Episode Transcript
[00:00:00] Speaker A: This episode of Ghost Stories is brought to you by Satrix, the leading provider of index tracking solutions in South Africa and a proud partner of ghostmail. With no minimums and easy low cost access to local and global products via the Satrix now online investment platform, everyone can own the market. Visit Satrix Co Za for more information.
Welcome to this episode of the Ghost Stories podcast. It's a new year. We are actually quite deep in January now at the time of recording, it is almost payday for a lot of of people who feel like they were last paid about 5,000 years ago. And of course, the journey to financial freedom and just making better choices. You know, you'll really feel it in January. If you get to a point where you've got the right sort of savings number and everything else, then I can promise you that January does become a lot easier and it loses that January joke that people like to make. But if you are in the middle of January, then thank you for listening to this and hopefully you manage to reduce that pain next year. Listening to podcasts like these should definitely help you with that. Just with some of that discipline and some of the techniques that get used. And I'm joined today on this podcast by Duma Mhenge, who is the head of business and market development at Satrix and Duma. We've done this before. In fact, we did this a year ago. I don't know why Satrix always gives you the year kickoff job with me, but it's awesome and you're very good at it, so definitely no complaints. I mean, last year we talked planning for holidays, we talked financial advisors, we talked about living bonus to bonus. We talked about a lot of stuff. And this year we'll do something a little bit different. Maybe we'll touch on some of that as well. But let me welcome you to the show, welcome you to a new year. And thank you for doing this again with me.
[00:01:42] Speaker B: Thank you for having me again. I'm not sure, you know, from the team whether I'm the usher or the bouncer of the new year, but I'm quite excited to be here.
[00:01:49] Speaker A: Yeah, like, I love that. I mean, we'll go with Asha. We'll go with. We'll go. Well, you can, you can pick, actually, because the bouncers are generally quite big ripped guys. So, you know, I don't know what your gym ambitions are this year. Maybe you've got some New Year's resolutions around that. Do you want to be the usher or the bouncer? What's the vibe?
[00:02:04] Speaker B: I guess it depends. How 2024 was, you know, I mean, if you well behaved, definitely you need to be ushered. If we're not.
[00:02:13] Speaker A: There we go. So you can do both jobs is actually the point. It's going to depend on the customer rather than you. I like it 100%. Yeah, exactly. So look, before we get into some of the sort of financial stuff, going into 20, how was 2024 for you in the markets? Did you find that you reached your goals? Did you have any big surprises or big disappointments with how it all played out?
[00:02:34] Speaker B: It was fairly interesting, I think, you know, with the interest rates going down or lowering. Definitely, you know, did give me a bit of a breather in terms of, you know, sticking to my goals. Definitely I did here and thereabout. But you know, what's also quite, you know, challenging with the South African market and I'm sure maybe later on we'll talk about it, is, you know, if you're a house owner, the other thing that you need to think about is, you know, the inflation around, you know, your tax and rates as well as, you know, the levies and, you know, municipality, whether it's electricity or water. So those are things that you don't typically get to factor in. But it does help to have an emergency fund on the side to just make sure that, you know, those surprises you're able to sort of cushion.
[00:03:16] Speaker A: Yeah, I'll never stop screaming from the rooftops that property is a lifestyle asset in South Africa. And actually it's something we'll talk about today. And it just is, you know, and there's nothing wrong with that. I just think people need to recognize it for what it is. And I specifically mean residential property. I don't mean listed property because that was actually my win last year. I was very happy to call that correctly. Listed property was the place to be. I guess at the time I felt it was obvious. Although sometimes markets can really hurt you. But when interest rates are coming down, property listed property is going to do well. That's just literally how it works. And thankfully, tax free savings account etf, Satrix Property etf, thank you very much. I'll earn tax free dividends from a reit. I'll get all that CGT tax free as well. That was the focus in my tax free savings account last year and that was good for me. So I'm renting the house I live in, but I've got lots of listed property investments. And you know, this just shows how you can alternate. You can be the usher or the bouncer. Right. With Your money, you can kind of react to what you need to do based on the role you need to play.
[00:04:15] Speaker B: No, and I mean just on that, I mean if you look at, you know, the, the essay market, let's say the all share, I mean we pretty much did about 13, 14% of the year. But to your point, I mean, depending on, you know, which sectors you sort of got exposure through using ETFs, you know, financials did well, you know, industrial, probably a large majority of it would be like your retail, you know, type of stocks as well as property. So when you have an environment where industries are coming down, definitely those sectors tend to do quite well. And bonds were actually quite a, a big performer last year if you look at, you know, from an asset class point of view. So it was a good year in sa, albeit, you know, if you look at it on an aggregated basis, it was more muted. So you had to be in the right sectors to do well.
[00:04:58] Speaker A: Yeah, you did. Absolutely. And then as much as everyone is very excited about the jse, the reality is that Offshore beat it again. Even in a year that was supposedly amazing for South Africa. And it was my offshore stuff way outperformed once more. So, you know, we've got to always just keep lifting our heads to the global opportunity set. I understand the familiarity bias of wanting to invest in companies that, you know, maybe you are their customer. You know, you eat at these places or you bank with them or they are your cell phone provider or whatever else, you know, whatever other example I can give and retailers especially, I think people have this real affinity of like, hey, I do my shopping here, this must be a good business. And then they buy it at a valuation that's too high or they don't understand enough about investing and they lose 10% of their money and they can't understand how on earth this is possible. I do my shopping there's every week. You know, my mom loves this place. How did this happen to me?
Unfortunately, that's investing.
[00:05:54] Speaker B: No, it's a home buyers. I mean, look, I mean, I do encourage that, you know, whatever you consume, you should be investing in it because it's a lot more tangible. So I, I, I get people who prefer to, you know, stick to, you know, local stocks. But to your point, you're quite right. You know, you kind of have to lift your head up and, and look at opportunities outside of sa. I mean, I mean SA as a percentage of the global market. I mean we like. Sure. I mean, less than 1% if I'm not, if I stand to be corrected. But that being said, I mean on the global equity side again, I mean what drove the large majority of the performance are the tech stocks. And also you needed to be in the U.S. so when we say global, I think specifically the U.S. market did well. Emerging market was a bit disappointing. We expected a lot from it. There was a big, I remember in the beginning of the year, I mean there was a big song and dance in India and I mean the Indian market, you know, over a 12 year period was also a little bit disappointing. Yes, I mean double digit but at the low levels. China with the stimulus did well and that was quite a big surprise when we look at. Again to your point, when you're looking at global market you need to also just make sure that you are well positioned from an exposure point of view.
[00:07:05] Speaker A: Yeah, absolutely. And most of us are sitting with a lot of emerging market risk in our daily lives, right? Our jobs, our sources of income, if you own a house. So for me diversification is not, hey, I'm very deep in South Africa, let me buy some stuff in China and completely ignore the us.
You don't need to treat your portfolio as a BRICS convention. You can actually go and invest in places like the US and Duma. I actually want to tweak that point you made around invest in the things you use and consume. There's a lot of truth in that. I think the tweak I would put on that is use your consumption as part of your research. So for example, if you asked me now over the next five years, and this is something that I worry about in my own portfolio over the next five years, who wins? Microsoft or Apple? So I look at it and go, I cannot avoid using Microsoft products. It's impossible. I can't do it every single day of my life. There is no question I'm using Microsoft all the time. I don't own an Apple product. I'm just one of those guys who can't justify the cost. I don't really use my phone for much more than the basics. Truthfully. I'm not really a techie kind of person who gets turned on by the actual hardware. I really don't. So Apple for me is just expensive, you know, it's expensive to have in my personal life. I'm not an Apple person. The point being, and lots of people are Apple people and that's fine. But the point I'm trying to make is you can avoid Apple, you can't avoid Microsoft. So for me Microsoft is a business to business, business And Apple is a business to consumer type business. And one of those is much more defensive than the other. The reality is that if Apple doesn't come out with whatever the next smartphone is and they want it to be the goggles. But is it going to happen? I mean, I'm not sure. I'm not convinced, honestly. So over the next five years I think that Microsoft beats Apple. The challenge I've got is I desperately want to justify reducing my Apple exposure, but I'm worried that they do come out with some kind of incredible hardware. And then underneath all of that you've still got growth in their services business. You've got all the share buybacks, they always do. So the point I make is that, you know, your consumption should be one part of your due diligence. And then if you want to invest in single stocks, you've then got to do the work and you've got to learn how to do the work, right? You've got to learn how to do the research. And that's where ETFs are very powerful, is you're taking a much more thematic play. In many ways you're just buying market risk which over time, you know, the stats tell us you get rewarded for. Over a long enough time period, you get rewarded for taking equity risk. And that's how ETFs help you, specifically equity ETFs. There are other types like bonds, et cetera. I mean, you've raised that. And that's the beauty of ETFs. I always advocate both. Do ETFs as your core and then if you want to put in the work on single stocks, then do it, but don't do single stocks flippantly. Don't think it's this easy thing where you just pick a few names and all goes well for you.
[00:09:52] Speaker B: No, no, no. You're 100% right. And I think that's the beauty of diversification, right? If you invest in ETFs. I mean, just to your point again, Apple versus Microsoft, I mean, we are saying, well, why don't you just hold both? I mean, why don't you hold Google, why won't you hold Meta? If you believe in this whole premise around platform, businesses are going to win going forward. We don't know where this AI revolution is going and who the winners are going to be, but you want to make sure that you've got one of the winners. So it's going to be one of the big boys that are actually going to do exceptionally well in this space. So having exposure to technology, albeit as expensive. You're looking from a valuation point of view, so they can't afford to disappoint on the earnings. But I mean, it's been surprising us for, you know, a number of years now, you know, since, you know, this wave has started.
[00:10:39] Speaker A: Yeah, absolutely. It's why I own Visa and MasterCard, by the way, because I. The payments ecosystem is so powerful, but I can't choose between them. I mean, from the outside looking in, they almost do exactly the same thing. So why pick one? What happens if one of them gets accused of fraud or one of them has some crazy thing that happens at board level? I don't want to take single stock risk when I can buy two things that are similar enough. It's like making my own little ETF, you know, it's my own little payments ETF. It just only has Visa and MasterCard in it. So. Yeah, I mean, I agree with that thinking and I guess that leads into, you know, we've talked a lot about sort of offshore and tech and everything else. I don't want to wait too long in the podcast before we get to something that is quite close to your heart and something that you mentioned to me you want to talk about this year, which is just some of the emerging trends in investing and specifically the concept of digital wealth. Now, I'm terrified you're about to tell me about meme coins and trump coins and you know, fart, dare I say it, fart coins, which sounds like something my 4 year old would 100% invest in if he understood that. But hopefully it's not that. Maybe it's a little bit of blockchain and bitcoin and actual assets as opposed to some of the meme stuff. And maybe it's got nothing to do with that. So I'm curious to hear what this digital wealth trend actually is.
[00:11:53] Speaker B: Yeah, so it does, but it doesn't. But in the main, what we started seeing now in the market, especially on the direct side, so retail side, the personal advice, investment, et cetera, is that more and more we're getting a lot of clients who are extremely interested in actually investing. So. And there are a variety of platforms that are out there to, in order to assist clients. And it's not just a South African story. We're seeing the same thing in Europe, we're seeing the same thing in Asia. And it's usually your younger market, you know, trying to actually start, you know, the investment journey. And, and typically, you know, what people tend to do is that if they've Got a little bit of money. You know, they'll basically be digital lead or what we call product LED products. So you have a platform and you decide, you know what, I just want to use a platform, let me just invest. And typically, you know, when people start off, especially the young generation, they get into crypto, you know, because they get so interested in terms of the returns and also just the hype around crypto and how that market has actually grown. And then as your portfolio grows, you know, provided that you know you've done well, is that you start now taking this concept of saying, hang on a minute, you know, I may know a little bit more, you know, this and that from an investment point of view, but I do need assistance. And so what we are seeing now is that there's this migration where you actually have a hybrid model. So it is digital but also with a financial element attached to it, be it automated. So you get like your robo advice in the space or you can get, let's call it light touch advice that is provided to you in terms of how you need to think about your portfolio. But ultimately where all this lands is your traditional financial advice business. But what is quite interesting is that you're getting a lot of practices that are saying, hang on, look, I've got this long tail of clients that I can't service. And more and more they're looking for a digital partner or platform to sort of integrate into their practice in order to service that market up to a point where they get to a level where it becomes feasible them to actually support that business. So what is quite interesting as we look at the space is that, you know, it's not a one size fit all, so all clients are different. So personalization is a big thing. Seamless transactions a big thing. Data driven, you know, decision making is a massive thing in the space. You've got NEO brokers such as Easy Equity, you've got ourselves which is basically we are self directed platform. And you also got rubbervise and you also have telco guys coming to the space trying to figure out, you know, how do they, how can they tap into the retail market or mass retail market and actually provide a service specifically around investments. So that's, that's the broad stroke. But then I can also get into products. But I just wanted to position in that way, you know, to use that. It is a big trend in the emerging market as well as in the eastern part of Europe as well.
[00:14:53] Speaker A: Yeah, I mean it's super interesting. Thankfully a billion times more useful than meme coins. I'm very pleased to hear that. Not that I doubted it for a moment, but it's really, it's really tech as a disruptor, right? And it was quite interesting. We covered JP Morgan this past week in Magic Markets Premium. And what's quite interesting is comments made by management around their tech investment cycle. So they've actually come out and said, hey, we're now done with the modernization investment and it's been like a multi year, gazillion dollar thing, right? We're now at the point where our tech teams can really turn their focus towards new product development, etc. And that's just a feature of the more institutional places like a JP Morgan where they've been around forever. Some of the systems are very old and a lot of these startups, a lot of these disruptors see those gaps and say, look, you know, we can't fight, bluntly we can't fight JP Morgan, but what we can do, it's like, how do you kill a Dragon? You know, you got to find its weak spot and then you just go for that weak spot. It's like, okay, they're a little bit slow here, their systems are old, let's dive in, let's go for it. And so much venture capital money is based around finding entrepreneurs or founders who have noticed that weak spot. They need money to attack it and they're actually building the thing to eventually be acquired by said Dragon. When that Dragon is like, actually, this is really irritating now, I'd rather just get rid of you guys and buy you. I mean, that's basically how venture capital works, right? And it's tech as a disruptor and it's doing things, as you say, like servicing the long tail of a client base with more consistent advice. In some respects they get a better outcome because maybe if it was a human doing it, they wouldn't necessarily give it the attention it probably needs. It's almost easier to write in a set of rules, take all the emotion out, and then focus on servicing clients where the value is high enough to justify some, shall we say, creative thought, which is both good and dangerous. Right?
[00:16:40] Speaker B: You know, just, just on that, you know, I do think that, you know, whether you want to call it AI Agentix or AI agents, I think they definitely do have a role to play in the space. But I don't think it's actually on the conversion side. I think it's once you've actually have converted the client and have actually have invested where you can now start asking questions, pointed question about your portfolio. I think there's still a role to be played in terms of human intervention when it comes to convincing a client, especially non investment clients who are scared to make that final leap of actually investing. You actually need to have a human being saying, you know, you're going to be all right, this is a safe investment. You know, go ahead and invest in it. And I think that's, that's a massive friction point that we haven't gotten. Right. And when I look globally in terms of how the other guys are also doing it, is that, that piece? Unfortunately, you just cannot leapfrog. It's still. There's a massive human element attached to it. I could be wrong. Maybe someone can come up with something super cute. But the sense I'm getting is that first time investors do not want to deal with an AI. They want to actually speak to a real human being.
[00:17:45] Speaker A: Interesting. Yeah. That human connection still matters. And I think a lot of what's going to happen in the world over the next few years is finding the balance. And that's also why I'm quite, quite bearish on this whole goggles kind of situation. I don't know that most people want to live like that, actually. So we'll have to see how it all plays out. It's certainly going to be something to watch. Duma. I want to make sure that we also talk about property because I think this is something that's on the mind of all South Africans all the time. So let's maybe move on to that, if that's okay with you. Interest rates have started coming down. The Saab guidance I've seen is for like 50 to 75 basis points this year, roughly. I mean, let's see what happens. Obviously, we very much in a world of uncertainty, the Saab is strongly led by what the Fed does in the US we haven't shown too much propensity to cut unless the US is cutting. So we'll have to see what happens there. Trump's going to have an impact here, without a doubt. That's the question, right, is can South Africans who are looking at this saying, okay, you know, I've come through Covid, I've come through post pandemic. I feel like my job is relatively stable. Interest rates have come off. Can they rely on more cuts or would you recommend that they still stress test? Should they even be stress testing for interest rate hikes from here? Or do you, you know, what approach would you take?
[00:18:57] Speaker B: Yeah, so, I mean, you know, I've been thinking about this question for quite Some time, I think, you know, you know, when you buy a property, it's not the same as doing your research in terms of a company and looking at the valuation and buying it on a cheap, you know, and I say this because it's, it's a 20 year call. You know, you may get it right for the next five years, but you're going to get burnt going forward. So you do need to do the stress test and also be super conservative, base it on high interest rates, environment and say consistently at this level for the next 20 years, can I afford this house? Including the rates and everything. And if the answer is yes, I think for me that's a better call. And if interest rates do come down, you can still maintain the mortgage amount that you're paying towards your bond. You don't need to actually go with the fluctuations of the interest rate. I mean that's a prudent approach. But I mean you and I, we know that's probably the minority as opposed to the majority. The majority is they always come in at the wrong time, which is when interest rates lowest and you've negotiated hard on your entry point. Ultimately when interest rates do go up and they will go up in the next 20 years, is that then people start feeling the pain when they have to tighten the belts, etc.
[00:20:13] Speaker A: Yeah, absolutely. So I can actually share what I'm busy with at the moment if you want. In terms of planning around my own property journey. So I'm still happily renting. It's kind of worked for me. I've had some big lifestyle changes, all very happy ones in the past sort of years. So I'm now looking ahead to saying, okay, my life is a lot more stable now. I can kind of do a lot of planning and in three years time, which is mainly driven by age of kids and schools and stuff, I want to be able to live in a specific area in Cape Town. No, it's not Clifton. It's definitely not. It always irritates when people talk about just ran for two seconds. You know, Cape Town's so expensive. And then they give an example of Camps Bay. Like yes, shockingly Camps Bay is expensive. So is the top of Los Angeles. Or maybe not so much anymore, but you know, it's just. Anyway, there's lots of places you can live in Cape Town that are not Clifton. So I mean I'll share it. My dream is there's a lot of really nice places in Durbanville. It kind of feels a little bit to me like some old Joburg vibes. Of more established gardens, there's less wind. I kind of like that. It feels like Joburg by the sea, which is cool. And that requires me to now plan towards this thing. So obviously as an entrepreneur, getting a bond is not straightforward. So that's an additional complication. You've got to really over save on the sort of deposits you'll have, et cetera. But I sat down and did the maths shock and horror to say, okay, how much am I really losing out by not buying right now? Because Cape Town property growth is strong, right? I mean, it's by far the best in the country. If you're going to lose out, it's going to be down here. And I went and worked it out based on a five year view and kind of assuming, okay, look, you buy a house and you sell it after five years because things change in people's lives. You know, everyone wants to buy a house and live in it forever, but very few people actually do that. And you know, the costs of buying and selling are quite hectic, et cetera. And in reality the house I could buy right now I would probably grow out of in about five years time. So that's why I did it this way. And the maths tells me that versus like renting and then saving the difference house prices down here would need to grow by like seven, seven and a half percent a year just to break even, versus me doing what I'm doing now, which is renting. And obviously rental yields are much lower than interest rates. And then saving the difference every single month. That's what property needs to do. It's super interesting, right? I mean, look, it obviously depends on your assumptions and rental escalations, but I've just re signed my lease now. 5% escalation. You know, I'm not sure my landlord is dealing with 5% inflation. I suspect that he's not. I suspect that it's worse than that. But obviously I pay my rent on time every month and I don't make a noise. So here we are. 5% escalation.
[00:22:48] Speaker B: I'm just, I'm just worried that your, your landlord is also a listener to your podcast.
[00:22:52] Speaker A: No, no, we, we have a good relationship. He knows he can take a risk on another tenant if he wants for an extra 100 basis points. And I'm not sure it's worth it. But the other thing I'm doing now is I've looked at it and said, okay, so what would my bond probably be? And I'm now setting my budget to live to that bond Even though I don't have it. So basically I'm saying if I can't save that amount every single month, like the delta between the bond and the rental, in addition to all the other stuff I need to save, then clearly I can't afford that house right now and I'll be very glad I didn't buy it. So I'm basically giving myself three years of living to the bond that I want to have, saving that excess so I have a much better deposit. And in reality, unless Cape Town house prices and specifically Durbanville do more than seven and a half percent a year, I'm going to be okay. You know, I'm not worse off for not owning. I know that was a lot to kind of take in for someone listening to this podcast. Maybe go back and listen to it again. If you can go and do, you know, if your skill set lies in finance and you can do a bit of the modeling in Excel, go and do it. But even if it doesn't, just maybe keep in mind, because I think this is a fair set of assumptions. House prices need to do sort of upper single digits before you are losing out by not owning a house. And this assumption is, however, that you are investing the difference between what your bond would cost you, including the cost of owning a house, and your rent. And I think that is the trick that a lot of people don't catch or they fall over. The behavioral finance element. Right. A bond focuses the mind. It's very tempting if you're renting to say, cool, I'm renting for. I'll just use a number. It doesn't matter what it is, you know, 15amonth. I would be buying for 25amonth. That sounds to me like I now have ten grand a month to go buy a new BMW or new Merc or, well, these days, I don't know. Does that even get you a BM or a Merc? It's been so crazy with it. Not at all. Probably doesn't. Probably go buy like an entry level.
[00:24:40] Speaker B: I'll definitely go for a Chinese model.
[00:24:42] Speaker A: Yeah, 100 haval, you know, but you go and like finance this new car for ten grand a month and the bank like waves you through the door. Don't go ask them for a mortgage, but by all means ask them for vehicle finance. And the reason is very simple. They're going to charge you prime plus plenty on a vehicle. They're going to have to charge you prime minus something on a bond. And that's the thing to avoid, you know, don't go and if you're saving for a house, don't go finance a car, you know, rather look at it and say save that difference and it will make all the difference to the rest of your life. So for people who are thinking of, you know, do I buy a home now, etc. Maybe just go back, listen to all of that again, see if you can live to the budget as though you already have the bond. And as long as you invest that differential, you're not really losing out. Frankly, outside of Cape Town, I don't think you're losing out at all unless something really changes in the property market in places like Joburg or Durban or wherever you are.
[00:25:38] Speaker B: Right, yeah, no, I agree. But I wanted to perhaps just test your thinking here just to understand where you looking to land. I mean, so, so typically what you find is that someone will rent, you'll buy a house and rightfully so. That's not your first house. You're probably going to buy two more additional house before you land to your dream dream house, which is super expensive when you go down that path. But other people do that, you know, because they're basing it on, you know, affordability at that point in time. So every five to seven years, you know, they move from one house to the next. Very expensive exercise, or it's what you are describing where you basically defer it, stay rented. But the differential is what you invest. And then the core here is, what I'm trying to understand is is it a three year, five year call, then you buy a house, is that your dream house or the second house or do you, or depending on, you know, how long one needs to wait, is that the longer you wait, the closer you are to your dream home that you ultimately, you know, who want to land? Is that the thinking?
[00:26:37] Speaker A: It's a great question. So my thesis is that the rate of change in your life slows down. Right. So I'm 36 now. I've kind of lived a fairly full life. You know, things have gone well. Things haven't always gone well. There's been a lot of personal change, etc. But the point is that the rate of change slows down. You're probably not. Some people do, but you're probably not going to have kids in your 40s. You kind of know how many kids you have by then. Chances are good on average. Obviously there's always a lot Lamar key here and there's. But most people have an idea of where they're at by the time they get to that sort of age, whereas 20s and 30s, I mean, so much can change, right? You can buy a house in good faith and then get your dream job offer overseas. Now what you know, or you, or you meet someone, you haven't met someone yet, you meet someone and in order for that relationship to work, you now have to move city. And you never thought you would do this, but you're going to do it anyway. So I think there's just, and this is, I bought the first place I ever stayed in because I did my articles at a bank. So you get this crazy good interest rate. So I bought this little apartment because that was the sort of the, the lesson that you get taught by your family, right? And whatever is like get on the property ladder, you know, bricks and mortars, start paying it off, why pay someone else's bond, etc. Etc. Etc. And it maybe that was good advice once upon a time, I'm still not sure. I don't think it's good advice now. And I did the math when I eventually sold that property, I think probably four years after I bought it. And unquestionably I was better off renting, there's no doubt. Like I did the maths and I lost out by buying and I got it on a heavily discounted bond. So it would have been even worse if I had paid full rate, not staff rate at a bank. So to go back to your question, my argument is if you defer it and you wait until it's definitely a house that you can see yourself staying in, quite possibly forever, that is the cheapest, quote unquote way to buy a house for two reasons. One, you're saving a differential between renting and buying for much longer and if you save it properly, you're getting that uptick. And two, you're unlikely to move again, you're unlikely to have massive upheaval. You've chosen schools, you've kind of got a 12 year plan. You know, no one in their 20s has a 12 year plan. They think they do, but it doesn't ever work out that way, right? So that's kind of where I'm at. And just also importantly, even if I buy in 3 years time, it's still not a financial decision, it's a lifestyle asset. I just don't want to be at the whims of a landlord who can force me to move halfway through a school year or when it doesn't suit me. And then there's a lack of availability. I mean, the Cape Town rental market is an extreme sport on a good day. So, you know, you've got to be, you've got to be careful with that. So it's still a lifestyle decision, but it feels like one that is then financially responsible as opposed to potentially something that will hurt me. I mean, I don't know each of their own with this stuff. I've thought about it a lot, as you can see, and that's my approach, basically.
[00:29:21] Speaker B: No, no, no, I don't disagree with, I think it's a, it's a great way to look at it, but it's not easy, you know, with all the other external noise, family, friends, people are very pro property, you know, they may try to, you know, convince you otherwise. So I think staying the course, once you've decided on a decision, I think that's the best thing you can do.
[00:29:42] Speaker A: Yeah, absolutely. And then you've obviously got to invest the difference properly, you know, and maybe, maybe let's, let's bring the podcast to a close by talking about some of that stuff, you know, because as interest rates come down, the risk here. So what is the risk I face? The risk is that property prices actually go bananas. So interest rates come down, property prices go literally to the moon. Plus, if I'm investing with a relatively short term view, I'm not necessarily putting that entire differential in equities that might get the uptick right from interest rates coming down. A lot of it needs to sit in your more sort of fixed deposit type stuff. A little bit of money market making sure you're not in a scenario where three years from now, in the year where it's school sensitive, that I need to be able to pull the trigger on this. I find myself in a terrible place in the market cycle with a 30% drawdown, like that's a disaster. So the risk here is house prices go up much more than I think they will and I struggle to generate enough returns on the money that I'm investing. And that by the way, is part of why listed property for me is the hedge. You know, I'm very happy to be in South African REITs because chances are quite good that if residential property goes up very hard, like logically speaking, would the REITs not also do that? It just feels to me like there's a good chance, right? You know, the same things driving Resi property would then drive the REITs. So then I'm sitting with that exposure anyway. I'm earning dividends along the way and I've got a bit of a hedge built in there, you know, so that's some of the thinking and that's where you need to have this kind of coherent plan. And I'm definitely not blind to the fact that I've done a lot of this and I'm like, I've done a lot of academic qualifications in this space. I don't think this is the way the average person can run their money. Realistically, this is why people need financial advisors. This is why you need to speak to people who are very trained in this space. This is why you're listening to this podcast, right? Is because you want to learn. And that's the, that's the win, is you come to a thing like this and you learn. Obviously this whole plan could backfire spectacularly and blow up in my face. That's the risk in the market. But if you don't take the risk, you don't get rewarded, right?
[00:31:42] Speaker B: Yeah, no, that's true. I mean, it also depends, you know, how active you want to be. So, I mean, just going back to your point, I mean, the big thing that you first need to solve and agree with yourself on is the term. So I mean, anything, you know, less than three years, I mean, I wouldn't advocate that you get into the equity market because it can be volatile in the short term, but in the long term it can definitely benefit. So anything longer than three years, maybe you will get that output surprise from a return perspective. But I mean, if you're looking at, let's say, anything from zero to, let's say three years or maybe 18 months, maybe let me push the boat out to three years. Is that your money market is probably the best place to be. You know, your active income funds are also, you know, quite good instruments or investments or products that you can actually invest in. Where ultimately what you're looking for is that every money that you put in it is sort of protected in inverted commas. But you are getting, you know, the, the upward interest rate uptake by being invested in such product of this nature. So it is a safer, low risk strategy as opposed to, you know, looking at equities. But someone who's of a with the market, deals with the market on a daily basis, then you can be super cute in terms of how you think about managing that portfolio or that emergency fund adequately in order to eke out more returns.
[00:32:57] Speaker A: Yeah, absolutely. You can do some interesting stuff. And I think it's important to clarify. My plan is not, hey, I build up a REIT portfolio and I sell it in three years. Definitely not. The money that I'm looking ahead to needing for that house is in money market stuff because I don't want to be forced into selling equities. That's dangerous. I use the South African REIT exposure as the hedge on my balance sheet. Say if I get this run and three years from now I'm sitting back going, man, I lost out by not owning. Actually, I haven't, because in my tax free savings account, which I'm making sure I max every year, I'm heavily into local REITs. And so I might have lost out on the physical asset and maybe I'm in trouble now in terms of buying, you know, whoopsie. These things happen. But if I look at my balance sheet holistically, I'm still okay because I caught the property upswing with liquid assets. So it's still very much a case of saving to money market invest into equities, which is what you should be doing. Right? I mean, maybe that's a good place for us to actually bring the show to a close. And we went down a huge rabbit hole with the property stuff. Sorry, Duma, Actually, I almost feel a bit bad. We really spent half this podcast talking about property. But I think for South Africans, it's a big question this year, right? It really is on everyone's lips.
[00:34:04] Speaker B: It's a huge question. I mean, even for those who've been in that for a number of years and those who are starting off for this is the first, you know, investment, which is a huge investment, big decision. I think it's great to spend a lot of time just talking about property.
[00:34:17] Speaker A: It is, it is. And to actually just get some other views and, you know, also from younger people who aren't necessarily tainted by the whole property is always what you want to own sort of generation. With greatest respect to them, there is an older generation who really believe bricks and mortar is life. It's not necessarily true. So, Duma, I think to. To bring this to a close, I'm going to ask you one more question and I want to get your expectation on what's going to do better this year. Local equities or offshore? And by offshore, I generally mean us, but as you mentioned earlier, there are others. So you're very welcome to throw something else in the. In the hat here. What do you reckon is it going to be? Is the JSE finally going to have its year in the sun this year versus offshore, or do you think that it might be another win for offshore?
[00:34:58] Speaker B: Maybe let's start with the local market. I think there's definitely interest in terms of resources, you know, doing well this year. Just looking also the survey across all the other markets, you know, the SA is coming up as one of those markets that will probably do well this year, whether it's gnu. I mean, we will still wait and see, you know, the lower interest rates. So there definitely are, you know, favorable tailwinds that may actually support, you know, the local market. I think there's definitely great interest. In terms of China, China versus the US A lot of people are concerned about the valuations in the U.S. like I said, I don't think this is the time to actually, you know, go underweight or to be bearish on tech. I mean, it keeps on surprising us on the, on the upside. So maybe in the US you need to be more exposed to technology and then the stimulus in, in China is, is something that we need to keep an eye on. And the Chinese are looking in other markets in order to hedge, you know, what might happen with the Trump regime, whether it's going to be favorable or not. So they're not sitting with their hands and doing absolutely nothing. They are considering what other avenues can they look at in order to stimulate growth in terms of the Chinese market in other regions. So it's going to be quite interesting. It's going to be very volatile, a lot of unknowns, but more and more we want to keep an eye and just make sure that we are in the right areas from, from an exposure point of view. And that's what I'm looking at from my own personal portfolio as well. I don't know about you in terms of, you know, what's, what's tickling your fancy at this point in time.
[00:36:31] Speaker A: I knew for damn sure you were going to throw that question back at me as I asked it. I was like, this one is coming straight back with interest. Look, I think some of the, I mean, it's the old story in the US market, right? Some of the valuations are just daft. I mean, look at Walmart and Costco. If you haven't looked at those PE multiples, then prepare yourself, like, brace yourselves for the pain. I do think the tech, I mean, look at Netflix yesterday. So time of recording, Netflix came out yesterday after hours, up like 14%, just absolutely shooting the lights out. And I think these platform businesses have a growth Runway that people underestimate. And I think some of the other businesses have a growth Runway that people overestimate. So, for example, there's no ways I'm buying Walmart and Costco at these valuations. There's just no chance. I think the platform businesses can Do a lot still, but they are really, really hot. Obviously I do think we'll see a slower year. I mean, I don't anticipate that this coming year in the US markets is going to beat last year. I mean, there's just been some crazy returns. My banking Shares did like 80% in the US in the past year. I mean, it's extraordinary. So I think it's going to be a bit slower in the US than we've seen in recent years. Does that mean the JSE will go faster? I think the risk is that a lot of the valuations have run ahead of earnings now and you've kind of seen a pretty bad start to the year in terms of, I think just a cooling off really. I do. You know, there was a lot of sentiment driven stuff last year and now we need the numbers to actually start coming through. And when the year kicks off with news of like Arsenal Metal closing things down, etc. Then I think people get a little bit of a reality check. I think the challenge, the challenge for the JSE is that, you know, when the US does very well, the US can do quite well because it's risk on. And when the US does badly and people panic, then emerging markets get hit harder because now it's risk off. So if people are taking their money out of Microsoft, you can be damn sure that most of them are taking their money out of emerging market funds even faster. So I think that's always the challenge for the jse. I will say this, the sector that I think could be a relative surprise this coming year, not necessarily because I want to invest in it. I don't hold any South African banking exposure and have no plans to change that. But I do wonder if South African banks might have a better year than the US counterparts. The US really had a crazy year last year with banking. It was all driven by non interest revenue, which is, you know, the hard way to make money. It's capital markets advisory stuff with interest rates and stuff where they are. They are struggling. And look, if rates come down, the SA banks will also hurt a little bit. But I just think, I just think the opportunity for stimulus in South Africa from rates coming down is just higher. You know, it really helps the average South African when rates come down. And that really does land in the banks because South Africans love borrowing money for things. If there's one thing we just love doing, we want to borrow money and buy stuff. It's like our whole vibe. So that's good news for local banks. And yeah, I think there's an outside chance that South African banks might big might outperform US banks over 12 months. I want to be very clear that's over 12 months and that's not how I'm positioned. I'm holding my US banking exposure because it's a forever and ever play for me. But I think that might be one place where we do okay. Obviously, we'll see how the year plays out. Right? It's going to be very interesting, as always.
[00:39:38] Speaker B: No, that makes sense. Just going back to our own biases. So because you started your career in banking, you understand banking more than any other industry. So that's why it's your forever. So you're able to know when to come in and out. So we all like that. You know, just going back to the biases.
[00:39:56] Speaker A: Yeah, but that's why I avoid crypto. I don't pretend to understand it because I'm not in tech. Like, honestly, that's it, you know, so you're 100% right. And there's a lot to be said for sticking to your knitting. You know, just like if, if you're good at a sport, play that sport. You don't need to go and then hurt yourself trying to play golf. This is a very real example. You can see I'm sharing a personal pain here about golf. Anyway, Duma, I think we've gone miles over time, but we've had a lot of fun and I think it's been a great show. And to the listeners, I hope you've taken something from it. I hope that the house conversation landed. And I know it's complex and it's an unusual way to think about it, but, you know, just, just try and, and think through it as rationally as you can, as much as it's an emotional lifestyle thing. Duma, thank you for all the chats around the market stuff as well, et cetera. It's always good to know what you're up to. And we'll definitely do another one of these this year. And I wish you all the very best for 2025. Let's hope it's a good year for you for Satrix, because obviously the beauty of it is you can go and express all these views in the market by buying Satrix ETFs. You can do it in your tax free savings account and it's just a really good way to buy market exposure. And there's a huge range of them. You can go and really tilt your portfolio in whichever direction you want, almost using those Satrix ETFs so go and have a look at that. And Duma, thank you. I look forward to another year of making some great podcasts with the team on that side.
[00:41:10] Speaker B: No thanks. Thanks for opportunity and great chat. You know, I always look forward to these discussions. You know, they're quite thought provoking, so I've also learned a thing or two. So thank you for your time and thank you for, you know, inviting me to this platform.
[00:41:22] Speaker A: It's a great pleasure and likewise. Thanks Duma. We'll chat again. Ciao.
Satrix Investments Pty Ltd and Satrix Managers RF Pty Ltd. Are authorized financial services providers. Nothing you have heard in this podcast should be construed as advice. Please do your own research and visit the Satrix website for more information on all their ETF products.
