Money matters: Guessing the future is anybody's guess

Q: What do you think the takeover share value of Fletcher Energy will be in March 2001?


A: If I knew, I don't think I would tell you.

Let's say I was pretty sure Fletcher Energy's share price would rise between now and next March, when shareholders are expected to approve Shell and Apache's takeover of the company.

As long as I felt sure the current price was a bargain, I would keep spending every spare dollar I had on the shares. I might even borrow to spend. Then I would sell at a profit in March.

But what would happen if I wrote about my expectations before making all my purchases - and if you and other readers thought I really knew?

You would rush out to buy, too. The added demand would push up the price, and I wouldn't get such a bargain.

Fortunately, I'm not torn between greed and loyalty to readers. Even if I was into short-term share trading - and I'm absolutely not - I haven't a clue which way the price will go.

Trying to work it out is like a juggling act.

Factors that will affect the value of Fletcher Energy shares at takeover time include the New Zealand/US exchange rate and the price of shares in US power generation company Capstone Turbine, which will be given as part-payment to Fletcher Energy shareholders.

Fletcher Energy owns about 10 per cent of Capstone.

We all know how much the exchange rate can change. Who knows where it will be four months from now?

As for Capstone Turbine, its share price soared from $US16 last June to $US98.50 in August. It's now back at around $US20. Need I say more?

For all of the complexities of the offer, analysts for the big sharebroking firms and institutional investors are no doubt busily crunching numbers to try to calculate how much Fletcher Energy shares are now worth.

Over the months to come, they'll come out with recommendations, either for their own share trading or for clients.

If enough of them say "buy," that will push the price up. If enough say "sell," it will push the price down.

At any given time, the price will reflect the differing views of all the major players.

In closely watched situations such as this, an individual doesn't stand much of a chance of outwitting the market.

So what does all this amount to? If you're thinking of buying Fletcher Energy in the hope of selling at a profit next March, don't bother. You might lose.

Even if you gain, by the time you pay brokerage in and out, and tax on your capital gains, your gain might disappear.

If you already own Fletcher Energy and are wondering when to sell, you should probably do so now if you need the money. If not, you might as well wait and see what develops.

Or split your luck, and sell half now and hold the rest until takeover time.

Q: I am a solo parent of five-year-old twins and am on the DPB, getting $349 a week.

I have about $100,000 coming to me soon as a result of my husband buying out my share of the matrimonial house.

I am staying with my parents and paying them $200 a week. My DPB will drop to just over $300 once I receive the money for the house.

I do not want to commit myself to a new property just yet, and would like to know where is the best place to put my money in the meantime.

I anticipate buying a house in about six months time. I hope to rejoin the workforce at that stage too - possibly just part-time. What is the best option for me?


A: Go for a really safe investment, for two reasons.

Firstly, you're not in a position to take risks. There should be virtually no chance that you will lose any of your precious house money.

Secondly, even if you were better placed to gamble a little, I would still say you shouldn't over such a short period.

If you were to put the money in, say, shares or a share fund, there's too big a chance - probably more than one in three - that its value would fall over six months.

A term deposit would work best for you. For maximum security, stick with a bank or bank-affiliated institution. These include not just the big banks but also AMP Banking, BankDirect, BNZ Finance and TSB Bank - which often give better deals.

Weekend Money's "In Your Interest" column, on the back page of this section, will give you an idea of relative interest rates, although they are on smaller amounts than you have, and are generally for more than six months.

If you've got access to a computer, you can find out rates on larger amounts, for varying terms, on www.interest.co.nz. Or you can just ring around the banks.

Interest rates these days are pretty good for depositors, given that inflation is low.

When you decide to buy a house, I suggest you go for a modest one, to keep mortgage payments low. I'm sure easier times are ahead of you. Good luck.

Q: Regarding people hiding assets in order to "qualify for the residential care subsidy" etc, can I be the only one who thinks that the purpose of saving up for old age is to provide for your old age should you be so fortunate as to have one? It's not to create a financial dynasty for your descendants.

When I read about trusts, I get a vision of people parking the Beemer around the corner and putting on rags to line up at the City Mission for a free feed. The possibilities are endless, if you're prepared to plead poverty to qualify for a handout.

Most of the reasons for trusts seem to be attempts to avoid taking responsibility for looking after yourself - understandable perhaps, but hardly something to be proud of.

Unfortunately there is a strong incentive (fees) for the legal profession to promote such schemes and dress them up to slide past people's consciences. But there's no corresponding incentive for anyone to oppose them, so promoted they are.

Don't get me wrong on this. If poverty exists then accept assistance by all means. But should we accept the artificial creation of its appearance in order to qualify for a handout?


A: There are some quite strong counter-arguments to what you say.

One goes like this: Why should well-off elderly people who need care pay for it, when well-off younger ones can get free hospital care?

I don't really buy it, though. It's one thing to ask young people to use up most of their assets on healthcare. When they recover, they have to start from scratch.

It's quite another to ask the same thing of an elderly person.

Blunt though it may be to say it, they almost certainly won't have to go back out into the world. And as long as they are in care, when they run out of resources the Government kicks in.

(I should add, though, that when one of a couple is in care, I think the rules are too tough on how little the other spouse can keep while the first one gets the subsidy.)

Another argument is that there are good reasons for trusts. A businesswoman might go broke because some customers have gone bankrupt. Should her family lose their home?

Or a wealthy man might marry a woman who has much less money. Both have adult children from previous marriages.

A few years later, the wife takes off with someone else.

Should she, and ultimately her children, end up with assets that, under a trust arrangement, might have gone to his children?

Probably not. Still, as you say, if people take responsibility for looking after themselves they might not need trusts.

There are often other ways to avoid potential problems.

What's more, where a trust is necessary - perhaps for the protection of the needy and innocent - nobody is forcing the people involved to then apply for unneeded Government handouts, or to arrange things so they unfairly pay less tax.

As you so cleverly put it, trusts are often dressed up "to slide past people's consciences."

And the people who could most easily cope with expenses such as rest-home care are often the very ones who have set up trusts so they don't pay.

Let's prick those consciences. Shame on you.

* Mary Holm is a freelance journalist and author of the newly published Investing Made Simple. Send questions for her to Money Matters, Business Herald, PO Box 32, Auckland; or e-mail: maryh@journalist.com. Letters should not exceed 200 words. We won't publish your name, but please provide it and a (preferably daytime) phone number in case we need more information. Mary cannot answer all questions, correspond directly with readers, or give financial advice outside the column.

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