Wishnia's Word

July 2013

So here we go, halfway through the year with some stormy weather and some stormy market conditions. But just as we know that summer will come, so will markets improve. I thought that a brief explanation of some terminology that is often used might be useful.

Stellenbosch University Graduation Ceremony 2012

Bonds

This is an interest-bearing debt instrument, traditionally issued by governments as part of their budget funding sources, and now also issued by local authorities (municipalities), parastatals (Eskom) and companies. Bonds issued by the central government are often called "gilts". Bond issuers pay interest (called the "coupon") to the bondholder every 6 months. The price/value of a bond has an inverse relationship to the prevailing interest rate, so if the interest rate goes up, the value goes down, and vice versa. Bonds/gilts generally have a lower risk than shares because the holder of a gilt has the security of knowing that the gilt will be repaid in full by the government or semi-government authorities at a specific time in the future. An investment in this type of asset should be viewed with a 3 to 6 year horizon.

Collective Investments

Are investments in which investors' funds are pooled and managed by professional managers. Investing in shares in the long term has traditionally yielded unrivalled returns (even more than property and other asset classes), offering investors the opportunity to build real wealth.

Dividends

When you buy equities offered by a company, you are effectively buying a portion of the company. Dividends are an investor's share of a company's profits, paid to him or her as a part-owner of the company.

Earnings per share

This is a measure of how much money the company has available for distribution to shareholders. A company's earning per share is a good indication of its profitability and is generally considered to be the most important variable in determining a company's share price.

Investing in General

Question: With regards to timing would you think that it is more important when you go into an investment, or when you come out of the investment?

Answer: Timing the market is often pure luck, therefore being invested and not lying in cash for the long term is more important. Therefore when you actually decide to mature your investment is usually more important. Fear or greed will just lead to poor decision-making whereas time in the market with investments in good companies and fund managers (and passive investment strategies, like Evolve) will lead to good returns and satisfied investors in the long run.

Achieving financial freedom is possible - it just requires a bit of determination, focus and a little commitment.

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