Investment bargains do exist

Wheelchair users – in particular those who have suffered a spinal cord injury – often have little disposable income. However, investing is not out of the question.

The expenses associated with SCIs can make it difficult to invest. Consider the cost of replacing or repairing a wheelchair, which isn’t fully covered by medical aid allowances; incontinence products, which aren’t always covered by medical aid either; and caregiver salaries of up to R10 000 a month.

When travelling, you might to pay for the flights and accommodation of your caregiver too. A caregiver can also impact on household spending if they live on the premises. However, according to David Case, chartered accountant and director at Magwitch Securities, there are investment opportunities for people who are on a tight budget.

“The past year was one of the most difficult for investors. A staggering 95 percent of asset classes lost money when measured against the dollar. Even if you were investing money in South Africa, you lost,” he explains.

“The poor returns led to a large flow of funds out of investments as South Africans exited the markets, moving the proceeds into banking products. The problem, of course, is that selling in a panic is rarely a smart move.”

Consider the old saying “buy low and sell high”, Case advises. If you sell after the market drop, you are doing the opposite. However, we are often governed by our emotions. That’s why, before considering investing money, you need to understand that calculated decision-making is required, rather than the emotional kind.

“We act in a certain manner in most aspects of our lives, but not when it comes to our investments,” Case explains. “Humans love a bargain. The popularity of Black Friday is evidence of this. Online retailers advertise discounted prices in order to get consumers to make a purchase. Black Friday is so successful that retailers’ websites often can’t cope with the traffic. Buyers wake up early in the morning hoping to take advantage of a discount as soon as the day begins.

“A correction in the stock market should be viewed in the same way. Share prices of listed companies are driven by investor sentiment – when sentiment is positive, shares tend to be overvalued, and when the sentiment is negative, the shares often trade at a discount. What you end up paying for a share is often not reflective of the fair value of that share.

“Negative sentiment creates the discount to fair value and this creates a fantastic buying opportunity. If a kettle is discounted by 30 percent people will be eager to buy it. Why not have the same attitude to investments? If a company’s share price is discounted you should be eager to buy more. Stock market corrections actually create opportunity for investors.

“The investment world generally listens to Warren Buffett, the chairman of Berkshire Hathaway, who is commonly referred to as The Oracle of Omaha (as a result of his incredible investment track record and where he comes from).”

Case references a 1997 letter by Buffett to his shareholders that included valuable investment advice. The excerpt reads:

A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef?

These questions, of course, answer themselves. For the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong.

Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise, and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense.

Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

Based in Bedfordview, Johannesburg, Magwitch Securities is an independent financial services provider. Visit www.magwitch.co.za or phone 011 453 3048 for more information on investment opportunities.

Leave a Reply

Your email address will not be published. Required fields are marked *