exploding myths in property & investing - recm...exploding myths in property & investing...

RE·CM is a licensed Financial Services Provider, FSP number 18834


February 2013

Exploding myths in property & investing


Agenda

1. Exploding Myths in Property – John Rainier

2. Exploding Myths in Investing – Linda Eedes

3. Q & A session

1



John Rainier FOLLOW US ON TWITTER

@RECM_Online


Discussion points

Yields Relative to Long Bonds Current price Current values and implied earnings growth Exploding some other myths Value in some offshore markets

3


Long bonds minus property yields

4


Current values

SAPY Price premium to NAV – +30% Long Bonds more expensive than ever before in period and

relative yields moving up SAPY DY – 6,0% ALSI EY – 6,6% Implies, everything else being equal, SAPY grows earnings into

perpetuity (at 0,6% pa) faster than the ALSI (Note the implied growth differential has become less extreme over the past 6 months)

Source I-Net Bridge and RE:CM Analyst 5


Historically Listed Property (PUT) has grown earnings at 6%pa (-4%pa real or 60% of inflation)

Over same period ALSI has grown earnings at 14,5% pa (+4,5pa real)

So ALSI has grown earnings at 8,5% pa faster than listed property

How realistic then is the current pricing model?

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But…


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Conclusion

On historical basis listed property should be priced at a discount to the EY of ALSI, not premium

SA Listed property is very expensive Probably only underpinned by “chase for yield” but cannot be

sustainable

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Exploding some other myths

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Property distributions only go up

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The price only goes up

11 Source: I-Net Bridge

11


Pocket of value offshore

We don’t hate property, just overvalued property We value property just as we value all investments Bottom up approach

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13


IGD Portfolio

Italy 51 Investments in 11 regions

19 shopping malls and retail park 19 hypermarkets and supermarkets 1 city centre 4 plots of land for development 1 property held for trading 7 other

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IGD Portfolio continued

Romanian 13 medium sized cities

15 Shopping Centres 1 office building

15



Linda Eedes FOLLOW US ON TWITTER

@RECM_Online


17

Myth 1: The Great Wall of China is the only man-made structure visible from space.


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19


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Not visible.


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Myth 2: Cracking your knuckles gives you arthritis


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Yes.


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36

No.


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Myth 3: People only use 10% of their brain


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42


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100%

IMP

OR

TAN

T


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Myth: forecasting is essential as a starting point

Source: Inet

Forecast Interest

Rates

Forecast Economic Growth

Forecast Sectors that will do well

Forecast Earnings for

Stocks in Sector

46


The professionals can’t forecast for toffee

Source: Federal Reserve Bank of Philadelphia 47


Myth: good GDP growth = good equity returns

Source: Dimson, Marsh, Staunton ,Credit Suisse 48


15

20

25

30

35

40

45CARREFOUR (U$)

CARREFOUR (U$)

Myth: poor economic prospects = poor investment

Source: Datastream, Time Magazine

Up 70% since then!

49


Myth: near-term uncertainty = bad outcomes

Source: The Economist 50


12

14

16

18

20

22

24

26

28

30

COCA-COLA HLC (U$)

COCA-COLA HLC (U$)

Coca-Cola Hellenic

Source: Datastream

+46% over past year

51


2

3

4

5

6

7

8

9

10 HELLENIC EXCHANGES (U$)

HELLENIC EXCHANGES (U$)

Hellenic Exchanges

Source: Datastream

+72% over past year

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Myth: This time it’s different

53 53


Long-term corporate profits are actually very stable

Source: GMO, Standard & Poor’s, Federal Reserver 54


0

10

20

30

40

50

60

70

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

MICROSOFT (U$)

MICROSOFT (U$)

Myth: good companies are always good investments

Source: Datastream 55

-63%


Myth: Good stories make good investments

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“10 Stocks to Last the Decade, A Buy-and-Forget Portfolio” Fortune Magazine August 2000

1. Nokia

2. Nortel Networks 3. Enron 4. Oracle 5. Broadcom

6. Viacom 7. Univision 8. Charles Schwab 9. Morgan Stanley 10. Genentech

Average Return from August 2000 to November 2011 = -55%!

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Source: Time Magazine Archives

The next big story….

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-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2 Year Returns Before Hiring 2 Year Returns After HiringFired Hired

Source: Amit Goyal and Sunil Wahal, “The Selection and Termination of Investment Management Firms by Plan Sponsors,” Journal of Finance 63

Myth: Performance is a good tool for selecting skill

58

Ann

ual R

etur

n %


Source: Mauboussin, Morningstar Inc. – data through 12/31/2006

Myth: more activity = better results

0

2

4

6

8

10

12

3 Year Return 5 Year Return 10 Year Return 15 Year Return

Portfolio Turnover vs Long Term Performance

Less than 20% 20-50% 50-100% More than 100%

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Conclusions

Macro-economic forecasts are interesting but irrelevant Focus on the price you pay, it is the only thing that counts A good story will probably lead to a bad outcome Watch out for reversion to the mean Focus more on the process than performance Invest with an appropriate time horizon Stick with those you trust

60



Thank You FOLLOW US ON TWITTER

@RECM_Online


Regarding Capital Management (Pty) Ltd Registration No. 2004/007733/07

(“RE·CM”)

Regarding Capital Management (“RE:CM”) is a licensed Category I and Category II Financial Services Provider in terms of section 8 of the Financial Advisory and Intermediary Services Act 37, 2002 (licence number 18834). Accordingly, RE:CM is authorised to provide advisory and/or render discretionary intermediary services. There are risks associated with investments in financial products, including market, credit & currency risks. As performance of the financial markets fluctuates and is not guaranteed, the investor may not get back the full amount invested. Past performance is not necessarily an indication of future performance. All returns are rand returns, unless otherwise stated. All performance data is calculated by RE:CM unless otherwise stated. Regarding Capital Management (Pty) Ltd P O Box 45040 Claremont, 7735 South Africa Tel: (021) 657 3440 www.recm.co.za

exploding myths in property & investing - recm...exploding myths in property & investing...

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