Investing in listed companies is a great way to learn about investment risk. It teaches us that sometimes the market isn’t rewarding at all and that individual shares can do better or worse than the average. We also accept that bad market periods are generally followed by periods of growth. We develop respect for the fact that no company operates in a vacuum. The economy is a complex system that can impact the performance of individual companies in surprising ways. We learn all of this while also thinking about the companies or products we invest in. We have to keep it in mind, because we are stock market participants from the moment we buy a single share.
When it comes to unlisted investments, the risks change. The biggest risk is not being able to find a buyer for the investment. In addition to providing a secondary market to buy and sell shares, the stock exchange requires a degree of due diligence from companies, adding a further layer of security. While unlisted companies can be good investments, it can be hard to keep track of the market in which they operate, to be sure that they comply with the law and to get truthful information at regular intervals.
The case of the Highveld Syndication Scheme that Liezl invested in is a great example of the types of risks we take in an unlisted environment. While the company initially operated legitimately and offered great returns, a management change resulted in great losses for investors. Was there any way for an individual to predict this change? Unlikely.
In this episode we discuss some options when you’ve made a bad investment. We talk about some of the risks of unlisted investments and how to know when to get out.
Read more about the Highveld Syndication Scheme here.
I invested in the Highveld Syndication Scheme (HS22) when I was still young and dumb.
We opted for a settlement arrangement a couple of years back to get at least 55% of our initial capital back over a 3-year period. That did not materialise.
In the beginning of March we received a letter offering us APF (Accelerated Property Fund) shares to the value of 25% of our initial capital amount as a final settlement by Nic Georgiou.
The catch (of course there is one) is the shares are offered at NAV price (R7.50) and not market value which is around R3.40. The highest ever price recorded in 2016 was just under R7.00
A second catch is the CEO of APF being Michael Georgiou.
I also believe the share price will even drop further once these shares are allocated and everyone hits the sell button on day 1.
One tiny silver lining is the anticipated opening of the Fourways Mall this year which forms part of the property portfolio.
I’m thinking of just taking the settlement, get it over with and play a bit of monopoly?
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Win of the week: Jonathan
Thank you for such an incredible podcast. I feel on top of my financial life, and it is truly because of the idea of “don’t get financial advice, get financial education”. I’m happy to say that your podcast has been the cornerstone of my financial education and continues to reinforce the principles that I need to focus on.
This question is something I’ve wanted to ask you for a long time. You always say we don’t talk about Japan, and it truly is the single area which I feel you and Simon fail your listeners in. One of the most important financial principles is to confront the truth and then deal with it. Basically, I think you owe it to your listeners to TALK ABOUT JAPAN.
This video sent by Dhiraj explains a bit of the economics of Japan.
We bought a townhouse and were lucky enough to afford to keep it when we bought a house when we had our kids.
While it has appreciated 40% in value in the six years we’ve owned it, beating SA equity markets over the time, it’s been pretty flat the last two years.
I am wondering whether we should sell it, settle the bond (we don’t pay any tax on net rental income yet), and invest the R1m or so we’ll have left after fees into low-cost ETFs.
The property is located in a great suburb, but it’s only 1km from our current house, so I worry about concentration risk.
The net yield after all costs is also not great at around 6% based on current market value (9% on original purchase price), but what’s nagging me is that at some point the property market must bottom out and Newlands would be one of the first areas to start growing well above inflation again.
I’ve had a Momentum RA policy since 2002. The fees are 2%. The penalties on a R160,000 policy are R30,000 if I want to move to another provider. Do I move this fund or just stick it out because of the high penalty? My thinking is I will make that loss back and some more if I can move this fund to a better growth product and less fees?
I’ve had a Discovery RA for the last 10 years. It has only brought me growth of 1.89% pa and the fees are in the range of 2.5% – 3%. I am expecting a fee payback in April which will at least boost it a little, but the returns will still be shocking. On top of this I have 2 other preservation funds with Discovery that have done around 6.5% pa respectively over the last 10 years. What shocked me even more is that 60% of my combined Discovery portfolio is in cash. I haven’t found out the penalty cost of moving the RA as yet but definitely need to move them and especially into a more Equity driven fund.
Is it possible to combine the two RAs into one fund?
Is it possible to move different preservation funds into one and is it wise to that?
Are there rigorous studies (literature) available that address your premise that advisors add approximately zero value. I’m asking because it seems logical to me that your conclusion rests on that premise being true.
My concern is that if there were say, a number of comprehensive global studies that arrived at the opposite conclusion, would that not have a significant impact on the financial advice that you deliver on your platform? Are there global studies that examine the question, do advisors add so called alpha — put simply, would an average individual working alongside a professional competent advisor, outperform that same individual, operating on their own in a parallel universe.
If it were true that the net effect (after fees) of working with an advisor were positive, the compounding arguments you make in your podcasts would work in precisely the opposite direction.
We mention the SPIVA reports, the Morningstar research, as well as the Berkshire Hathaway newsletter: Berkshire Hathaway letter on fees
Theo doesn’t agree that a home is just a lifestyle asset.
When staying in a paid up home you are not paying rent, so your paid up property is saving you the equivalent rental. It is indeed an asset, although you are not earning a yield you are saving opportunity cost of paying rent. The rent also increases every year which makes the benefit of owning your own asset even more beneficial.
Heading into 2019 I’ve set serious objectives around how manage my money, which has been a lovely journey so far. I’ve become the biggest cheapskate, focusing all my efforts on saving as much as possible.
My next step is building a long-term investment strategy, I’ve received pricing from my advisor. I am beginning to question every piece of his advice due to the insurance matter. He is suggesting I invest in Allan Gray Balanced fund and Coronation Balanced Fund. Last year he recommended Allan Gray and the Investec opportunity fund.
I have looked at each fund in detail and the confusing element is 1) fees and structure. For someone who is new to the game it definitely is overwhelming. 2) Most of these fund invest in the same companies?
I’d also like to invest in ETF funds but I see there a plenty options to choose from.
Would it make sense to duplicate the same investment strategy for both of us in a TFSA? In other words, purchase the same ETFs for both of us.
The Fat Wallet Show is a no-nonsense personal finance and investment podcast hosted by Kristia van Heerden and Simon Brown. Every week we answer questions by a growing audience of finance enthusiasts. Submit your pressing money and investment questions to email@example.com.
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