Fwd: Zfn Summary December 11

[arthur ndowora]

---------- Forwarded message ----------
From: "Zfn (Zimbabwe)" <z...@yoafrica.com>
Date: Tue, 11 Dec 2012 14:58:14 +0200
Subject: Zfn Summary December 11
To: "Zfn (Zimbabwe)" <z...@yoafrica.com>

Zfn
Realtime financial intelligence
__________________________________________________________________________________

Zfn Summary December 11

*In My View
*SeedCo shares in freefall despite projected good F13, Minings flat


In My View

By Anonymous



The sum of all fears...

The stock market offers participants unlimited opportunities for
making loads of money and self fulfilment as well as self sabotage.
Whilst most retail investors, use a strategy of buying and then hope
for the best, the game is played differently by institutional and
wholesale investors. These make a living by pretending to be
sophisticated and being able to beat the market, (meaning basically
each other) and in some cases earn a lot of money and reputations.
Essentially, investing is not only about making money but is some sort
of game played by a group of professionals using other peoples'
monies.

Investment professionals are thought to be the ones with the skills
and training to be able to pick the right companies. Not only are they
able to identify good and investable and therefore right companies but
also have the innate ability to discern the right time to buy or sell.
Investment professionals presumably also know the 'correct' price for
the shares of the company so chosen. Thus, it is implicit that when
one holds the ZSE price sheet and there has been a trade in a counter,
that is the right price according to someone. This is because anyone
who buys a share thinks he/she is buying it at its right price, a
judgement the seller thinks is dead wrong.

For any game that is played or any field of human endeavour, the
participants have certain phobias. For instance, in football, there is
this fear of missing a crucial penalty or scoring an own goal. In
surgery, there is the fear that the patient does not resuscitate after
an operation. In the same manner, fund managers have four well known
fears. These fears immobilise them and cause what is normally referred
to in the US as "the deer in the headlights syndrome". Fear distort
perceptions and interpretation of market information in a way that
inhibits one from profitably utilising what they know and what they
have heard.

The first is the fear of being wrong. This fear obviously originates
from previous experiences and is usually related to stock picking. It
is the fear of investing in a failing company. For example, a number
of local fund managers were wrong on CFI; Star Africa; African Sun; PG
Industries; TA Holdings and others. Obviously the stunning ones
were/are African Sun and Star Africa. Those fund managers who backed
these stocks have found themselves not only being wrong but having
cost their clients millions of dollars and their employers' cartfuls
of money due to reduced management fees. These mistakes are not
confined to local investors. For instance, one prominent and well
respected international investor; a year ago bought a big parcel of
Aico Africa shares at 24c/share and obviously walked away feeling
pleased about that trade. That share is currently trading at 9c,
nearly two thirds lower.

Most fund managers and analysts like to believe that their opinions
have been formed over time by careful, rational consideration of facts
and ideas, and that the decisions based on those opinions, therefore,
are sound and intelligent. In reality, however, most base their
opinions on their own beliefs, which sometimes have an uneasy
relationship with facts and the prevailing investment climate. When
presented with contradictory facts i.e. the share price tanks, fund
managers rather than sheepishly accept that they were wrong, sometimes
adhere to their original beliefs even more strongly, and refuse to
sell. Daring ones even put more clients' money at risk by buying the
same falling stock to 'average down' the costs.

Since we are all smarter in hindsight, being wrong is thus acceptable,
seeing as a decision is "always right at the time it's made". But
staying wrong is what is totally unacceptable and this is where
trustees and investment committees should make fund managers
accountable. Being wrong is not a choice, but comes with playing the
game, but staying wrong is. Staying wrong is what people should lose
their jobs for.

The second fear is the fear of losing money or in short
"antichrometophobia". This phobia is what paralyses most fund managers
and investors causing them to shy away from the stock market all
together. These are fund managers who prefer the property and money
markets ahead of the stock market. Fearful fund managers base their
thoughts and style of investing on a negative thought process or a
negative mental attitude.

Some years back, we met an investor who had the peculiar distinction
that all the companies that he had bought into had been suspended
indefinitely. The investor had bought into Barbican; David Whitehead
and TZI. When this happened, the investor was a banking client of Time
Bank. This was one unlucky guy! As a result of this experience, the
fear of losing money has been ingrained in that investor.

Fund managers and investors who are overwhelmed by the fear of being
wrong or losing money are usually indentified by the way they talk.
How many times have you heard a fund manager say: 'if only we had
bought that share?'

Thirdly, fund managers suffer from the fear of missing out. This is
what bubbles or investment manias are made of. If everyone is buying
it, then it should be a good story. Remember the Tulip Mania. A recent
example is when US investors fell over each other buying into
technology and internet stocks in the 1990s.

Warren Buffett was at one point "abused" because he had opted to miss
out on these Silicon Valley start-ups. Some critics believed Warren
was stuck in the past; out of touch and did not understand the new
economy. He was labelled a 'technophobe'.

He was later to be proved right, when the tech companies and their
share prices collapsed spectacularly in 2000; in what later became
known at the dot-com bubble. But others would argue that he had missed
out on the opportunity to make money anyhow as he could have bought
and sold out before the crash.

Locally, the fear of missing out has in the past seen investors
suffering a mental block. For instance, how else would one explain
Gary Shayne's Cellular Systems, which later evolved into Celsys? It
was once a darling of the market. Everyone knew that it was a house of
cards, but still all reasoning was suspended. The company once held an
EGM at 8am on the 31st of December. The presence of one leading fund
manager was enough to waylay other fund managers; lest they miss out
on the gem. It appears, amongst the big fund managers, OMAM was the
only one that stayed out.

Managing to sell Celsys to Lonzim was a stroke of genius on Gary
Shayne's part and proves that even international investors may not be
'the know-it-all' that we presume them to be.

Zeco was another one which saw, common sense being thrown out of the
window as it rallied strongly after listing and then was touted as
having $300 mln in assets. In hindsight, some are saying Zeco should
not have been allowed to list on the ZSE in the first place.

The one and only solution to all these fears is to reset to zero or
press the re-format hard drive button. That is, assume this next
investment or stock pick is a brand new investment. The past is the
past, and this investment should not be impacted by a previous
investments or series of bad decisions - there is no relationship
between them. One should invoke the law of independence of
investments.

Then there is the fear of leaving money on the table. This is natural
and in fact underlines the fact that we are not gods but humans. We
desire profits and the more the better. We also have this strong human
need to strive for perfection and to reach for the ultimate. As humans
we are also unforgiving towards ourselves. Thus, fund managers always
want to believe that if they analyze the markets long enough, they
will find the perfect shares and make maximum profits for their
clients.

As a result, many fund managers fear selling a share only to see it
move higher. Thus, even when logic is pointing towards profit taking,
many fund managers hold on, hoping that the share price will continue
rising. For instance, when Delta was 96c, most fund managers, instead
of selling and crystallising the paper profits, started dreaming that
the price will go to $1. Remember when Econet went to $5.55, it was a
screaming sell. However, at that point most fund managers hung on,
hoping to sell at the top. ABCH and SeedCo peaked at 95c and $1.42
respectively, and everyone was bullish on them, but the two have since
halved. Selling at the top is a myth. Rather take profits and move on
or buy back lower. Never mind the few dollars between your selling
price and the peak. Only the gods can accurately time the peak.

Unfortunately, unlike the first three, there is no prescriptive
solution to the fourth.

The development of these four fears is understandable. As one grows
up, whether it is at home; school or work; they often face adverse
consequences for not being scrupulously proficient and one begins to
believe that one must be thoroughly competent, adequate, and achieving
in everything that one does. Ironically, however, in the fund
management industry, the opposite more often than not, happens.

So, as we go into 2013, its time for the fund managers and analysts to
forgive themselves and to re-set to zero. It is time to forget about
all the missed opportunities and look forward to 2013 with optimism.
This is especially so, for the fund managers and analysts at big
institutional investors such as NSSA. The duds will be case studies
for university students taking Investment Management 101 for a long
time to come. But however, life goes on and if they do not want to
change professions or quit the game, then they need to re-format their
hard drives.

Trustees and investment committees, however, should not be that forgiving!!

SeedCo shares in freefall despite projected good F13, Minings flat





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Harare

Tel: 0733 016 576

email: z...@yoafrica.com

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--
Arthur Ndowora
cell 263 772 217 524 or 263 0734 067 775

alt mail arthur...@webmail.co.za