Q&A with Asset Managers

Q&A with Asset Managers

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All amounts invested should be viewed in light of the individual investor’s particular circumstances. Investors should always seek financial advice before investing – from a professional.

What stocks would you buy with R5 000?

One of the basic principles we apply when investing clients’ money is avoiding the likelihood of incurring a loss. However with a smaller amount of money we would look for a deeply mispriced opportunity where the prospect of an enormous gain also comes with the possibility of a small loss.

We would look at Coal of Africa or Basil Read.

Basil Read currently trades at a very low price compared to its book value. As with all construction companies, earnings in the short-term are under pressure, but there are some strong signs of a turnaround in its mining consulting business (TWP) and improving order books. Coal of Africa on the other hand will either be a huge success or small failure. The company owns some exploration coal assets in South Africa, which if they meet certain quality standards for use as coking coal, could result in large local and export contracts.

R10 000?

Same as R5 000.

R50 000?

Assuming that the prospective client is like every other human being and dislikes losses twice as much as the same potential gain, we would look at allocating this slightly larger proportion into a business where the upside potential outweighs the downside risk. In this case we would look at something like Pick n Pay. The company is going through a challenging period and it is likely to be at least two to three years before we start to see some of the benefits coming through. This is however a company with great business economics which will once again rise to the fore.

R1 million?

If one is taking a portfolio approach to investing we would focus on identifying a list of companies with great business economics, including a strong global franchise with a sustainable competitive advantage in the global arena and a superb management team. Price considerations remain important but are probably secondary to the above qualitative factors. We would look at five or six such companies and invest an equal amount in each. Some examples include British American Tobacco, Steinhoff and Sasol.

Which stocks/market do you regret not investing in?

We will never catch all the best investment opportunities, but the one regret which comes to mind was not buying Mr Price in the heat of the global financial crisis below R20.

Which stocks/markets are you keeping an eye on?

Currently we are looking at some of the big cap stocks in Europe and US which have meaningful and rising exposure to emerging markets. These stocks have all been painted with the same brush as the companies listed in developed markets and are offering much more upside than many South African listed companies.

What are your goals when investing?

We follow a pragmatic value investment style looking for mispriced opportunities where the upside potential outweighs the downside risk. We focus as much on trying to understand the downside risk as we do the upside potential.

What was the best investment decision you have made?

Some of the best investments we have made share the same common factors. Buying when uncertainty is high (but the risk is low) resulting in a large mispricing relative to what we think a business is worth. Examples would include Standard Bank in the R60s and Anglo American in the R150s in March 2009.

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