Today Dispatch Live's Business Correspondent, Ted Keenan, interviews Travis McClure  CFP®, director of NFB Private Wealth Management, and Liam Graham CFA®, director of NVest Securities, members of the NVest Financial Holdings Group of Companies.

NVest Financial Holdings is East London’s giant full-service financial group, and the only listed company in Buffalo City Metro and the immediate Border area.

Between the two companies they have over 6,000 direct clients, the majority of them East London based, and well over R30bn assets under management and administration.

The Podcast's theme: Wealth creation and wealth management, when and why to start, and how people slow out of the investment blocks can catch up.

The past twenty-one months have been a roller-coaster ride, with big losses initially from both an equity and business point of view, followed by significant monthly gains and further volatility.

With so much going on, what advice are advisors providing to clients regarding their investments and the markets? Do they see opportunities? And how attractive is the South African equity market right now from a global perspective?

Podcast transcript:

Intro: This is the Daily Dispatch podcast with your business correspondent, Ted Keenan.

Ted Keenan: This morning, I'm sitting with two directors of East London's top financial company NVest. It is, in fact, the only listed company in East London. Gentlemen, would you like to please introduce yourselves?

Travis McClure: Morning, Ted. My name's Travis. I'm a private wealth manager with NFB Private Wealth, part of the NVest Financial Holdings Group and my colleague next to me...

Liam Graham: Thanks for having me. I'm Liam Graham, and I run NVest Securities in the NVest Financial Holdings stable.

Ted Keenan: I think before we kick off, if you guys could just tell us the difference between a stockbroker and a wealth manager?

Travis McClure: From a wealth management point of view, it's much more about engaging with clients and understanding the investors' personality, and getting the overall picture. We do allocate funds towards stockbroking or equities where a guy like Liam from NVest Securities would be the specialist, but my role is more of an overall financial planning role for the client, where we look at the building of wealth over time and looking at the specific needs on a personal basis. And then, as I said, there's an allocation to an equity or growth component, which would be handled by NVest Securities in this instance.

Ted Keenan: Liam, you talked about the ability to be able to just walk up the steps to chat to Travis. You're in the same building. What is the advantage of you guys being so close?

Liam Graham: I guess NVest Securities is essentially at the coal face. We invest clients' money directly into the stock market, mainly equities - local and offshore. So, it's always good to be able to go upstairs to the wealth managers and just to take their pulse on how clients, in general, are feeling about the market, and maybe just add some value to ease their minds and to assist them on where they should be putting their money. If the equity prices are looking attractive, maybe we try and encourage them to move some clients' money down to us. Or, if we think that the markets are looking overvalued and it might be time to get more defensive, we can support them with that sort of message. So, it just allows us to work in a very mutually dependent way.

Ted Keenan: There's constant contact between the two of you. Travis, we've just come through a pandemic. People have lost jobs, people have lost companies. What are the macro and the micro threats that you believe are facing your clients today?

Travis McClure: Obviously, it's been devastating. Lots of businesses lost. Everyone struggled. There's always this difference between sort of what we call Wall Street and Main Street, and often the markets move differently to what's actually happening on the ground floor with the economy. The macro threats would definitely be global threats, so maybe global inflation, currently things like Covid that came through - that's a big effect. Things that you can't control, like the government. Certainly, political things that can come into play.

On the micro-level, I would guess it would be more sort of day-to-day stuff on the street for clients themselves. Their own discipline is a factor that can be challenging - trying to keep clients on the right path, and more importantly, sticking to the strategies on what we are trying to achieve. They are often their own worst enemy, keeping them saving, factors beyond their control like losing their job, what do they do then, make sure they make the right choices. A lot of the time, people bail from their job, take the money, then they pay the tax - and they pay heavy penalties. And they're always around that. And you need to chat to your advisor and say: "Look. What is the best way to do this? What are the consequences of my decisions?"

Ted Keenan: Liam - macro and micro threats?

Liam Graham: I think, from our standpoint, we obviously try and assess where the threats and opportunities are, and that provides us with some insight into where we want to invest. So, for instance, Travis talks about inflation. It's a general theme across the globe at the moment. A little bit of inflation is actually a good thing. It allows companies to get pricing through their businesses, which at the end of the day drives cash flows, which ultimately drives valuations of stock. So, in that sort of environment, we are looking for companies that have got very well-known brands, that have got the ability to push pricing through and drive revenue. So, there will be an opportunity for those companies. And other companies which have commodity-type brands - they won't be able to push pricing through and will hurt their bottom line, and should be reflected in a negative share price movement. So, for us, we try and move within those variables and find opportunities and stay away from the ones that may be damaged by the environment.

Ted Keenan: You've got a fantastic job because you're spending time looking at individual companies. Do you specialise in any one type of company? I know you've got a lot of associates in there.

Liam Graham: We can play the whole market, but we do look at thematic. So, for the moment, we are looking at technology, and there's a clear chip shortage around the world. We're looking at companies that can benefit from that demand and the increase in supply. So, we'll focus on that. As you mentioned, I've got several analysts that work for us at NVest Securities. Plus, we pay a lot of third parties for their research. We try and reach multiple places to get investment ideas and insight into things that we investigate, but generally, we can move in where we want. But when we do find a thematic that looks attractive, we nail down and draw right into it. So, it is quite nice in that respect.

Ted Keenan: Travis, South Africans apparently are amongst the world's worst savers. Is your role trying to rectify this on a sort of a client-by-client basis? And what's the attitude of the younger generation to building wealth?

Travis McClure: My answers to these are always as soon as possible and as much as possible. The question we get asked a lot is, "how much do I need to retire?" And your comment about bad savers - I think that the number is about only 6% retire comfortably on these same sorts of salary. It's about starting early. It's compounding that growth over time. Yes, it is educating the clients to stay the course. I think one of the reasons why we aren't good savers is possibly that we have a lot of expenses. Although we are a social state in many aspects, there's a lot of things that we have to pay for: schooling, housing, transport, et cetera, whereas places like maybe the UK, you get free education, you get better healthcare, you get transport that's there. So, a lot of cost gets taken up by that.

In this country, if you retire on a state pension, you pretty much haven't done your job. I mean, the state pension is R1800 a month. It's not sustainable.

And then to come back to your question around the youngsters - I think it's an instant gratification world. They're after the quick money. There's a lot of sort of online share trading. Crypto gets thrown into it, and that's great, and it can work, but the thing is you've got to still stay the course, keep saving, keep compounding. The cliché "eighth wonder of the world" of compound interest, compound growth, good assets.

Liam will buy the good assets that will grow against inflation. And the other thing that we use is diversification. You can't have all your eggs in one basket, and I know that's a cliché, but it's the truth. Diversification is the only free lunch you get. We have to diversify the portfolio into different things, and we'll allocate those assets accordingly and according to those clients' needs.

Ted Keenan: With your comment about the state pensions and that sort of thing. One of the scariest pieces of news that came out a while ago was government's proposal to allow people to draw out already - I think it was 40% of their pensions. What sort of knock does that incur on people's wealth-building?

Travis McClure: It's huge. I think the reason for that was a lot of it to do with what happened with Covid. People see their money sitting there, and they can't survive day to day. So, I understand the reasoning behind that. The problem is the tax consequences and what that does. You take 40% out of your portfolio now; to make that back over time is very difficult. You take a big knock, and what people forget as well is if you take 50% out of a portfolio, to get back to a hundred, you've got to grow it by a hundred percent. It takes time, and depending on how that money is used - if it's just spent for day to day stuff, you're probably never going to make that back. There's a lot of discipline in our game, trying to keep the money invested, trying to compound that growth and just letting people know the implications of their choices so that they can make informed choices.

Ted Keenan: Your chaps are almost psychologists. Do you have a lot of trouble persuading people to stay in? I know between the two of you, you've got 6,000 odd clients. That's a lot of people to be speaking to.

Travis McClure: Yeah. There is a lot of psychology, and you've also got to take the emotion out of it as well. When investing, and Liam can allude, but more than that is you've got to look at the cold hard facts. You have to look at the numbers of the company, and you have to look away from what's happening with politics. And sometimes the noise, and excuse me for saying this, the media can really fuel that emotion. If you remove the emotion, look at the facts and stick to the knitting, you should be okay.

I mean, last year our market lost 40% or 50% during the Covid crash. From the bottom, we are up 70% to 80%. We have equities up 30% over the last year. Had you just stayed invested and stayed with a good fund manager, you would've come through the process okay. But in that process, when it's looking terrible, that's when the panic hits, and that's when the psychology comes in, and we've got to calm people down and make sure that they don't make rash decisions.

Ted Keenan: Liam, besides charging up and down to consult with Travis, you also have your own client base. Are people still comfortable in the stock market, or is it just for the wealthy?

Liam Graham: No, I think that it's for everyone. I think that you just got to understand that it's not instant rewards going into the market. You need to have a three- to five-year time frame. And if you come into the market with that sort of mindset, you prepare yourself to ride through some of the tough times and benefit when things go in your favour. And I think ultimately, global GDPs are always growing. So, you need to benefit from that accumulation. And as Travis alluded to, emotions drive a lot of people's behaviours. We always joke and say, our busiest day at NVest Securities is Thursday because most of the bowls clubs play bowls on Wednesday - people talk and share stories on the bowling green. We then get the calls the next day to say, "Oh, I don't want this", "I want to get out of this", "I want to get out of that", and "so and so, from the bowls club, told me that this is going to happen".

A lot of the time, it's absolutely managing people's mindset. If you can control that and buildmoney over time, I think that you'll benefit from it. The stock market is for anyone. I think we're starting to see that. I mean, there are a lot of new firms starting up, which offer very low-cost stockbroking facilities - trying to encourage more and more people to get involved.

Ted Keenan: I have an idea it was Warren buffet that once said, if he's going to get advice on the stock market from the chap who shines his shoes, then it's time to get out for a while. Are people able to stay long-term, especially in a time like Covid? I'm not asking you to use your crystal ball, but how long is Covid going to last, and are people happy to stay in?

Liam Graham: I think that's a great question. Ultimately, if you can dig in and understand what drives a company and what drives the share price of that company, you're much more comfortable holding that company through various periods of uncertainty. And when we look at the numbers, we actually think that companies that are operating within the South African market and globally are in a fantastic shape and much better than most people are giving them credit for, and that's showing through in very low valuations. So, it's actually a very good time to invest now because as people come out of Covid, and we start to normalise, I think sentiment towards the future prospects of companies and job employment will get better. And that appreciation will sharpen the stock market. I think it's created a nice opportunity here for people to start investing, and we see quite a nice upside still in the local markets, especially.

Ted Keenan: Earlier, I spoke to Travis about at what age people should start their wealth creation. Is there some sort of program that you chaps have that encourages younger people to play on the stock market? Not to invest a fortune, but to just understand how it works.

Liam Graham: We don't, Ted, but there are those sort of things. I mean, we've recently hired a couple of new staff members. And one of the criteria was that you had to have a passion for the stock market. We had a lot of people come forward who said they had a passion for the stock market, but they actually had never invested their own money. I said to them, "if you have got a passion, then just go out and at least study". There are some virtual platforms that you can use at absolutely no cost. Or, as I said, there are some very low-cost platforms out there from our competitors that are essentially close to free of charge. And they can put money into things that they like. If you like something, and I'll use an example. Apple - everyone's got an iPhone. If you think that technology is the way forward, and that focuses your mind, and you start to learn how the stock market works. So, it's open to anyone. And I encourage anyone. If they do have a passion, get in. Look at some things you like, and invest. You can invest a hundred grand. You can invest nothing. But get involved.

Ted Keenan: And we've got some great companies in South Africa as well, some great new companies. And if you're interested in business, I suppose they could look at those companies and say, "well, those are the ones I'm going to go for".

Liam Graham: Yeah, absolutely. Information is freely available. The internet has given people the power to do their research themselves. So, most companies have an investor relations page on their website. They all publish financial documentation. There are presentations. You can scroll through Google and pick up little bits and pieces of information. So, the tools are all there. You've just got to apply it. And at the end of the day, it's about the experience in the market that counts, because then you get a feel of the ebbs and flows of things.

Ted Keenan: Okay. Travis, what do you advise people that want to get their wealth offshore?

Travis McClure: Going back to my comments about diversification, that's one of the things we obviously look at. And as a South African investor, we make up less than 1% of the world economy. We have got great companies locally, like you say. We've got a good financial setup. We've got great management teams. But at the end of the day, you can shop at the corner shop, or you could shop at the massive mall. Globally you've got access to so much more, probably much stronger, maybe better-run companies with a much bigger global presence.

So, it's important to diversify offshore. It's quite easy to do it these days. It used to be quite a hurdle. You can invest offshore with your local money through an asset swap as we call it, or you can take the money directly overseas where you actually physically buy the dollars and pounds, and the money sits outside the country.

The other thing to remember is a lot of our local companies are global companies. They may be listed here, but they actually invest and get a lot of their revenue from overseas. So, even though you might be in the local JSE, you actually do have a rand hedge component to that as well. And over time, our rand generally depreciates, but it's not a one-way back all the time. So, we do look at the currency as part of it. But, at the end of the day, you want your money making money and dollars. So one day, when you retire, you hopefully have a portion that's coming from overseas, that's maybe a little dollar or pound stuff, and pension, effectively along with your South African money, etcetera.

And quickly, our one theme that we look at is income local, growth global. High-yield interest rates are much higher here because our inflation is higher. So, we look at trying to get your income from a local source mainly, but if you want to grow your money, then you look more globally. And that's where the growth comes from. 

Liam Graham: Our offshore book now in NVest Securities is equal to our local book. And there's just absolutely nothing stopping people from investing or opening offshore portfolios if that's what they want to do.

Ted Keenan: Do you chaps look at China in any way? Studying Cantonese, perhaps?

Liam Graham: Not Cantonese, but I mean, it has been a big part of our investment theses. Obviously, they've got a large consumer population. They've got very powerful companies, dealing with what they like to call themselves "capital communist party", which has a lot of control on how the market works. So, there's a lot of dynamics there. We've recently had a big spate of regulations being placed on various companies. So, we've had to focus on what's going on. We've become quasi-Chinese experts, but it's a big part of an investment horizon. And you have to know what's going on there. There's a lot of opportunity if you make the right calls.

Ted Keenan: Thank you, Liam and Travis, for coming in. So investors, whether you're interested in China, the rest of the world or the South African market, the strong message that came through is start early.

This DispatchLive podcast was published by iono.fm