Category Archives: Finance

Here What the Chart Says

News hit Mondays morning that billionaire hedge fund manager John Paulson is joining the board of beleaguered biotech stock Valeant Pharmaceuticals International Inc. (VRX) . Shares are up 6% in reaction to the news today.

Paulson’s new role at Valeant comes after he became the firm’s biggest shareholder, picking up a 5.7% stake worth $255 million at current price levels.

And notably, Paulson & Co.’s big bet on Valeant follows after another well-known hedge fund billionaire, Bill Ackman, who publicly got out of Valeant earlier this year.

So, which billionaire is right?

Should you be buying Valeant with both hands right now? Or is today’s pop in shares your chance to cut and run?

To figure out the near-term for Valeant’s price trajectory, we’re turning to the charts for a technical look.

For starters, it doesn’t take an expert technical trader to figure out that Valeant’s stock has been under a lot of pricing pressure this year. Year to date, VRX has lost about 10% of its market value. Zoom out to this stock’s highs back in the fall of 2015, and that selloff ramps up to about 95%.

Along the way, Valeant has been extremely technically obedient — in other words, the bearish trends haven’t been hard to spot, and shares have reacted fairly predictably to key price levels.

But something changed back in May.

Meanwhile, Jim Cramer and the AAP team dig into energy often. Get their insights or analysis with a free trial subscription to Action Alerts Plus.

The best places to park cash

The most recent article I penned for Moneyweb was titled ‘The risk of being too cautious’ and spoke to investors holding too much cash or being spooked to cash by prevailing market conditions.

While I conveyed a view that was not supportive of excessive cash there will be investors who, for many reasons albeit right or wrong, hold a lot of cash. There are however several alternatives to cash-in-the-bank depending on your risk appetite and time horizon.

Money market

There are two money market options that come to mind; one offered through a bank and the other via a unit trust. Both options are relatively low risk but not no risk. An example of this is African Bank’s demise where some investors lost capital due to having exposure to the failed bank’s debt. Costs are typically low or non-existent but there could be transaction fees. Be mindful of investment minimums as well as tiered interest rates depending on the cash balance. Money market vehicles are typically liquid with the bank account option available immediately and the unit trust option available with a few days’ notice.

While the rate on the two options under discussion is similar, currently more than 7%, there are different risks you must familiarise yourself with such as the credit (balance sheet) risk with bank option and the credit risk (underlying issuers) in a money market unit trust. A tell-tale sign of a product taking on additional credit risk is a rate offered that is materially higher than competitors; the worse the credit risk the higher the chance of a default and thus potential capital loss. The interest earned is subject to tax and it is the after-tax rate that you need to compare when weighing up the alternatives.

A last point on money market is that certain unit trust management companies offer foreign currency money market alternatives. Historically, when converted to Rands, foreign money market has been the most volatile asset class in which to invest (think about the swings in the exchange rate over time).

Flexible income funds

There are a broad range of income-type unit trusts available, ranging from cash-plus to long term bond funds. I will focus on the multi-asset income sector which has some unit trusts worth considering for someone with a medium-term investment holding period. Multi Asset Income funds can invest in bonds, fixed deposits, money-market instruments, property shares (up to 25%), preference shares and other high-yield stocks (up to 10%). Some of the funds can also invest up to 25% of their assets offshore.

Due to the potential capital volatility of these funds they are ideal when the holding period is at least 18-24 months. From a tax perspective, most of the return is earned by way of interest type income and over time there should also be some capital gain.

One important thing to look out for in Income Funds is the duration of the fund. Simplistically, the duration represents the average maturity of the fixed income assets (bonds, NCDs, floating rate notes etc.) in the portfolio. The higher the duration the more sensitive the capital value of the instrument is to changes in interest rates. An asset with a duration of ‘five’ will move inversely by 5% to a 1% change in interest rates.

Another important risk, when looking at almost any income producing asset, is credit risk. If an issuer is seen to be risky it needs to offer its debt at a higher yield to make it attractive to the market; the higher the risk the higher the return and the higher the chance of default. At the time of writing this there are several flexible fixed income funds with yields above 8.5%. The yield is attractive but don’t forget Income Tax which will reduce the gross return. There could also be a capital loss or gain.

Listed preference shares

A preference share is a share which entitles the holder to a fixed dividend, whose payment takes priority over dividends to ordinary shareholders. The shares can be redeemable or perpetual and will typically trade at a premium or discount to its issue price throughout its life. The dividend is classically expressed as a percentage of the prime rate. Preference shares can provide a nice income/dividend stream and are usually best suited to people with high average tax rates when comparing the net after tax return to other alternatives.

Guaranteed maturity values

Some investors who have received payouts from Old Mutual’s Insured Investment Plan (“Versekerde Beleggingsplan”) or similar Flexi policies may qualify for an “ex gratia” payment where the payouts differed from the guaranteed maturity values in the original policies.

Guaranteed maturity values are not to be confused with projected maturity values, which were frequently used as marketing gimmicks in the past. In most cases projected maturity values were based on growth rates of around 12% to 15%, resulting in more than double the guaranteed maturity values, creating the expectation that final payout values would be higher than the guaranteed maturity values, subject to annual premium adjustments. The Pension Funds Adjudicator questioned the usefulness of projected values some years ago and highlighted the problems caused by not adjusting projected future fund values to the realities of a lower-inflation and lower-return environment.

A Moneyweb reader, Jan Heyneke, who invested in three of the Insured Investment Plan policies with Old Mutual during the early 1990s, recently realised that the payouts he received fell well short of the “guaranteed” maturity values.

His policy documents stipulate that if premiums increased in line with the Premium Adjuster (“Premie-Aanpasser”) annually, the guaranteed maturity values would be applicable at the maturity dates.

It also notes that the total premium would automatically be adjusted with inflation annually “as determined by Old Mutual” and that if the premium-adjustment rate on the policy matched the inflation rate, Old Mutual would determine the increases at its discretion.

In January this year, as Heyneke was about to get rid of the policy documents after the policies matured, he realised that they referred to a “guaranteed maturity value” and that the payments he received fell well short of these values. In fact, he received amounts of between 12% and 24% less than the guaranteed values respectively, totalling about R75 000.

Following several engagements with his broker and in an effort to determine why the payments differed from what was seemingly guaranteed values, Heyneke wrote to Old Mutual to get clarity.

Initial correspondence from Old Mutual included a standard document stating: “As this rate [CPI] cannot be predetermined an illustrative rate is used in the calculation of future values… to provide the client with an illustration of what the GMB [guaranteed maturity amount] would be based on this 12% assumption.”

Old Mutual seemed not to differentiate between projected values and guaranteed values, specifically where it determined the annual premium adjustments, Heyneke says.

Shortly after he presented a copy of an original policy document to the insurer his bank advised that Old Mutual had made three payments to his bank account. Closer examination revealed that the payments reflected the difference between the guaranteed maturity values and the amounts previously paid.

A letter Old Mutual sent to Heyneke explained that a “management decision” was taken to pay the difference between the guaranteed values and the amounts previously paid.

Which bodes the question: Why would a management decision be necessary to pay maturity values that were “guaranteed”?

When asked why the amounts that were originally paid to Heyneke in terms of the policies differed from the guaranteed maturity values, Carmen Williams, complaints manager at Old Mutual, said certain of its Flexi policies were designed to provide for various premium update options and for certain guaranteed maturity Values (GMVs) namely:

  • A GMV based on the initial agreed premium and assuming no premium increases; or
  • An increased GMV that was applicable if the premiums payable over the term of the policy increased annually throughout the term of the policy.

Williams says these products offered policyholders a choice between two types of premium updates – a fixed premium update rate or an inflation-related premium update with the updates linked to the applicable rate of inflation.

“For the three policies in question an inflation-related premium increase was selected (CPI). The policy contract quoted both the GMV without premium increases (GMV-Level) and the GMV with inflation-related premium increases (GMV-CPI). Both guaranteed values were based on the assumption that all premiums would be paid when due.

Money mistakes to avoid

TUMISANG NDLOVU: Tonight we get into our personal finance topic, talking about money mistakes to avoid in your 30s. CEO at CrueInvest, Craig Torr, joins us for tonight’s topic. Let’s define what money mistakes are.

CRAIG TORR: Those are your typical mistakes that you tend to make early on in life and just continue making those bad decisions and they obviously compound upon one another through a lifetime.

TUMISANG NDLOVU: What then are some of the most common money mistakes made by those in this particular age group, and I speak for myself at this tender age of 32.

CRAIG TORR: I think the one that jumps out at us is the cost of the wedding and that tends to set most married couples back quite far in their financial planning. There’s a lot of pressure obviously to live up to expectations of it being a great day and family involved and so on but one needs to be quite careful about the costs involved in putting that day together.

TUMISANG NDLOVU: The advice then there would be how do you then say no to pleasing everybody else and pleasing your own pocket to ensure that going forward you don’t actually run into a ditch where money is concerned?

CRAIG TORR: I think it’s about communication and being open and honest and having those discussions in advance and also involving the family, depending on who’s going to be paying for the wedding as well. It differs from scenario to scenario but all too often we see young couples really overdoing it on that wedding, possibly where the parents are not in a financial position to assist to the extent that they would like to. So it’s really about communication and affordability, those would be the two important issues to take into consideration.

TUMISANG NDLOVU: Still on the big expenses in terms of one’s life at this stage of 30 going upwards, things such as cars or your first property, how do you then make sure that you navigate around this and don’t make mistakes in this particular process?

CRAIG TORR: I think again the car and the property are two very different decisions, the property is very much a lifestyle decision, there’s a lot of emotion attached to it, it’s typically the home that you are going to raise kids in and so on. We’d be more comfortable to stretch the budget on that one as opposed to the cars, where those cars are depreciating assets that cost a considerable amount of money. So if we were to compromise on one we would look at advising to rather compromise on the car than on the house because failure to do so could result in you having to move more often than is necessary and that also comes with its built-in costs.

TUMISANG NDLOVU: What’s there to be said then about the small stuff, I know one of my bad habits is coffee, biltong that I don’t really need and when you calculate the cost of this at the end of each month you realise that you’ve spent quite a lot of money. Cigarettes are also an issue, it’s a lot of money if you calculate it over 12 months.

CRAIG TORR: Absolutely, I think you’ve hit the nail on the head, you do need to be cognisant of those little things like the day-to-day expenses, the cool drinks, the sandwiches that could all be reduced by planning a little better, making your own food or whatever it might be, maybe eating more healthy and so on.

Equity critical when recruiting financial execs

JESSICA HUBBARD: Today we’re chatting to Grant Robson and Richard Angus from The Finance Team. The Finance Team is a professional consultancy specialising in the provision of experienced financial executives on a part time, interim or project basis. Last year The Finance Team ran a survey entitled mind the gap, gaps in resourcing your finance department. We’re here with Grant and Richard to talk through the survey and see what we can learn from some of the key insights.

GRANT ROBSON: As you mentioned in your introduction, The Finance Team is a professional consultancy, we’re not really a recruitment company as such. We employ our own professionals who we then utilize in the market to provide an interim part-time financial executive solution. So we were very interested to go to the market and find out the elements that we believe are very important in terms of how companies go about making these selections.

There were only five basic questions, to ensure that we were on the right track in terms of our reading of what we think the market finds very important when it comes to placing top notch, experienced financial executives. So that was the rationale behind why we conducted the survey.

JESSICA HUBBARD: Where was this survey run and who were your respondents?

GRANT ROBSON: The survey was run in conjunction with Moneyweb. Moneyweb sent out a link to the survey in the Moneyweb Morning Coffee (recently rebranded as MoneywebNOW) newsletter and then we also conducted the survey at the Finance Indaba in October 2016, which I think drew about 5 000 financial professionals to the event and whoever wanted to come through and do the survey was more than welcome to come through. Readers and listeners of Moneyweb were also invited to come and complete the survey.

JESSICA HUBBARD: So let’s dive into some of the key findings that came out of it, anything particularly surprising or unexpected?

GRANT ROBSON: I think before we even go into the results it’s really important to just note that the majority of the respondents were from SME companies, so smaller companies with turnover of less than R500 million and less than 200 employees, so I think that’s a really important element. You can expect to get different results from larger companies and I think at a later stage we will do another survey targeted at those larger corporates. But for now, it’s mainly smaller companies that answered, there were different categories, which I’ll ask Richard to go through. And because it was open to a large range of individuals, we then limited the results of the survey to those who we believe are the ones who make the call in terms of who gets employed in the company. Richard, if you can just go through that quickly.

Buy the Dips Summer Stock

Put down the 10-K filings and the stock screeners. It’s time to take a break from the traditional methods of generating investment ideas. Today we’ll leverage the power of the crowd to take a look at some of the most active stocks on the market.

It’s a concept that’s known as “crowdsourcing,” and it uses the masses to identify emerging trends in the market.

Big picture, the stock market averages are correcting modestly this afternoon. The S&P 500 Index is off by 32 basis points as I write, with 350 S&P components lower now. While volatility is generally very low, there’s no shortage of large stocks that are teetering on the verge of breakout territory Tuesday. That’s particularly true in the perennially high-volume stocks we’re taking a look at today.

More importantly, those market-moving narratives are creating trading opportunities for investors who are paying attention.

Meanwhile, Jim Cramer isn’t buying Apple here, and says Facebook and Alphabet look better on a dip.

Disney’s Stock Is Toxic

The big stock market averages are hovering around their all-time highs this summer, giving investors hope that stocks will tack on more points this June.

But all isn’t what it seems right now.

Sure, the big S&P 500 Index is up 9.8% on a total returns basis this year, but a very big chunk of the individual stocks that make up that big index aren’t participating in the upside in 2017. Case in point: despite the sizable rally in the S&P so far this year, approximately one in three S&P 500 components is actually down since the start of the year.

Simply put, the key to beating the market this summer isn’t finding the very best stocks to own; instead, the key is just not owning the stocks that could drop further from here. To accomplish that, we’re turning to the charts for a technical look at three stocks that are about to trigger sell signals (and when you should actually sell them).

Just so we’re clear, the companies I’m talking about are hardly junk–many of them have very strong businesses.

But that’s frankly irrelevant to what happens to their stocks; from a technical analysis standpoint, sellers are shoving around these toxic stocks right now. For that reason, fundamental investors need to decide how long they’re willing to take the pain if they want to hold onto these firms in the weeks and months ahead. And for investors looking to buy one of these positions, it makes sense to wait for more favorable technical conditions (and a lower share price) before piling in.

Here’s a look at three big stocks that could turn “toxic” for your portfolio in the near-term.

Beat a Frothy Stock Market Is None Other Than Coca Cola

Summer is heating up, and the best way to beat the rising mercury might just be with an ice-cold Coke.

No, I’m not just talking about the temperature outside. U.S. stocks have been having a heat-wave of their own, up more than 10% on a total returns basis so far in 2017, and the big S&P 500 index is hovering right at all-time highs as I write.

What’s the best way to beat that frothy market action as investors get increasingly nervous about a possible correction this summer? It’s shares of The Coca-Cola Co. (KO) .

Jim Cramer talks about oversold retail stocks on Real Money. Get his insights or analysis with a free trial subscription to Real Money.

Coke has been a strong performer in recent months. Shares are up more than 14% on a total returns basis since bottoming back in mid-February. Simply put, this big blue-chip beverage stock is meaningfully beating the rest of the market right now — and one chart is signaling that the rally in Coke could be about to accelerate again as we head toward July.

Before we get to that, a bit of background on Coca-Cola.

Coca-Cola is the biggest beverage company on the planet, serving up more than 1.9 billion drinks per day. Coke also boasts one of the most impressive distribution infrastructures in the business, with an operational reach that spans more than 200 countries.

It’s that infrastructure that’s been driving big change in Coke recently. After consolidating its North American bottlers back in 2010, the firm is reversing course, with plans already underway to refranchise the majority of its company-owned bottling operations. While that may seem like a bizarre about-face, it actually makes considerable sense.

A Stock to Get the Dividend

Dividends are an important part of investing for long-term growth, but the mechanics of how they’re paid can be confusing for investors of any level. The one question I hear most often about dividend stocks is: When do I have to buy a stock in order to receive its dividend payout?

The answer is a bit complicated. This date is not included in the company’s announcement of a dividend, and it’s not published on the quote pages of TheStreet, Yahoo! Finance or even the expensive Bloomberg terminal on my desk.

Over a decade ago, I coined the term “must-own date.” Terms such as “record date” and “ex-date” are commonly thrown around in dividend parlance, but the must-own date provides the simple answer that most folks want: the date by which they need to buy a dividend stock.

Here’s how to determine the must-own date for any dividend so that you’ll never be confused by this important question again.

When most dividends are announced, the company generally says it is “payable to shareholders of record as of” a certain date. This is useful information, but investors often mistakenly assume that the record date is the date by which they need to purchase a stock in order to receive the dividend.

You see, stock trades actually settle three days after the fact, even if you’re a frequent trader who buys and sells the same stock several times a day. That means that you need to buy a stock three days before the record date in order to qualify for the dividend.

Further complicating matters, the ex-date falls two trading days before the date by which you need to be a shareholder of record. We’ve established that the must-own date falls three days before the record date, so simple subtraction means that you must buy a stock one day before it goes ex-dividend.

Invest Internationally From the USA

With the emergence of capitalism in China and explosive economic expansion in Latin America (to name just a few growing markets), if you only invest within the United States, you will limit your investment portfolio to only a small percentage of the global asset class of equities. However, international investing is for neither the faint of heart nor the inexperienced investor.

When it comes to global equity plays, there are several things that must be understood before making your first trade. Please note: The following is based on several years of equities work in Tokyo, Hong Kong and London, followed by ten years at Merrill Lynch managing the company’s equity swap business.


Four Things to Consider Before You Invest Internationally

1. Local knowledge matters: To best understand the culture, customs, current events, fads and politics of a nation, you need to physically be in the country. Being local will provide the ultimate environment for research and better timing for investing. 2. No two markets are alike: Different countries’ markets command different multiples, and investor demand varies. Here are some reasons for this:

  • Monetary and fiscal policy will vary from country to country.
  • Yield curves vary as well.
  • Investment activity is influenced by different groups. For example, in some countries, pension plans play a far greater role in the markets. In other countries, individual investors are a more prominent force.
  • The stage of economic growth (whether the economy is emerging, expanding, mature or contracting) affects the country’s growth and risk outlook. (See “Emerging Markets Are Not a Monolith”.)

3. Companies vary — even within the same industry: An American retailer may be quite different from, say, a Japanese retailer. If you don’t believe that, then compare the shopping experience at Macy’s ( M) with that at Mitsukoshi. 4. The impact of foreign exchange (FOREX): When you invest overseas you are investing in two assets: the underlying asset stock or bond and the country’s currency. The changing relationship between countries’ currencies will have an impact on direct investing in a foreign security. I will discuss this in greater detail a little later in this article. Other factors to consider when investing internationally include the global differences in accounting and taxes.


Three Ways to Invest Internationally

Here are three effective ways to invest internationally from within the United States.


1. Country-specific or regional funds:

Through Internet-based “long distance” research, it is far easier to gauge how the broad market will fare in (for example) South Korea or Italy than to do so for individual companies like South Korea-based Samsung or Italy-based UniCredito Italiano. Most countries have a benchmark index like the Nikkei 225 in Japan or the DAX in Germany. In addition, many international investors will use the MSCI set of international indices as guideposts for foreign invsting. Once you decide on a country or region to invest in, there are two effective ways to play country funds: exchange-traded funds (ETFs) or closed-end mutual funds. This strategy of understanding and investing in an entire country’s or region’s economy, market or foreign exchange is a less complex and less risky endeavor than taking a more precise position in an individual foreign company.