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Most people are frightened of investing on the stock exchange. Especially if they’re nearing retirement or are retired, as people often are when they have substantial sums of money that could be invested in shares.
Despite this, shares are among the best investments available for an ordinary person. We spoke to David Shapiro, deputy chairman of Sasfin Securities and a regular market commentator, on what is required to get into the stock market and become master of one’s own fate.
A qualified chartered accountant, he started as a broker in 1972, has held several top portfolio positions, and has earned three Raging Bull awards during the past decade alone.
He believes success comes to those who are success-driven and target-orientated: “Failure comes to those who are indifferently intolerant of disappointment and allow themselves to become failure-conscious. But if you subscribe to the former, little by little the truth unfolds itself and your ideas and actions convert to financial gain.”
He provided some practical insights.
What is the biggest benefit of owning your own portfolio?
You don’t abdicate the responsibility of managing it to some other person or institution who may or may not make a good job of it. If you’re personally in control, you’re well-positioned to maximise exposure to the best opportunities available.
Is now a good time to start a new portfolio?
It’s always a good time to start a new portfolio. There will always be companies doing well because they’re well-managed, are well-resourced, and are tapped into excellent economies and sectors. As a growth investor, I find companies every day that offer enormous promise.
How do you identify them?
You’ve got to do your homework, but there is almost no limit to the extent that you can garner information and knowledge. This can range from the domestic financial press, to the likes of the Financial Times, the internet, webcomics, AGMs and personal meetings with management.
Is your firm able to advise clients?
Absolutely. We don’t consider ourselves geniuses – you just need to be smart! We do our own research and we seek out top businesses domestically and globally. These companies need to fit the criteria we consider important, such as management, sustainable earnings, strong cash flow and dominance in their market.
How important is liquidity?
It is paramount. I will never buy a company whose shares I can’t dispose of. It can become a terrible value trap. We believe that you should only buy those companies in which you can acquire as many shares as you want to and be able to sell them immediately if need be.
Does that suggest that you’re largely a large-cap investor?
Yes, especially those that are dominant. Invariably, they have proven management, good balance sheets and can overcome occasional misfortunes.
How would you spread your portfolio globally? Are you copying the MSCI World Index, for example?
We seek out only those companies that we like. We’re oblivious to geographic location.
What is your penchant for major global technology stocks?
We still like the big ones such as Facebook, Alphabet, Amazon, Apple, Microsoft, Google and Tencent despite regulatory and other challenges. True, it would’ve been hard to hold these stocks through their big ups and downs over the last 15 years. But had you bought Apple after the bust (around 2001 to 2004) and held your shares until today, you’d be sitting on a gain of over 20 000% right now. Amazon would’ve handed you gains of over 30 000%.
Any stocks, besides the above, that have major appeal?
It is probably a Dutch company called ASML, which is the world’s largest supplier of photolithography systems for the semiconductor industry. Having 23 000 employees, it operates across Europe, Asia and the US with annual revenue in the region of €10.9bn.
Thematically, what crosses your mind?
From a global perspective, my starting point would be “who has the money and where are they spending it?” I consider travel, such as aircraft manufacturers, and luxury goods as important sectors. In the health sector, we tend to go for medi-tech stocks such as Philips, which is involved in the manufacturing of diagnostic medical equipment.
Financial services, particularly banks?
I’m very cautious of them. In SA, for instance, it’s a tough area to operate in given the state of the economy and the difficulties of selling financial products. True, high yields are on offer, but capital growth is limited. The big banks domestically will provide you with a certain amount of investor stability, but they won’t shoot the lights out.Abroad, it’s also difficult given the negative interest rates. If I’m forced to, I’ll buy JP Morgan or Bank of America. I also like Allianz in Europe. And the best of all are Visa and MasterCard, which for all intents and purposes are licenses to print money.
Mining stocks?
If you’re looking to the JSE alone, BHP and Anglo American are perhaps worth considering for the long term but, remember, that much will depend on the growth of the global economy. That said, while the local sector has been deemed to be a sunset sector, investors have reaped good dividends of late.
This article originally appeared in the Fund Focus supplement in the 21 November edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
