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Franschhoek Tatler
Don’t let student debt dictate your future
Global Investment Angle Dawid Botha
We all have feet of clay
The world of investments and stock markets are volatile. It is partly a function of the electronic world and social media’s incredible growth, where information spreads rapidly, and means that prices may be irrational in the short term. The MSCI World Index dropped by 8.5% in the third quarter of 2015 and recovered by 7.9% in October. There are a couple of important lessons that can be learnt from this period. Successful long term investors usually act rationally given the available information, although emotion may sometimes even get the best of successful investors. Such rational behaviour or process, does not necessarily need to originate from a PhD thesis, but must be repeatable, consistently applied and preferably be proven historically. Irrationality is exhibited in bubbles, whether it is from a fundamental value or price-momentum point of view. Price-momentum bubbles can be described as periods where asset prices are inflated by emotion and the positive snowball effect. Bubble shares are especially found in the pharmaceutical and social media sectors in the USA. Shares like Facebook, Twitter and LinkedIn are in bubbles from a fundamental point of view, trading at values that are not sustainable. These shares’ prices may still increase further, but it is based on hope and expectations that probably in time will fail, with many tears to follow. One of the recent victims, where the bubble burst emphatically, is Valeant Pharmaceuticals. Valeant is a Canadian company with an American listing. The price dropped from $260 in July 2015 to $95 at the start of December. At $260 and a price-to earnings-ratio of 110, the share was in a bubble with gains of 75% per year for the prior three years. One of the world’s iconic hedge fund managers, Bill
Let the Lawyer Handle It Graeme Falck
Living wills: what are they and do you need one? “No one can confidently say that he will still be living tomorrow” (Euripides) We will all die. We have limited control over what will eventually kill us and when, but there is something that we can do now, whilst we are still physically and mentally capable of doing so, to express our wishes as to how we die. Specifically, we can give instructions now as to what medical treatment we want to be given at the end. For many people a nightmare scenario is to be kept artificially alive, quite possibly in pain and distress, long after your medical condition becomes hopeless and long after you have lost the ability to express your wishes for yourself. If you are one of those people, consider executing a Living Will - but do it now, while you still can. What is a “Living Will”? A Living Will is your personal “advance health care directive”, executed by you before you lose the ability to do so, in which you tell doctors, hospitals and your loved ones what end-of-life medical treatment you do and do not consent to. For many people it will be an expression of your wish to be allowed to die naturally, with the support of only such medical measures as will relieve your distress and pain without pointlessly prolonging your life. It will speak for you when – and only when – you are no longer capable of doing so yourself.
January 2016
Ackman, announced in March 2015 that his company, with $15 billion in assets under management, invested 5.7% of its funds’ assets in Valeant Pharmaceuticals. Ackman’s company, Pershing Square, manages one of the world’s leading hedge funds, which returned 692% from 2004 to the end of 2014, compared to the American S&P 500’s return of 132% over the same period. His company therefore exceeded themselves for 10 years, but paid the price in 2015 for disobeying important investment principles and investing in bubbles. Keep in mind that Bill Ackman is a successful investment manager and personally has a net worth of $2.6 billion. In my opinion, investors in unit trusts and other investment products are often under the impression that investments in a fund are ‘safer’ than a direct share portfolio for various reasons, of which many are psychological. One of the reasons is the belief that committees with big names don’t make ‘big mistakes’. Although I only have space for one case study, the example above illustrates that funds are not always safer. Unit trusts and institutional fund managers are not always rational, but their mistakes are not always as clearly displayed per line item on a personal investment statement where each shares’ details are provided. Poor investments can disappear in the fund’s overall performance because it is not one of the big investments. A personal investment portfolio allows the client to look the responsible investment manager – not a committee in a glass room – in the eye. In a personal share portfolio, investors can see all the investments, with all the implications.
It will be easier for your family and doctor to make the necessary decisions on your behalf if you have previously run through with them any “What if …..?” scenarios that particularly concern you (or them), and if your wishes in each such scenario are clearly expressed and understood. Most importantly, make sure that everyone knows exactly where your Living Will is – they may need to find it in a hurry. You also need a “Last Will and Testament” Note that a Living Will isn’t a “will” in the normal sense of a “Last Will and Testament” regulating the distribution of assets to your heirs after you die. You certainly do need to execute such a will right now if you don’t already have one, but a “Living Will” is a very different thing. You need both. Is a Living Will valid? This isn’t the same as euthanasia or “assisted suicide”, which remain unlawful in South Africa, as well as running afoul of many people’s moral/ cultural/religious objections. But whereas euthanasia and assisted suicide involve an active intervention to terminate life, a typical Living Will merely expresses your wish that nature be allowed to take its course when the time comes. Although the enforceability of your Living Will cannot be guaranteed (the legal principles involved are yet to be tested in our courts), at the very least it should make it easier for your loved ones (and the medical professionals charged with caring for you at the end) to take hard decisions if and when they need to be taken.
(This article first appeared in LawDotNews and is reproduced with permission from the copyright holder DotNews and from Falck Attorneys.) Your boutique firm for all commercial and personal legal services
The student protests of 2015 have focused South Africa’s attention on the huge cost of tertiary education – and the impact that cost can have on the financial future of students themselves, as well as their parents and others who pitch in to help them pay for their education, or to pay back their student loans. “We obviously want the students of today to become the homebuyers of tomorrow,” says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator, “but the truth is that in SA, as in many other countries, many graduates are facing years of debt repayment before they can even consider buying a home. It is one of the main reasons that the average age of first-time homebuyers all over the world has risen from the mid-20s a decade ago to the mid-30s now. “Indeed, a very large percentage of young adults are now not even renting accommodation after graduating but continuing to live with their parents or other family while they tackle their student debt, and that is not only reducing the demand for new apartments and starter-homes, but also limiting the ability of their parents to give effect to their own plans for retirement, which once again has a negative effect on the residential property market.” Current estimates from the Department of Higher Education, he says, are that student debt to the universities is at least R5bn – “and on top of that there must be millions of rands more owed to the banks in the form of student loans, so this is not a small problem, and it needs to be addressed soon if we want the next generation to be able to become homeowners, to start new businesses and to better the lives of their families. “And one way to do this, we believe, would be to ensure that students and their parents are better informed about the implications of borrowing money to finance their studies, about the commitments they are making to repay those loans – and about any alternative study options that are open to them.”
Rademeyer says it does not appear as if totally free tertiary education will be introduced in the near future, and that since so many South Africans are firmly committed to the idea that education is the best investment they can make in their future, or that of their children, student loans are probably going to remain part of SA’s financial landscape. “Traditionally, SA banks and other lenders have looked pretty favourably on student loan applications, and the availability of such loans has proved invaluable to parents, students and the economy as a whole. "But it is vital that the borrowers fully understand the need to service these loans correctly and on time, and to assess whether they can realistically afford the repayments – or expect to afford them once they graduate. “If they cannot, they may have to consider other ways of obtaining more qualifications, such as working and studying part-time or online, or perhaps initially taking only specific short-courses to enhance their employment potential, rather than a full-time degree over three or four years. “This may seem like a long way around to a better career, but it really is preferable to leaving university with huge debt or a bad credit record that will undoubtedly hurt your prospects for years to come – or inflicting similar long-term financial damage on your parents or other family members who were only trying to help you.”
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