Callers’ questions: Dubai, government bonds, single-stock futures, starting to invest, and gold.

ALEC HOGG: Something brand new for this holiday season, our Investment Hotline. Magnus Heystek, you tell me you actually started this 20 years ago this year - these phone-in programmes.

MAGNUS HEYSTEK: I'm very ashamed to say it's 20 years ago when I started on another radio station.

ALEC HOGG: Not a grey hair on your head.

MAGNUS HEYSTEK: Don't you worry, full of marks. It's been a tumultuous 20 years, if you think back. Like you in journalism, you've been around for 25 - it hasn't been smooth sailing. It's been up and down and it's been volatile and unpredictable. So it's been a while. But yet, throughout it all we survive, we make money here, we lose a bit of money - but I think we are in a  better place than we were 20 years ago. There's no question about that.

ALEC HOGG: I wish it was only 25, Magnus. I'm celebrating three decades at the end of this year.

MAGNUS HEYSTEK: You know how long we've known each other, Mr Hogg. You joined, I think, it was the...

ALEC HOGG: Citizen, 1980, 7th January. All those years ago. I still feel as young as the day ... I tell you, very wet behind the ears then.
    The telephone number to call us on is 011-684-2770. Magnus and I will do our best to answer your question.
    But you talk about tumultuous times. Dubai is extremely tumultuous at the moment. Many South Africans have been there, they've lived there, they've worked there. They may have had some kind of exposure there. Hopefully they haven't invested too much money there, because it looks like the whole bubble is coming to a bit of a nasty end.

MAGNUS HEYSTEK: It looks like that, listening to that clip that you have just played. But if you've been there, you've seen Murray & Roberts and you've seen Group Five, and you see many, many South Africans. There are about 40 000 South Africans in Dubai, attracted there, of course, by the tax-free status and being paid in dollars. They are all running many, many large companies in Dubai. It looks like that fantasy city is really grinding to a halt, and unfortunately it looks like a while before they unravel this. It's a fantasy city, built on the extreme ambitions of the Maktoum family.

ALEC HOGG: Magnus, quite interesting that the South African investors have been targeted by people selling property from different parts of the world. Have there been any Dubai property salesmen?

MAGNUS HEYSTEK: There certainly have been. If you go to the websites, they have been promoting  Dubai properties to South Africa for many, many years. They've been having seminars in South Africa, the same kind of thing that they did with the buy-to-let in the US and in Australia. So very much. There are a lot of South Africans who stuck with ... properties or empty properties, not getting a return on cash. So I think again guys have got burnt and they believed in the good luck story of Dubai.

ALEC HOGG: Have you had any clients who have come to you and said: "Can you investigate this for us, look at these Dubai properties?"

MAGNUS HEYSTEK: We've had clients who have come and said "What do you think of buy-to-let in Dubai?" because it's marketed very aggressively and attractively. We've never gone that way. We've recommended London, which also got burnt, but I still think over the longer term London is more attractive than this place in the desert. So London definitely, but Dubai not.

ALEC HOGG: Our telephone lines aren't working - this has never happened to me before, Magnus. Nobody is calling us!

MAGNUS HEYSTEK: I think they are watching the cricket. A question where one can start, that's very important when people phone up and say: "What do you think of this share or this fund?" That's not the right way to start the whole investment process. The investment process today is not taking pot-shots at a dartboard or buying a share or two. It's a far more scientific and a far more structured thing to do. You start with the basics. Let's just start with the basics, especially for younger people. We get approached by a lot of younger people who say: "I want to invest in something - what do I do?" The basics are, first of all, make sure you don't have any debt. Don't have any debt whatsoever, because then you are not a candidate to put money into a thing like the stock market. Secondly you say: "Have you got a nest egg of six to twelve months of income? Put that aside, safe money market investment, which is not affected by the markets." And then thirdly you say: "Right, what is your risk profile? What is your tolerance to risk?"

ALEC HOGG: Having said that, our telephone lines are now starting to heat up a little bit. Mrs Watt is our first caller in our special investment hotline. Welcome, Mrs Watt from Fish Hoek.

MRS WATT: That's right. I just want to know how safe are SA bonds.

ALEC HOGG: Magnus?

MAGNUS HEYSTEK: They are very, very safe. They are guaranteed by the South African government. In terms of safety, extremely safe if South Africa goes bankrupt, like it could happen in Dubai. But on a  practical level it's not going to happen.

ALEC HOGG: So retail bonds are a good place to keep your money to make sure - it's even safer than being in the bank.

MAGNUS HEYSTEK: Indeed it is, because your rate is not bad - you are getting 9.75% on the five-year instrument. The only drawback is it's tied up for five years and you can't get hold of your money. But the return is very, very attractive and it is safe.

ALEC HOGG: Corrie is up next. Good evening to you, Corrie.

CORRIE: Hi. I'm just wondering, talking about Dubai and the way the balloon's bursting or going down, wasn't one of our government, ANC apparatchik or maybe the wife - it was a lady, I know - involved in construction in Dubai? I wonder how she's doing.

ALEC HOGG: I'm not so sure. Do you know anything about this one, Magnus?

MAGNUS HEYSTEK: No, not at all.

ALEC HOGG: I think you are probably referring to the former deputy president, whose husband was involved in construction, but I'm not sure she had anything - Bulelani Ngcuka and the former deputy president I guess would have separated their business interests. I'm afraid not Corrie, we can't help you on that one.
    But we can bring in Koos now. Hello there, Koos.
KOOS: You know, about 15, 20 years ago Magnus said he would not manage his own finances. He was going to hand it over to someone else. Now I'd like to know how that evolved.

ALEC HOGG: Thanks, Koos for the question. Oh, Magnus, [Magnus laughing] you advise other people on how you are going to handle their finances, and you don't handle your own.

MAGNUS HEYSTEK: Not at all. What I said 20 years ago - and I still say it - is I don't buy individual shares. And the reason is quite simple. To get to grips with a particular industry or sector or a particular share you've got to be extremely smart, spend a lot of time. And the very simple approach is I give it to a fund manager who has got 40 analysts and researchers and they analyse the company. My job and my function still today is to find the best fund managers, and that's my investment philosophy. I still don't buy shares.

ALEC HOGG: So perhaps a little bit of miscommunication as far as that's concerned. Let's go to Nick next. Good evening, Nick.

NICK: Good evening. I just want to pose a question to Magnus. I've had some serious bad luck in my life, but in a year's time I'll be able to invest about R25 000 a month. I'm 42 years old and need to look at an investment plan. Ill listen on the radio, thank you.

ALEC HOGG: R25 000 a month. It doesn't sound like Nick has had too much bad luck, because he's got R25 000 a month to invest.

MAGNUS HEYSTEK: Well, people do have bad luck. Bad things happen to good people. People go and get divorced, they have bad business dealings, they get ripped off. It truly does happen, and it happens to a lot of people. It's how you deal with that. But that's not the question. What I do, 43, R25 000 a month, you can cerate a very attractive and diversified portfolio. In fact, you can break it up and say I'll take 60% of that and put it in local equities, I'll take the balance and take if offshore, and I'll diversify even further. I'll choose, depending on your risk profile, I'll spread the money between three or four good equity fund managers, with a bit of property, with a bit of speculative stuff. That's how you create a portfolio. But the most important thing when it comes to investing - and this is the human element - is how am I going to react to markets going down? And you learn over time, there is a ratio - the joy of making money versus the anguish of losing money. That's the most difficult thing to work out for an individual, and that's very important. If you say "I don't mind losing money, but if I make money it's really going to make me happy," then you go for aggressive stuff. And you get other people who say, "I don't care what you do, just don't lose me money," and then you immediately know where you should be investing money. It's  a very important starting point of making investments.

ALEC HOGG: All our lines are full now. Let's see if we can get through all of them. Pierre first - hello, Pierre.

PIERRE: Hello Alec, Hi Magnus. Magnus, I am a young person and, as you said, I am taking care of the debts first. But in the meantime I am listening to the programmes and doing things like the Make-a-Million to test the waters, sort of, for when we start investing. I get thrown off a little bit by the single-stock futures. I just can't seem to get my head around it. Is there a simple way of explaining it? To me it seems like in the gearing like it is, there is always someone on the very wrong side. How does this work?

MAGNUS HEYSTEK: We don't unfortunately have time. It's a very, very aggressive and risky type of instrument. We saw it with Dealstream. To explain how it works - perhaps you should make a note and next week when we come back on this programme we can spend the first three minutes on single-stock futures.

ALEC HOGG: Ja. Pierre, just in a  nutshell, it should be used to hedge your portfolio. That's what the responsible thing is. But clearly, because it is geared, a lot of people use it to gamble with. And if you are using anything to gamble with, come with me to Turffontein tomorrow. I'm going to back a particular horse in the main race. If it wins I'll get three times my money, but the chances are it's probably not going to win.

MAGNUS HEYSTEK: It's the leverage that takes you out. It's destroying all these property companies. When the leverage turns against you it's extremely dangerous.

ALEC HOGG: Kerrin, good evening to you.

KERRIN: Hi there, Alec. I have a question about the World Cup. Do you think it will just lead to a bubble in South African investment, or will it actually contribute to our long-term growth?

ALEC HOGG: Nice question.

MAGNUS HEYSTEK: Very good question. If you look at China, China had a bit of a slump after the Olympic Games, because people spend a lot of money and the preparation for the World Cup. So you spend a lot of money, people are ready, people come, everyone has a good time, and then there's going to be a bit of a vacuum for the next couple of months. But I would say it will put South Africa in the spotlight. I think it will attract a lot of attention, possibly good attention, and longer term I think it has to be more beneficial than it's going to be negative.

ALEC HOGG: It's unlikely to be a bubble, but...

MAGNUS HEYSTEK: Not a bubble, but there will be a bit of a hiatus and a vacuum when the people go.

ALEC HOGG: David from Cape Town - hi, David.

DAVID: Hi, Alec. Thanks for a great programme. Just a quick question on gold. Very exciting to see gold price run for South Africans and gold mines. I just wondered if Magnus is bullish on gold. I know there's been a bit of negativity from the media, saying whoa, here comes another bubble. But nothing goes up in a  straight line and it's exciting to see gold has run to almost $1200, pulled back to $1140, and it's bounced right back to $1176 today.

MAGNUS HEYSTEK: David, the sad thing about the gold price and the gold shares is that South Africa's actually losing out on this gold boom, because our gold mining industry is declining. And if you really want to make money - and I've done research on that - you have to take your money offshore and put it into international gold funds, like Investec Global Gold Fund or the BlackRock Gold Fund, or even physical gold in the ...Gold Bullion Fund. Your returns offshore have been double those of South African gold shares over the last five years.

ALEC HOGG: Our last question is from John in Klerksdorp. Hi there, John.

JOHN: Just a question, I've a business, and my turnover on the business about R12 000 a month, I've burnt my fingers by buying almost a million rand of stock. What can I do with money instead of buying stock, because my stock prices have fallen a lot?

ALEC HOGG: Are you talking stock in your business, nit shares?

JOHN: Yes.

ALEC HOGG: Magnus?

MAGNUS HEYSTEK: That's not really an investment question. It's a business-related question. It's very difficult. I don't know what kind of a business, I don't know what kind of stock.

ALEC HOGG: You shouldn't tie up all your money in stock.

MAGNUS HEYSTEK: That's stock management, which is a different issue.
     That's for the calla. It was nice to get some nice calls.

ALEC HOGG: We had good calls, and a lot of them. Just stand by for next week, because we'll be back again. We'll be back on Wednesday and on Friday next week. As I say, special holiday season Investment Hotline with Magnus Heystek.

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