In the final showdown in the movie Cold Mountain, Jude Law's adversary states that he has youthful confidence on his side as he waits for the right moment to pull out his hidden gun. In another film, Fried Green Tomatoes, Kathy Bates's character boasts that while she may be old, she has insurance, after ramming her station wagon into the car of an arrogant young woman who stole her parking space. Later in this column, I will take a brief look at the advantages that an investor may derive from his or her circumstances.
In the first Scripline column I wrote about a year ago, I highlighted the virtues of patience. I mentioned that when your investment in a particular share appears to be going nowhere slowly, you should focus on what the company is doing rather than the movements in the share price. The example I used in that column was Firstrand - a share that produced rather dull performances in the preceding years, only to finally move up 50 percent over the past 12 months, giving a five-year investor a respectable return of 18 percent a year in capital alone.
Investors in Firstrand had to be patient for a few years, and were rewarded with handsome returns.
Patience is not so much an advantage as a necessity for all investors.
If you invested in Clientele Life, at times you may have felt that you needed the patience of Job, because the share price was quite listless for a few years after it listed in 1997. But the reward, even during those "lean" times, was an average annual dividend growth of 50 percent, with exceptional dividend growth (over 100 percent in 2004, for example) over the past few years, in particular. And if you stayed invested for the past five years, you also got an average annual growth of 20 percent in the share price.
Clientele reported its earnings last week. The company's annual profit climbed 36 percent on rising policy sales. Clientele's embedded value (which includes the current value of the premium flows it expects in the future because of insurance business it has already written) continues to show impressive growth.
Clientele Life, which has the Hollard Group (owning 84.4 percent of its stock) as a major shareholder, has been building up its market share in the under-served but growing lower- to middle-income markets, operating in a space where there is a great demand for appropriate life insurance and savings products.
This is a small life assurance company that is fairly easy to understand. It has been quietly getting on with its business and paying handsome dividends. For years, however, investors felt as if the share price was going nowhere, trading mostly between R12 and R15 for five years after a brief post-listing surge. That was, until January last year.
Since January 2004, Clientele's share price has increased by over 160 percent, from R14 to R40. Due to the low tradability of the share (most of the shares are held by its parent company), this is another example where smaller investors really had the edge over the large fund managers, who were prevented from building up a meaningful stake for their clients. After this stellar performance, the share is still trading on a dividend yield of six percent, having just declared a dividend of R2.50 a share.
During the past week, an acquaintance shared with me his teenagers' desire to put their savings into the equity market, after figuring out that if they kept their savings in a bank, it would take them a few years before they made a meagre R800 from their R6 000. The teenagers exhibit keenness and youth; time is on their side, even if perfect timing isn't, given the extent to which the market has moved.
I also spoke to a woman in her late sixties who has R1 million in a cash investment. She has been watching the stock market climb higher and higher as interest rates fall. She was wondering whether she should invest in shares at this stage, because she could have made much higher returns if she had done so earlier. But she is very worried that she will lose money if she invests now.
I was struck by the contrast. The young investors have time on their side, but they do not have much capital.
The woman with R1 million, on the other hand, has some capital, and a few good tax breaks, on her side. Although interest rates are low, she can raise her after-tax return by utilising the tax-free portion of the interest she earns, as well as a higher primary rebate for taxpayers over 65. Then there is the option of putting a smaller portion of her money into high-yielding but probably higher-risk shares or unit trusts.
Of course, both the teenagers and the woman in her sixties will have to be patient if their investment strategies are to succeed.
When it comes to investing, the younger you start, the better. But that is in an ideal world - let's face it, when you are 25 it is a lot more fun to buy a depreciating asset, such as a foreign car, than shares!
If you didn't start early, you need to play to the strengths of your current situation. Look at the aspects you can take advantage of in order to make your portfolio work harder, be it your youth, your tax status, your future earning power, the financial base you've managed to build up, or the fact that you are a small investor, accountable only to yourself and your family. And don't let your actions be determined by what you missed out on.