nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Ideas from Buffett and a cynical Hattingh

5 Comments

Charles Hattingh documents his experiences of creating personal wealth in South Africa. His short article explores equities, properties and collective investment schemes – very appropriate given the topics we’ve just covered.

The doctor prescribes a pinch of salt, but there are some good lessons amongst the cynicism.

Charles Hattingh – Investing.doc

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5 thoughts on “Ideas from Buffett and a cynical Hattingh

  1. Interesting read!! I’m still in two minds on what to take from the property lesson though, if Charles bought his flat cash, the higher return missed on shares makes sense, however if he had to get a bond (like I did) there are some advantages to gearing not accessible when opting for shares (as opposed to property).
    I.e. I doubt Investec would have lent me the same amount of money to put on the stock market as they did to buy a house. (Haven’t done the calculation of investing in shares at the rate of paying a bond, will be interesting to see the effect of this.)

    • Yeah it’s not too clear. The average return on the index over the time period was 14%. If he borrowed all the money at say 8%, then he would be netting only 6%. His R90000 invested would only grow to R650000 at 6% and not the R7.5 million.

      Added to why you need to take the article with a pinch of salt, is that he assumes his return in the market would be as good as the index and he ignores trading costs. ETFs that track indices are a recent development. He would have to have chosen a portfolio of shares himself.

  2. Very interesting!
    However, I get the feeling there’s a bit of a hindsight bias here.
    It’s easy to quote the shares that spike after he sold low, but there’s no way he could have known at the point of selling just how much the shares will spike. He can now attribute losing out to his impatience, but would that really mean that in future impatience will be distinguishable from investment decisions that seem best at the time?

    Also, any ideas as to how he estimates the opportunity loss? It seems a bit arbitrary, or am I missing something?

    • I haven’t checked his maths, but is seems like he takes the potential money he would have made on the option he didn’t take (sometimes not specified what that is, but I am assuming index) and compares it to the net position he is in now (but again, unclear if he assumes he did something else with the money – if you bought a share in 2005 and sold in 2009, are you comparing the proceeds to what you would have had if you had kept the share until now? What did you do with the cash in 2009?)

      However crude his methods, the question is, are his points valid?
      1. Do it yourself – DISAGREE unless you really know what you are doing
      2. JSE listed shares will always trump residential property – I think that this is probably true in the long run, but can be very different in the shorter runs
      3. Creating a store of wealth is a top priority so allocate time to it – disagree – there are other priorities (live a little!) and your time might not be the best thing you can use to maximise your portfolio – are you an expert?
      4. Keep emotion out of the decision making process – yes
      5. Execute your strategy with discipline – definitely
      6. Do not invest because of tax savings: take them into account in the decision making process – very good point and people don’t do it
      7. Good companies bounce back – have patience – agree but caution – what is a good company?
      8. Pay the damn tax – well, yes. 🙂

      • As Izak has said, there is lots of hindsight bias being thrown around. It’s so tempting to say what you would have done, assuming perfect foresight of the markets.

        I agree with your comments. I think that it’s not easy to just do it yourself – but I do think you need to be smart about who you are asking to manage your investments, what are they doing with your money and what they are charging. In his case, with his portfolio managers churning his portfolio, he would have been better off if he had done it himself.

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