Download the free LiSTN audio app on Google Play, Apple or here.
It has been one of the most popular downloaded podcasts this year, so if you haven’t listened to it, log in – it’s available – and listen to it.Jacques, thank you so much for coming in to the studio again today. I would like to talk about emotion and the way amateur investors should look at positive performances and negative performances, because sometimes emotion comes in and every single asset manager would say: ‘Listen, take emotion out of decisions.
But the longer you are in investments, the more you realise emotions are very much as important. It’s a longer to learn, because I think there’s a lot you can do by reading and trying to understand and learn from other people. If you understand that, then you can realise that having stable emotions and understanding your own emotions can actually give you a meaningful edge.
And in the office when everyone’s bearish and no one thinks that load shedding will ever be fixed, and that SA shares will never go up again, maybe that’s the time you want to consider buying. RYK VAN NIEKERK: Do you look at the investment decisions of other fund managers and asset managers? Do you compare those with your strategy?
But another interesting bit there is that over time you realise that you need to understand the prospects for a company, but you also need to understand what other investors in that share are thinking. I’ll give you an example. RYK VAN NIEKERK: But how did you know that, because at that stage they were still very, very small, and they were very focused on microlending.
So that’s also why it’s useful to see what others are thinking because maybe you can see what they are missing – and what you are seeing. If we go to the Capitec example, that needed banking – and transactional banking was in the end all they were after. So having a good view of that is almost the whole business, whereas MTN is like in 25 different countries, with Nigeria as the biggest profit-generator, and South Africa is maybe 20% or 15% of the valuation.
Let’s talk about consistency, because whenever you invest and you have a portfolio, you would like to see the portfolio increase in value and consistently do so. I think most asset managers send out statements every quarter and sometimes they are higher, sometimes lower. So it’s an interesting thing when you start off in your career and look back at a company’s share price graph – and there are obviously a certain set of events happen that cause that.
If you then look at someone’s performance, when would poor performance be a sign that something’s not working? I think that depends on the length of the track record – how long has someone been consistently doing well? That gives you lots of confidence that their process or their philosophy consistently generates outperformance.
But out of all those things, I’d say the most important thing has to be past performance – because that’s numerical, factual and proven. RYK VAN NIEKERK: That’s an interesting perspective, but I think it’s in many ways logical. But in many ways the choice of an asset manager is very, very important, sometimes even more important than choosing the actual investment. How do you research the quality of an asset manager? Is it just based on performance or should somebody look at something else or other metrics?
They’ve got a process of going through the 200 companies in SA and finding the ones that they think will outperform. So let’s talk about selling and buying decisions. Let’s start with selling decisions, because that is a difficult one. There’s always emotion involved. Say you have an investment, let’s use a unit trust, an equity unit trust. It’s not performing well. How long do you hold on to it before you sell it? Also be sure that there is no emotion involved in that decision.
I think a manager is somewhat different because you’re not buying into a fund for what the fair value is. You’re buying it for the skill of the manager. What I’d say you do is you first have to look at why you invest here. Is it someone with a very long track record? If it’s based on a 10- or 20‑year track record of outperformance at lower risk in the market, then I think you want to stick with that for a fairly long period of time.