RYK VAN NIEKERK: Welcome to this week’s version of the Be a Better Investor podcast. My identify is Ryk van Niekerk and on this podcast collection I communicate to main buyers and enterprise leaders about investments. We additionally take a peek into their private funding portfolios. We attempt to get a way of how they analyse funding alternatives, what shares and belongings they spend money on, and whether or not they have extra hits than misses. The concept is to establish just a few golden nuggets of knowledge to assist beginner retail buyers to turn into higher buyers.
My visitor right this moment is Jan van Niekerk. There isn’t any relation, though we each sat in the same arithmetic class at college a few years in the past. He went on to turn into an actuary, and I didn’t. I grew to become a journalist for all my sins. Jan is at present the CEO of RECM [Regarding Capital Management] and the CFO of RECM and Calibre. He was beforehand the CEO of Peregrine Holdings and the government chairman of Citadel.
Jan, thanks a lot for becoming a member of me. You have clearly been at the head of many asset administration companies. Are you at present managing any funds?
JAN VAN NIEKERK: Well, Ryk, thanks very a lot for the alternative. At RECM we have one particular fund that I handle at the second.
It’s a professional investor hedge fund, referred to as the RECM Flexible Value Fund. It was arrange 5 years in the past, mainly for the homeowners and family and friends of RECM to make investments their money in a single pool that may be managed correctly and with the particular goal of producing first rate returns over time. So that’s the solely fund I’m managing at the second.
And then clearly we’re additionally accountable in the group for managing two listed funding automobiles. The one is RECM and Calibre, as you’ve talked about. And then the different one is a narrative of investments, which is domiciled in Mauritius, but additionally listed on the inventory change in South Africa.
RYK VAN NIEKERK: That could be very attention-grabbing, that you simply handle let’s name it a closed hedge fund. But is {that a} typical method from CEOs and C-suite executives in South Africa – to pool their money and to handle it virtually collectively, clearly to maximise wealth?
JAN VAN NIEKERK: Ryk, I wouldn’t have the option to communicate for different individuals.
What we have been wanting to do is to have a way of creating investments in a broad vary of devices the place we have the most effectivity by way of the lowest potential charges and execution. And then additionally to see if we are able to get them the most tax-efficient method and likewise get the administration round that as little as potential.
It simply turned out that this particular construction, which is a professional funding construction, offers us most of these advantages. It occurs to be referred to as a hedge fund, however I believe there’s a connotation to the identify and the time period ‘hedge fund’. So please, we do that as a result of we would like to make money from investments, not for the sake of calling ourselves hedge-fund managers.
RYK VAN NIEKERK: Well, we’ll come again to that fund a bit later. But simply inform us a bit about your background. Where did you develop up and when did you resolve that your profession can be in the administration of investments?
JAN VAN NIEKERK: Ryk, I’m a farmer’s son. My household have been sheep farmers in the large metropolis of Pofadder, which is up in the Northern Cape, simply south of the Namibian border.
Early on in life I found out that it’s way too onerous to make a dwelling that way. So I studied at Stellenbosch – that’s the place, as you stated, you and I met. I grew to become an actuary.
But early on, even in highschool, I used to be shopping for and promoting shares via the financial institution supervisor at the department in Pofadder in these days. And then at college I spent quite a lot of my time at the stockbroking workplace round the nook – Huysamer Stals at the time in Talk Street. I’ve all the time been concerned in investments and getting increasingly concerned in personal ventures as effectively, as a result of enterprise pursuits me.
RYK VAN NIEKERK: What was the very first share you purchased?
JAN VAN NIEKERK: It was an organization referred to as Rustplats, Rustenburg Platinum. That’s in and up someplace in Impala [Platinum], if I’m not mistaken, finally over the time. And the second share I purchased was referred to as Veka, V‑E‑Okay‑A. It was a clothes producer at the time. The solely motive I purchased them was as a result of I preferred their names, and the share chart regarded fairly. There was no detailed evaluation on that.
RYK VAN NIEKERK: So you reside in Pofadder, you’re employed, you purchase shares via the financial institution supervisor – and you purchased a platinum share. If you’d held it until right this moment, it ought to have been actually priceless, particularly whether it is in Impala.
JAN VAN NIEKERK: The platinum mines have modified their make-up over a few years and these belongings get swapped round between [them]. I don’t assume it was Impala at the time; they purchased it out, so I might’ve acquired some shares in one other firm in the interim. So sure, I didn’t maintain all of it the way via. I ought to have, however I didn’t.
RYK VAN NIEKERK: Let’s discuss your funding method, and particularly the evolution thereof, as a result of I assume your method modified considerably from if you have been at college and you purchased your Rustplats share, to right this moment. Of course you’re much more certified, you have much more expertise. How did your method evolve and what precisely is your method right this moment?
JAN VAN NIEKERK: The attention-grabbing factor is, if you begin off, human nature kicks in, and the one large lesson that I believe all of us can take from that’s that to achieve success in investing, you want to perceive that you can be combating human nature, your personal nature, all the time, as a result of all the issues that have saved people alive in the wild work precisely the fallacious way round when it comes to investing in listed devices, the place the costs change all the time. Your pure inclination is to need to go along with the herd, and sadly that doesn’t lead to good outcomes.
So my first expertise was being a 13-year-old purchaser and vendor of shares in Pofadder via the financial institution supervisor. The solely supply of knowledge we had was the Afrikaans newspaper that arrived [the] subsequent Friday; final Sunday’s paper. By the time the info and the newspaper in Pofadder obtained to me, the guys on the ground at the inventory change had purchased and bought their shares already. So studying the newspaper to make selections didn’t work then, and it nonetheless doesn’t work right this moment.
So that was the first lesson – don’t make investments on the again of what you see in the newspaper. And actually, if you need to make investments with the information, that’s not going to work. You may [want to] go towards what the newspapers say.
Then I believed, effectively, if I draw traces on the share graph, on the piece of paper with the share graph costs, I can work out what’s happening. And then I additionally found out that technical evaluation works for many individuals, however once more your character and your DNA want to be suited to that way of investing. If you’re sure to second-guess your self, then technical evaluation shouldn’t be a great way to do it. So I had to work out that that doesn’t work for me, for my character.
And then I used to be fortunate sufficient to have a bursary from Sanlam and I ended up in the investments division with Sanlam. At the time I believed, effectively, now I’ve arrived in heaven as a result of there are all these analysts round you they usually know every little thing about each firm. So now I used to be going to have the option to use that info and make money from investments. Then I realized the lesson that large groups of individuals have [disparate] units of views or opinions. So in a giant funding staff we agreed on the details of the funding in a short time.
So, if somebody had to put down a particular firm, let’s take an instance, Sasol, inside three to 4 hours, all the analysts which might be at the desk would agree on the most certainly final result of Sasol’s earnings for the subsequent three to 5 years. But then it’ll take you two weeks to work out what to do with that info as a result of swiftly somebody says ‘But my uncle works at Sasol and he’s informed me that issues should not that [good]’, and another person says ‘Well, the price is falling, so let’s look forward to a few weeks’.
So the disagreement in large groups by no means comes round the details; it arises round the interpretation and the philosophy of the way you need to use these details to make money.
[You have] the realisation that smaller groups make higher selections. If you need to work in a staff and never on your personal, listening to too many individuals, you find yourself in paralysis; you’re not in a position to make these selections. So these have been kind of the large classes.
And then at some stage I managed to learn the guide The Making of an American Capitalist [by Roger Lowenstein], which was kind of the authentic guide written about Warren Buffett. That stuff made quite a lot of sense. I needed to make investments, and like many individuals needed to be Buffett and make investments like Buffett. It took me about 15 years to work out that there’s just one Buffett and that’s Mr Buffet, and the remainder of us have to spend money on a way that fits your personal character. I believe the hardest a part of my life was wanting to be like Buffett and having to realise that you simply can not make investments like him, and that you simply have to do your personal factor. Once I made my peace with that, my funding portfolio began working significantly better for me and for the folks that make investments with me.
RYK VAN NIEKERK: You’ve stated quite a lot of issues right here, and I need to give attention to two of them. The first one is ‘don’t comply with the herd’. Of course which will counsel that you’re far more of a contrarian investor, the place you go towards the mainstream perceptions. How do you not comply with the herd?
JAN VAN NIEKERK: I believe there are two issues. The one is to cognitively realise that that’s not a great technique. I believe it’s simpler if you speak to individuals to inform them and they’ll agree; however emotionally it’s tough. Some persons are contrarian only for the sake of disagreeing with different individuals. I don’t assume that’s a productive way of going via life. I believe you want to query no matter you see in the newspaper or in the media. So, effectively, somebody has clearly considered that assertion very rigorously they usually desire a sure final result – and also you all the time simply have to surprise why they’re telling this story or portraying the image in a sure way. Is there doubtlessly one thing in the background that’s barely totally different that they’re making an attempt to cover?
So how do you go towards the herd? I believe it’s simply, Ryk, such as you’re a triathlete or an endurance athlete. How do you turn into an endurance athlete? Well, you simply have to practise. You have to do the same factor again and again. And that’s why, if you’re fortunate and also you have a protracted sufficient funding profession, you then simply practise extra to go towards what the herd is [doing].
Another way to do it’s to simply see what the common opinions are – and there are numerous methods to determine [those] out. These days you possibly can comply with Twitter, and you’ll see the place everyone is worked up about one thing, or pessimistic about one thing, by way of their feedback.
The different way is simply to take a look at the valuations that the market places on belongings. So when an organization is buying and selling at a really excessive price-earnings [PE] ratio, then by definition many individuals are enthusiastic about that enterprise. And when it’s buying and selling at a low PE or a low price-to-book or a excessive dividend yield – there are alternative ways to take a look at that – you possibly can work out that persons are very pessimistic about that.
So there are a few methods to search for locations the place there’s a chance to go towards the herd.
RYK VAN NIEKERK: You additionally stated that your character has an affect on your funding selections. How so?
JAN VAN NIEKERK: I believe it is crucial to perceive whether or not you’re an excitable character. So, if you happen to get enthusiastic about stuff or despondent about stuff rapidly, you then want to keep away from investments the place the value of the asset adjustments often, as a result of, whether or not you prefer it or not, your feelings and your temper do get affected by your success in the market. If you purchased one thing and the value goes up by 20% in every week, you possibly can’t assist your self congratulating your self and being excited. Or if you happen to purchase it and it goes down by 20%, you then get depressed. And if it occurs just a few occasions in a row, you begin questioning your personal skills and your function in life.
So I believe it is crucial to know whether or not you’re a fixed, secure character or an excitable character, or whether or not you’re a grumpy character the place you all the time search for issues that can go fallacious. If you’re by nature cautious, these issues decide, kind of, the elements of the world the place you ought to be searching for investments that match your DNA.
Some individuals by [the] nature of who they’re ought to be index buyers. Somehow it appears to be like thrilling and attention-grabbing to purchase and promote shares, or become involved in different securities, as a result of different persons are making money there, however basically they’re not wired to do this. And that’s the place you get into hassle since you then find yourself shopping for the fallacious instrument for the fallacious motive and, when it doesn’t go your way, you promote it at the fallacious time for the fallacious motive.
So I believe that it’s crucial to perceive your personal character, and no person else can let you know about that.
You simply have to have an sincere dialog with your self.
RYK VAN NIEKERK: So individuals with totally different personalities will have totally different portfolios?
JAN VAN NIEKERK: Absolutely. And will have pleasure of their life and revenue of their pockets out of various portfolios. That’s okay. You don’t have to make money the same way your neighbour does.
RYK VAN NIEKERK: You additionally made an attention-grabbing level about details and opinion. You stated it’s comparatively straightforward to get consensus about the details a few potential funding alternative, however it’s much more tough to formulate an funding opinion based mostly on the details. How do you take a look at details and use them to formulate an funding opinion?
JAN VAN NIEKERK: The conclusion of all of these classes at the second is the way we function. I’m the particular person. I take duty for executing transactions – so deciding when to purchase, and when to promote. I have a staff of two analysts that work with me on the devices that we think about for the fund we handle. They assist me with gathering info, doing the calculations to perceive the place what we name the honest values of the belongings are. But in the end there’s just one person who decides.
The subject with how to take details [and incorporate them] into executable transactions is [that], as quickly as you have groups making selections, you then compromise. And additionally what compromise means is when one thing works out effectively, everyone claims success. If one thing doesn’t work out effectively, then everyone blames the different individuals.
So single-point duty is one way to take care of that; one individual incorporates the details, makes the choice and strikes on. And if you happen to’re not profitable at doing that, then let another person do it, and also you spend your time gathering the details.
The different [thing] is how you are taking details [and formulate them] into opinions. I believe that’s the place expertise helps and the place understanding your personal way of the world works.
The third one is knowing your personal ache threshold – how a lot ache can you are taking?
The way I make investments – there’s a contrarian nature to what I do, which implies that I don’t focus on my funding portfolio with my associates at dinner events as a result of, by and enormous, the stuff we purchase they hate, and the stuff we don’t purchase they like, so it doesn’t make for good dialog.
And in the final three years, the stuff we ended up shopping for was not environmentally, socially, or governance-relatedly acceptable. So the ESG [environmental, social and governance] crowd didn’t prefer it. But that was the motive why many of those belongings grew to become low cost. So preserve your concepts to your self.
I believe the fourth level is as quickly as individuals begin speaking publicly about particular names – and I believe this is a vital factor if you’re investing – you have to take a look at the behaviour and the final result of your portfolio. Some of the stuff you purchase and promote will work out and a few is not going to work out, however you have to take a look at the results of your mixed portfolio. As quickly as you begin speaking – human beings inform tales, that’s how we undergo life, and we all the time simply inform the tales of the stuff that labored out effectively or has labored out effectively not too long ago. And what I discover is when you publicly make an announcement about an organization or a administration staff or an concept, then it’s very tough to change your personal thoughts since you have informed your associates, otherwise you’ve informed individuals on the radio about that. So a part of the finest recommendation is to preserve your recommendation to your self.
RYK VAN NIEKERK: But hopefully you can provide us a peek into your hedge fund or the fund you handle. Can you inform us what’s in there, or what sectors you want at the second and the place your money lies?
JAN VAN NIEKERK: We can positively discuss that. The fund reality sheet is public info on our web site, and there we disclose kind of the prime 10 positions. I believe I can communicate round that.
As a part of the positions we have in there we personal an organization referred to as Lewis Stores, which is a furnishings retailer that has been buying and selling very low cost for a very long time. The motive – and maybe that is extra an instance of a thought course of – Ben Graham initially coined the phrase ‘a net-net investment’, that’s an organization the place the share value trades at a reduction to its liquidation worth.
And the way we calculate the liquidation worth for this firm is we simply take the present belongings. So that’s simply the money in the financial institution and the debtors. So actually simply [look at] all the money they will get in the subsequent six weeks. We deduct all the liabilities they have on the different facet. So all the leases that they nonetheless want to pay, all the collectors they nonetheless want to pay, the tax, all of that, after which [we look at] the worth that’s left. So at present money and receivables, much less all the liabilities – that’s what we name ‘liquidation value’ – and the share value of this firm is decrease than that.
It implies that if you happen to can right this moment go and purchase the total enterprise, gather the money, pay all the liabilities, and also you’ll have money left, you then get all the inventory and also you get all the manufacturers and all the hidden belongings on the stability sheet – all of that – without spending a dime.
So Lewis trades at a reduction to its liquidation worth, the enterprise trades profitably, it makes sufficient money to pay dividends to its shareholders and it’s shopping for again a few of its personal shares.
What occurs is, if an organization that’s buying and selling that cheaply buys again a few of its personal shares, the remaining shareholders personal extra of their very own firm afterwards, as a result of a few of the shares have been retired. That form of setup together is one thing that usually works out effectively over time. We’ve seen occur it in lots of elements of the world, and that was the stuff that triggered us to make investments and personal Lewis.
So the share value has executed okay, and on prime of that we’ve acquired some dividends.
So the complete return out of that has been fairly good. The good factor is, if administration does the proper stuff in a enterprise like that, then we don’t have to make one other choice. They are doing all the onerous work on behalf of shareholders.
RYK VAN NIEKERK: I’m Lewis’s share value efficiency over the previous few years. Over 5 years the value has risen by 70%, over one yr by 40%. In between it lagged at a really low PE, as you’ve stated. When do these kind of investments turn into a price lure? Do you regard such investments as a price lure and the way do you react to it?
JAN VAN NIEKERK: Yes, I believe you’re completely proper. The danger of scratching round stuff like that is that you find yourself in a spot the place you by no means make money, and that’s why most of our investments have a time restrict on them as effectively. So once we provoke an funding, after 18 months I’ll overview it to say, effectively, this funding: is it panning out the way we all know, or we have seen in the previous how these items work? And if it’s not panning out, then we transfer on. There’s no use in getting caught in one thing. So simply keep in mind Lewis pays a really excessive dividend yield. So the returns you’re mentioning there, that’s what’s occurred to the share value. On prime of it, we’ve been paid a dividend yield of shut to 10% a yr for the final couple of years [waiting] for the worth to unlock, so that you have to add that on prime.
RYK VAN NIEKERK: Just point out just a few different firms you’ve invested in.
JAN VAN NIEKERK: [Among] a few of the different belongings that we personal is Thungela, which is a coal firm that was spun out of Anglo American in June final yr. The origin of the funding thesis was that Anglo owned some coal belongings. [For] a few of that they have been joint-venture buyers with different mining firms and a few they owned outright. And then most of the coal belongings they managed to promote as a result of their shareholders have been upset with Anglo American for not being ESG-compliant. The final bit that they couldn’t do was to do away with the South African coal belongings. So of their knowledge, they put all of these belongings right into a subsidiary firm referred to as Thungela after which distributed the Thungela shares to Anglo American shareholders. Those same shareholders informed them that they didn’t need to personal coal shares.
So it was fairly clear to us that, to these shareholders, Thungela was a small firm in contrast to Anglo American. So most of the large establishments then promptly simply bought these shares with out even wanting [at] what the worth of the value was. They bought Thungela at someplace between R25 and R35 a share and promptly, inside a yr, I believe, Thungela paid its dividend of R18 a share. This yr they in all probability ought to pay a dividend nearer to R50 [a share]. So you’d’ve made your money again simply on the again of the dividends already.
The motive the alternative existed was as a result of there was simply this normal sense in the world that ‘It’s a foul factor to personal coal and coal goes to kill the world and [there is] international warming, and we should cease it instantly’ – whereas the actual view is that we want to use much less coal over time, however you possibly can’t cease utilizing it earlier than you have an alternate in place.
So the world will want coal for fairly a while, and Thungela will likely be in a position to promote coal to many individuals in South Africa and outdoors of the world for fairly a while.
The share value – even right this moment – displays quite a lot of pessimism by buyers round this. It additionally exhibits that many individuals have a mandate from their purchasers to say ‘I don’t need you to spend money on one thing like that’, which implies that the demand for Thungela’s share is low and it’s not low cost.
RYK VAN NIEKERK: But the share value has carried out completely phenomenally since the itemizing. I believe in some ways it’s an ESG choice, and never solely an funding choice. Some asset managers are literally fairly aggressive about solely investing in inexperienced firms, if you happen to may name them that.
Just lastly, Jan, inform us what has been your best-ever funding, and what has been the greatest canine you’ve ever purchased.
JAN VAN NIEKERK: I’m going to have to think twice. Thungela might be [best]; it’s prime of thoughts. I can dig out some others, however that’s been a spectacular funding.
In my early years many individuals will keep in mind the firm Peregrine was listed. I used to be clearly employed there, however Peregrine was a kind of monetary companies firms the place, after the small-cap increase of the Nineties, all of these shares grew to become very unloved. I believe the share value fell from R27 to R1.40. I recall we, as staff, purchased shares at R1.40. Eventually that share was taken personal at R24 or one thing like that. So that was a great funding final result, in the end.
And the worst? I’ve purchased a few issues that went to zero. Especially if you happen to use choices from time to time, some choices expire nugatory, however that’s by design. I’ve had a few companies the place the share value had gone to zero. What you want to do there may be to make positive, when there’s an opportunity like that, simply to preserve the place in your portfolio manageable.
RYK VAN NIEKERK: Come on. Which firms have been these?
JAN VAN NIEKERK: Well, maybe let me discuss a current expertise. There’s a listed firm referred to as Rebosis, which has an A and a B unit, and there’s quite a lot of uncertainty round the future prospects, particularly of the A unit. The final result there may be both the A items are going to be price zero or price much more. So I’ve made an funding in Rebosis A items on the foundation that I believe there’s a likelihood that it’s extra optimistic than not; however the share value has come off lots this yr already, as a result of there’s simply much more uncertainty. So I believe that may have been the worst one in current historical past.
RYK VAN NIEKERK: Jan, thanks a lot for sharing your insights right this moment. I believe it’s been a really, very attention-grabbing dialogue, however we’ll have to go away it there. Thanks a lot for your time right this moment.
JAN VAN NIEKERK: Thanks lots, Ryk.
RYK VAN NIEKERK: That was Jan van Niekerk. He’s the CEO of RECM and the CFO of RECM and Calibre.
