RYK VAN NIEKERK: Welcome to this week’s edition of the Be a Better Investor podcast. My name is Ryk van Niekerk, and in this podcast series I speak to leading investors and business leaders about investments. We also take a peek into their personal investment approaches and strategies, and try to understand how they analyse investment opportunities, what shares and assets they invest in, and whether they have more hits than misses.
LANGA MANQELE: It was when I was doing my degree in international finance, because there we covered, for example, most of the people who have done Corporate Finance 101 would know you get to be introduced to the modern portfolio theory, and all the tools of valuation that go along with that in the basics of investments. So that was my first time.
But because I was still close to the activities in the markets, the products at that time, there was a boom in CFDs [contracts for difference]. We were implementing contracts, CFDs, for the bank, and so I started to dabble in those for my personal portfolio. [With] some of the derivatives, quite simply, once you’ve understood the mechanics of them, the bank will require you to put down a margin deposit. Then the right to whether it is, let’s say, a single stock future – just stick to the basic ones – or CFDs, which CFDs are funded overnight; so there’s a bit of funding. Depending on the direction., if you buy, you are obviously hoping that the price will keep going up and that difference just keeps accumulating as as planned in your portfolio.
Those were the shares that I started off with. But I generally financed those early investments through the dividends I was getting from my shares at the bank. The reason I use ETFs is because I know that I’m limited in understanding the individual companies and their operations, and their return drivers and so on. Frankly I don’t have the time to do that. Some people probably can do that, but ETFs I find offer just broad exposure. The diversification that comes with the ETF products simplifies a lot of work for me. I think that’s one dimension that I’ll say having started internationally sort of exposed me to.
What made me switch really was the environment at the JSE. The conflict of interest governance is much stricter. If I need to buy, I need to advise my boss in advance, [show] compliance in advance, get approval. And if I need to sell, I also need to do that. So the timing just doesn’t work, whereas the compliance requirements are more lenient when you are investing in in ETFs.
Maybe not [just] because I work for an exchange, Ryk, I would say ETFs are really the great way to dip your toes – particularly ETFs on equities. They introduce you to a basket of shares. You get to understand what is under the hood. The issuers of ETFs do a really fantastic job in their minimum-disclosure documents. They’re called NMD [non-mandatory disclosure of information], where they’ll give you an investment policy summary. Generally they’ll give you the top 10 holdings in the portfolio.
The difference between the two is that there’s more liquidity in ETFs; you can buy and sell them any time while the markets are open. So price visibility is fairly high there. So I really just used free information that I could get in class or in old Financial Mail magazines. I would say that’s one way. Today the information is much more forthcoming. There are a lot of videos on YouTube. People just need to be careful, because some of them are people who are really novices and don’t know what they’re talking about.
So I’d really encourage people to just read and pick three or four, five people you would follow, who talk about these things at least on a weekly if not daily basis. LANGA MANQELE: Yes. The timing was wrong, because there were [rumours] already around at that time. But when you do that you need to have the cash just to maintain the position and keep funding it. I couldn’t by the time I got out. And then when the shares eventually imploded, that precipitated the fall. I was out of that position. So the timing for me was just bad. I couldn’t hang on a bit – and I would’ve been okay.