Arthur Buchner: Nedcor

MONEYWEB, Belinda Anderson, 09 February 2005 

Arthur tells us again what single-stock futures are, and how they work. After Tito Mboweni’s announcement tomorrow, he will begin to determine his strategy.

MONEYWEB: We’ve got Arthur Buchner from Nedcor Securities in the studio with us. Good to have you in the studio.

ARTHUR BUCHNER: It’s good to be back.

MONEYWEB: We heard last night from Alec, he was talking to Alan Thompson from the JSE, about how risky single-stock futures can be. Let’s got back to real basics first. Just tell us what they are, as instruments.

ARTHUR BUCHNER: Well, basically a single-stock future replicates the performance of the underlying stock. So if you had to buy Anglo American, for example, you can get exactly the same performance out a single-stock future, except that it offers you gearing. Instead of buying R100,000 worth of the share, you put down a R10,000 deposit. It effectively gives you the right to a R100,000 of those shares and, if the share moves up 1%, you get 1% on R100,000 rather than 1% on your R10,000.

MONEYWEB: Who should buy these instruments?

ARTHUR BUCHNER: They’re open to anyone. You know, at the end of the day your risk tolerance can be determined by your outlay. So, if you have R100,000 in your portfolio and you want to invest R90,000 elsewhere, you can go and buy yourself R100,000 worth of the share by putting down R10,000 and taking R90,000 and investing it elsewhere. If you want to gear yourself and you only have R100,000, but you want to go and buy R1m worth of Anglo American, because this is a sure thing, its going to the moon, then what you do is that you go out and you put your R100,000 on deposit with your futures broker, and you buy yourself R1m worth of Anglos. So it’s for every player in the market.

MONEYWEB: Your institution is one of four banks that’s going to be participating in this challenge. And the aim is to make as much money as possible for Noah, the charity that looks after Aids orphans. Last time R30,000 was what we managed to make. Give us a guestimate.

ARTHUR BUCHNER: Well I think last time was around R35,000, in fact. And last time all we had was ourselves and the Moneyweb team working on a R30,000 initial investment to make the R35,000. I’d hate to say that we’re all fantastic traders and we’re going to suddenly turn R30,000 into R1m. But we tend to be very short term, and futures are very short-term instruments – and because we’re right there, most of our listeners are sitting and they are long-term players, they will go and buy Anglo American, they’ll see it go up 1%, down 1%, up 1%, down 1%, eventually up 3% and they’ll make their money. What do we do? In that 1% up and 1% down we might trade it three or four times, and actually try to make the 1% up, 1% down, 1% up. So I think if we can double the R30,000 for each individual company, and come in around the R120,000 mark, that would be a good return, but we hope it will be better.

MONEYWEB: We look forward to it. Is that portfolio already up and running, or are you starting from now?

ARTHUR BUCHNER: Well, you know everyone always says that derivatives are highly risky instruments and people that play them are cowboys. We like to say that we’re not really that big cowboys and with the interest rate decision tomorrow we can’t for sure say that the market is going up or going down. So we’ve stayed out and more than likely we’ll get more direction tomorrow and start to play on the volatility. And hopefully Tito creates some volatility so that at least we can get involved.

MONEYWEB: And so you can’t yet give us any idea of what you might be going into?

ARTHUR BUCHNER: We think that some of the banks have been sold down a little bit two hard on this whole switch out of the banking and retail sector into the resources. We actually might take a counter view to what the institutional feeling that the rand is going to weaken. We think that the rand weakness against the dollar has not been as a result of rand weakness, more dollar strength. We think that the rand will actually strengthen. That’s going to bring back the resources. We might short Anglo American and look at buying some of the banks.

MONEYWEB: Well, we look forward to picking up with you soon to find out on the progress of that portfolio – and good luck. Hope you make as much money for the Aids orphans as possible. And we will be watching that progress.

Posted in Market commentary

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