Market commentator, stockbroker and MD of SG Securities David Shapiro spoke to us about art and Arsenal, among other things
Katy Chance
How would you describe your management style? Relaxed and laid back. I think one has to lead from the front, particularly in broking. You have to be fully aware of the markets and industry in which you deal. In local markets I see several trends: a reduction of brokerage rates, a reduction in the number of brokers, and the placing of more importance on execution and liquidity rather than analysis. Research is itself becoming a commodity people can do their own analysis on the Internet, listen to Moneyweb’s Classic Business, listen to Alan Greenspan they don’t have to rely on an interpretation anymore. Brokers’ days are numbered like so many middlemen.
What irritates you most in business?
Lack of corporate governance. Company professionals do not respect the power of information. When transacting deals they’re far too lax and insider trading is rife in this country. Also the conduct of some professionals is very poor which only comes to light a couple of years down the line. This just undermines market confidence.
Most embarrassing moment in business?
Picture it: the Johannesburg Stock Exchange 30 years ago. We used to communicate via ladies in the telex room. They’d pick up a mike and shout orders through. As a clerk, I had to transmit the order to the dealer who on this occasion was my father. I had an order to buy 10?000 Lorraine (gold mine shares). I somehow added on an extra zero and my dad had to buy 100?000. Now I was brought up in a household where I never heard a bad word out of my father’s mouth, ever. When I told him what I’d done, in front of the entire stock exchange, everyone on the floor and all the dealers, he called me every name that started with an F and then a C and then another F. I was humiliated about the error but the biggest shock was hearing those words from my father’s mouth. After that I repeated the order back to the telex ladies every time, like a short-order cook at McDonald’s.
What do you do to forget about work?
I run nearly 100km a week. I played soccer in my youth and am still a big fan of Arsenal FC. I’m also a caricaturist, drawing in ink. I do private commissions now but have drawn for Cosmopolitan, Playboy and Financial Mail. I started at varsity; when I was bored in lectures I used to draw my friends.
What is your favourite piece of classical music?
That Nessum Dorma song … because they sang it at the World Cup.
Do you think the South African economy/business is on the right track?
No, quite frankly. I believe you give people at the top incentives and let them pass it down, not from the bottom up. The latter satisfies conscience but it’s essentially charity not good business practice. We’re not a cottage industry. In Asia where a family sits mending shoes which they pass on to factories, maybe it would work. It sounds harsh but we just have to adopt more capitalistic principles. Affirmative action, in my opinion, will not work. We simply cannot put gender and colour above skills. If I have a business I don’t care what colour people are, I will train them to do the job properly. That’s a pragmatic approach, not a racist one. When Thabo Mbeki says people are welcome to leave he’s cutting off his nose to spite his face. This country just won’t survive with that attitude.
This government is definitely better than the last but let’s face it, the apartheid government shouldn’t be anyone’s benchmark. We need to aim far higher. And we have scoreboards that show whether this government is getting it right or not: the rand and the stock market. Their poor performance exposes the government’s poor performance.
@Internet fund manager says keep long term in mind
Belinda Anderson
Iain Anderson, who heads up Sage’s Internet fund, says investors who have lost lots of money to technology investments in the recent past should remember to keep the long term in mind.
Anderson is loathe to try and predict when the carnage in the information technology markets will end, particularly considering that bad news just keeps on coming out of the United States and Europe.
“I think it’s very difficult to call the bottom until you start seeing a turnaround in either the economy or in the visibility of the earnings going forward, and I certainly don’t see any of that right now,” says Anderson.
Although the two cannot be compared on a like-for-like basis, the fall in the US technology market is only slightly greater than that of the local market in the past year. The technology-heavy Nasdaq Composite index in the US is down around 60% between now and a year ago, while the Johannesburg Stock Exchange’s information technology index is off around 56%.
Meanwhile recent research by Merrill Lynch in the US shows that spending on Internet ventures is slowing down rapidly, but it has not yet reached the “pre-bubble” phase before the sector had been overcapitalised. Since the start of 1997 about $190-billion has been spent on Internet equity in the US. Merrill Lynch believes that most consumer-related Internet companies are near to the end of the shake-out phase, a period in the investment lifecycle when “prices get so high or opportunity so low that the return on investment falls below that required to offset the risk”.
The next phase, it believes, will be a harvest, when the few companies that have survived gradually manage to increase their market share and subsequent return, helped along by the fact that there are fewer competitors.
And there are also some positive signs in South Africa. Although the local market is much smaller than the US, Anderson sees some opportunities coming through. “Advertisers in South Africa certainly seem to be embracing the Internet a little bit more than they used to, which is against the trend I think we are seeing internationally,” he says.
Anderson says technology should still be an important part of people’s portfolios and now might be the time to start nibbling. Depending on the risk profile of the investor, he says 5% might be a good portion to have invested in Internet-related companies. “The units certainly are a lot cheaper now than they were six months ago. I guess I would just caution investors to try and keep that long term in mind. I know it’s difficult when you lose money, but I think you do need to be patient. Cash is certainly earning you a lot of money at the moment, relative to the market. So I would be cautious as to when you put it in, but I wouldn’t ignore it.” he says.
@Nibble at stocks to profit when bears’ grip relaxes
Alec Hogg
boardroom talk
It must have been someone considering the long-term performance of stock markets who first referred to it as being darkest before the dawn. Markets have an amazing way of rebounding at the time when the outlook appears most bleak. On the Johannesburg Stock Exchange, the mood is pretty dark right now.
South African shares are in a bear market. Good news is ignored as an aberration as it seems as though analysts regard it as their duty to scour official announcements for anything which may be interpreted as bad news and then use this ammunition to justify driving the share price lower still.
When this phase will end is uncertain. South African bear markets typically last anywhere between 18 months and two years.
But this time around determining precisely when the bear market began has been confused by buoyancy in the share prices of giant resources companies Anglo American, De Beers, Billiton and Anglo Platinum which between them account for a quarter of the total value of all Johannesburg Stock Exchange-listed shares.
A better idea of the general mood of the market is perhaps reflected in the stock exchange financial and industrial index which, as its name implies, specifically excludes resources stocks.
One can argue that on this front there has already been 15 months of Chinese drip torture. After peaking in mid-January last year the financial and industrial index headed south in an almost straight line, dropping nearly 30%.
This slide would suggest that with the exception of resources shares (which have themselves started to toe down lately) the Johannesburg Stock Exchange has actually been in a bear hug for well over a year. The way it has happened has taken a serious toll on investor confidence.
In terms of sheer value destruction, the 50% plunge between April and September 1998 was worse. But those who held on to their shares after that crash had the satisfaction of seeing prices rise steadily during the next 16 months, by the end of which the financial and industrial index had recouped all its losses.
Psychologically that short, sharp drop followed by an extended upswing is far easier to handle than the seemingly endless reverse of more recent times.
In previous cycles, by this time investment professionals would have started rebuilding their holdings of industrial and financial shares in anticipation of the rebound which history suggests cannot be far off. But for apparently good reason they’re keeping their hands in their pockets.
Portfolio managers are now doing much buying of local shares because of concerns about further reverses in United States stock markets. As the American exchanges account for over half of the value of all the world’s listed shares (South Africa is under 1%) whatever happens in those arenas reverberates globally. And American markets are also very definitely in a bear trend.
Although the 30-stock Dow Jones industrial average is more widely quoted, a better barometer of the American stock market is the S&P 500 Index which weighs and tracks the share prices of the US’s 500 largest corporations. This index has been in steep decline since September, giving up 26% in the last six months.
The decline during the final three months of last year took the S&P 500 into negative territory (down 9%) for 2000 as a whole, its first calendar year drop in 10 years. So far this year the index is off a further 12,5% so there’s a good chance of the S&P 500 experiencing consecutive losing years for the first time in almost three decades. The last time it had a double drop was when it lost 14,8% and 26,5% in 1973 and 1974 respectively, during the global oil price crisis.
The good news is that the S&P had one of its top five years of the century immediately after the double reverse, surging 37% in 1975, following up with another 24% jump the following year. Indeed, in the years following the five other times since 1965 that the S&P Index has fallen, twice it rebounded by more than 30% and in another year rose 21%.
All of which tells us American shares are certain to begin rebounding strongly at some point during the next six to 18 months. And considering local stocks are already considerably under-valued by comparison, the Johannesburg Stock Exchange has the potential to catapult once the US investor psyche swings from negative to even neutral.
That doesn’t mean local share prices cannot fall further still from their current levels. But nibbling at the great value now available should be handsomely rewarded in the years ahead.