At a recent presentation to Maltese equity investors I sarcastically depicted the typical reaction from a local investor when confronted by the option of capital growth versus interest payments. Everyone laughed and probably most understood, but I doubt that many will have changed their long-held way of investing.
It is often bewildering how often investors refuse to accept good advice, and a particularly persistent stumbling block is investor’s reluctance to invest in anything that does not pay interest. I cannot pretend to have researched the subject, but from what I gather, the typical Maltese investor does not rank total return on investment as the primary investment rationale; other seemingly more important factors often prevail.
Interest payments is one important factor; Maltese investors seem to get a dopamine surge following each interest payment. Yes, investors smile when they realize that they will receive interest. I mean, I am not exaggerating when I say that investors really turn sour when told that there is no interest attached to the investment, and really smile when they are informed of interest payments, independent of the total return on investment.
Another factor that luckily, or unluckily, is on its way out, is the cheque. Tell an investor that he would periodically receive a cheque at home and credit rating and yield become secondary; a cheque by post always closes the deal. It is a pity that cheques are becoming a thing of the past. I can even imagine old ladies still waiting outside a bank hoping to get their cheque or interest fix.
Yes, two figure percentage price gains pale when compared to a two percent interest paid once a while. Another point I notice is that currently four percent seems to be the magic number for Maltese investors. Issue anything above four percent and you get thirty-seven times over-subscription. Anything below that and it’s a hard time. I honestly don’t understand why local corporates bother doing the math when 4.025 percent sells all.
The tongue in cheek attitude becomes less humorous if the lost investment opportunities are considered. At a time when making a decent return is becoming more and more difficult investors need to be more conscious of the investment opportunities that exist. And at a basic level, investors need to understand what constitutes a good return and what does not, what is liquid and what is not, what is risky and what is less risky. And interest payments are not meant to replace recommendations.
No one invests in property for its interest payments; I assume investors in property look at the capital gains potential first of all. Even the rental value, which may be considered as a form of interest, comes secondary to capital appreciation. Still, most investors ‘are’ willing to invest in property, without interest payments and without liquidity.
But the same investors are unwilling to purchase shares in one of the best companies in Europe, which has yearly income that dwarfs Malta’s GDP, has survived the test of time including multiple market crashes and has returned an average of over ten percent yearly in the past five years; just because a yearly interest cannot be guaranteed.
Recent demand for investment assets is a clear indication that Malta is a nation of savers. The implication is that we have been extremely successful in making money. Now we need to get wiser in
investing it. In the next few years if we are going to be measured by how successful we have been at investing, interest payments are going to be a very poor gauge.
This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.