit - slides.pptxILC- UK
ILC's Retirement Income Summit was hosted by M&G and supported by Canada Life. The event brought together key policymakers, influencers and experts to help identify policy priorities for the next Government and ensure more of us have access to a decent income in retirement.
Contributors included:
Jo Blanden, Professor in Economics, University of Surrey
Clive Bolton, CEO, Life Insurance M&G Plc
Jim Boyd, CEO, Equity Release Council
Molly Broome, Economist, Resolution Foundation
Nida Broughton, Co-Director of Economic Policy, Behavioural Insights Team
Jonathan Cribb, Associate Director and Head of Retirement, Savings, and Ageing, Institute for Fiscal Studies
Joanna Elson CBE, Chief Executive Officer, Independent Age
Tom Evans, Managing Director of Retirement, Canada Life
Steve Groves, Chair, Key Retirement Group
Tish Hanifan, Founder and Joint Chair of the Society of Later life Advisers
Sue Lewis, ILC Trustee
Siobhan Lough, Senior Consultant, Hymans Robertson
Mick McAteer, Co-Director, The Financial Inclusion Centre
Stuart McDonald MBE, Head of Longevity and Democratic Insights, LCP
Anusha Mittal, Managing Director, Individual Life and Pensions, M&G Life
Shelley Morris, Senior Project Manager, Living Pension, Living Wage Foundation
Sarah O'Grady, Journalist
Will Sherlock, Head of External Relations, M&G Plc
Daniela Silcock, Head of Policy Research, Pensions Policy Institute
David Sinclair, Chief Executive, ILC
Jordi Skilbeck, Senior Policy Advisor, Pensions and Lifetime Savings Association
Rt Hon Sir Stephen Timms, former Chair, Work & Pensions Committee
Nigel Waterson, ILC Trustee
Jackie Wells, Strategy and Policy Consultant, ILC Strategic Advisory Board
Dr. Alyce Su Cover Story - China's Investment Leadermsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
Budgeting as a Control Tool in Government Accounting in Nigeria
Being a Paper Presented at the Nigerian Maritime Administration and Safety Agency (NIMASA) Budget Office Staff at Sojourner Hotel, GRA, Ikeja Lagos on Saturday 8th June, 2024.
A toxic combination of 15 years of low growth, and four decades of high inequality, has left Britain poorer and falling behind its peers. Productivity growth is weak and public investment is low, while wages today are no higher than they were before the financial crisis. Britain needs a new economic strategy to lift itself out of stagnation.
Scotland is in many ways a microcosm of this challenge. It has become a hub for creative industries, is home to several world-class universities and a thriving community of businesses – strengths that need to be harness and leveraged. But it also has high levels of deprivation, with homelessness reaching a record high and nearly half a million people living in very deep poverty last year. Scotland won’t be truly thriving unless it finds ways to ensure that all its inhabitants benefit from growth and investment. This is the central challenge facing policy makers both in Holyrood and Westminster.
What should a new national economic strategy for Scotland include? What would the pursuit of stronger economic growth mean for local, national and UK-wide policy makers? How will economic change affect the jobs we do, the places we live and the businesses we work for? And what are the prospects for cities like Glasgow, and nations like Scotland, in rising to these challenges?
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
Confirmation of Payee (CoP) is a vital security measure adopted by financial institutions and payment service providers. Its core purpose is to confirm that the recipient’s name matches the information provided by the sender during a banking transaction, ensuring that funds are transferred to the correct payment account.
Confirmation of Payee was built to tackle the increasing numbers of APP Fraud and in the landscape of UK banking, the spectre of APP fraud looms large. In 2022, over £1.2 billion was stolen by fraudsters through authorised and unauthorised fraud, equivalent to more than £2,300 every minute. This statistic emphasises the urgent need for robust security measures like CoP. While over £1.2 billion was stolen through fraud in 2022, there was an eight per cent reduction compared to 2021 which highlights the positive outcomes obtained from the implementation of Confirmation of Payee. The number of fraud cases across the UK also decreased by four per cent to nearly three million cases during the same period; latest statistics from UK Finance.
In essence, Confirmation of Payee plays a pivotal role in digital banking, guaranteeing the flawless execution of banking transactions. It stands as a guardian against fraud and misallocation, demonstrating the commitment of financial institutions to safeguard their clients’ assets. The next time you engage in a banking transaction, remember the invaluable role of CoP in ensuring the security of your financial interests.
For more details, you can visit https://technoxander.com.
Madhya Pradesh, the "Heart of India," boasts a rich tapestry of culture and heritage, from ancient dynasties to modern developments. Explore its land records, historical landmarks, and vibrant traditions. From agricultural expanses to urban growth, Madhya Pradesh offers a unique blend of the ancient and modern.
Monthly Market Risk Update: June 2024 [SlideShare]Commonwealth
Markets rallied in May, with all three major U.S. equity indices up for the month, said Sam Millette, director of fixed income, in his latest Market Risk Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
2. The classic investor cycle
MAXIMUM
RISK This is the best
thing I have ever
What a good done !!
choice I made !!
FUND INFLOWS
This is a really Euphoria
good investment Don’t worry the market
is consolidating
Doubt
Look at last years
good return
THINGS
Excitement Anxiety
Temporary setback
I am a long term
CAN’T
investor
Denial Maybe I panicked!
Revival
GET I ever
Why did
Fear
buy this ? Optimistic
BETTER
Optimistic MAXIMUM
I really got bad Depression Doubt
advice
REWARD
Was it right to
Panic sell ??
I will not do this
Market Cycle THINGS CAN’T again !!
Capitulate
Despondent
Desperate
I must get out.
GET WORSE
Cash is King FUND OUTFLOWS
3. Navigating choppy waters:
The economic cycle
PEAK SLOWDOWN BOTTOM RECOVERY
MAXIMUM
RISK
Good news Start of Inflation Inflation
Strong down turn moderating falling
growth Inflation Interest rates Interest
Inflation low rising at peak rates down
Interest rates Interest Economy in Growth
low rates rising trouble inproving
Things can’t Things can’t
Get any Get any
better worse
MAXIMUM
REWARD
4. And
This all looks very good –
until you live each day in a
down market
Equity does increase
Over time but
with
VOLATILITY
Average return of ±12%
4
7. What is diversification and how does
it work?
Diversification is simply put:
• DO NOT put all your eggs in one basket
• DO NOT buy all “The Same Theme” shares
• TRY and offset some risks
• RISK DIVERSIFICATION is the only FREE LUNCH
in investments
8. Example 1
Bidvest and Anglo American
Both gave you the same
return over 14 years
Bidvest
Anglo American
But look at the volatility !!
11. Now construct a portfolio
50% Anglo and 50% Bidvest
Anglo was 40 and Bidvest was 28 – so in
a 50/50 portfolio – you would expect the
new number to be (40+28)/2 = 34
12. And look at the risk now
This is the number to look at
This is the free lunch
DIVERSIFICATION
Anglo was 40 and Bidvest was 28 – so in a 50/50 portfolio – you
would expect the new number to be (40+28)/2 = 34
BUT YOU GET 27
15. And the risk profile for Standard Bank
This is the number to look at
16. Now construct a portfolio
50% Standard Bank and 50% Harmony
Harmony was 69 and Standard was 26 – so in a 50/50 portfolio
– you would expect the new number to be (69+26)/2 = 47
Harmony was 69 and Standard was 26
You get almost three times as many sleepless nights investing in
Harmony as investing in Standard bank
17. And this is the answer for Harmony and
Standard Bank
This is the number to look at
Harmony was 69 and Standard was 26 – so in a 50/50
portfolio – you would expect the new number to be
(69+26)/2 = 47
BUT YOU GET 44
This is the free lunch
DIVERSIFICATION
19. Rationale
“…the art of successful portfolio management is not only to be able to
identify opportunities, but also to balance them against the risks
that they create in the context of the overall portfolio.”
Robert Litterman, Goldman Sachs
Bottom-up & Portfolio
Top-Down views Construction
20. Rationale
Balances risk and return
• Risk allocated according to opportunity + conviction
• Most people don’t do this…
Minimise risk
Allocate risk efficiently
23. Challenge in composing a portfolio
For a good orchestral performance you require:
• Clarity:
· Emphasise the melody
· Allow for interpretation / expression
• Balance:
· Can’t have some instruments drowning out others
24. What makes a good portfolio?
Clarity
• Expressing investment view
· Top Down + Bottom Up – Ideas and themes
· Shares you like and shares you don’t like
• Note: View = Highest expected return
Balance
• Dividing risk appropriately between opportunities
• Making use of diversification
• Ensuring exposure to the main market drivers
Why is this important for investors?
25. Portfolio construction aims
Clarity
• Expressing investment view
Repeatability
Skill versus Luck
Balance
• Dividing risk appropriately between opportunities
• Making use of diversification
• Ensuring exposure to the main market drivers
Stability
Better risk-adjusted returns : Fewer negative surprises
26. Summary
“You cannot manage outcomes, you can only manage risks.”
Peter Bernstein
Portfolio Construction
• Clarifies view of where to take risk (opportunity + conviction)
Repeatability
• Balances risk and return in the portfolio
Stability
• Enhances the investment process
Better decision-making
“To do good work, one must first have good tools.”
Chinese Proverb
28. Equity investment philosophy
Concept of normalised value
Shares trading above fair value will
drift to the bottom
Irrational Exuberance
Intrinsic Value High PE's in relation to past PE's
Only good news
Growth in trend earnings High earnings base in
a fundamental underpin relation to trend earnings
over time
Share Price
Momentum
Investing
SELL
Margin of
Safety
LEVEL
BUY
Irrational Pessimism
Low PE's in relation to past PE's
Only bad news
Low earnings base in relation to trend earnings
TIME
Shares trading below fair
value will drift to the top
29. Three Pillars of Conviction
Stock selection
Value / Cheapness
• Analysis & Evaluation
Quality / Risk Considerations
• Look and Listen
View / Theme Consistency
• Set your views
All 3 are required to identify “Leaders” & “Laggards”
30. Pillar 1
Value
Fundamental valuation of companies - normalised,
through-the-cycle considerations
Rank companies based on these normalised valuations
Discuss different scenarios, both value implications and
probability of them playing out
The cheaper the stock, the higher the value conviction
31. Pillar 2
Quality / risk factors
Rate all stocks based on quantitative / qualitative risk
criteria
• Balance sheet strength (cash & debt)
• Quality of management
• Barriers to entry, strength of competition
• Life cycle phase of the industry / company
• Threat of government regulation, interference
• Litigation risk
• Resource availability, buyer strength
• etc
32. Pillar 2
Quality / risk factors
Quality Ranking
extremely high quality /
5 extremely low risk
above average quality / low Include stocks that
4 risk
score average or
average quality / moderate above-average on the
3 risk quality / risk scoring
below average quality /
system
2 above average risk
very low quality / very high
1 risk
35. Pillar 3
View / theme
Identify phase of the investment cycle
• Growth, output gap, inflation, interest rate cycle
• Identify best/worst themes/styles/sectors/stocks for the phase
Bottom-up and top-down themes / views
• Jointly identify stocks best / worst placed for each view
View conviction
• Determine our level of conviction for each view / theme
36. Pillar 3
View / theme
View / themes
Growth bottomed, but still no inflation threat,
rates to stay low – early cyclical (e.g. FSR, NED)
Balance sheet repair to suppress consumer
spending - rates will fall further – bonds, property Include stocks that
stand to benefit from
Industrialisation of BRICS, resource supply
constraints tobias bulk resource prices higher –
the views / themes
favor low-cost suppliers (e.g. BIL, ARI) that are identified
Private sector de-leveraging lead to large
government stimulus → infrastr. spending –
Construction to benefit (e.g. MUR, GRF, AEG)
Government policy to become more populist and
labour friendly, more intervention and higher
taxes are possible – lower market rating?
37. Themes affecting SA equity shares over
the near term …
Conviction
Theme / View Stocks impacted by view
level
Rate cycle and consumer Prospects of lower rates remain but High WHL, TRU, FOS, IPL, BAW,
spending consumer de-leveraging may keep BVT, SHP, MSM, JDG, LEW,
spending muted SHF, SBK, FSR, NED, ASA
China and Global EM Growth in EM from urbanisation and High BHP, AGL, KIO, EXX, ARI
urbanisation and rebalancing of EM domestic SAB, BTI, SBK, CFR
industrialisation economies leading to greater domestic SOL, AMS, IMP, NHM
demand and wealth ACL, EHS, AEG
Corporate re-investment in Manufacturing led businesses benefit Medium SBK, FSR, NED, ASA
domestic economy from re-stocking cycle and cash rich Manuf.: AEG, AFE, AFX, IPL,
SA corporates begin re-investing for BAW, SHF
growth
Growth from Sub-Sahara Strong growth out of West Africa High MTN, BAW, SHP, GRF, AEG,
Africa resource exposed countries, FDI led MUR {SBK, FSR}
growth to drive domestic economies
Europe at risk Fiscal retrenchment and austerity High BVT, SHF, IPL, BAW, OML
measures to temper economic
recovery
38. Themes affecting SA equity shares over
the near term (2)…
Conviction
Theme / View Stocks impacted by view
level
Healthcare development Investment in HIV ARV’s by Medium NTC, MDC, LHC, APN, AIP,
government, and improvement of CLS,
public sector healthcare delivery.
Regulation of drugs and private … AEG, MUR, GRF, WBO
hospital price lists.
Easing of fears of a total Stability in global financial systems Medium ANG, GFI , HAR
collapse in the global returns as fiscal austerity measures
financial system result in a gradual improvement in
western country fiscal positions
Domestic equity markets … Equity exposure in life companies to Medium LBH, OML, SLM
drive improved returns and growth in
EV’s.
Domestic fixed investment Underinvestment over the last 2 Low AEG, MUR, GRF, WBO, PPC
decades to result in further social
infrastructure investment in the long
term, govt. execution could mean the
next 2 years are weak