May 2018 - Page 3 of 3

GraceKennedy Surpasses 90 Billion in Revenue

May 27, 2018May 27, 2018

GraceKennedy Limited [JSE: GK] released their audited financial statement for the year ended December 2017, passing the 90-billion-dollar mark for revenue.

The company itself had a challenging year. SSL recommended clients to sell their holdings in GraceKennedy as the stock was not maintaining is normal performance. It was noted that the stock was merely stagnant, not providing much growth or even income to investors, thus being a pointless cash and portfolio space holder. However, amidst their challenging year, some sectors stood strong; its Financial and Food sectors. The increase in revenue to JMD $92.47 billion was attributable to the growth, better marketing strategies and innovations in those sectors that kept their feet on the ground.

The company stood through hurricanes and a ban on one of their best-selling products, corned beef in Brazil but still managed to prove resilient.

The company saw a 4.8 percent increase in revenue over 2016 and reported a 5.2 percent increase in Net Profit to JMD 4.77 billion, even their assets grew by a little over JMD 3 million for the year.

The group’s CEO commended her team for staying focused and proactive through the difficult times, still achieving the company’s objectives like launching new products and discovering new ways of distribution.

GraceKennedy acquired Consumer Brands and is very pleased with how both companies have meshed. Consumer Brands has contributed to the overall increase in revenue and profit from just September of last year.

Every company has its difficult times; however, every company’s aim is to not allow such adversities to let them fall. Opportunities were maximized, and revenue and profit grew through one of their toughest times.

When a company produces good results, their investors will see those results in dividends. Their earnings per share increased by 33% to $0.40 in 2017.

With proposed investment in a new headquarters, the company also received tax credits of over JMD 400 million.

The stock closed at $44 per share yesterday and has been trading around this price for some time. Investors are encouraged to add this stock in their portfolios as capital preservation with the expectation that the brand of the company will help maintain its value.

If you liked this article and want to read other great stories, try our Archives. Also if you are new to investing you can try our Investment Basics Blog.

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The Different Classes of Asset Ownership

May 25, 2018

An asset, whether a gold nugget or a working farm, can and should be compared to others when making purchasing or investing decisions.

This is known as opportunity cost.

By putting money to work for you in the most rational, fulfilling way, you can enjoy success earlier in life and with less risk.

Asset Type #1: Those That Generate High Returns On Capital

These are the second best investment because you can earn significant returns on very little money. The downfall is that you have to pay out all of the profits as dividends or reinvest in lower returning assets because the core operation can’t be expanded through organic capital additions.

Asset Type #2: Those That Appreciate Far Above the Rate of Inflation but Generate No Cash Flow

Think of a rare coin or excellent art collection.

If your great-grandparents owned a Rembrandt or a Monet, it’s going to be worth millions of dollars today versus a relatively small investment on their part. Despite this, over the years your family owned it, you wouldn’t have been able to use the appreciation in the asset to pay the rent or buy food unless you borrowed against it, suffering interest expense.

That is the reason these types of assets are often best left to those who can either:

A.) Afford to hold because they have substantial wealth and liquid assets elsewhere so that tying the money up in the investment is not a burden or hardship on the family.

B.) Those who have an intense passion for the underlying collection market and derive considerable pleasure from the art of collecting whatever it is they enjoy collecting.

I’d go so far as to say you should never collect anything about which you are not personally excited.

Asset Type #3: Those That are Stores of Value and Will Keep Pace With Inflation

Certain assets are intrinsically valuable enough that they can keep pace with inflation, assuming you bought them intelligently at the lowest price you can. While not true investments, they do provide a bulwark that can be used in dire emergencies such as a Great Depression.

A classic example of this sort of asset is high-quality furniture bought in the secondary market from antique dealers or at auction; it very well may end up not only retaining its value but beating bond yields over the holding period!

Asset Type #4: Stores of Value That Will Keep Pace With Inflation but Have Frictional Costs

This is where gold and real estate fall.

These assets classes might keep you rich, but they won’t make you rich unless you deploy massive amounts of leverage to amplify the underlying return on equity. In practical terms, that means if we were going to experience extreme inflation, it would be best to utilize leverage by either borrowing to purchase real estate or acquiring gold futures which has its drawbacks.

This is why you see a lot of wealthy families engage in something known as equity stripping (there are some asset protection reasons for doing it, but the economic returns are equally, if not far more, relevant, in my opinion).

Asset Type #5: Consumer Goods or Other Assets that Depreciate Rapidly with Little or No Resale Value

Without a doubt, when you look at the data and research, this is how most people spend their paycheck. From video game consoles to cars that lose tens of thousands of dollars the moment you drive them off the lot, new clothes to some new must-have gadget you’ll forget about in two years, this is what you find in the homes of most Americans.

Perhaps the quickest way to guarantee poverty or at least a paycheck-to-paycheck lifestyle is to purchase this asset with debt.

This is the reason lottery winners go broke.

This is the reason NFL, and NBA stars end up back in the poorhouse following eight and nine-figure career earnings.

This is the reason trust funds are exhausted.

Be very careful with the percentage of your cash flow you put to work in this category as it’s a sunk cost.

If you liked this article and want to read other great stories, try our Archives. Also if you are new to investing you can try our Investment Basics Blog.

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How Does Behaviour Affect Trading?

May 22, 2018May 22, 2018

Most investors buy and sell stocks based on emotions rather than cold, hard evidence. You may want to believe trading is based on objective information and keeping an eye focused intently on your investment goals.

But you’re only human.

You may have been influenced to purchase a stock because you saw a talk about it on social media. You may sell a stock because it’s lost some value and you’re in panic mode. You’ve probably bought or sold stocks just because it feels good to make a transaction. All these actions stem from what industry experts refer to as market sentiment.

Even if you haven’t traded based on emotion, there may be other instances where you didn’t make the optimal investment choice due to a lack of information.

Behavioural finance is a new field of study that examines this phenomenon. It looks at psychology and emotion and seeks to explain why markets don’t always go up or down the way we might have predicted.

Conventional or Traditional Finance

People have been studying finance for years. As a result, many theories and models use objective data to predict how markets will respond under certain circumstances. But these models make false absolutes, such as:

Investors always having complete and accurate information at their disposal.

Investors have a reasonable tolerance for risk, and that understanding does not change.

Investors will always seek to make the most money at the highest value.

Investors will always make the most rational choices.

As a result of these assumptions, conventional finance models don’t possess a perfect track record. Over time, academics and finance experts began to notice anomalies that conventional models could not explain.

Strange Stuff

If investors are behaving rationally, certain events should not happen. But they do.

There is no rational explanation for these occurrences, but human behaviour can explain them. Consider the so-called, “January effect” which suggests that many stocks outperform during the first month of the year. No conventional model predicts this, but studies reveal that shares surge in January because investors sold off stocks before the end of the year for tax reasons.

Accounting for Anomalies

The human psychology is complex, and it’s impossible to predict every wrong move investors might make. But, those who have studied behavioural finance have concluded that many thought processes push us to make less-than-perfect investment decisions.

These are evidenced by:

Attention Bias: There is evidence suggesting that people will invest in companies that are in the headlines, even if lesser known companies offer the promise of better returns. Who among us hasn’t invested in Apple or Amazon, simply because we know all about them?

National Bias: A Jamaican is going to invest in Jamaican companies, even if stocks in the Caribbean offer better returns.

Under-diversification: There is a tendency for investors to feel more comfortable holding a relatively small number of shares in their portfolio, even if wider diversification would make them more money.

Cockiness: Investors want to believe they are good at what they do. They aren’t likely to change investment strategies, because they have confidence in themselves and their approach. Similarly, when things go well, they are likely to take credit when it fact their good results come from outside factors or sheer luck.

How It Can Help You

If you want to become a better investor, you will want to become less emotional. That sounds harsh, but it will benefit you to take stock of your own biases and recognise where your faulty thinking has hurt you in the past.

Consider asking yourself tough questions, like, “Do I always think I am right?” or “Do I take credit for investment wins and blame outside factors for my losses?” Ask, “Have I ever sold stock in anger, or bought a stock based on a simple gut feeling?”

Perhaps most importantly, you must ask yourself whether you have all of the information you need to make the right investment choices. It’s impossible to know everything about a stock before buying or selling, but a good bit of research will help ensure you’re investing based on logic and objective knowledge rather than your own biases or emotions.

If you liked this article and want to read other great stories, try our Archives. Also if you are new to investing you can try our Investment Basics Blog.

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