Category Investments

Investors likely to shun bargain buys, says Absa

26 November 2012 Absa Asset Management

Bargain hunters may flock to Christmas and January sales put on by retailers, but don’t expect retail investors to do something similar if they spot any cut-price activity on the JSE.

The prediction comes from Busisa Jiya, Managing Director of Absa Asset Management, as the pre-Christmas build-up to the annual sales puts the spotlight on “the biggest contradiction in retail investing”.

He adds: “The average shopper gets excited when the asking price drops – but at a shopping centre, not on the share market.

“For ordinary saver-investors, the sight of prices falling below previous highs should be good news; especially if their investment goals are three, five or 10 years down the line. It often represents a buying opportunity. But history shows this periodic chance to build wealth will be wasted.

“Some markets may be entering a softer phase, but the likelihood is that only committed value investment professionals will benefit.”

Jiya’s comments come at a time when the JSE has retreated from record highs above 37 400 points and many international markets have weakened.

“The price is what you pay, value is what you get,” says Busisa. “Assessing intrinsic value is therefore key for the professionals. But even non-pros notice steep slides by good companies with solid businesses.

“If you’ve used a supermarket or a cellphone brand or a bank for years and know they’re good companies and their shares are now in the bargain basement, you may see this as a value opportunity. Strangely, so few investors take the hint.”

Current weakness is hardly dramatic, but even when big “sales” are staged by the stock market, the investing public’s response is usually lukewarm.

Jiya points to the market crash of 1987, the bursting of the dot-com bubble in 2000-2001 and the JSE slide from May 2008 to November that year when the All Share Index lost 46% of its value. The Alsi remained close to bottom into March 2009, but most retail investors still shunned the bargains.

“The dot-com saga shows the extent to which wealth can be enhanced,” says Jiya. “The share price fell from $107 to $7 dollars, even though they had a good business model. A decade later, the share topped $200.

“Over time, similar wealth build-up can be achieved locally. Certainly, the ability to buy good companies for less underpins the success of a dedicated value investor like Absa Asset Management.

“Well-motivated bargain-hunting makes sense … at the shops and on the stock market.”

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