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 another one with Satrix and it's another one with a gentleman from Satrix who I always just really enjoy chatting to. That is Duma Mhlinge. He is the head of business and market development at Satrix and Duma, I always enjoy these podcasts with you. The last one we did was like 10 months ago. We seem to always do the annual kickoff show and then you go off and get into the washing machine of life and get basically thrown around for like 10 or 11 months, as do I. And then, you know, someone presses pause and says, wait, these two should speak to each other again. And then here we are to do exactly that. So, so welcome.
[00:00:53] Speaker B: Thank you. And I'm excited to be back on your podcast coast. Thank you for having me.
[00:00:57] Speaker A: No, it's a great pleasure. It always is. So let's jump straight into it and let's look back on the 10 months or so since we spoke. I'm curious about what some of the wins have been in the market that might have surprised you, Specifically your biggest win, if you're willing to share otherwise, any of the wins that you might have observed out there as well. And as I say, was it a surprise? Was it something that you expected? Give us the good news part of the report card here.
[00:01:22] Speaker B: I guess I can't speak of my own book. My approach, I have to be honest, is that I don't spend a lot of time during the year just looking at the market, you know, sussing out opportunities, et cetera. What I tend to do is that once a year, annually, kind of sit down, look at the trends, you know, so based on what we're seeing in 2024, what we think 2025 would look like. And then on the back of that I try and think, okay, cool, so how do I then position my portfolio? And when we talk about that, I kind of think of it goes in three buckets in the sense that your savings bucket remains the same. So it's either in money market or your income fund as well, or flexible income if you're into that. Then when you get to your like medium term bucket, like three to five years, I typically put it into balance funds so the position that I'm going to talk about here is more in a bucket, which is basically more than five years, which is more wealth creation or aligning it as a complimentary to my retirement. And essentially what I've done, I mean it's pretty simple, basic weightings. Like I've got 30% in the local market because I feel like I've got a better understanding of the local market. And it's normal ETFs, you know, the Satrix Top 40 and then offshore, it's been a mixture of the world versus the develop developers versus the developing market. So I've got a slight overweight to emerging market. I kind of like the story, especially in terms of what's happening in China as well as in India. So I did that in December, but. But then you had tariffs. You're like, oh my goodness, what's going on? It was like, oh shuck, should I be doing anything? And over and above that, obviously you got your own personal portfolio. I don't know how you felt. But then we're also having clients saying, is this the time now to sort of sit out in the market? I'm like, no, no, no, that's not what you do. You know, this is like a long term portfolio. You've made this decision, you know, stick it out. But I have to say, I mean, 10 months later, both the local market has been roaring. I think we'll get into it in terms of what the drivers and of the offshore market, I think my overweight to emerging market versus DM has actually also benefited quite handsomely. I've missed stuff, but I want to hear you before I share stuff that I've missed in the local market.
[00:03:19] Speaker A: Yeah, look, there's always the misses, right? So a couple of things that I just want to comment on there actually, which I really love. So having the different buckets is great. I think people can take a lot from that and that's really just risk buckets. At the end of the day, it's the immediate emergency fund stuff, then it's okay. Beyond that, I need stuff that I can at least have access to if I need it, but it's earning a decent return. And then there's as you say, the over five years wealth creation, pure equity risk bucket. And I actually think it's pretty cool that you sit once a year, figure out what you want to do, allocate accordingly or at least have a plan accordingly, whether you allocate during the year or not, and then look again down the line or if there's something major that's changed while you get on with your day job. I think that's a very healthy relationship with investing and I think a lot of people could do well by emulating some of that because there are far too many people who kind of treat the market like an overexcited Jack Russell is just barking all the time. You must give it attention. I have to do something now. That's not true. Not doing something is also a choice. And just leaving your money to compound is actually often the smartest choice. I would encourage listeners to go listen to the podcast with Kinsley from Satrix, which would have released just before this one. Go and have a look because there we actually spoke about how valuable it would have been to buy the dot com crisis and then just ride it out. Now obviously that's one specific example that's worked out brilliantly, but there's a good lesson in there. JC Top 40 Duma. I can't believe you're doing this podcast. Aren't you retired on a yacht? If you had a lot of top 40 this year and you're basically a gold baron, well done.
[00:04:43] Speaker B: It was purely by pure densification and there was no super thinking around that. So I've really benefited from being in the right portfolio that actually gives you the right exposure in terms of what is done well in the South African market.
[00:04:55] Speaker A: Well, well done. Because it certainly did do well and you would have done very well out of it. So good job. I'll touch on a couple of my winners. I've had a few that made me very happy this year. So I really timed it beautifully with process. Right at the start of the year share price, did this weird reaction to something happen and I thought no, no, no. I really like the new CEO. I've been waiting to get in. It's kind of been on my watch list. I was waiting for weakness and my process position is up 80%. So that's rather delightful.
[00:05:19] Speaker B: Nice.
[00:05:19] Speaker A: International tech has obviously continued to do the things I'm mildly terrified about when this bubble pops. Not if this bubble pops, but all of those companies are in my over 5 years bucket like yours. And the reality is if slash, when it pops and things drop hard, I'm waiting. I'm waiting at the bottom. Thank you very much. I'll add to my favorite positions that I hope will money for me over literally decades.
[00:05:43] Speaker B: I see. So you're saying you're not in, you're waiting.
[00:05:46] Speaker A: No, I mean, I mean I'm just waiting to buy more. So the point is I'm not selling. So I am deeply in. I continue to have to manage myself in terms of not taking profits and not saying, oh, the run is over, let me get out. Because then obviously you create a tax event for yourself is the first point. And the second point is that it can just keep going. And even if it goes another 50% and then it drops 20, guess what? It wasn't a smart move to wait for the drop. You've still lost out.
So that's the point is it's hard to time these things. I think timing the sale is really difficult. I think timing a sensible purchase in some ways is easier. That has started to become my approach to the markets. Other single stock win that I'll call out Weaver fintech. There's a local one for you. Really happy with how that's gone. The little buy now, pay later business that's up more than 50% since I bought and then ETFs. So tech, as I spoke about, I've still got some nice exposure into some of those. What we spoke about at the beginning of this year, you may recall, we did a bit of a rent versus buy situation. I said to you, you know, for the time being, I'm positioning a good chunk of my tax free savings in REITs, because I think there's still some upside in some of those property names. They're paying good yields. That's pretty much been what's happened. And the property market has gone from strength to strength. They're doing capital raising now, which is always a sign that things are getting a little bit hot, but not quite there. So that's still a healthy market. I'm still very happy with that. I haven't bought a house. I did change the target area, but we're not going to. We won't get into all the details on that. If someone wants to listen to rent versus Buy in detail, go find the podcast I did with Duma earlier this year. TLDR is I'm still renting, still happy with that, still buying rates in my tax free savings account. So those have been some of the wins. I can't say that any of them have been massive surprises because I bought the stuff I bought because I thought it would do well, if that makes sense. So it's more the stuff that I maybe missed. I had some gold, obviously. I wish I had all the gold. Yeah, that would have been amazing. Everyone wishes that. That's just how it goes. What's been your biggest disappointment? Because I've definitely had a couple of those.
[00:07:43] Speaker B: It is exactly the same thing that you just mentioned. It's more the Mrs. Then disappointment in this current environment. And for me it's gold definitely. And as well as resources, more like the resi. Because our resi has done exceptionally well. I give myself a little bit of leeway and say look, I mean I really didn't do the work and not having done the work and now you want to participate on the next biggest craze. It's also problematic because you know you're going in for the wrong reasons. You're going in because everyone else is sort of talking about that specific asset class or that specific strategy. So what I've actually now told myself again now in December when things quiet down, I do want to spend some time just understanding the resource market in terms of where that's going, whether that's going to persist. I mean there's also talks about the central banks are concerned about the policy stance of the US trying to undervalue the US currency in order to compensate for the tariffs around trade. So which means that central bankers will buy more gold. So the gold bulls are saying this thing is going to continue more. So I want to spend some time, just get my own understanding in my own position in terms of is this an asset class that I want to actually take a strategic weighting from my equity exposure maybe at 1% or 2% of my total portfolio. So those are things I'm sort of weighing up at the moment.
[00:08:55] Speaker A: Yeah. So that's the topic on everyone's lips at the moment and at the time we are record this. So it'll go out a couple of weeks later. We've actually finally seen gold roll over a bit. It's dipped back below $4,000 an ounce. So I had a look the Satrix Raisi ETF which is a really nice pure way, it's not a gold etf, it's the resources index. But because of the shape of the South African market, there's a lot of gold in there. And that ETF is up year to date, 87% at time of recording. But it has come off pretty hard from the 52 week high. Let me actually just work it out quickly because it's fun. See this is the dorky things I do is oh, how far off the high is it anyway? It's over 18% off roughly from sort of recent highs. So that's a nice little healthy correction there. And I am actually looking at doing a bit of rotation in my tax free savings account. So the RESI is kind of on My shopping list, but I'd like it to come down more. I think there are a lot of good reasons why gold long term remains solid. I mean, you've raised them there. It's the state of plain central bank policies, etc. Etc. But things do correct. Things get hot, they extend, then they come back. How markets work, if you can kind of time those pullbacks nicely.
[00:10:03] Speaker B: It's all about now valuation. So you want to get in at the right time. Even from a tariff perspective, the US obviously has slapped in the tariffs in different sectors of the market. And the only market that actually hasn't been taxed or given a tariff is the precious metals, because the US want them. So that's at zero, which means that there'll still be demand for those specific commodities as well as that Pacific sector. So that sector will probably continue to do well. But you want to get in at the right time. You know, you don't want to overpay for a sector or a company.
[00:10:31] Speaker A: Yeah, it doesn't matter what you buy. If you overpay, it's going to be trouble. And the other thing in the raise is to look at the platinum group metals miners, the PGMs on a charge at the moment.
[00:10:40] Speaker B: Yeah.
[00:10:40] Speaker A: The narrative coming out of all of the international car companies is that they assumed too much around electric vehicles. I mean, the Europeans just keep pushing this narrative and the rest of the world is really not as interested in EVs as they are. So that's good for PGMs because that's the primary use for them. Good for the South African economy, thank goodness. So, you know, we'll take the wins. We'll take the wins where we can get them. We need the money to be flowing into Rustenburg, like the great listing.
[00:11:03] Speaker B: We'll take it. We need all the good news.
[00:11:05] Speaker A: No, we do. We absolutely need the good news. We do a lot of things wrong and we make things harder for ourselves. It's like Befana qualifying. We made it as hard as possible. That's what we do with our economy as well. Anyway, biggest disappointments, my side Dumas. So I'd love to be able to tell you that it's only things I missed. Unfortunately, it's things I own, so that's a bit sad, but it is what it is. So I wish I'd sold Cashbold at the end of last year because I bought it at the right time last year and then rode that kind of post GNU exuberance. It got very silly and I should have let it go, but I was like, no again. I don't want to let it go. It's a long term thing anyway. It's written all the way back down. So I recently added some more because Cash Bolt now is a better company than it was a year ago when I bought it. And it's at roughly the same price, so fair enough. It's still in the long term bucket. I still like the underlying story around them. Just ticking things up over time. Interest rates hopefully will come down. It's just some exposure that I do want in my portfolio. That's a small position though. And there it's just profits that I missed out on taking rather than in the red. There are places where I am in the red. Lululemon, by far the worst one in the US market. Sure. That has turned into a lemon. Yeah, I know it's not great. Apparel brands, hey, you invest in apparel and FMCG at own risk. You really do. The biggest brands in the world can turn you into a pauper or a kin. And it's hard to sometimes know which way it's going to be. But I can tell you the one that's upset me, like sincerely irritated me, is Accenture. And that's because my theory was, okay, Accenture is a management consultancy, but they're very focused on a lot of AI stuff or just tech stuff. So in a world where corporates, governments, etc. Trying to understand AI, surely Accenture is in the pound seats. Like, surely they'll do well. And I was right, kind of in terms of, yes, they have got demand for their services. But the thing I missed, and that they clearly also missed was along came Donald Trump and there was a changing of the guard in terms of the U.S. there was Doge, there was cost cutting, and the U.S. government's a huge client for Accenture and they were totally on the wrong side of that. Got absolutely hammered by that. To the point where in Accenture's last earnings transcript, they're talking about doing a partnership with Palantir because obviously Palantir is so close to the Trump administration. So, yeah, you know, that's. It feels like I'm talking about an African government story. Right. It's like big changing of procurement and then one company gets thrown out and the other one who knows them too well is in. But that is the United States government, ladies and gentlemen.
[00:13:20] Speaker B: That is true.
[00:13:21] Speaker A: The US is just South Africa that went to private school.
[00:13:23] Speaker B: Yeah. It actually reminds me, remember way back we had Kijima Technology when they were actually listed.
[00:13:28] Speaker A: Yes.
[00:13:29] Speaker B: And that was exactly the Same thing. I mean, you were banking on the government contracts, essentially, yeah.
[00:13:34] Speaker A: And that was my own fault. I mean, I didn't realize just how much exposure inside Accenture was US Government focused. So I've bought the dip there a couple of times and we'll see what happens long term. So look, if you're going to play in single stocks, you're going to get some winners and you're going to get some losers. That's a reality that I'm comfortable with. And anyone who plays in single stocks needs to be comfortable with that if you're going to do long term. ETFs, the market long term, on average goes up. That's the beauty of it, right? That's kind of the point.
[00:13:58] Speaker B: Yeah. Because thanks to diversification. But since you're talking about the us, I'm interested to get your take the big drivers in terms of performance at the moment. Is anything that is AI or AI related? All those stocks have done exceptionally well. Are you concerned that that price has not been backed up by the earnings? Do you think those stocks are overheated?
[00:14:17] Speaker A: So I recently became more concerned with some of these deals that Nvidia has done where it's like that Spider man meme, you know, with all the Spider man looking at each other, pointing, it's like, oh, wait, you know, I'm buying from you and you're buying from me, but I'll invest in you and I'll make your market cap bigger. It's very dicey. That is like classic top of the cycle behavior. The other thing I'm worried about is I hear really good stories about AI implementations out there actually doing the things. And then I'll have my own experiences with Copilot where I'm just like, this is nonsense, just absolute rubbish. I mean, literally this week I asked Copilot to go and download because I couldn't get the Netflix investor relations website for some reason. Wasn't working properly for me. Yeah, I thought, okay, wait, in desperation, maybe I can go and fetch this PDF for me so I don't have to go hunting for it on the SEC site. Ask Copilot. Can you get this PDF comes back with, oh, these are the PDFs. Would you like me to download it? Great. Yes, I'd love you to download it. Comes back. You can download it from this link. Thank you Copilot, for completely wasting my time. And some electricity and some water along the way. I've had a few of these experiences with Copilot.
[00:15:18] Speaker B: Yeah, you need to have patience. But the Copilot feature is actually quite smart of Microsoft to do that because that's like the easiest way to get into the enterprise space. I couldn't see a world where ChatGPT would have able to convince big corporates to actually adopt it.
[00:15:31] Speaker A: So it's exactly what Microsoft did with teams. Right. And just smashed Zoom. So product bundling is their game and that kill off the competition. That ethos at Microsoft was built by Bill Gates from the start. It really was. It was literally how do we just crush everyone else through product bundling as far as we can do it? So maybe to give a better answer to the question, my AI position in my tech positioning is very focused on the market leaders. I'm not buying any of the super frothy all of a sudden everyone wants it kind of names like Oracle comes to mind. I mean that share price went parabolic. I would love to have owned it before that I didn't. Are definitely not chasing it now because if there's a rug pull in AI, those are the share prices that will lose 60, 70% of their value. Whereas Microsoft was a great business before AI, it will still be a great business in whatever version of AI survives. Hence that's my biggest individual position. Microsoft for exactly that reason.
[00:16:24] Speaker B: I hear you. I'm more now sort of orientated to the emerging market in terms of things that I'm looking at. Have you taken a look at China? It's an interesting market because there are two sets of stories. The tech is doing well, but the local demand is quite challenging. You know, there's a lot of deflation that's happening in that market and they've tried the stimulus. It hasn't worked. People are not buying, which is like the weirdest thing ever. Everyone's sitting on cash.
[00:16:45] Speaker A: It is fascinating. Right? So I have a small exposure to a China etf, but it is pretty modest. I do have a decent size positioning process which obviously has looked through to Tencent. So you got to take that into account as part of your China exposure. And then I also look at the extent to which I have consumer brands because they. China is a big story. Like that's a really important story. So China continues to fascinate me. Bluntly, it really is interesting. It's true for all the emerging markets. I mean there's a lot of good stuff happening in emerging markets actually that is worth looking at because where the wind is not really happening. If you look at Europe, for all of the noise around, this is Europe's time to shine. And now they have to really Come into their own, in reality, disappointed.
Yeah, like the European innovation is basically an oxymoron. There's really not much of it. Their automotive sector has been murdered by the Chinese. They've got like two decent sized tech companies, one of which is asml, which is in the AI and chips or chip manufacturing space. So obviously look through into AI that's done well this year. The other is SAP, which has been very sideways. I mean, it's software as a service, you know, how exciting. And even the US software as a service names are getting hurt. Actually, Adobe, Salesforce, they've both had horrible years. So it is interesting. I think it's great to be in South Africa this year. And that's why I was saying your JSE, Satrix Top 40 ETF, it's fantastic. That's the one you wanted this year because you've had the diversified exposure. Well, to a point. I mean, obviously there's been one or two big drivers of that performance. Of course, it's never the case that all 40 companies do well. What's happened this year is that a big portion of the market has done really well and that's worked out. So I guess the point is diversification remains your friend. The theme that's come through on many of my podcasts with Satrix team members, and that's because it's true, you've got to try and spread your money. You can look like a real hero one year in a highly concentrated portfolio, but at some point you are also going to get hurt. This is just how markets work.
[00:18:33] Speaker B: Yeah, it is what it is. But that being said, I'm also super interested, you know, when I actually sit down at the end of the year and just look at opportunities and try and see if I want to rotate my portfolio. So I hope I still maintain the same buckets. So looking at the emerging markets, seeing if they have opportunities between China and India, because India is also a place that's also looking quite interesting. But I mean, performance hasn't been great. It has gone sideways somewhat.
[00:18:55] Speaker A: Yeah.
[00:18:56] Speaker B: And it's just so I still want to see that when it comes to sa, I mean SA Ink stocks, if you look at them, they haven't really done exceptionally well. It's been primarily your telcos, your resource companies, as well as Naspez and process. That's pretty much what has been driving the market in South Africa. But we really need the GNU or we need the Government of Unity to actually come to the fore. I'm hoping also this gray listing will help somewhat, at least. Now you know, we back, you know, we're getting foreigners now buying bonds. That's also quite positive. So I don't know, we have to be optimistic. But at the same time you don't want to be buying these opportunities at overvalued prices.
[00:19:33] Speaker A: Absolutely. That was one of the things I wanted to ask you. Sort of where in the market are you seeing some interesting opportunities at the moment? And I think you've touched on it there, which is SA Inc. Has largely been left behind by the rally. I mean that top 40 performance is masking a very bleak year to date on SA Inc. Less bleak if you look, versus before elections last year. Because what happened was you had this huge run up to the end of 24 and then we came into 2025 with a lot of promises in those stocks that then didn't materialize. Plus macro level tariffs which then really hit global markets in certain areas pretty badly in basically emerging markets outside of stuff like gold. So a lot of those companies were sold off. Cashbold, perfect example. Cashbuild's business, like I mentioned earlier, it's better now than it was a year ago, but the share price is exactly where it was and in the meantime it went bananas, you know, purely based on promises. So a lot of essay Inc stuff is getting ignored. I mean I recently bought into City Lodge because.
[00:20:30] Speaker B: Interesting.
[00:20:30] Speaker A: Yeah. So this is how the South Africa market behaves. They release results, the results for the year are kind of okay. But there's this nugget in there about how it's picked up so much in the couple of months since financial year end, like materially picked up thinking. So okay, that's pretty interesting. And the share price just doesn't respond. It just goes sideways, flatline.
It's like watching Grey's Anatomy and it's just horrible. I mean they're like, hang on, this is an opportunity. Because if that kind of narrative goes out on a US stock, the market goes nuts. There's 10 interviews on CNBC and the share price is up 30% because someone said the word AI in a transcript. So it's frustrating. You have to wait for the value catalyst in South Africa. You have to be patient but at least you know you're buying something at a rational valuation, which I generally speaking have an offshore bias. But I can't bring myself to go and throw money at some of these valuations we're seeing in places like the US and the Rand is actually doing pretty well. Yeah, that's the other thing you got to remember if you go take Money out, you go into dollars. You go and buy an overpriced, thinning dollars. The rand keeps getting better. The dollar thing goes sideways or drops. You know, you're going to be pretty grumpy if you compare that to the top 40 ETF you could have bought. So it is nice to see the local stuff looking relatively more interesting now. And that for me, I think, is what the story year will be. I'm hoping at least some of the JSE like the really good mid caps and some of the small caps and there's a lot of rubbish on the jsc. There really are a lot of companies that are underperforming, but there are some goodies and those are worth finding. So maybe that should be your December reading.
[00:21:58] Speaker B: That is my December reading. It sounds like, you know, one has to be contrarian. I think with the current holdings that I have, I'm not missing out in terms of what's happening in the market. I will get that momentum. I do have exposure to all these themes that we've spoken about. But, you know, for where I think the opportunity sits, it's these unloved sectors or regions that, you know, one has to do a bit of homework and you start putting a position there and it will turn around eventually. So that's the work I want to do come my December.
[00:22:24] Speaker A: Yeah, absolutely. And that's where stock picking can be really fun. So it's so important to have those ETF building blocks. Make sure you've got your broad market exposure. That's the truth. But a little bit of stock picking on top can be a really fun way to engage in the markets. I'll give you another example, Dima. So remember a little company called eoh. Now it's called Ioco. It's been fixed up. It's a lot less dodgy than it ever was, that's for sure. I mean, it's solid now, mind. A lot less dodgy. It's been fixed. And kudos to them.
Share price 74% up year to date. They released results in the week of us recording this and they put out guidance for free cashflow next year that suggests that they're on a free cash flow yield of like 14% in real. That's really solid.
[00:23:03] Speaker B: Where would you get that?
[00:23:04] Speaker A: Right? So go and read the stuff. That's if you want to track these kind of JSE mob caps, watch when the stuff comes out on sens. Go read it. Go read the source material. Certainly read Ghostmail, read anywhere else. Go and do the research because it's really fun and it can really pay off. And I'm hoping that in the next year we'll start to see some more catalysts for a lot of these JSE companies that deserve a break. A lot of them don't, but some of them really do.
[00:23:26] Speaker B: The nice thing is we do have professional analysts that are covering these markets. So that valuation will definitely there will be an unlock eventually, which is the beautiful thing about our market. So it's not just largely driven by individuals. We also have institutional buyers participating in as well.
[00:23:40] Speaker A: Absolutely. So that seems to be where some of the opportunities are at the moment. So, Duma, we've covered off a lot of the discussions about what we wanted to chat about in the markets this year. Stuff that's gone well, the stuff that's maybe not gone so well. It's been really interesting. Thank you. And something that you wanted to raise, which is obviously coming from discussions that you've been having in the market with clients, with retail investors, and presumably with business owners, because that's what this is themed around, and this is something you wanted to discuss in this podcast, is the difficulty of managing a personal finance budget versus a business budget, which is really interesting. So let's dig into that. What are some of the things that have come up in conversations for you? Why do you think this is relevant?
[00:24:19] Speaker B: Thanks guys for raising that. You know, so we've been engaging, you know, clients, specifically entrepreneurs, small business owners. Guys are doing side hustle. Also the creator economy, there's a big focus within our business to also look at that. I mean, what we've seen is that there's been a huge focus on personal finance, but what we never really spent a lot of time on is to talk about, okay, you've got your personal finance, but how do you also think about it in terms of your business? Can you use the same tools to assist your business in one way or another? And I guess the first starting point, what actually surprised me, I don't know if that's the case with you. A lot of business owners, especially if it's a one man shop, is that they tend to mix their personal bank account with their business account. It's like one of the same thing. So when we start talking about personal finance slash investments for them is like they can't actually untangle the two. So I first want to just get a sense from you, you know, have you built your business distinctively to say this is my personal account versus the business account?
[00:25:16] Speaker A: So yeah, I mean that's been an interesting journey for me So I registered the finance goes as a separate business basically from the start, because I wanted it to be distinct. But I think even if you take that route and you have a separate bank account, the separate legal entity, the whole story, you still have to be very careful when you start a business that you, number one, keep the business income as clean as possible. I mean, take advantage of the things you can do. But you've got to be very careful, you know, don't put silly personal things through your business. Not Diesel, because it can get you into trouble down the line with sars, but it also just makes the whole business hard to understand. So commingling expenses is hard. The other trick I think is, and this is something you really have to get used to, is when you're earning a salary, the number you see in your account is after tax, after deductions, usually after retirement savings. So after all of these things, right, when you're running your own business, the number you see is the number before you pay that, before you pay income tax, before you pay anything else, it's this much higher number, but it's not all yours. And it takes a little bit of adaptation. You know, you quote a client, something or whatever, and it's this number, and it's like, wow, that's great, you know, and then you have to remember, yeah, well, this much for that. That for that, you got to cut the pie. Correct? Yeah, into a lot of slices. So that's an important thing to remember. Maybe the other thing that I've applied, which I have found really important, is I pay myself a salary out the business, and I pay myself the same salary every month, and I've set that salary significantly lower than what the business earns on average. And the reason for that is that it forces me to live to that salary. And I've been really lucky in this journey. It's doing well, and that's great, so I can do it. But it kind of creates a buffer because I think it's far too easy, specifically in a small business to say, oh, you know, things are going better, great, let me just adjust my lifestyle up. Stuff goes away, it comes, it goes. You have good months, you have great minds, you can have a relatively bad month. And just dealing with that variability in income requires a huge amount of discipline, because it's not a reality. When you have a salary, getting the same salary every month and you do with it what you do. I will say this, though. As a small business, it actually creates a lot of discipline. Whereas I think people, when they earn Salaries. They just assume that salary is going to be there forever and it's just not actually real life. Like retrenchments do happen, jobs do get disrupted. We are in an AI era. Actually talked about this with Laura in a couple of Satchik's podcasts ago. This point kind of came up as well, which is really interesting. So I think there's an element of discipline as a small business owner that you can bring in that actually puts you above where salaried employees often behave in terms of discipline.
[00:27:44] Speaker B: Just on that, I mean, I think you raise a very good point around salary and how you basically push the salary. Right. Is that based on the design and how you thinking about it? It sounds like, and I want you to correct me or not, because then it gets into this whole passive income discussion. It sounds like you basically have done the budgeting based on, let's say your personal expense has been covered, but is there also a portion that set aside, for example for investment or buying a tax free savings or retirement annuity and the likes within that set arise amount that you've set aside from your business or which is what we are seeing mostly is that a lot of business owners see their business as their investment and their only investments.
[00:28:22] Speaker A: No. So sure, yeah. Anyone who's assuming that their business is their retirement plan has never seen corporate failures, deals go wrong. I've unfortunately seen a lot of that. And I know how hard it is to sell a small business. So my strong recommendation to anyone with a small business would be to not rely on that small business as your retirement savings and everything else because then all your eggs are truly in one basket. That then is your income. It's supposedly your retirement. It's just. Yeah, it's not right. Strongly recommend not doing that. So in the amount that I pay myself as a salary, I leave an allowance for what would be the correct sort of percentage excess over and above my monthly expenses to be invested. So the investing is happening even out of my salary. And then I come from an investment banking background, so I love my children a lot, but I love bonuses too. And so what I do is, you know, every year I pay myself a bonus based on what I can. And then, you know, what I do with that is what I do with that. So that's kind of the way I've structured. I've almost tried to emulate some of my old investment banking life with that behavior. It just works well for me. But sure, I would certainly say business owners, you've got to be diversifying your wealth. You really, really do. It's almost more important. When you're a business owner, you definitely cannot be relying on this one thing. You are then a hyper, hyper concentrated portfolio in a small business that relies on you. That's. Yeah, that's way past my risk to.
[00:29:40] Speaker B: Thanks for saying that, Ghost. I mean, that's essentially what we've been also telling clients. And as I said, we've gone on and on about ETFs, how simple they are, how easy to understand. But what's also been quite surprising with the engagement is that a lot of business owners, obviously, they do appreciate risk. When you're running your own business, you feel like you're in control. So when you have that excess amount of money, they tend to put it in cash as if it's like an emergency fund. And we're like, but, you know, you should be taking more risk. This is like towards retirement. I think guys view their own personal wealth differently in terms of how they're running their business. It's been quite difficult and challenging to actually get them to understand that. Actually, you need to start thinking a lot more, you know, deeper and seriously in terms of how you build wealth alongside your business in a passive income strategy.
[00:30:21] Speaker A: And it's funny, right, because any business owner is a risk taker by design. It's a guarantee you are a business owner, hence you are a risk taker. But then, and you really do get two types of entrepreneurs like this. Like, I have friends who are entrepreneurs who are the worst kind in the market. Where are they? It's basically gambling, essentially. It's like, what's hot? Let me have a punt. Okay, cool. You know, they're almost tickling their need to gamble a little bit, you know, and certainly better to gamble on stocks than to go and do sports betting, which is obviously all over the news at the moment. But better than that even is to go and actually invest. And it is interesting how you then get the other type of entrepreneur who just sits in cash, basically. It's almost like they are so scared that something goes wrong with their business that they almost refuse to take any risk of any other kind, which is also not right, you know, and it's all this behavioral finance stuff. And I can confirm the journey as an entrepreneur. It is hard. You've got to be tough. You always feel like you're one phone call away from some or another kind of disaster. That's part of what makes me very hesitant to buy a house. I suppose if I could say, what is my little personal finance ick, you know, Coming from being a business owner that I am very nervous to take on a bond because it just feels like many millions owed to a bank. And yeah, it scares me, you know, I'd much rather rent, invest the excess and be liquid. Liquidity is your friend. It really, really is. No one ever got anything repossessed because they were too liquid.
[00:31:40] Speaker B: It's usually the other way around. I think where we started off, remember I was talking about the buckets, right? And I think even for business owners or people running their own business, the biggest feedback we get is that they're too busy, they don't have time to do this. So that's why most of the times investment is actually sitting in cash. And I think it's important, you know, especially at the end of the year. So one just takes the time out, they look at their financial situation, think about the buckets, make a decision, put down a debit order, forget about it, revisit again in the new year, that's the approach one can take. And then during the year you're busy trying to put out fires, growing the business, finding clients, etc, etc. I think for them the difficulty of trying to be active in the market, they just don't have the time to do that. But I think with the products we've got, from an ETF perspective, they're easy to understand. You can just sit down a week, maybe a week and a half in any given year and just plan your life accordingly, being up to the new year.
[00:32:31] Speaker A: So, yeah, the encouragement obviously to business owners is to just keep building that diversification. And maybe a nice way for those business owners to think about it is that we're so used to as business owners, you get an income, right? You're chasing income all the time, whether it's sending out an invoice or whatever it is. But the best kind of income, and this is really hard for business owners, is passive income. You know, while you are sleeping, when you are exhausted after a hard night or a hard day rather, you want your money to be working for you. And ETFs can do that, right? Because they pay dividends and you can pick ETFs that have a bigger dividend yield. So I know that something else that's close to your heart is ETFs as a tool for passive income. Maybe walk us through that so that, you know, listeners can understand what does that opportunity actually look like? What do you mean when you say passive income and using ETFs to achieve that.
[00:33:16] Speaker B: So I mean, just going back to where we started Is that every business owner in my mind, in terms of how they need to think about their investments specifically, is those different buckets, you know, the, the short term, the medium term as well as the long term, and be very clear in terms of what goals you're trying to achieve. And the beautiful thing about all these ETF products is that they're very easy to understand and you can make a decision on any given year, like let's say December is your time, or you just sit down and say, okay, I just want to look at my plan and plan accordingly. And then during the course of the year, depending on what strategy you invested in, for example, dividend yield, there you get a nice dividend payout. So the money works for you whilst you're still working on your business. So it's something that you don't need to check during the year. Be concerned about, you know, in the background, your money's growing, dividends being paid out. You can decide whether you want to actually cash out or you want to reinvest. But we do try and encourage clients to do two things. One is to reinvest their dividends and secondly also to make sure that they actually set up a debit order account and get into that consistency of just making sure that your future is also well handled. Over and above, of course, we're assuming that all business owners will be successful and they'll also be successful in terms of selling their business. But you have to hedge your bets. At least then, you know, whilst you're running your business, at least you've got a pot of money that's set aside in any eventuality.
[00:34:30] Speaker A: Yeah, I would agree with that. And it really is great to build up that working capital, build it up in your business, get it into a proper interest paying account, earn the interest in the business, do that in your personal life, build up those ETFs, earn the dividends. Like that is how you start to turn life from hard mode into easier mode. I don't know about easy mode. I'm hoping that comes somewhere down the line. But right now I think the most we can hope for is easier mode. So, yeah, lots of tools to do that. Duma. As always, we've had such a fun chat about not just the markets, but also just adulting and making progress in this life. And this time we spoke about business owners and how they should think about the world. Perhaps I would really encourage Justin's, go back to the one we did in January if you're keen to hear about the rent versus buy argument. I think everything we spoke about there is still valid. So yeah, it's just always fun doing these with you. Duma. Thank you so much. I look forward to the next one. I guess it'll probably be early next year and we can talk about your 2026 plan. So thank you as ever, for your time and all the best with the December research. I'll be interested to hear what you figure.
[00:35:27] Speaker B: Thank you guys. Yeah, you can hold me to it. We should have an interest chat in the new year.
[00:35:31] Speaker A: Cool. Ciao. Satrix Investments Pty Ltd. And Satrix managers RFPTY 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.
