The world is changing fast and to keep up you need local knowledge with global context.
In this BNC#5 presentation, portfolio manager, Piet Viljoen, delves into his portfolio of undervalued securities and warns that each security is like a brittle twig that can easily break. He clarifies that the job is not to pick individual stocks, but to manage the portfolio using a sensible investment process. Viljoen also expands on low-risk investment opportunities in South Africa that have generated strong returns in recent years, emphasising the importance of considering valuations when investing in Africa. Viljoen notes that while South Africa may be perceived as a tough place to invest, valuation is the only reason to invest in the country, he encourages investors to take advantage of valuations but to also be mindful of the risks associated with investing in South Africa.
Some extracts from the presentation:
Piet Viljoen on managing a portfolio of undervalued securities
I’m going to be talking about investments and certain stocks and so on in this talk. But I want you to bear in mind that what I manage is a portfolio of undervalued securities. Each undervalued security is like a brittle twig. This can break quite easily. An undervalued security is undervalued because there is bad stuff around that company. There is bad news, there is bad management and there’s bad things happening. That’s why an asset is undervalued. It doesn’t get undervalued when everybody is sitting around the campfire, holding hands and singing Kumbaya. That happy place does not make securities undervalued. You get undervalued because bad stuff is happening. So my job is not to pick stocks. That’s a small part of the job. My main job is to, by way of a sensible investment management process, string around each one of these twigs and bundle it up into a robust outcome.
On the past being high quality US assets dominating everything else
We’ve experienced a world in which US assets, specifically high-quality US assets, have dominated everything else. But that’s the past. As Warren Buffett says, unfortunately, business is very clear through the rear view mirror, but very hard to discern through the windscreen. Wayne Gretzky was an ice hockey professional and I thought this quote was quite appropriate, he said when asked why are you such a good ice hockey player, he said: “I don’t skate where the puck is, I skate to where the puck is going. And it’s our job to try and figure out where this puck is going for the next ten years.
On emerging markets and value-investing
Generally, emerging markets tend to produce stuff and therefore they also react to the cycle. So when stuff does well, emerging markets tend to do well. South Africa is an emerging market which produces stuff. So it’s one of that group of countries. And the third derivative of this is value investing. Value investing generally invests in companies that produce stuff or that are capital intensive. And when stuff does well, value investing does well. And you can see that over the past 10, 15 years, value investing has done poorly. It has not done well – with commodity prices generally declining relative to other assets. But we think, as in past cycles, a good time to buy stuff, emerging markets, South Africa, value, has been when the cycle has been where it is now. This cycle is more extended because of money printing and the response to COVID and all those sorts of things. But we are in the sort of stage of the cycle where it pays to invest in that sort of investment.
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