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RE·CM is a licensed Financial Services Provider, FSP number 18834
RE·CM is a licensed Financial Services Provider, FSP number 18834
February 2013
Exploding myths in property & investing
RE·CM is a licensed Financial Services Provider, FSP number 18834
Agenda
1. Exploding Myths in Property – John Rainier
2. Exploding Myths in Investing – Linda Eedes
3. Q & A session
1
RE·CM is a licensed Financial Services Provider, FSP number 18834
RE·CM is a licensed Financial Services Provider, FSP number 18834
John Rainier FOLLOW US ON TWITTER
@RECM_Online
RE·CM is a licensed Financial Services Provider, FSP number 18834
Discussion points
Yields Relative to Long Bonds Current price Current values and implied earnings growth Exploding some other myths Value in some offshore markets
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RE·CM is a licensed Financial Services Provider, FSP number 18834
Long bonds minus property yields
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RE·CM is a licensed Financial Services Provider, FSP number 18834
Current values
SAPY Price premium to NAV – +30% Long Bonds more expensive than ever before in period and
relative yields moving up SAPY DY – 6,0% ALSI EY – 6,6% Implies, everything else being equal, SAPY grows earnings into
perpetuity (at 0,6% pa) faster than the ALSI (Note the implied growth differential has become less extreme over the past 6 months)
Source I-Net Bridge and RE:CM Analyst 5
RE·CM is a licensed Financial Services Provider, FSP number 18834
Historically Listed Property (PUT) has grown earnings at 6%pa (-4%pa real or 60% of inflation)
Over same period ALSI has grown earnings at 14,5% pa (+4,5pa real)
So ALSI has grown earnings at 8,5% pa faster than listed property
How realistic then is the current pricing model?
6
But…
RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
Conclusion
On historical basis listed property should be priced at a discount to the EY of ALSI, not premium
SA Listed property is very expensive Probably only underpinned by “chase for yield” but cannot be
sustainable
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RE·CM is a licensed Financial Services Provider, FSP number 18834
Exploding some other myths
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RE·CM is a licensed Financial Services Provider, FSP number 18834
Property distributions only go up
10
RE·CM is a licensed Financial Services Provider, FSP number 18834
The price only goes up
11 Source: I-Net Bridge
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RE·CM is a licensed Financial Services Provider, FSP number 18834
Pocket of value offshore
We don’t hate property, just overvalued property We value property just as we value all investments Bottom up approach
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
IGD Portfolio
Italy 51 Investments in 11 regions
19 shopping malls and retail park 19 hypermarkets and supermarkets 1 city centre 4 plots of land for development 1 property held for trading 7 other
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RE·CM is a licensed Financial Services Provider, FSP number 18834
IGD Portfolio continued
Romanian 13 medium sized cities
15 Shopping Centres 1 office building
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RE·CM is a licensed Financial Services Provider, FSP number 18834
RE·CM is a licensed Financial Services Provider, FSP number 18834
Linda Eedes FOLLOW US ON TWITTER
@RECM_Online
RE·CM is a licensed Financial Services Provider, FSP number 18834
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Myth 1: The Great Wall of China is the only man-made structure visible from space.
RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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Not visible.
RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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Myth 2: Cracking your knuckles gives you arthritis
RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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Yes.
RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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No.
RE·CM is a licensed Financial Services Provider, FSP number 18834
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Myth 3: People only use 10% of their brain
RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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RE·CM is a licensed Financial Services Provider, FSP number 18834
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100%
IMP
OR
TAN
T
RE·CM is a licensed Financial Services Provider, FSP number 18834
45
RE·CM is a licensed Financial Services Provider, FSP number 18834
Myth: forecasting is essential as a starting point
Source: Inet
Forecast Interest
Rates
Forecast Economic Growth
Forecast Sectors that will do well
Forecast Earnings for
Stocks in Sector
46
RE·CM is a licensed Financial Services Provider, FSP number 18834
The professionals can’t forecast for toffee
Source: Federal Reserve Bank of Philadelphia 47
RE·CM is a licensed Financial Services Provider, FSP number 18834
Myth: good GDP growth = good equity returns
Source: Dimson, Marsh, Staunton ,Credit Suisse 48
RE·CM is a licensed Financial Services Provider, FSP number 18834
15
20
25
30
35
40
45CARREFOUR (U$)
CARREFOUR (U$)
Myth: poor economic prospects = poor investment
Source: Datastream, Time Magazine
Up 70% since then!
49
RE·CM is a licensed Financial Services Provider, FSP number 18834
Myth: near-term uncertainty = bad outcomes
Source: The Economist 50
RE·CM is a licensed Financial Services Provider, FSP number 18834
12
14
16
18
20
22
24
26
28
30
COCA-COLA HLC (U$)
COCA-COLA HLC (U$)
Coca-Cola Hellenic
Source: Datastream
+46% over past year
51
RE·CM is a licensed Financial Services Provider, FSP number 18834
2
3
4
5
6
7
8
9
10 HELLENIC EXCHANGES (U$)
HELLENIC EXCHANGES (U$)
Hellenic Exchanges
Source: Datastream
+72% over past year
52
RE·CM is a licensed Financial Services Provider, FSP number 18834
Myth: This time it’s different
53 53
RE·CM is a licensed Financial Services Provider, FSP number 18834
Long-term corporate profits are actually very stable
Source: GMO, Standard & Poor’s, Federal Reserver 54
RE·CM is a licensed Financial Services Provider, FSP number 18834
0
10
20
30
40
50
60
70
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
MICROSOFT (U$)
MICROSOFT (U$)
Myth: good companies are always good investments
Source: Datastream 55
-63%
RE·CM is a licensed Financial Services Provider, FSP number 18834
Myth: Good stories make good investments
56
“10 Stocks to Last the Decade, A Buy-and-Forget Portfolio” Fortune Magazine August 2000
1. Nokia
2. Nortel Networks 3. Enron 4. Oracle 5. Broadcom
6. Viacom 7. Univision 8. Charles Schwab 9. Morgan Stanley 10. Genentech
Average Return from August 2000 to November 2011 = -55%!
56
RE·CM is a licensed Financial Services Provider, FSP number 18834
Source: Time Magazine Archives
The next big story….
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RE·CM is a licensed Financial Services Provider, FSP number 18834
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
2 Year Returns Before Hiring 2 Year Returns After HiringFired Hired
Source: Amit Goyal and Sunil Wahal, “The Selection and Termination of Investment Management Firms by Plan Sponsors,” Journal of Finance 63
Myth: Performance is a good tool for selecting skill
58
Ann
ual R
etur
n %
RE·CM is a licensed Financial Services Provider, FSP number 18834
Source: Mauboussin, Morningstar Inc. – data through 12/31/2006
Myth: more activity = better results
0
2
4
6
8
10
12
3 Year Return 5 Year Return 10 Year Return 15 Year Return
Portfolio Turnover vs Long Term Performance
Less than 20% 20-50% 50-100% More than 100%
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RE·CM is a licensed Financial Services Provider, FSP number 18834
Conclusions
Macro-economic forecasts are interesting but irrelevant Focus on the price you pay, it is the only thing that counts A good story will probably lead to a bad outcome Watch out for reversion to the mean Focus more on the process than performance Invest with an appropriate time horizon Stick with those you trust
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RE·CM is a licensed Financial Services Provider, FSP number 18834
RE·CM is a licensed Financial Services Provider, FSP number 18834
Thank You FOLLOW US ON TWITTER
@RECM_Online
RE·CM is a licensed Financial Services Provider, FSP number 18834
Regarding Capital Management (Pty) Ltd Registration No. 2004/007733/07
(“RE·CM”)
Regarding Capital Management (“RE:CM”) is a licensed Category I and Category II Financial Services Provider in terms of section 8 of the Financial Advisory and Intermediary Services Act 37, 2002 (licence number 18834). Accordingly, RE:CM is authorised to provide advisory and/or render discretionary intermediary services. There are risks associated with investments in financial products, including market, credit & currency risks. As performance of the financial markets fluctuates and is not guaranteed, the investor may not get back the full amount invested. Past performance is not necessarily an indication of future performance. All returns are rand returns, unless otherwise stated. All performance data is calculated by RE:CM unless otherwise stated. Regarding Capital Management (Pty) Ltd P O Box 45040 Claremont, 7735 South Africa Tel: (021) 657 3440 www.recm.co.za