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This was my most-read article in my early days as The Finance Ghost, shared on multiple WhatsApp groups and community platforms. It helped a lot of people with the decision to emigrate (or not) and is replicated here with just a few tweaks and updates where needed. The original publication date was July 26th, 2020.

Is there a more emotive topic for the South African middle class than emigration? With just enough money to contemplate the decision but nowhere near enough for the dream lifestyle of chasing the sun, these inbetweeners face a tough decision. Load shedding doesn’t make it any easier.

The damage to our economy from Covid was severe. It made the 2009 Global Financial Crisis look tame. A significant upswing in commodities in the aftermath of the pandemic has saved the currency and quite possibly our economy as well, although Eskom and numerous other problems constantly remind us that the pain is far from over.

When a ship is battling a terrible storm, the passengers look to the captain and leadership team for hope. Our leadership team isn’t inspiring confidence in anyone right now, forcing the passengers to at least consider whether the lifeboats might be a better option.

This isn’t an SA-bashing article

It’s too easy to just say “of course you should emigrate” – the decision deserves far more analysis than that.

South Africa has problems, but we are still one of the most important emerging markets in the world. There’s still an S in BRICS. We are still in the G20. By no means are we some obscure country that has no relevance to global trends, even if we are a “junk” economy these days.

There is unquestionably opportunity here. Although the overall economy has been stagnant in recent years, many have still made their fortunes here.

I’m going to take you through a decision process that looks at:

• Mitigation of crime as the initial test
• Separation of financial and physical emigration
• How to make the physical emigration decision
• Treating the views of SA expats with some caution

The most important caveat to objective analysis: crime

I want to explain the way I think about the emigration decision and the factors I consider, but I must first touch on the most difficult issue of all: crime.

It’s not about feeling safe, because very few countries are perfectly safe. It’s about feeling like you can successfully mitigate the risks.

I moved from Joburg to Cape Town partially because of how gorgeous Cape Town is, but also because I couldn’t handle the risk of violent crime happening to my family while driving between home and work. Cape Town has crime too, obviously, but the hijacking realities are a fraction of what they are in Joburg.

I felt that hijacking is a risk I cannot mitigate and so I semi-grated, along with thousands of other Joburg families.

Housebreakings, on the other hand, can be mitigated to a great extent by living in a secure complex. The risk is never zero, but it can be managed to an acceptable level in my opinion.

If you feel like you cannot mitigate the risks, or you cannot live a full life in South Africa because of crime, then you can stop reading. You should be on visa application sites instead, giving yourself a shot at happiness elsewhere. I totally get it and respect that decision.

Separating the financial and physical decisions

South Africans are allowed to take R1m offshore every year without jumping through hoops and another R10m per year with permission from the SARB and some other paperwork nightmares from SARS.

I raise this because the vast majority of South Africans will never be at risk of hitting this threshold and not getting their money out. The exception to this would be a Zimbabwe-style liquidity crisis where the Rand literally becomes worthless in a matter of weeks, but I believe we aren’t at that point.

If I believe that we are headed for Zimbabwe status in the next few years, then there are two things I should be doing:

1. Selling all my fixed assets (especially my house as soon as possible)
2. Shifting all my Rands into offshore investments as first prize or JSE-listed investments with offshore exposure (e.g. S&P 500 ETFs) as second prize

This is the decision to financially emigrate rather than physically emigrate. It is often (but not always) the precursor to physical emigration.

How do I make the physical decision?

Having already discussed the concepts of crime mitigation and financial emigration, we now need to look at the biggest decision of them all: physical emigration. This is the classic “packing for Perth” approach.

A four-quadrant decision matrix is a favourite tool for strategists. It allows you to assess four scenarios based on two variables. In this case, I believe the most important variables are:

• Importance of proximity to family
• Income prospects in South Africa

The decision needs to be based on your personal circumstances.

Let’s deal with the family point first. It’s easy: you either do or do not place high importance on being close to your family and close friends. This is especially difficult when you have kids. If you’re young and single and most of your friends have left anyway, then it’s much easier than when you are taking your kids away from their grandparents, for example.

The second point is trickier. Your ability to earn an income is a factor of your skills and your relationships. If you go overseas, your relationships start from scratch, so your skill set has to be fantastic and sought after in whichever country you go to. Please don’t underestimate this issue.

Let’s look at the four scenarios:

Quadrant 1: Upskill / change job

If you want to be close to family and friends but your income prospects aren’t looking good, then you have to do a bit of soul searching and figure out how to upskill yourself in a new direction.

Should you start a business? Do you need to study further? Is it time to do something completely different? It’s not a pleasant situation to be in, but the tough survive.

In some cases, there is little choice but to emigrate. This is the most emotional emigration of all, as it is based on push factors rather than pull factors and you leave your family behind. It hurts for everyone involved.

Quadrant 2: Do not emigrate

The decision to not emigrate is clear in only one quadrant. If you want to be close to family and your income prospects are strong in South Africa, then physical emigration makes no sense (unless you cannot mitigate the crime issue).

With the right crime and financial risk mitigants in place, you can keep lighting the braai. I am in this quadrant and I really hope to stay in it forever.

Quadrant 3: Emigrate

The decision to get out is also only clear in one quadrant. With weak income prospects and your family already somewhere else, why would you logically stay here?

Quadrant 4: Enter the global job market

This quadrant is typically where professionals with global mobility find themselves. They are specialists in specific fields and can work in many different countries.

If family isn’t an issue, then these people must logically continuously seek the best possible job market for their skills.

Treat the views of expats with some caution

Ask 10 South African expats whether you should emigrate and I guarantee 8 will give you a resounding yes. Of those 8, maybe half are genuinely happy.

South African expats don’t have it easy. Whether they are willing to admit it or not, their hearts still feel something when they think about braais, biltong and Springbok world cup victories.

Many will tell you that “leaving is the best thing they ever did” and “life is so perfect here” – which, in some cases, it is. In many cases though, it isn’t.

With the greatest of respect to expats and recognition of how hard it is, many suffer from confirmation bias and few are willing to admit it. I have enormous respect for those who are capable of giving a balanced answer.

They so desperately NEED emigration to have been the right decision that they only look for positives in the country they’ve moved to and they only focus on the negatives in their place of birth. This falls away when the Springboks win of course, at which time the expat population is the first to break out the green jerseys.

Once you’ve packed up your family and sold everything to move to a foreign land, you will seek confirmation all the time that you did the right thing. This is human nature. These cognitive biases make our lives (and the markets) so interesting.

Final thought: this is a fluid process

I don’t make this assessment once every 5 years. I do it almost continuously in my mind. The facts in front of us are always changing. Our country seems great one day and terrible the next.

Whatever you do, just do everything possible to take emotion out of the decision. Consider your options objectively and calmly and you stand a much better chance of making the right decision.

And if you are reading this as an expat who made the big decision, then please do your best to deliver a balanced view to those left behind. We all know how broken South Africa is, but I have yet to come across a perfect country.

Good luck!

This article is an adaptation of pieces I wrote in the weekly Ghost Mail publication during the peak of IPOs in 2021. It was uploaded a couple of weeks before we launched the new Ghost Mail so the share price CAGRs below are slightly outdated, but it’s the principle that matters.

My long-standing readers and followers on Twitter will be aware that I avoid Initial Public Offerings (IPOs) like the plague. Hype may be great for boxing matches and championship-deciding Formula 1 races, but it is highly dangerous in the world of investing. Nothing gets more hype in the market than a new listing.

An IPO is the process of a company listing on a stock exchange and raising capital. In addition to the company issuing new shares to investors and putting the proceeds in the bank account, the pre-IPO holders will often make a portion of their shares available for sale. This is to create “liquidity” and “shareholder spread” which simply means that there will be enough different shareholders to create a market for the shares and drive trade.

The most important thing to remember about IPOs (especially in the United States) is that the public markets are frequently used to facilitate an exit for previous investors like private equity funds or even the founders.

Now, they aren’t going to sell you the shares at what they perceive to be a bargain, are they?

Trust me, the bankers and venture capital (VC) firms know more than you do about the company. They are only willing to cash out or even dilute their holdings once the best days are over. The super-profits have been made by the time a company comes to market, so paying a valuation as though the company can keep growing like a startup is an almost guaranteed way to blow up your portfolio.

An IPO that only facilitates trade rather than the raising of fresh capital is known as a “direct listing” – examples include Coinbase, Roblox, Palantir, Slack and Spotify. Here’s a quick look at the compound annual growth rate (CAGR) at time of writing this article and the listing date of each of these companies:

• Spotify -1.3% (3rd April 2018)
• Slack +7.8% (20th June 2019)
• Palantir +19.1% (29th September 2020)
• Coinbase -55.1% (14th April 2021)
• Roblox -36.4% (10th March 2021)

This is a small sample size of course, but there’s a clear trend here and it won’t look any different with more examples: new listings generally suck for investors and the listings in 2021 were the most dangerous.

Buying IPOs at a time when the market is clearly expensive is a very painful mistake that you need to avoid.

IPOs ARE FAIR-WEATHER FRIENDS

If you draw a long-term chart of the number of IPOs each year in the United States, you’ll notice that they tend to peak at the end of a bull market. This isn’t by accident and isn’t a coincidence.

If you are bringing a company to market and hoping to attract investors, wouldn’t you want to do it when the market is hot and investors are itching for the next opportunity? Trying to sell something new to battered investors is much tougher than just taking advantage of hype around a specific sector or concept.

This is why you tend to see a flurry of IPOs in specific sectors at different times. For example, electric vehicles have been all the rage. The tech sector in general was flying throughout the pandemic. In 2022, things have cooled off considerably. The downstream impact on venture capital is becoming visible now, with a definite risk-off approach coming through from tech investors.

IPOs LOVE ASSET PRICE BUBBLES

When you hear stories of pimply kids from Harvard raising gazillions of dollars with little more than a one-page term sheet and a promotional video to explain the idea, you need to be afraid. In that environment, people might even start buying JPEGs of monkeys for enormous amounts of money. Oh, wait…

For me, NFTs must be the single best example of what happened to the market during the pandemic. The NFT market is collapsing and it’s going to get worse. Crypto is looking very shaky right now.

Unprecedented levels of economic stimulus (money printer go brrrrrr…) by the Fed created a spectacular asset price bubble. In those scenarios, there is plenty of money to be made provided you recognise the risks and realise that you are in a game of musical chairs. When the music stops, you need to have already cashed out.

In such a market, there are several IPOs every week.

For context, Statista tells me that there were a total of 685 IPOs in the US from 2016 to 2019. There were 431 just in 2020 and a whopping 951 in 2021, far more than in any prior year.

Another sign of trouble was the number of Special Purpose Acquisition Companies (SPACs) that listed. These are “blank cheque” companies that raise money based on a loose plan to go off and do deals.
We have a similar mechanism on the JSE, though we haven’t seen a SPAC listing in a long time. Capital Appreciation Limited was the first SPAC on the JSE and has worked out very well, with a market cap at time of writing of nearly R2.4 billion and an exciting strategy in various FinTech verticals.

LOOKING BACK: COINBASE

In the process of migrating my work to the new Ghost Mail platform, I worked through many of my earlier blog posts in my life as a ghost.

In April 2021, I wrote about crypto exchange Coinbase. I specifically wrote about how I felt the company was a gigantic bubble, with IPO pricing that would hurt investors while maximising returns for those leaving the building.

Since then, Coinbase’s share price has more than halved.

Many investors made the argument at the time that Coinbase is the shovel in the gold rush. This is a great analogy that reminds us of the power of being a platform business. When selling the shovels, you don’t care if the buyer finds gold or not. That is the buyer’s risk, while your profits from the shovel sit safely in your bank account.

Of course, if nobody ever finds gold, then your shovel business is in serious trouble. That’s a longer-term problem.

Coinbase takes a percentage of the value of crypto traded on the exchange. In other words, the profits fluctuate with the pricing of crypto tokens. This isn’t the shovel in a gold rush; this is a share of the gold itself. As I wrote at the time, the analogy was being applied incorrectly.

A careful read of the prospectus (the detailed document that accompanies any listing) would’ve revealed that the company’s goal is to operate at break-even (!) for the time being. They were looking for investors who believed in the mission and would hold through cycles.

Sure. We all want that, along with a Ferrari for our next birthday present. Who wouldn’t want investors that don’t care about making a profit?

At the time of the IPO, Coinbase was priced at a forward Price/Sales multiple of around 9x. The Nasdaq (itself a listed company) was trading on a revenue multiple of 4.7x and makes a profit. The JSE was trading at a revenue multiple of around 4x.

So here was Coinbase, priced at double the revenue multiple of the traditional equity exchanges and aiming to simply operate at break-even. That wasn’t a story I was going to invest in.

I’m really glad I didn’t, as this chart will demonstrate:

IPOs are best avoided. Be careful out there, Ghosties.