CIARAN RYAN: As 2022 comes to a close, we are facing stubbornly high inflation, aggressive interest-rate hikes and geopolitical tensions brought on by the war in Ukraine. Some of these events were foreseeable, some perhaps not so much.
Our feeling at the beginning of the year was that inflation would be a lot stickier than expected at the time, and the logical implication was then obviously for interest rates to surprise on the upside and for them to come through a lot more aggressively than what the market was pricing in at the time. That helped us quite a lot in terms of making other calls in our portfolios.
I think the final one, and something that remains important going into next year, is margins. We expected margins to come off as the cost of capital increases, as interest rates increase, and that starts to impact the margins of these businesses and ultimately the earnings. And that’s when sentiment starts to go out on those companies. We have seen some of that start to come through, but margins are still a lot higher than we think they will be during a recessionary environment.
Unfortunately, it hasn’t transpired into any sentiment benefit because we’ve had other challenges that also weighed in. So between the Eskom saga set to continue and the allegations made against [President Cyril Ramaphosa], I think those issues were counterproductive to any sentiment change. But, that being said, the fiscus is in much better shape than what we would’ve expected through Covid.
But definitely, it did catch us by surprise. It’s always the political upheavals that seem to catch us … If we think about politics globally and locally, we never know what the exact situation is going to be, but every year there’s some kind of a surprise that comes out. CIARAN RYAN: What do you think was the biggest investment lesson you learned as a manager this year, and how do you think that lesson can be of assistance to investors going forward?
Ideally, what we would want to do in our portfolios is to find the intersection between a good business and a good investment. ADRIAAN PASK: Predictions – always a fun part of the year. I know many people have, again, somewhat polarised views on these things, but I think there are things that you can forecast.