BNC#8 Piet Viljoen - Survive first, profit later: Why history beats prediction in investing

Piet dismantles the myth of market prediction, arguing that success comes from judgment, discipline, and respect for history. Drawing on timeless lessons, he reveals why human behaviour drives cycles, why diversification and liquidity matter, and why survival beats brilliance. In a world obsessed with forecasts, this approach focuses on resilience, patience, and compounding long-term wealth..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..Watch here.Listen here.Edited transcript of the key note speech.Alec Hogg (00:00:09:04 - 00:00:27:17)And Piet is the founder of RECM. You know him as a master of value investing. I know him as the guy who convinced me, on a beach in Perth in 2001, to stay in South Africa. So in a way, this is all due to Piet. Please welcome Piet Viljoen.Piet Viljoen (00:00:38:34 - 00:00:59:43)Thanks, Alec. Thank you for that kind introduction, and good morning to all of you. I want to start by telling you a little story about a dinner I had a couple of years ago. One of the guys leaned over and asked me what I do for a living. I said, “Well, I manage money.”00:00:59:46 - 00:01:21:42So he leaned in, as if we were about to exchange nuclear launch codes, and whispered: “What’s going to happen to the market next year?” I said, “I have absolutely no idea. I can’t tell you.” He stared at me, confused, and said, “So what exactly do you do all day?”00:01:21:46 - 00:01:45:24And that question perfectly captures the modern myth of investing: that success comes from prediction and activity. It doesn’t. It comes from applying judgment - judgment about people, incentives, risk, and time. And for that, history is a far better guide than any forecast.00:01:45:28 - 00:02:11:43In this talk, I’m going to let you in on my secret investment edge. It’s by far the best investment tool the market has ever seen. It provides a compelling paradigm - a veritable dummy’s guide to investing and navigating turbulent markets. Yet almost nobody uses it.00:02:11:47 - 00:02:45:41Here it is: this book, The Lessons of History by Will and Ariel Durant. It’s about 100 pages long. I read it at least once a year, and every time I do, I find new insights. Today, I’ll share some of those lessons and how I apply them in managing the fund I’ve nicknamed “The Cockroach” - the Merchant West Investments Worldwide Flexible Fund.00:02:45:45 - 00:02:53:07Lesson number one: in a volatile market, human nature is the constant.00:02:53:11 - 00:03:21:40British historian Dermot McCulloch once said history is a defence against insanity. The job of the historian is to protect the human race from lies. Charles Mackay, in his 1841 classic Extraordinary Popular Delusions and the Madness of Crowds, wrote that people think in herds, go mad in herds, and only recover their senses one by one.00:03:21:40 - 00:03:59:07The market is a herd of people. History is an inoculation against that madness. Companies change, regulations change, markets change - but pride, fear, greed, envy, hope, rationalisation, and self-deception remain constant.00:03:59:11 - 00:04:26:25The most important lesson of history is brutally simple: human nature does not change. As one Oxford professor put it, the world would be a pleasant place if humans were even reasonably decent - but collectively, we are often driven by greed, cruelty, and self-deception..00:04:26:29 - 00:04:38:08Individually, we may be reasonable. But collectively, as a species, we are often driven by greed, cruelty, and self-deception.00:04:38:12 - 00:05:14:07In ancient Rome, wealthy citizens rushed to lend money on absurd terms during booms, then begged the Senate for relief when the cycle turned. Sound familiar? The South Sea Bubble, 1840s railways, 1920s radios, the late 1990s internet - different eras, same emotions. What begins as reasonable is pushed into irrationality, justified by otherwise intelligent people.00:05:14:11 - 00:05:44:38Every bubble is intellectually unique, but psychologically identical. That’s why I don’t start my investment process with spreadsheets. I start with the questions historians ask: What are people panicking about? What are they desperate to believe?00:05:44:42 - 00:06:24:15At the Cockroach Fund, we assume people won’t behave rationally. Fear arrives suddenly. Greed overshoots. Confidence expands. Narratives seduce intelligent people into bad decisions. History shows this again and again - we may move faster and build more advanced systems, but we are still the same “trousered apes.”00:06:24:19 - 00:06:50:41So the portfolio is built on the premise that erratic human behaviour is a constant risk. The fund is aggressively diversified, avoids leverage, and is designed to withstand extreme conditions. It forces us to buy into fear and sell into overconfidence.00:06:50:41 - 00:07:10:40It’s built to thrive in good times and survive in bad. The goal isn’t to be right all the time or to win popularity contests. The goal is to still be standing, ready to compound capital when human nature inevitably reasserts itself.00:07:10:44 - 00:07:38:13Lesson number two: cycles are the system. Every generation believes it’s living through unprecedented times. Almost none are.00:07:38:17 - 00:08:12:14In 1929, people thought recessions were gone. In the 1960s, the Nifty Fifty would grow forever. In 2006, house prices couldn’t fall. In 2021, interest rates didn’t matter. In 2025, the “Magnificent Seven” were seen as one-decision stocks. Each belief collapsed under the same force: the cycle.00:08:12:18 - 00:08:53:35Prosperity breeds confidence. Confidence enables leverage. Leverage creates fragility. Fragility leads to crisis. And from crisis comes renewal. The cycle repeats.00:08:53:39 - 00:09:09:26You don’t need to predict cycles - but you must respect them. At the Cockroach Fund, we never assume current conditions are permanent.00:09:09:30 - 00:09:31:10Growth, low volatility, cheap money - these are phases, not constants. Every cycle contains the seeds of its own reversal.00:09:31:14 - 00:09:57:08That’s why the fund is never fully invested. Liquidity matters. We resist the pressure to act just because markets are moving. The goal is to remain solvent and flexible.00:09:57:11 - 00:10:28:35We always hold 25% in cash. Cash is optionality - it allows you to act when others can’t. And importantly, you’re never forced to sell at the wrong time.00:10:28:47 - 00:11:14:17Not just any cash - we prefer currencies backed by relatively sound policy. Currently, that includes dollars and rands. South Africa’s higher interest rates compensate for currency risk, which is why we hold meaningful rand exposure even in a dollar-denominated fund.00:11:14:17 - 00:11:49:37Lesson three: survival beats brilliance. History rewards survival, not intelligence. Many brilliant investors failed because they ignored risk.00:11:49:41 - 00:12:15:26Risk isn’t volatility - it’s the permanent loss of capital. Building a margin of safety isn’t pessimism; it’s realism.00:12:15:30 - 00:12:29:14Engineers overbuild bridges because they understand failure. Investors should think the same way.00:12:29:18 - 00:13:06:38The Cockroach Fund is a “stay rich” strategy, not a “get rich” one. We accept underperformance in bull markets to avoid permanent loss.00:13:06:42 - 00:13:32:40Survival is the ultimate test. That’s why we allocate 25% to bonds - stable, income-generating, and often uncorrelated.00:13:32:44 - 00:14:00:06But even here, history warns us: most highly indebted nations eventually default - either explicitly or through inflation.00:14:00:10 - 00:14:44:11So we avoid developed market bonds and focus on financially sound emerging markets, always mindful of inflation risk.00:14:44:15 - 00:15:04:27Lesson four: consensus is comfort, not truth. Groups of confident people are often wrong - especially when they agree the most.00:15:04:31 - 00:15:46:33Before every crash, there’s broad agreement that risks are contained. Dissent is dismissed. Consensus feels safe - but it often hides danger.00:15:46:37 - 00:16:27:05When everyone owns the same assets for the same reasons, the system becomes fragile. Discomfort is often a prerequisite for good investing.00:16:27:09 - 00:17:28:04We deliberately avoid crowded trades. We focus on balance sheets, liquidity, and optionality - preparing for when consensus breaks..00:17:28:08 - 00:17:50:26The Cockroach Fund is designed to survive the moment when consensus breaks - because history tells us it always does. When that happens, the risks people ignored suddenly become front and centre.00:17:50:30 - 00:18:12:43We always allocate 25% to equities, but not the market’s favourites. Instead, I’m building what I call “ten stocks forever” - high-quality, globally diversified businesses with strong value-creating cultures. Once selected, the intention is to hold them with minimal turnover.00:18:12:47 - 00:18:41:41Less activity means lower costs and fewer mistakes. Currently, we also have exposure to undervalued South African small- and mid-cap stocks via the Merchant West Investments Value Fund - an opportunity we believe is temporary.00:18:41:45 - 00:19:16:14Lesson five: power shapes narratives. Narratives don’t spread because they’re true - they spread because they’re useful, especially to those in power.00:19:16:18 - 00:19:31:49You’ve heard them before: “Banks are too big to fail.” “Inflation is transitory.” “Losses are contained.” These narratives aren’t designed to inform - they’re designed to maintain confidence.00:19:32:03 - 00:19:58:22The Cockroach Fund is built on the assumption that these narratives may not hold. When stress arrives, rules change, goalposts move, and explanations come later - often after losses are locked in.00:19:58:26 - 00:20:28:05That’s why we focus on incentives, not stories. We prefer assets that are dull, solvent, and misunderstood over those that are exciting, celebrated, and fragile.00:20:28:09 - 00:20:54:36As investors without institutional power, we must protect ourselves. The system won’t do it for us. Liquidity matters more than promises, and assets that don’t rely on fragile narratives offer real protection.00:20:54:40 - 00:21:23:15We avoid structures that depend on policymakers or institutions “doing the right thing.” History shows that under pressure, with imperfect information and conflicting incentives, outcomes are rarely favourable for ordinary investors.00:21:23:19 - 00:21:49:38Today’s narrative suggests gold is crowded and private assets are the solution. Yet data shows minimal allocation to hard assets and heavy exposure to illiquid financial assets - often driven by powerful distribution networks.00:21:49:42 - 00:22:22:41So we allocate 25% to real assets - gold, precious metals, and royalty businesses - to protect against inflation and policy risk. These assets provide resilience when narratives fail.00:22:22:45 - 00:22:47:20Lesson six: time is a real advantage. As Charlie Munger said, the big money isn’t in the buying or selling, but in the waiting.00:22:47:24 - 00:23:17:12Modern markets reward activity, but history punishes it. Many highly traded, “exciting” investments disappear, while patient ownership of quality businesses compounds wealth.00:23:17:16 - 00:23:51:13Before the 2008 crisis, constant dealmaking created the illusion of control. In reality, the most active players were often the most fragile.00:23:51:17 - 00:24:08:44Compounding is powerful - but it requires patience. Unfortunately, investors often abandon patience at the first sign of turbulence.00:24:08:48 - 00:24:37:29We avoid chasing short-term rewards. Frequent trading increases costs, mistakes, and emotional fatigue. What markets call engagement, history calls leakage.00:24:37:33 - 00:25:05:29We measure success not by quarterly returns, but by survivability, purchasing power, and optionality. Patience allows compounding to do the heavy lifting.00:25:05:33 - 00:25:29:06Investing is an infinite game. There’s no finish line - only cycles, shocks, and surprises. The winner is the one who survives.00:25:29:10 - 00:25:55:41The Cockroach survives by maintaining balance: 25% cash, 25% bonds, 25% equities, and 25% real assets - each responding differently across economic environments.00:25:55:45 - 00:26:09:25Ultimately, investing is applied history - not forecasting. My philosophy isn’t complex; it’s grounded in studying the past.00:26:09:29 - 00:26:39:37History shows that human nature doesn’t change, cycles repeat, power shapes narratives, survival matters more than brilliance, and time rewards patience.00:26:39:41 - 00:26:44:01If you understand history, you don’t need to predict the future - you just need to avoid repeating the most expensive mistakes. Thank you.

BNC#8 Piet Viljoen - Survive first, profit later: Why history beats prediction in investing

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