Early in April I sat down and selected the 10 shares on the JSE main board that were trading at the highest discount to their Net Asset Value. In simple terms, I selected shares that were washed down the toilet by me, you and all the other people in the world!
Now you must understand, this required very little intellect. All you have to do is open the list of companies trading on the JSE, go to the column that says NAV, go to the column that says Current price and choose 10 with the biggest difference.
The only spice you have to add is ensuring that the companies are reputable. This is the list I chose:
- Grindrod
- Investec
- Metropolitan
- Old Mutual
- Pallinghurst
- Peregrine
- PSG
- Reinet
- Remgro
- Stefanutti
And the result is.......19.5% capital return if I sell them today and that is not all!!! They will pay me an annual tax free dividend of 5.325%.
Now if that doesn't get you excited, compare it to a 1.875% taxable return cash would have given you over the same period.
Why do I tell you this? Because it was so damn nice to be able to play the lotto with such good odds!
Moving On...
What now? Well...the odds are slightly less favourable but let's consider the following:
- Shares on the JSE are still trading 29% below their highs in 2008.
- The US shares are way behind in the recovery.
- Interest rates have come down 4.5%.
- World sentiment and company earnings are stabilizing overseas.
These bullets all point toward more growth in share prices from current levels.
But consider the following: A number of companies in South Africa will report very weak earnings during 2009 which will turn sentiment negative every time the press reports it. This will create volatile markets.
Conclusion:
If you still have money to invest for 5 years +, buy the SATRIX RAFI share and forget about it for now, and even better, if you haven't got any international exposure, NOW is a good time to get the exposure with the Rand trading at R8/1$. Buy an international Unit trust like Allan Gray Orbis International Equity Fund of Funds or Sim Global Best Ideas Fund.
Quote From Warren Buffett:
'the argument is made that there are just too many question marks about the near term future; wouldn't it be better to wait until things clear up a bit and maintain cash reserves until current uncertainties are resolved?
Before reaching for that crutch, face up to two very unpleasant facts: the future is never clear and you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values".
Warren Buffet, Forbes interview, 6 August 1979
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