Issue: June/August 09


The enviable rich, bewailing the state of their share portfolios, might heed a little story related by Vanguard Mutual Fund founder John Bogle in his latest book.

He tells of best-selling American authors Kurt Vonnegut and Joseph Heller at the party of a billionaire hedge-fund manager. Vonnegut points out to Heller that their host had made more money in a single day than Heller had earned in the whole lifetime of his popular Catch-22 novel.

“Yes,” responds Heller, “but I have something he’ll never have.”“What’s that?” asks Vonnegut. “Enough,” replies Heller.

Or, as another big-time investor remarked at the trough of the share-price collapse: “I’m still better off than I could have imagined five years ago.”

Perhaps that’s the point to remember. Don’t look at what’s happened to the performance of your portfolio, or retirement fund, in isolation over the past year. Balance it over the previous few years of runaway bull markets, and be grateful.

The worst is surely over, judging by the propulsion of share markets since early March. As these markets foretell the future, boom economies will soon be with us again. So say some.

Since every person and his dog has a view, the tuppence worth from this puppy is that the equities rally could foretell boom times for inflation. In buying equities on this assumption, spare a thought for the masses without employment and the pensioners having to live off their retirement savings.

One day, you too will be amongst them.

The Public Investment Corporation is frequently lauded for its leadership as a shareholder activist. Invariably singled out for praise is that it discloses on its website how it votes at companies’ annual general meetings.

But don’t rush to its website for the latest information. Beyond the second quarter of last year, it isn’t there. To go by its website, the PIC hasn’t attended or voted by proxy at an agm since June 2008.

Then contrast it – routinely voting against directors’ control over unissued shares and little else – with comprehensive disclosures on the website of Fraters (and a paltry handful of other asset managers).

Good that they don’t follow the PIC’s lead. Better that the PIC follows them.

Also due for an update is the investor-relations homepage of Old Mutual. It kicks off with a claim about “creating value”.

It says: “By managing our capital efficiently, we deliver a return on equity and are able to pay dividends to our shareholders”.

Dividends? What dividends? The dividends paid by OMSA to OM Plc where they vapourise?

The hullabaloo about possible reintroduction of prescribed assets has gone quiet since then President Kgalema Motlanthe mooted it.

The most vigorous proponent of prescribeds is Cosatu. Now more powerful in government, perhaps it won’t be much longer before the debate about reintroduction is reintroduced. On analysis of the implications (TT March-May ’09), it would be spoton for streets to be plastered with newspaper billboards reading COSATU WANTS WORKERS TO HAVE LESS MONEY.

While experts continue to debate causes of the 2008-09 market crash, an explanation of economist J K Galbraith in The Great Crash of 1929 continues to resonate:

“The common denominator of all speculative episodes is the belief of participants that they can become rich without work.”

This is not merely a credit crunch. It’s worse, a blonde wife complains. For her, it’s a credit-card crunch.