IF IT'S TOO GOOD TO BE TRUE, IT USUALLY IS

Fellow Investors,

We see a lot of investment schemes out there promising huge returns. Common sense will tell any investor that if they want high returns they MUST take high risk, although this is not always true. Have a look at some financial theory about the efficient frontier http://en.wikipedia.org/wiki/Efficient_frontier

Please do not hand over your hard earned cash to snake oil salesmen. Rather check with the FSB for registration and how long they have been in business and ask for references etc etc.

Inflation plus 6% or +10% =12% to 18% per annum return, which is at the top end of the return spectrum. Inflation plus 3 is more the norm.

Some salesman will have you believe you can double your money every 6 months or year (they are proposing using gearing to buy property or other geared instruments) but will not tell you that you will lose more when interest rates rise to 15% (like at the end of the 90’s) and with rates as low as they are now, there is only one way they can go....up! When you buy property or bonds you make a capital loss when rates rise, because fewer people qualify for loans at the banks and as such the buying pool becomes smaller and bad debts start to rise as over geared investors cannot service their bonds. This will follow a glut of property to hit the market as everybody wants  to sell to get out of the vice grip hold of paying higher interest rates. If you want confirmation about this, do not ask the salesman, ask someone you trust that has seen at least 2 inflation and interest rate cycles. A salesman is called a salesman because he needs to sell you something.

Be very, very careful, invest into listed instruments, do not gear or take excessive risk, do not borrow money to invest, do not believe everything you hear – do you own research! And most important of all, work with registered financial advisors that have been around for a long time!  

We here at rock Capital have been around for a long time (since 2006) and I (Pierre van der Walt) started my career in the stock market in the early 90’s. We are a wonderful team of very competent and motivated investors and money managers and there is a very good reason we have been around for a long time. 

Some warning signs are a person changing jobs every 6 months, changing his company’s name every year (thing with these unlisted share peddlers, they are supposedly selling you shares that will list on the JSE in 6 months…blah, blah, blah…); check with the FSB at www.fsb.co.za click on FAIS in the top right hand corner and then choose “search for financial Services Providers”. Make sure that you are dealing with registered and competent people.

As the saying goes, if you can’t do you teach.

Stay safe

Your Rock Capital team