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Thu Oct 23 07:11:58 SAST 2014

Where there's smoke, there's profit

David Shapiro | 05 March, 2013 00:14

One of the fondest memories I have of my late father is when I accompanied him on a business trip to London in the late 1970s. That Arsenal was playing Ipswich in the FA Cup Final during our visit was purely incidental. It was a few years before deregulation completely changed the way business was conducted in the city: a time when stockbrokers were still compelled to execute buy and sell orders through a jobber or specialist.

It was also a time when meetings with clients and customers were often arranged in wine bars and lunches with colleagues were lavish affairs that regularly stretched into the late afternoon.

At a lunch with the partners of the renowned brokerage house Vickers da Costa, I was seated opposite my father at the end of a table the size of a cricket pitch.

The first course, a consommé, was served together with a decanter of pale sherry. My hosts graciously explained the drink was meant to enhance the flavour of the turtle soup. It was a sumptuous banquet complemented with classic wines and infused with witty banter and warm recollections of some of the unusual characters that traded in the pits of the London Stock Exchange.

The meal was concluded with Havana cigars and vintage brandy, which the diners swirled in crystal goblets while puffing smoke rings into the air.

Though I never smoked, had a low threshold for the intake of alcohol and possessed the appetite of a Chihuahua, I was captivated by the glamour of the occasion and the cordiality displayed to us by gentlemen twice my age and intellect.

Transformation in the mid-1980s brought an end to this affable tradition, ushering in the epoch of the self-seeking Wall Street banker, electronic trading, algorithms and casual Friday. Smokers were banished to icy lanes on the sides of buildings while desk-bound traders lunched on toasted cheeses and coffee in polystyrene mugs.

Efficiencies and revenues rose dramatically with the introduction of ultra-smart computer systems that linked world markets at the touch of a button. But as the volumes of trade increased in dealings rooms, levels of mirth and merriment moved in the opposite direction. These days, colleagues, who sit no more than a few metres apart, e-mail each other rather than engage in conversation; seldom do dealers share a good tale, and happy hour usually refers to a spinning class. Lunches are only attended if there is an agenda attached and, even then, participants rarely indulge in anything more than a few lettuce leaves, a carrot stick and a mineral water, while habitually checking Facebook, Twitter and messages on their smartphones.

Yet, despite the current generation's good intentions of covering the world in smiley faces by removing riggers from fracking, sugar from soft drinks, carbons from the atmosphere and bullies from kindergarten sandpits, when it comes to the stock market, vice remains nice.

On Friday, British American Tobacco, the multinational tobacco company based in London, reached an all-time high on the JSE after announcing an 8% rise in earnings and a 7% increase in dividends.

Over the past three years the share price has climbed 90%, far outreaching the overall index's gain of 43%. The group, which manufactures and distributes well-known brands such as Lucky Strike, Dunhill and Benson & Hedges, operates in 180 countries and produced the results against ongoing attempts by governments to prevent it marketing its products and labelling its packaging.

Joining British American Tobacco at lofty heights was one of South Africa's most popular counters, SAB Miller. At R452 a share, the price has grown an incredible 126% over the past three years, almost triple the rise in the JSE All Share Index. SAB is the world's second- largest brewer and is best known in South Africa for its Castle and Carling Black Label brands, but globally for the equally popular Fosters, Millers, Peroni and Grolsch. SAB's history dates back to 1895 when it began producing beer for the local mining community, but from 1990 the group began expanding internationally and now sells booze in 75 countries across five continents.

Though not strictly vice, but rather in the category of conspicuous consumption comes my personal favourite company, Richemont. Richemont, a purveyor of luxury jewellery, watches, pens and clothing to the ultra-wealthy confounded analysts by significantly growing profits throughout the recent financial crisis, demonstrating the rich spend generously no matter the plight of the masses.

If you bought Richemont shares three years ago instead of spending on a Cartier watch you would be 167% wealthier today.

I detest smoking, drink the occasional Peroni and am too embarrassed to step into one of Richemont's snooty stores, but with the aforementioned companies making up more than 25% of the JSE's market capitalisation and being largely instrumental in the All Share index's recent record run, it's delicate taking a moral stand against their businesses.

So, instead of using my "wicked" gains to organise a gourmet dinner, I'll buy an iPhone5 and message rows of smiling yellow faces to my friends and family.

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