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Where will be a good time to get out of the banks?

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Jobarshares
Contributor
Since higher CPIX, PPI, etc all we're expected and results of the banks not as good as originally expected, but they for some reason still see no way down, when will be a good time to get out? Especially FSR, which just wont stop running.
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35 REPLIES 35
Blik
Super Contributor
There is a transcript of an interview with Kokkie Kooiman on Moneyweb - he thinks it may be time to get into banks - or soonish. Worth a read.
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Wizard
Super Contributor
The all time great punters are coming out of the woods again.I wonder what to think!
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platsak
Super Contributor
Why is banks having such great time anyway? I thouht times were supposed to be tough?
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louisg
Super Contributor
Short term will be tough, medium to long term looking good if we have reached the top of the interest rate cycle.
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Maggie
Super Contributor
Louisg - why are you always looking at the long term - is there such a thing????
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louisg
Super Contributor
Compounding. Albert Einstein described compound growth as the eighth wonder of the world. The concept of compounding remains the single most important principle governing investment. The wonder of compounding (sometimes called "compound interest") transforms your working money into a state-of-the-art, highly powerful income-generating tool. Compounding is the process of generating earnings on an asset's reinvested earnings. To work, it requires two things: the re-investment of earnings and time. The more time you give your investments, the more you are able to accelerate the income potential of your original investment.
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Russ
Super Contributor
Time means patience and that's something I suspect most of us don't have much of.Having just realised to my shock that I am now too old to die young I would like to get rich more quickly than compound interest can manage.The irony is that the more impatient you are to get rich quickly the more likely you are to get poor quickly.
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doomsdayza
Super Contributor
I don't think the bad debts on the banks' books have filtered through yet. You could only see the bad debts hitting next years results due to the time lag inherent in writing off / recovering the non-performing loans / clients etc. OMO.
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louisg
Super Contributor
Correct Russ. A higher EQ is more important than ones IQ. OMO
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louisg
Super Contributor
Trying to get rich quickly is similar to driving your car faster to reach your destination sooner. However, the faster one drives the more likely one is to have an accident. The faster you drive the more exponential the risk of having an accident. Why take the chance?
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Maggie
Super Contributor
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louisg
Super Contributor
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BRE
Regular Contributor
I'm not with you on that one ... the slower you drive the more time someone else has to knock into you! I like to drive outside of peak hour ... you get where you want faster without having to speed. In otherwords, I'd rather wait for inflation to peak (changing the basket doesn't mean it has peaked) and for interest rates to stabilize before going long ... in the meantime I'll let my investments compound in the money market ...
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louisg
Super Contributor
Hopefully not REAL NEGATIVE compounding. If you hold for 1 year then......Interest rate = 12%, inflation = 13%. Equals -1% real return before tax. R 1 million x 12% = R120 000 interest. Tax man takes 40% (top bracket) R57600 and inflation takes R130000 = -R 187 600. You left with purchasing power of R 932 400 after 1 year. GUARANTEED REAL LOSS
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louisg
Super Contributor
IF inflation at 8%. then you still in the red. R 982 400 purchasing power.
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DST
Super Contributor
Well if it doesn't matter to you then a whole new range of stuff enters the fray.
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louisg
Super Contributor
Sorry made a mistake. TAX at 40% = R48 000. Therefore purchasing power = R 942000 at 13% inflation and R992 000 at 8% inflation.
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john_1
Super Contributor
LG that argument only holds water if the share market outperforms cash....1 out of every 4 years has had negative return on the global major exchanges if you use the last 107 years as your sample...so just think of the compounded effect if you can simply sit out those down years..
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BRE
Regular Contributor
You haven't been compounding, which makes interest earned slightly better at something like 12.6 pa. Remeber every day you're earning a fraction of that interest and it gets added to your capital on a daily basis. So we're looking at -0.4% we're losing to inflation. Now say we use a company as our investment vehicle. Then we're paying 28% to the tax man. (If we investing as individuals I'd split the investment with my partner so benefit from the R19,000 tax exemption on interest for individuals that you forgot about. That would reduce our tax liability by R38,000) 28% of 126,000 is 35,280 leaving us with R1,090,720 in the bank. Inflation takes its toll leaving us with R960,720. A GUARANTEED REAL LOSS of R39,280 or about 4%. We're entering a bear market. Europe and America are facing Recession! In these circumstances we cannot GUARANTEE that the market will match inflation let alone remain positive. In a bear market everyone looses and the winner is the one that looses the least! It's my opinion, based on the global economy and South Africa's position in it, that in the medium term we'll see much lower share prices than we currently have and that we'll be able to buy shares at discounted prices rather than at fair value. And at discounted prices we'll be able to buy much more shares despite our guaranteed real loss of buying power.
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