Something rotten in the state of Mzansi

There's a big difference between experience and intelligence. Intelligent people read the fine print; experience is what people learn from not reading it.

Experience allows us to understand our past decisions, right or wrong, and use the knowledge to help us move forward. You can't manufacture experience; you have to undergo it.

That's why when, about 15 months ago, African Bank shocked the market by issuing a trading update cautioning that profits would be substantially lower than analysts were forecasting, I had no hesitation in abandoning the stock, despite comforting views from analysts that the source of the earnings decline was transitory. The share price plunged more than 25% on the news. I had built meaningful holdings in the bank for clients; management had an enviable record of growing income and the dividend yield was one of the most attractive on the JSE.

Warren Buffett warns there's never one cockroach in the kitchen: "They don't hang out alone."

I wasn't going to wait for the pest controllers to affirm Buffett's wisdom. Since I sold, the bank's troubles have multiplied, and the share price has nosedived to a third of the level at which I exited.

Generally, when management confesses the existence of a difficulty, expect more to follow. Bad news often begets bad news. Take it as a signal to avoid exposure and bail out of any shares you might currently hold.

A year ago, Ellies, a small cap favourite with the JSE investing public, notified shareholders that a gainful contract with Eskom, replacing existing lighting in homes and businesses with energy-saving bulbs, was drawing to a conclusion. It became clear to investment troupers that the lucrative revenue earned on the transaction would not be repeated.

Management promised that the sale and installation of set-top boxes generated from the migration from analogue to digital terrestrial television would help fill the income gap. But extended delays in government policy have caused the group further grief in the shape of surplus inventory and pressure on working capital. A 60% fall in profits over the past year has been matched by a similar dip in the share price.

Another closely followed and popular small cap, Pinnacle Technology, suffered an ignominious fall from grace after one its directors was arrested for allegedly attempting to bribe a high-ranking police official, presumably in exchange for business. Sadly, despite the assurances of the remaining executives, the firm's reputation will take years to restore.

In Invicta's case, the recent tumble in the share price (from R125 to R102) was the consequence of persistent strike action in the mining and manufacturing sectors.

Last week, the distributor of engineering tools, consumables and equipment, and a favourite with local money managers, cautioned that the negative impact of ongoing labour strife could pull down first-half earnings by 20% to 30%. While market analysts believe an end to the current unrest would alleviate the pressure on earnings, management, anxious about the financial health of their customers, resolved to reduce the group's reliance on South Africa by dramatically increasing its offshore presence.

For the experienced, highly-regarded Invicta's perspective on the fitness of the nation's productive sector foretells that "something is rotten in the state of Denmark", and that pinning hopes on a revival in local industry could prove unwise.

The end to Numsa's four-week strike in the steel and engineering industry was announced yesterday. But even this speedy conclusion will leave many small- and medium-size works, including an extensive range of enterprises that service the sector, critically weakened. It could take months before the true cost to the economy and our national psyche is established.

Last week, an absence of robust momentum in certain advanced economies forced the IMF to reduce its growth forecast for the global economy from 3.7% to 3.4%. South Africa's target was slashed to 1.7%, half the world average. Among other issues, the IMF expressed concerns about energy supply and labour instability.

When it comes to international affairs, South Africans are self-proclaimed arbiters of moral rectitude. But before we assume this mantle we should clean up our own act. The to-do list is endless, but we could start by getting labour back to work.