Alec Hogg
Boardroom talk
One of my favourite authors, historian Paul Johnson, summed up his best-selling History of the Modern World (1917 to 1980) with a view that during this period: “The power of the State to do evil expanded with awesome speed. Its power to do good grew slowly and ambiguously.”
For the most part that expansion of evil was achieved by dictators who convinced their supporters how different they were to other peoples. Sounds familiar in a local context, doesn’t it? It’s no easy task, though. If you think about it, no matter what their backgrounds, religions or geographical heritage, human beings have much in common.
That was brought home again over the past weekend when I spent some time with neighbours who’d asked me to try to help make sense of their financial affairs. Father, you see, had recently turned 50 the age at which something seems to trigger human beings’ compulsion to get a handle on their savings.
A long-time business acquaintance who has also just turned 50 confirms it. Although he’s in marketing, the fact that his monthly salary comes from Old Mutual has made him popular on his social circuit. He reckons it’s tough finding time for all his friends who want financial assessments before their 50th birthday cakes have turned stale.
One of my pet theories is that there’s something about turning an age that ends in an 0 which sparks off a specific requirement in human beings. Two-0 triggers the need to be treated as an adult. Three-0 leads to a reassessment of one’s career. Four-0 it’s your health. And five-0, as recent experiences reminded me, is about investments.
Which is such a pity, because by the time you turn 50 you’re playing catch-up. Investing is really a very simple business. The key principle is to understand the power of compounding returns. In other words, the longer you have money set aside, the better position your investments will be in. Money really does make money.
A hackneyed example illustrates the point. On her 20th birthday, to prove just how serious an adult she really is, Eve decides to put away R100 a month into a savings account earning a modest interest rate. Her twin brother Adam abstains because he has babes to date, beers to drink and cars to drive.
Ten years later, a settled Adam decides to begin an identical savings plan, putting away R100 a month. Eve, now married and with a baby on the way, stops contributing but leaves her nest egg to continue growing by itself. Fact: even though Adam will keep putting away R100 for the rest of his life (and Eve doesn’t add another cent), his savings account will never be worth as much as his sister’s. That’s the power of compounding returns.
Investment plans get a lot more sophisticated than savings accounts, but the principle never changes. The smartest investors are those who start young, have a consistent savings programme, and employ patience the will-be millionaire’s greatest weapon apart from compounding returns.
If you’re like my neighbours and most other members of the human race, you will have changed your investment themes more often than moving homes, which is something the average South African does seven times. Equally likely is that you’ll have switched at precisely the wrong time.
Far better to do your homework and invest steadily. Whether that’s a global technology unit trust or a property in a now unpopular area, avoid the temptation to cut and run as soon as the going gets tough. Better to back yourself, give the investment the time it needs to flourish.
Some suggestions on the share market? May I venture oil-from-coal and chemicals group Sasol; restructuring gold producer Anglogold; expanding sugar group Illovo; industrial conglomerates Bidvest and Imperial; beer producer SA Breweries; niche banker Investec; and brand-leading retailing operation Wooltru as good places to start doing your homework. And if you end up liking them as much as I do, park money that you’re prepared to be patient with. Soonest.