October Investment Update

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Investment Process

Monthly savings

% Amount = 100 – age. This goes into shares/ property funds or ETF. The rest is in risk free assets

Lets use myself as an example. Age 25. So 75% in shares/property funds or ETF. 25% in risk free assets.

You should at least be putting a good portion of your income into a risk free asset fund and a share fund monthly.

This is the foundation of all your investments. Use a debit order

Spare Cash

Any spare cash goes into risk free asset fund (earns higher interest than bank). It is also very quick to withdraw out the fund if I need to (less than one day).

I use the spare cash sitting in risk free assets to buy more of the share fund at my “low risk entry points” once or twice a year. This update aims to find any of these points.

This Update also provides a breakdown of all my strategies in real time.

Summary of this update

Low risk buying opportunities: Non existent: Not interested in investing yet.

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Big companies are outperforming the small guys. The trend is the same the world over. It also suggests that the mining component of the JSE is outperforming the rest. Probably will continue for another year or two or more. Worth considering if you buying shares.

China: the uptrend keeps ticking along. Hong Kong stock market still marching on strongly.

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Fundamentals:

These are my own opinionated outlooks.

Not much good news lined up for the world as far as I can see. Only the supposed declining inflation and oil prices. SA will start seeing inflation kick in properly in a years time or so.

Everyone is shit scared about SA’s currency weakening right now. I’ll guess and say we might see some decent currency strength in the next month or so. What really interests me now, is how much China and India are relying on the US economy to grow their own.. or rather.. are they gathering their own economic momentum. Inevitably, they will. These 2 countries have provided and will continue to deliver a massive price deflation in all goods and services in years to come and this will serve as a stimulus for further world economic growth. Commodity prices will probably rise though as a result. I’ll be looking for panic in commodities to start buying again. There has been some, but I want some more panic.

I still suspect the major bull markets are in the East, Africa and South America. I hope these markets get sold off some time in the next year or two so that I can get a second buying opportunity. Right now, I’m cautious on buying anything as all asset classes are looking a bit risky. The same goes for commodities & mining shares. I’m still very bullish on agriculture. I found some Zambian agriculture companies that I might be looking to buy into. Might even take a bet on Malawi if prices drop a little.

If someone held a gun to my head today and told me to invest in SA, I guess I would be buying some banking, retail and property shares, because they have fairly decent PE’s and Dividend Yields.. and because they have been sold off quite heavily.

US interest rates started rising this week. If they go higher (suggesting inflation concerns) I would expect the market to come down. Managed to trade this one early. A good technical risk reward opportunity with all my indicators lining up.

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Sentiment

Not enough optimistic investors around at the moment. It suggests that prices will probably rise further as investors are still pessimistic about the prospects of the stock market. This is a very good contrarian indicator. Do opposite to most investors.

This is a new one. Bottom indicator shows how many analysts are bullish on stocks. Right now that’s 78%. That’s very high. We probably getting closer to a top and then a decline.

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mmmm. US stock prices will probably have some difficulty advancing higher past this trend channel. It appears that for the short term stocks are overbought. The same probably applies for the rest of the world.

The breadth has risen a little, which is a good sign. Still looks like it is starting to peak. Prices will probably go higher though, even when breadth falls.

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Seasonality

October: historically one of the worst months for shares.. but has provided good buying opportunities, especially towards the end. It is also the end of the bearish months for shares. The seasonal low risk buying point comes towards the end of this month.

My seasonal model will only kick in a weeks time. Right now, it is still out the market and outperforming for the year. I will provide the seasonal buy signal earliest next week, latest, half way through November. I use the daily MACD indicator to get me.

Guru Watch

This is a number of guys I have been watching closely over the years and tend to be very accurate in the short and longer term. Bullish = they think prices will go up. Bearish = prices will go down, flat = prices will remain the same.

1. Tim Ord: Bullish short term, long term bearish
2. Marc Faber: Bullish short term, long term bearish
3. Sy Harding: Bearish
4. Carl Swenlin: Bullish short term, long term bearish
5. Robert Colby Bearish

My final opinion and conclusion

Low risk buying opportunities: Non existent: Not interested in investing yet.

My guess for the next month: Flat (not bullish or bearish)

Next low risk buying time guess: Maybe some time in mid/late November

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Other shares I am looking at.

I’m looking for an entry point into some gold shares for the long term. Why? If and when the US $ declines due to cutting of interest rates in US, gold price should rise. I also suspect the SA rand might see weakness in longer term. This would make gold shares at present in SA a right royal bargain. Entry point will come when rand is strong and gold is weak (i.e. rand gold price is low and gold shares are falling). Am waiting patiently for this.

Guru share selection

Using my Follow the Guru strategy, the following SA shares are potential buys.

Sanlam, Didata, Merafe, Gijima Ast, Illovo, Afgri. I own Merafe & Illovo and plan to buy more.

Still holding on to mining shares: profits here are dependent on higher commodity prices and currency weakness. That’s my bet for now and the next year or so.

Composition

Commodity and mining shares 75%

IT shares 5%

Money Market (earns about 7% interest risk free) 20%

Performance since inception in late 2003 (after transactions costs)

Total performance: 405%
JSE benchmark: 138%
Outperformance (JSE as benchmark) 267%

Trades (shorter term)

Buying: Natural Gas

Selling: US 10 year bonds

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