36One’s Cy Jacobs, Ranmore Fund’s Sean Peche, and Merchant West’s Piet Viljoen team up with their collective wisdom during this investment panel discussion at BNC#5, offering their insights as they weigh in on pressing investment questions. The trio cover topics such as growth vs. value investing, the problems with technology, and the volatile future of the stock market.
Excerpts from the discussion
Piet Viljoen on Uber and Cloudflare and if he would add them to his portfolio
I think stocks like Uber illustrate the difference between value investors and growth investors. Invest into some sort of story which might or might not, as Cy points out, work out if it does work out and make money. If it doesn’t, you don’t make money, whereas value investors would rather look at a balance sheet, an income statement, and see what’s happening at the moment, what you’re paying for, what this is and reasonable prospects, and make a decision based on that. So it’s playing the cards that are dealt in front of you rather than buying into the story. And that is why Uber is a classic example of the difference for a growth investor and a value investor. So we don’t own Uber and definitely not Cloudflare because that is very, very expensive.
And the second comment I’d like to make is that stocks like Uber and Cloudflare also speak to the long term capital cycle in markets where because of cheap and even free capital in the US and other places in the world, a lot of money has been attracted into venture capital funds, private equity funds, and growth investors like Cathie Wood. These people have been flooded with free and cheap money, so a lot of capital has come into asset light business model markets where there’s huge competition and there will be winners. But it’s very hard to pick the winners and the competition to be a winner in those markets is intense. So I think that drives down the profitability of all players in those markets, which is why these guys don’t make money because the competition is just so intense because of all the capital in the market. So as a value investor, I’d rather take a step back and say, where is capital not going? Where is there less competition for my capital? Because then I can earn high returns on that capital.
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Sean Peche on the problem with technology
I think the problem with technology is that they talk about not the leading edge but the bleeding edge. That’s the problem. You know, you’re going to lose a lot of money because imagine if Facebook came out tomorrow and said, right, everybody’s got to pay $5 a month to use WhatsApp. We’re all going to be using Telegram. So the benchmark is nought, it’s free. And so if ChatGPT wants to charge us, well we might go back to Google but all of a sudden. It’s put Bing on the map, people go, ‘Oh, you actually know, I like Bing and I don’t need the Chatgpt I’ll just use Bing.’ I mean, Microsoft is going for Google. They’ve said it publicly. And so I think it’s just it’s going to lessen the pool.
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Cy Jacobs on if value will outperform growth
I think there’ll still be growth companies that will do well. I don’t think it’ll be as easy as one cycle. That value now outperforms growth for ten years because I think if you get a meltdown in the economy, you get the Fed to suddenly change tack. Maybe in six months or a year’s time suddenly interest rates will rise. The next thing you know, we’re off to a growth market. Everyone’s saying, well, you know, we’ll go back to the zero interest rate environment. We’ve got deflation and you’ve now got to buy long duration assets again, which might spark inflation again and then raise rates. I think we’re going to go through a very volatile time, but I would hazard a guess that value from this point would still outperform growth. The growth multiples are ridiculous, and not only are they ridiculous, they’re ridiculous on normalised earnings.
