Yesterday (Happy International Women's Day!) I was fortunate to visit Dodge & Cox in San Francisco, US. Kevin Johnson, an experienced portfolio manager at Dodge & Cox, was kind in spending over an hour with me, for me to understand more about the firm, its operations and investment outlook. Dodge & Cox is situated in the Financial District of San Francisco, occupying 4 floors in this very impressive skyscraper on 555 California Street. After the guest registration process at the lobby, I was told to take a lift to the 40th floor. When the elevator door opened, I walked onto think carpet, with the gold plated Dodge & Cox signage in front of me. I knew I was at the right place. The office has stunning views of the San Francisco Bay area. The tall building in the second picture is Transamerica Pyramid, 260m high. Kevin Johnson came and welcomed me, took me to the boardroom with stunning views of San Francisco. I decided to sit with my back facing the view/window, so I could better focus on my discussions with Kevin. Kevin Johnson is well versed in the investment markets, with 28 years of experience at the firm. I gave him a background of what Daberistic does, our wealth management services to our clients, and how Dodge & Cox funds fit into our solutions to our clients. Kevin then gave me a presentation booklet on Dodge & Cox UCITS. I am not familiar with the term UCITS, so afterwards I googled it. UCITS stands for “Undertakings for Collective Investment in Transferable Securities". In essence mutual funds, or unit trusts as known in South Africa. Dodge & Cox was founded in 1930 in San Francisco. It prides itself in having a stable and well-qualified team of investment professionals, most of whom have spent their entire careers at Dodge & Cox. Ownership of Dodge & Cox is limited to active employees of the firm. Currently there are 75 shareholders and 271 total employees. It is a mature fund management business. Kevin emphasised the point that Dodge & Cox is independent, no absentee ownership, no parent company to report to, so not forced to do anything. This is a great contrast to Merrill Lynch, which is owned by Bank of America. Dodge & Cox is solely in the business of investing clients' assets. Apart from the San Francisco office, it only has one small client service office in London. So all its staff are based in the single office in San Francisco. It offers a focused range of strategies (I tend to like fund managers with a small, focused range): US equities Non-US equities Global equities: combination of the above two US Fixed Income Global Fixed Income US Balanced (combining equities and fixed income) Active vs Passive This debate continues to rage on. Kevin and Dodge & Cox are undoubtedly in the Active Managers camp. His comments? Active managers have been overly criticised for high fees, the focus on (comparing to) average active managers return is a mistake. Dodge & Cox wrote an article on the characteristics of good active managers. These include: 1. Low turnover 2. Experienced 3. High active share. Passive is really a Momentum strategy, buying more on the way up. He used the dotcom bubble as an example: in 1998 the tech sector accounted for 45% of S&P, and index trackers would continue buying more of tech companies as their weightings in the index rose. Only to see the dotcom bubble burst until 2002. What is important is to focus on performance after fees, he comments. I 100% agree with this point. Dodge & Cox is a value-driven fund manager. Value as a style has fallen out of favour with investors over last few years, as the bull market continues to rise. Dodge & Cox continues to stick to what it has done over last 88 years, without wavering. Value Defined It is always good to get under the skin of a manger to understand better what they mean. Kevin defines the firm's Value Investing as "what you thing it's going to be worth in the future. It can be strictly metric based, such as PE ratio. It can also be valuation relative. You would want to avoid something with very high premium built in the price, as it may not be sustainable." So Dodge & Cox sees value in a slightly different way to Warren Buffet. It uses four investment hypotheses: Above Average Growth, Compounders, Cyclical or Asset Play, Deep Value or Turnaround. Warren Buffett's style is probably more the first two hypotheses. Risk Management Over the years I have learnt to appreciate that the best fund managers are also the best risk managers. Dodge & Cox has a systematic way of analysing risks, under the six headings of Operational, Macroeconomic, Commodity, Financial, Technological and Political/Legal Risks. These are used to assess what will cause the future outcomes to disappoint. Investment process Dodge & Cox has a tried and test investment process, run by a very experienced team. I posted some very specific questions to Kevin, his comments are as follows: Schroders as a value manager We as a manager do not worry about what other fund managers do. My impression is they have an excellent reputation, has value orientation. It may have lots of funds. On the question of the use of the word Recovery in Schroders global Recovery Fund: "There can be an element of marketing. This might define value in a more narrow way." Coca-Cola "it is a good business, not a lot of growth, highly priced. We don't own any Coca-Cola stock. Maybe when its PE is 13 it becomes interesting to us." Amazon "A remarkable company, high valuation makes no sense to us. However what it does influences our thinking on other retailers. Retailers like Sears and JC Penny have been in decline for years. Macy's also struggling, not to the same extent. Walmart and Target have done better in response to the changing business environment, the online/offline mix strategy is a good one." Its AWS (Amazon Web Services) also influences our thinking on other tech companies like Microsoft." "of the FANGs, we only own Google" Dell Dell just came out with its update, showing 9% turnover growth and doubling operational losses, so I posted to Kevin. "Dell went largely private, had a series of corporate actions over last 2 1/2 years. Laptops have low margin, the profitable part is server/other services." Portfolio diversification As a wealth manager I am very sceptical of funds with 20% weighting in one stock (Naspers), as I question their risk management and diversification. "We do not have more than 5% of portfolio in one holding. In our Global Stock Fund, we probably will not exceed 3%." Its original (US) Stock Fund has an enviable track record of annualised 9.55% return over 20 years, outperforming S&P500. Over 10 years a respectable 7.71% after fees. The Global Stock Fund, which South African investors can access via Glacier Global Stock Feeder Fund, has done annualised 13.26% in USD over last 5 years. The time was just too short, if there is an opportunity I would come back again. At the end of the meeting I asked Kevin to take a photo together. He agreed as a gentleman.
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![]() You may have heard of a return on an investment, but have you heard of an investment measure called the internal rate of return (IRR)? The return on investment (ROI) – sometimes called the rate of return (ROR) – is the percentage by which an investment has increased or decreased over a certain period. By contrast, the IRR measures the actual return on an investor’s money in a portfolio. The IRR calculation takes into account all fees, the investment term, and additional investments and withdrawals, and calculates the growth of the investment in a meaningful way. This enables investors to determine whether their portfolio is on track to achieve the return they need to maintain their standard of living. The IRR calculation shows a portfolio’s return on an annualised (per year) basis. If, for example, you had R100 on January 1 and R110 on December 31, and you made no deposits or withdrawals between those two dates, your IRR would be 10% for the period. If, however, you made monthly deposits of R1 (or R12 in total) and your portfolio was worth R110 on December 31, you would have a negative IRR of –1.9%. After investing a total of R112, you would have less money (R110) than you invested. If, on the other hand, you withdrew R1 every month and you had R110 at the end of the year, your IRR would be 23.2%. Your cash flow during the year would have been R12, and you would have ended the year with an additional R10 in the investment. The IRR calculation is also referred to as the money-weighted return calculation. This is different from a traditional time-weighted return where we exclude any client-generated cash flow in and out of the portfolio and look only at the initial value (R100) and the final value (R110) and get a return of 10%, which ignores how much money had been added or withdrawn over the period. Although these are very simple examples, they illustrate the importance of knowing a portfolio’s IRR. In reality, additional variables, such as fees, are taken into account, thereby providing a more realistic picture of your return. Knowing your portfolio’s IRR is important, because it enables you to monitor whether you are progressing towards achieving your financial goals. It indicates the actual return, including cash flows in and out of your portfolio, over the period. By comparing the IRR to your required rate of return – the rate that your portfolio needs to achieve in order to meet your lifestyle requirements, for example, inflation plus 2% – you will be able to assess your progress towards your goal. Interestingly, two people may be invested in the same portfolio but have a different IRR, because their deposit and withdrawal patterns are different. Let’s say, for example, that the market increases 10% over the year, but it first goes through a valley, falling 5% in the middle of the year. If Investor A added to her portfolio while the market was in the valley, whereas Investor B made a withdrawal, it means that Investor A bought at a discount, while Investor B realised a loss. In this example the portfolios’ overall performance was the same, but their individual IRRs will be different. If, during a financial planning exercise, calculations show that you need an annual return of 3% above inflation to achieve your lifestyle objectives, the calculation assumes that, as long as the money is invested in your portfolio, it is earning 3% above inflation. The IRR calculation is the most appropriate formula for checking whether you are actually earning what your financial plan says you need. To get advise on investment options with a track record of good returns, please contact Kevin or Thato, email: [email protected] tel no: (011 658-1333) Source: Business day live ![]() There are a huge variety of offshore investment opportunities that enable you to grow your wealth using a vehicle that suits your income and lifestyle. In the event of your passing, these investments are a legacy that will continue to serve your family. However, in order for you and your family to make the most of your investment, you need to make a few responsible decisions from the outset. When selecting your offshore investment, you can choose between listed or unlisted equities, fixed income, property or cash investments. It all depends on your risk appetite. For example, listed equities are always a good option because they are very liquid and priced daily, while fixed income investments include bonds issued by the government, corporates or banks as well as money market products (very short-term debt instruments). Before investing, it is therefore important to research and understand the different kinds of offshore investments and what they would mean for you. One important consideration is the tax implications of your investment. Offshore property investments, for example, may have certain tax conditions in the country you are investing in. For many investments, tax is only applied in the country in which the money and its growth resides (source based tax regime). However, it is important to understand the law of different countries to avoid being taxed twice. Tax on offshore assets becomes a critical consideration in the event of your passing, as your loved ones may wish to bring the money back into the country as part of your local estate. Remove any uncertainty on the matter by getting professional advice on your portfolio. A knowledgeable tax consultant will be able to assist you in making your offshore investment and your overall estate more tax efficient. This does not mean avoiding tax, but rather ensuring that your investments are structured in the most tax efficient way. The biggest risk to your offshore investment after your demise - is a lack of planning. Unfortunately, when it comes to estate planning, people don’t see their own mortality, which means that their affairs are often not in order or kept up to date. Millions of investments often go unclaimed because the investor has not planned for the worst-case scenario. There is no need for this to happen to you, as future-proofing your offshore investments is very simple. All you need to do is become diligent about documentation from the moment you invest offshore. Record and save every correspondence and detail about your investment in one place. Document what the investment is and provide clear contact details on who needs to be contacted in the event of your death. Many of us are not good at administration. If you know this isn’t your strong point, simplify things further by hiring someone to do it for you! Commit to the process and remember that it doesn’t have to be expensive or complicated – anybody can do it themselves under the guidance of the Master of the Supreme Court. When it comes to securing your offshore investment for the future, the best advice would be to imagine what it would be like if it were you consolidating your estate. What information would you want to be in the envelope? What processes would you wish were in place? When planned correctly, an offshore investment is a powerful vehicle to create lasting wealth, even when you pass away. With some simple planning, your loved ones will have an ongoing, sustainable legacy. Source: Personal Finance ![]() Robert Kiyosaki multimillioanire and author of "Rich Dad, poor dad" wrote this blog about The mistake millenial parents mistake regarding their children and finance. This is what he had to say; More and more there is an interesting trend: parents paying down the cost of their children’s debt. Whether it be student loans, home down payments, or living at home because of credit card debt, parents of millennials are footing the bill—or at least significantly helping pay down—for their kids’ big debt costs. On one level, I can understand this impulse. Parents naturally love their children and want to help them start life on the right foot. And the high levels of debt that most young people have, along with low salaries and poor job prospects, make it very tough for them to get ahead. But I believe that footing the bill for your kids actually hurts them more than it helps them. The pain of financial failure My first business sold nylon and Velcro surfer wallets. We worked out licensing deals with famous rock bands and put their logos on the wallets. The sold like hotcakes and the company grew very quickly. But I made a huge mistake. My attorney told me that I should patent my idea. When I heard that it would cost $10,000 to do so, I said no way. Soon another company came along and copied my idea, cutting into my market share. On top of that, I had a number of distributors who owed me money but were not paying. Soon my company was in dire straits and I decided to meet with my rich dad. What I hoped to get out of the meeting with rich dad and what I got were two very different things. My hope was that rich dad would show me a path forward to save my business—and maybe even to offer some financial support. Instead, rich dad looked over my financials, stared me in the eyes, and said, “Your company has terminal financial cancer. You have grossly mismanaged this business and it can’t be saved.” In my arrogance, I tried to convince him that he was wrong about my business, but deep down I knew he was right. Eventually I had to liquidate my business. In the process, I went $1 million in debt. The pain of this financial failure was very acute. Digging out of debt Soon after that, I met Kim. I didn’t think this beautiful woman would want to be with a guy whose business just failed and was $1 million in debt, but we fell in love and she stuck with me. Together, we worked hard to build a new business centered around financial education—at times living in our car or on friend’s couches to make ends meet. We both knew we didn’t want to simply go and get a good job. We wanted to build a company and we found our purpose in life. That clarity of vision allowed us to make the many sacrifices we needed in order to achieve our goal. Eventually, Kim and I paid of the $1 million in debt and built a successful business. Along the way we learned invaluable lessons not just about money but also about ourselves. The pain was necessary The easy path for rich dad would have been to placate me, sugar coat his assessment of my business, or even to give me a loan to see if I could turn it around. Any of those options would have done me a huge disservice. Ultimately, it was rich dad’s hard words—and the hard years that came after them—that led to my success later in life. I can confidently say that had it not been for the hard truth that rich dad gave me, I would not be where I am today. The financial pain was necessary for me, and it’s necessary for your kids. How to really help The easy way out for parents is to pay for their kids’ expenses and debt. The hard way forward is to watch them struggle financially while working with them to build their financial intelligence. Rather than foot the bill, I encourage all parents to invest in their children’s financial education. Don’t pay for the debt, but do take them to a seminar that can change their perspective on money and the world. Spend time rather than cash to go over their financial statements and coach them on how to make better financial decisions. And be there when they need a shoulder to cry on. Only by owning their own financial future will our children grow to prosper and thrive in a world where it is increasingly hard to financially survive. Where to start The good news is we have many resources to help you do this. Start with going over the new rules of money: Money is knowledge Learn how to use debt Learn how to control cash flow Prepare for bad times and you will only know good times The need for speed Learn the language of money Life is a team sport; choose your team carefully Since money is worth less and less, learn how to print your own From there, I encourage you to read and study Rich Dad Poor Dad, which has just been released in a new and updated edition, and take the time to play CASHFLOW together, which was created to put the rich dad principles into real world simulation. You can play online for free. Once these foundations of financial intelligence are in place, you can then begin advanced work with a coach, as well as attend specialized workshops and seminars. And best of all, you can formulate a plan to even invest together. Kim and I started the Rich Dad Company many years ago precisely because we want to see you and your kids enjoy the financial success that comes from the lessons handed down to us and learned along the way. Why not start today? To get get assistance for your financial planning for your whole family, please contact Kevin or Thato in our Invest Department, email invest@daberistic.com, tel (011)658-1333 Written by: Robert Kiyosaki Source: Richdad The R10.90/$1 Life Plan special offer allows clients to pay a guaranteed exchange rate of R10.90/$1 on their Dollar Life Plan for three years!
Clients can pay a guaranteed exchange rate of R10.90/$1 on their Dollar Life Plan for three years, and if the exchange rate exceeds R18/$1, a 20% discount on the exchange rate will apply. This offer ends on 31 August 2017. As part of the limited offer, clients are able to pay premiums for a new Dollar Life Plan based on a maximum exchange rate of R10.90/$1 for the first three years of their policy, as long as the R/$ exchange rate is less than R18/$1. This amounts to an exchange rate of up to 39% better than the market exchange rate. If the R/$ exchange rate is higher than or equal to R18/$1 during the first three years of their policy, Dollar Life Plan clients are still able to pay premiums based on an exchange rate that is up to 20% better than the market. If the exchange rate drops below R10.90/$, normal market rates will apply. To sign up for this awesome limited offer, please contact Kevin or Thato, email: [email protected] tel no: (011 658-1333) Illustration of the preferential exchange rate for Dollar Life Plan clients ![]() National Treasury has made some changes to its exchange control policy which will be good news to South African residents who create intellectual property (IP), and who wish to invest offshore, according to Ben Strauss of legal firm Cliffe Dekker Hofmeyr. Transfer of I "Until now, National Treasury has not been keen on allowing South African residents to 'export' IP. Some years ago, the Supreme Court of Appeal found that exchange control rules do not prohibit residents from transferring IP abroad without the approval of the SA Reserve Bank (SARB)," said Strauss. "However, National Treasury promptly amended the Exchange Control Regulations to include IP under the definition of 'capital' in an attempt to again bring IP transactions under its control." The 2017 Budget Review that National Treasury issued in February 2017 states that government proposes that companies and individuals no longer need SARB’s approval for standard intellectual property transactions. It is also proposed that the "loop structure" restriction for all intellectual property transactions be lifted, provided they are at arms-length and at a fair market price. Loop structure restrictions prohibit residents from holding any South African asset indirectly through a non-resident entity. In terms of a subsequent IP Circular by SARB, authorised dealers may now approve the outright sale, transfer and assignment of IP by South African residents to unrelated non-resident parties at an arm’s length and a fair and market related price. So, approval from SARB is no longer required. Strauss cautioned about certain aspects: - The authorised dealers must view the sale, transfer or assignment agreement; - The authorised dealers must view an auditor’s letter or IP valuation certificate confirming the basis for calculating the royalty or licence fee; - The transferors may not transfer the IP offshore and then license it back into SA; - The person transferring the IP must repatriate the funds arising from the transaction to SA within a period of 30 days from accrual; - The transaction is subject to appropriate tax treatment. "The relaxations on the transfer of IP should be welcomed. However, there is still much red tape: the transferor must obtain an auditor’s letter or IP valuation supporting the price. Obtaining such a certificate or valuation will potentially be a costly and time-consuming exercise," explained Strauss. Exchange traded funds There was also good news for South African resident investors and financial services providers in the 2017 Budget Review. Regulated local collective investment scheme management companies may now list exchange traded funds (ETFs) which relate to offshore assets on South African securities exchanges. These funds will be able to invest as much as they like offshore, subject to the restrictions on their offshore portfolio allowances. The funds will still have to obtain prior written SARB approval to list. Local individuals will be able to invest as much as they want in these funds in South Africa. The investments should not count towards their foreign capital allowances. To get recommendations on offshore investment options, please contact Kevin or Thato, email: [email protected] tel no: (011 658-1333) Source: Finance24 |
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