Market ramblings

I haven't blogged in a while - been sitting back watching the fun and games on the market and trying to work out where this whole thing is going.

Some very interesting things happening at the moment and volatility seems to be the story of the day.

I battle to find value in this market at the moment. I don't like what is happening in Europe and I think there will be some fall-out to come.

Having said that, the Dow below 10000 almost feels "orderly" rather than out and out panic and that's ok.

There are 3 stocks which catch my eye at the moment and investors might want to consider:

African Bank
Long been a popular choice in my portfolio. Results were not great and the market has turned a little sour on them but they have a lot of positives that could be taken out of these results. Ellerines systems are sorted, they are growing again and the demand for their kind of credit is coming back slowly. But more important than all of that is their ability to generate cash - and quickly!

I would buy it at under R30.

Buildmax
Brait reported earlier this week and they managed to keep this one out of their reporting. This coal mining contractor has been a disaster for the private equity firm falling from R1.15 to 30c and now Brait is having to underwrite a R150m.

35c, a rights issue on the cards. This is a story to watch.

Reinet
I've liked Reinet. Done bugger all except mirror British American since it was listed and its off about 15% in the month but in this market, this might not be the worst defensive play around.

Would be adding this to the portfolio at the moment.

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Another interesting thing I picked up this evening is that Zimbabwe is allowing the establishment of four new newspapers. I think this is a further sign that normality is returning to this country which will have a positive spin for many of our resource operators.

6.5% per annum?!

So I've been surfing around the financial news sites and it would appear that Old Mutual had a press conference today, because they seem to have cracked a couple of mentions

Anyway the gist of the tune being rolled out by these guys is that investors need to rein in their expectations and accept that investment returns are likely to be lower than what they've had over the last decade or so.

Numbers of between 6 and 7% have been rolled around which I'm assuming are real returns after inflation.

Let's say you're getting 3% dividend from that, that means you're not really making a helluva lot in capital gains... which I guess begs the question whether you really want to be invested in the equity market for this decade.

Anyway the thought that jumped out at me is that while there are a lot of points about being made about traditional asset classes and how they are likely to perform very little is being said about things like private equity, venture capital or even unlisted investments.

For those looking for something a bit more risque in terms of their investments and not prepared to sit back on an index tracking performance, their might be some value in looking at some of the following for their portfolios:

Brait:
JSE listed private equity play Brait has been busy in recent months and they've signed up a couple of smaller deals for their funds. While I probably wouldn't want to put money in one of their funds, I might be interested in putting some money into the holding company which targets a long-term return on equity of above 25%. Worst case you get some decent dividends if you are prepared to buy into the business through the cycle.

Reinet
The JSE listed "private equity" player is effectively a proxy for the British American Tobacco shareprice at the moment. But there is no question that they have a bit of money on the sidelines which they are looking to invest.

Paladin Capital
I've touched on Paladin in previous posts so not going to do much else to add here.

Venfin
Is now de-listed but if I remember correctly you can still buy their shares OTC. Also gives you a bit of access to high profile tech.
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Nobody can really see well into the future but I would suggest on historical evidence and data on the real economy, we're entering a period of consolidation. Those who are likely to score could be part of the "smart money" who are making investments in higher growth businesses now in the hope that they can exit them when the price is right.

Interesting punt
This is really high risk and not worth risking your mothers pension on, but those with the flair for something different should look at that rights issue out of Nigerian oil and gas firm Oando (JSE:OAO). I can understand the whole issue about doing business with Nigerians but I think they came to the JSE for the right reasons and this rights issue could free up some of the float - I reckon it could be worth a punt.

I am going to write a bit more on Oando in my next post but as I say - something different...

Investment Strategies

Was going to provide some commentary on the market action today but I see the Americans are bumping their heads on a 8000 point Dow at the moment so thought it could wait for a bit.

Instead I wanted to throw out a question to our readers around investment strategies.

Basically I have a blend of trading and investment type positions. The investment positions tend to be buy and hold type investments in blue chips and property stocks.

I have some dodgy but potentially interesting small cap positions but the idea of some of the blue chips is to diversify some risk across the portfolio and potentially develop a solid dividend pool behind the trading positions.

The trading positions I guess are self explanatory - pick the positions, if I make a profit then I'll take that off the table and tuck it into some "fire and forget" shares. My current favourites are Reinet and the Foord Compass Debentures (largely for the dividend yield from them).

The others that are always appealing are high yielding preference shares (Standard Bank, African Bank and Grindrod) - why work for the money when others are grafting for you?!

In my case - my investments tend to be a diverse pool of solid companies with long histories - yeah yeah Reinet a pretty new vehicle but long history of management.

However, another guy I know makes his trading profits and then dumps them regularly into Richemont because he likes the fundamentals and the story over the long run.

Other guys I know simply keep putting the profits back onto the table into bigger trades or alternatively going and spoiling themselves (something that might have been considered laughable last year but use-it-or-lose-it seems to be the name of the game these days.)

I guess my question to our readers is - WHAT DO YOU DO WITH THE PROFITS YOU MAKE?

Wanna know how to frustrate a trader??

Have everything line up for a perfect trade, nice weakness in the share price (if he's short) and then suddenly things change direction almost inexplicably the share reverses direction...

That would be the story of my life on Friday and sometimes I wonder whether I should just exit the trade.

Sasol fell sharply to R261 and then suddenly rebounded to R276. My guess is the weaker rand and a little bit of strength in Texas Tea on Friday got traders in late in the day...

Fortunately the Dow didn't play the game for the bulls and I wouldn't be surprised with downside on Monday. So yip I'm staying short for a while.

I'm still in the equity market and here's what I'm buying at current levels:

Reinet (REI) - Story remains convincing
Foord Compass (FCPD) - These have been a good investment and the yield remains healthy
Shoprite - Top retailing entry
Beige (BEG) - Been buying this small-cap for a while
Bioscience Brands (BIO) - Ditto
Milkworx (MKX) - Heard some chatter about this company and going to take a punt on it

For the rest I remain relatively negative on the market at the moment and still believe we could see the Dow as low as 6800...

Obama promises and Reinet moves

"President-elect Barack Obama said reviving the U.S. economy will require scaling back on his campaign promises and personal sacrifice from all Americans."

This was the intro paragraph on this article on a Bloomberg article and I think its bad news deluxe...

A lot of the initial rebound in equity markets at the start of January was based on renewed optimism in the US equity markets. Heck - the US is going to keep pissing trillions in an attempt to restart their markets.

Already we've seen markets lose their enthusiasm and if Obama is scaling back promises then we can expect quite a lot more downside.

I'm expecting that the Alsi could give up as much as 20% between now and June and as much as 30% could still get taken off the Dow and S&P.

Reinet
One interesting thing came up on Friday. Media speculation was doing the rounds that Johann Rupert through his Reinet vehicle would be buying up about US$250m of distressed assets from Lehman Brothers.

Market commentators seem to be pretty clueless about what Rupert is actually buying - in terms of what assets are in the Lehman Bros - but are pleased to see Reinet putting money to use.

The share broke R10 which I'm pretty pleased about considering I bought a few last week...