Piet Viljoen has much in common with Sage of Omaha Warren Buffett â which is hardly surprising considering Piet has made a study of Buffett’s investment strategy. He has also made the pilgrimage to the Berkshire Hathaway annual shareholders’ meeting.
Like Buffett, Piet has a rare ability to cut through jargon and complexity to explain his investment insights in a way that people who aren’t financially sophisticated can understand. And, he sticks to an investment strategy that amounts to this: paying less than the asset is worth.
In this interview with Alec Hogg, editor of Biznews, and co-host Gugulethu Mfuphi on the CNBC Power Lunch, Piet shares his views on whether now looks like it is the time to pay less than the following companies are worth: Glencore, Anglo American, FirstRand and Growthpoint. Which brings us to another similarity between Piet and Buffett: both are prepared to wait until the price is right before buying a company’s share. – JC
To watch this CNBC Power Lunch video click here
ALEC HOGG:  Global commodity trader and metals producer Glencore Xstrata reported a 20 percent rise in 2013 profit. FirstRand is also out with strong full-year results. Letâs get a more in-depth view though, on how the market is trading today and what we should be looking at with those results. Piet Viljoen from Regarding Capital Management is with us. Piet, have you been buying Glencore shares?
PIET VILJOEN:  No, we havenât been buying Glencore shares. Weâve had a look at it and it is probably not far off where we want to buy in terms of the price-to-value relationship, but itâs not quite there yet.
ALEC HOGG:  Good numbers though, that theyâve produced today when you consider the difficulty most mining companies have been in, but heâs a smart operator. Isnât he â Ivan Glasenberg?
PIET VILJOEN:  No doubt; and we actually think itâs probably because of its trading operation, probably a slightly better quality business than Angloâs and possibly, even BHP Billiton, but thatâs one thing. The other thing is what price do you pay to buy that business? We think that price is still a bit full.
ALEC HOGG:  If you take a broader view â and thereâs been a lot of talk about possible deals between Glencore Xstrata and Anglo American â would that be something that would occupy your mind? Do you think it would make sense?
PIET VILJOEN: Â Well, seeing that Shell is Anglo American theyâd have to pay us a lot of money to do that deal.
ALEC HOGG:  Okay, give us a price point. Weâll pass it on to Ivan.
PIET VILJOEN:  I guess weâd pay a 40 percent premium to take over the business. Weâd probably be happy with that.
ALEC HOGG: Â So clearly, youâre saying to us that Anglo American at the current price is offering value still.
PIET VILJOEN:  Yes, thereâs no doubt about it. We think Anglo does offer value. We think with the new management in place that has already corrected many of the mistakes of the previous management and is doing the right things, that there is a lot of value to be unlocked there.
GUGULETHU MFUPHI: Â Piet, looking at the banking space, FirstRand out with its full-year results today: not performing too badly â managing to hold strong there.
PIET VILJOEN:  Look, FirstRand is a fantastic banking operation. What I like about it is the culture in the firm. It has a very strong internal culture and over time, that leads to consistently good results. There was an odd hiccup here and there but again, theyâve put out a good set of results. However, from an investment point of view, itâs one thing to admire a company and another to invest in it. One can only really make an investment case if the price is far enough below intrinsic value, which it is in the case of FirstRand. I think the market knows how good the business is, how good the management is, and itâs fully reflected in the share price today.
ALEC HOGG:  Iâm sorry. I led you astray there, Gugu. Itâs actually their interim results because they have a June year-end â FirstRand. Another set of results that came out todayâŚIâm not sure again, if you had a chance to look at them, is Growthpoint, Piet. Just generally, from the property sector, and where that sits in the current interest rate cycle, is it time to start bailing after having a very good run?
PIET VILJOEN:  Look, the property sector has been a ten-year bull market in South Africa and current valuations are fairly rich. The market is basically saying nothing can ever go wrong with these companies. The industry has consolidated stronger than they were, theyâre probably better financed, and they own good assets so the industry is in good shape. They have good management teams in place, so the odds of something going wrong is probably not high at this point in time, but it could happen. The price you pay to acquire units in these reeds these days does not take account of anything possibly going wrong and as such, we think the investment risk is probably on the high side.
ALEC HOGG: Â Are you off to Berkshire Hathaway again in May?
PIET VILJOEN:  No, Iâm going to have to miss it this year, unfortunately. I canât go.
ALEC HOGG:  I might also miss it. When I was looking through the shareholder letter, there was a lot of information there, almost enough to say âhow does Warren put more after telling us that?â Was there much that you pulled out of the letter?
PIET VILJOEN:  Well, as you mentioned earlier on; you put the bad news upfront that over the past five years theyâve underperformed the S&P 500 and he spoke about it, explained it at length, and itâs not as though he didnât warn shareholders. For quite a number of years now, heâs said because of their size they will struggle to outperform, and thatâs exactly what happened over the past five years. I think their size does put them at a disadvantage in the short-term race against the index, so to speak. However, if you carry on reading the management commentary, youâll see that theyâre doing all the right things to put in place, to maintain the building blocks they already have, and put in place new building blocks to create growth for a very long time to come. I have no doubt that again, over the long term, the growth and intrinsic value of Berkshire Hathaway will outpace that of the underlying index.
GUGULETHU MFUPHI:  Piet, Alec mentioned at the top of the show that you are a Warren Buffett fan. Are there any investment strategies or investment insights that youâve taken up and learned from Buffett?
PIET VILJOEN:  I have to say that much of what I practice today I originally learned by reading Warren Buffettâs writings and reading writings about Warren Buffett. There is a lot of common sense to what he does and how he goes about doing it. The most important thing I think one can take from reading his annual reports over the years â through 30/40 yearsâ of annual reports â is the consistency of the thinking. Thatâs probably the most important takeaway for me. There are different ways to skin the cat, but if you decide that that is your way and you think you have an edge in doing it that way, you have to stick to it consistently and not flip-flop around.
ALEC HOGG: Â Itâs fascinating because in the shareholder letter as well, thereâs a lot of reference once again to the Benjamin Graham book, The Intelligent Investor, and particularly to those two chapters â chapter eight and chapter 20, so itâs very consistent in his way of thinking, too.
PIET VILJOEN:  Yes, thatâs exactly right. He started out in investing, using the Ben Graham approach or the Graham Doddâs Classic Value in Investing, approach. Over time, heâs modified it somewhat with influences from Charlie Munger, which I think has been a strong influence on him, but the basic building blocks remain the same and that is, âpay less than the asset is worth and âgood things happen to youâ.
