Why smart investors don’t graze where the lions wait: market masterclass from Sean Peche

BizNews editor Alec Hogg sits down with Ranmore Fund Management founder and chief investment officer Sean Peche for an investing masterclass on navigating volatile markets. Using a vivid analogy about buck grazing where the lions lurk, Peche explains why investors should avoid the herd, focus on value, and stay disciplined when fear and greed drive market swings. It’s a timely conversation packed with practical lessons for both new and seasoned investors..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 interview.00:00:09:02 - 00:00:32:14Alec HoggWell, who’s it investing with? A spectator sport? Anything. But at the moment, Donald Trump says we’re going to close the Straits of Hormuz to everybody else, and so the share markets fall. He says we’re going to open them and the markets rise. And this can all happen in the space of three Truth Social posts. Who knows? Well, no, nobody really.00:00:32:14 - 00:00:51:20Alec Hogg:But Sean Peche has got a better insight into this than most people, and he’s going to help us through today by giving us an update. We haven’t chatted since the conference in March last month, and we’ll see what Sean thinks the world is looking like right now.00:00:51:22 - 00:01:19:23Alec Hogg:You know something I’ve never spoken to you about, Sean, was what drew you into investing. I know that you sat at the feet of the master Seaman Maria for some years, but what brought you in in the first place? What got you as a young man, or even a young lad, to say this is where I want to make my future, in helping other people to protect their money and grow it?00:01:20:01 - 00:01:40:11Sean Peach:Alec, thank you. It’s great to see you again. And it actually goes back to when I was at university. My father passed away suddenly from a heart attack, and we had the fortune, my mum had the fortune, of a good adviser, and he had some life insurance. And so there was a bit of money from the life insurance part.00:01:40:13 - 00:02:02:01Sean Peach:And so the adviser recommended a few funds. And so I was like, what are these things called mutual funds, or unit trusts in South Africa, as they’re obviously called? And I started digging and thought, oh, this is really interesting. And I bought a JSE handbook and I sort of started going from there. I opened a broker’s account.00:02:02:01 - 00:02:23:22Sean Peach:Then when I completed my studies, I went to Deloitte and I started an investing club in 1992. I spent a couple of weeks at Sechrest Managed Assets, as it was back then, where I had the good fortune of meeting that fine man Peter Major. And then when I was… sorry, that was in 1982… then at Deloitte I started this investing club.00:02:23:23 - 00:02:43:07Sean Peach:And invited people like Pete Major to come and talk to us. List and Main Keys was another guy, one of the partners at Deloitte, and we would talk about investing. And I kind of went from there. And obviously I had the good fortune as well of having Brian Hopkins as my accounting professor.00:02:43:07 - 00:02:55:21Sean Peach:And when he used to talk about income statements and balance sheets and cash flow statements, he would use real-life companies. So it was a very fortunate time. A whole lot of things came together, I guess.00:02:55:23 - 00:03:17:11Alec Hogg:And wonderful names that you’re sharing there with us. Obviously we know Pete Major very well. And unlike you, Pete Major will be at the Business Investment Conference. I can now disclose that we’ve just put that out last night. We’re having it on the 8th to the 10th of August back in the Drakensberg.00:03:17:13 - 00:03:28:01Alec Hogg:But my friend Mr Pierce is going to be travelling around the world. And you are actually based in the UK, so I suppose we can’t begrudge you that side of things.00:03:28:02 - 00:03:48:06Sean Peach:Well, look, I saw your list of esteemed guests and I’m really sorry I’m not going to be there. That Drakensberg… you reawakened my love for the Drakensberg. We never spent many holidays there actually, only one off to the trek. It was just so magnificent at Champagne Sports.00:03:48:08 - 00:03:57:14Sean Peach:We’ve actually been to the Cavern, and I know there’s a close link with the Cart family.00:03:57:16 - 00:04:04:15Sean Peach:We spent a week there with my wife and in-laws. So the Drakensberg is beautiful, and I’m really sorry I can’t join you this year.00:04:04:15 - 00:04:15:04Sean Peach:My daughter is teaching down under in Australia, so we’re going to be heading there for a couple of weeks to go and see her. It’s been a long year without it.00:04:15:06 - 00:04:50:23Alec Hogg:The family is nowadays in this modern age dispersed around the globe. But investments too, we can sit here in South Africa and invest anywhere we like in the world, and many do. So that’s why I love to tap your insights, your wisdom. You spend your time looking all over the world and often come up with really interesting parts of the globe.00:04:51:01 - 00:05:13:02Alec Hogg:Sometimes I haven’t even heard of the countries that you’ve looked at. And I guess right now the subject we should be looking at is what’s going on in the Gulf. I mentioned that in the intro: Straits of Hormuz. Everybody knows what it is now. Nobody’s sure how long this war in Iran is going to last.00:05:13:02 - 00:05:25:22Alec Hogg:The punters think it’s finished already. I see Gideon Rachman, the FT’s chief foreign affairs correspondent, wrote this morning that we haven’t even got to the peak yet. So what’s your reading on this, and does it matter when one invests?00:05:26:00 - 00:05:45:17Sean Peach:Well, I was actually asked yesterday by a client in an update. And I said, how are you playing the Gulf of Guinea? And I said, we’re not. We don’t invest like that. We’re quite different to many in that we’re not trying to guess what everybody else is going to do, or what Trump’s going to do.00:05:45:17 - 00:05:57:13Sean Peach:I mean, not even Trump knows what he’s going to do. The only people who seem to know are the people on the other side putting on oil positions 20 minutes before the announcement.00:05:57:15 - 00:06:05:04Alec Hogg:Do you think that’s real? Or are they being told what to say?00:06:05:06 - 00:06:25:03Sean Peach:No, I don’t think so. I think he’s deciding. I would be very surprised if that wasn’t true. When you see news on a Twitter feed and then it makes it into major papers like the Wall Street Journal and BBC, where there’s smoke there’s fire.00:06:25:03 - 00:06:54:00Sean Peach:It’s been an interesting period. I think back to February: the world was up, emerging markets up 15%, JSE up 15% in dollars at $0.86. And then all of a sudden all hell breaks loose in March and markets are down 6.5%, the S&P down 17% in dollars, emerging markets down 13%, quality down 8%, gold down 11.5%.00:06:54:02 - 00:07:21:04Sean Peach:Then in April, a month later, it is up 9%. JSE up 9%, emerging markets up 15%. So large cap from start to finish is up 1.9% year-to-date. Small cap growth up 15%. At one point Microsoft was down 26%.00:07:21:06 - 00:07:37:03Sean Peach:So it shows you anything can happen. The way to survive these crises is to be diversified and take a longer-term view.00:07:37:03 - 00:07:58:01Sean Peach:But you can’t decide you’re going to take a longer-term view and then leave when things get hot in the kitchen. Then you come back after it’s calmed down. If you’d sold at the end of March, when markets were down 6%, and then the world index is up 9% this month, what do you do?00:07:58:03 - 00:08:20:16Alec Hogg:Well Sean, if you’re basing it on headlines and newspapers, you’re going to struggle to even find the newspaper in the first place. But I know what you mean.00:08:20:16 - 00:08:35:18Alec Hogg:Do you think Trump is also playing it? Do you think he’s making money out of the prognostications he provides? A lot of people say that’s part of the motivation.00:08:36:00 - 00:09:06:01Sean Peach:It wouldn’t surprise me. Look at his antics in bitcoin and crypto. Look at Hegseth and attempts to buy a large position in a defence ETF just before the war started. I mean, this is a corrupt administration.00:09:06:01 - 00:09:34:22Sean Peach:Can you imagine the furore if governments in South Africa were doing that? We look at the Ramaphosa sofa money issue - this is on a different league. I said a few months ago that I thought Trump would be bad for the US in the same way Zuma was bad for South Africa, and I stand by that.00:09:34:22 - 00:09:59:15Sean Peach:The ramifications are still going to play out. Fertiliser and growing seasons, a large portion of fertiliser comes from that region and can’t get off the Straits. That affects crops, pricing, and inflation.00:09:59:17 - 00:10:19:20Sean Peach:That means interest rates stay higher. In the UK people were forecasting cuts, but that is unlikely given inflation.00:10:19:22 - 00:10:42:17Sean Peach:At a time when you’ve got $8–10 trillion of US debt rolling, issued at near zero rates in 2020, now refinancing at over 4%, that puts pressure.00:10:42:22 - 00:11:05:08Sean Peach:That’s a third of their debt refinancing at much higher rates. That’s a problem for private credit and financing data centres.00:11:05:08 - 00:11:25:04Sean Peach:Who is financing those data centres? The Gulf. But what are the Gulf going to do if they’re spending cash repairing damage from the war? Oil revenues are going to be down.00:11:25:06 - 00:11:35:19Sean Peach:Even Newcastle United - the Saudis have put their best player up for sale.00:11:35:21 - 00:11:46:14Alec Hogg:Anthony Gordon. £75 million from Bayern Munich.00:11:46:14 - 00:12:12:10Alec Hogg:But getting back to markets and volatility - historically, big market changes come with huge volatility. Are we missing something? The narrative says everything is fine, stay invested, Trump knows what he’s doing. But the numbers suggest otherwise.00:12:12:10 - 00:12:48:14Sean Peach:I think that’s quite possibly the case. Risks in private credit, AI disruption, jobs, inflation, debt - and high valuations. We should prepare for tougher times.00:12:48:16 - 00:13:12:01Sean Peach:In the last 17 years, the S&P 500 has had double-digit positive returns in 13 years, and only one double-digit down year. Before that, it was more volatile.00:13:12:01 - 00:13:40:14Sean Peach:Valuations are in the top five since 1989. Even big tech is now borrowing. There is a shift away from the US politically as well.00:13:40:15 - 00:14:01:05Sean Peach:Spain, Italy, even the UK special relationship is strained. China and the Gulf are also disgruntled. The US is 73% of the world index.00:14:01:05 - 00:14:29:23Sean Peach:At some point investors may start reallocating. The US Treasury even bought its own bonds last week to maintain liquidity.00:14:29:23 - 00:14:46:13Sean Peach:Valuation really matters now. You need margin of safety.00:14:46:15 - 00:15:13:10Sean Peach:Look at the CNN Fear and Greed Index: it uses market breadth, moving averages, options activity. It ranges from extreme fear to extreme greed.00:15:13:10 - 00:15:37:13Sean Peach:A month ago we were in extreme fear. Now we are in greed, almost extreme greed.00:15:37:16 - 00:15:54:05Alec Hogg:So what happens then?00:15:54:07 - 00:16:19:00Sean Peach:Bargains come when there is fear. You overpay when there is greed. Warren Buffett says be greedy when others are fearful and fearful when others are greedy.00:16:19:02 - 00:16:45:23Sean Peach:But be greedy about quality businesses at attractive valuations, not speculative rubbish.00:16:46:01 - 00:17:03:16Sean Peach:We have to get rich slowly - not hit a six every ball. It’s Test match cricket, not T20.00:17:03:16 - 00:17:24:20Sean Peach:Low valuations help you survive tough times.00:17:24:20 - 00:17:52:14Sean Peach:Value has beaten growth in nine out of ten decades over the last hundred years, except 2010–2020 after the global financial crisis.00:17:52:17 - 00:18:22:00Alec Hogg:Just to clarify - low valuation means intrinsic value vs price. If something with $100 cash is bought for $60, that’s value. At $120, you’re paying for growth.00:18:22:02 - 00:19:28:06Sean Peach:Exactly. You need multiple metrics - PE ratio, free cash flow yield, price-to-book, dividend yield.00:19:28:06 - 00:19:47:08Alec Hogg:For young investors, can AI just tell you if something is value or growth?00:19:47:12 - 00:20:20:19Sean Peach:It can help, but it will be error-prone. The S&P 500 PE is about 25.00:20:20:21 - 00:20:45:02Sean Peach:That’s like a 4% earnings yield. Would you be happy with that given the risk?00:20:45:04 - 00:21:02:14Sean Peach:At a PE of 10, that’s 10% return. At 5, that’s 20%.00:21:02:14 - 00:21:28:23Sean Peach:Walmart is around 45–50 PE - like a 2% yield. If growth disappoints, you’re in trouble.00:21:28:23 - 00:21:52:00Sean Peach:That’s what happened with Novo Nordisk - it de-rated from 40x to 12x and lost around 70%.00:21:52:00 - 00:22:15:21Sean Peach:So paying too much for growth is dangerous.00:22:15:23 - 00:22:51:18Alec Hogg:What made you become such a disciplined investor if not that early life shock?00:22:51:20 - 00:23:22:17Sean Peach:You don’t get old bold investors. Eventually risk catches you. It’s like rugby - you advance, consolidate, and build up.00:23:22:19 - 00:23:59:20Sean Peach:Consistency matters. You don’t want concentrated bets.00:23:59:20 - 00:24:24:06Sean Peach:Value investing works in nine out of ten decades.00:24:24:06 - 00:25:04:09Sean Peach:We don’t get everything right, but we aim to get more right than wrong and compound over time.00:25:04:09 - 00:25:40:13Sean Peach:Clients don’t like underperformance, but that’s part of investing.00:25:40:13 - 00:26:19:04Sean Peach:It’s difficult because you are straying from the herd.00:26:19:04 - 00:26:40:12Sean Peach:We are herd animals - it feels safer to be in the herd.00:26:40:12 - 00:26:54:01Alec Hogg:So where is the grass greenest, and where are the lions?00:26:54:04 - 00:27:32:03Sean Peach:We like Asia and select Europe. Healthcare is out of favour. Energy has been in favour, so be cautious of crowded trades.00:27:32:08 - 00:27:52:01Sean Peach:Even Microsoft can fall 26% year-to-date - nothing is immune.00:27:52:03 - 00:28:12:10Sean Peach:The Magnificent Seven can be disrupted.00:28:12:12 - 00:28:46:22Sean Peach:We ask: if we were in cash, would we buy this today?00:28:46:22 - 00:29:14:06Sean Peach:Behavioural finance shows the endowment effect - you value what you own more than what you don’t.00:29:14:06 - 00:29:32:08Sean Peach:Even strong CEOs like Tim Cook have had massive runs, but things change.00:29:32:13 - 00:30:14:18Sean Peach:Don’t assume past growth continues. Competition comes for leaders.00:30:14:18 - 00:30:36:07Sean Peach:Amazon, Alphabet, Chinese chips - everyone comes for Nvidia’s lunch.00:30:36:07 - 00:31:03:19Alec Hogg:Do you look at SEC filings?00:31:03:19 - 00:31:29:23Sean Peach:Yes -10-Ks, proxies, 10-Qs. Risk factors, debt issuance, changes year-on-year.00:31:30:01 - 00:32:10:03Sean Peach:Few investors actually read annual reports.00:32:10:03 - 00:32:35:07Sean Peach:Quarterly reports and conference call transcripts are also important.00:32:35:09 - 00:32:55:15Sean Peach:Conference calls are often more honest than annual reports.00:32:55:17 - 00:33:22:06Alec Hogg:What should we look for in quarterly results?00:33:22:06 - 00:34:00:07Sean Peach:Not just “beat or miss”, but how they beat - margins, tax rates, one-offs.00:34:00:07 - 00:34:34:23Sean Peach:Also look at CapEx, consumer strength, inflation, and sector trends.00:34:34:23 - 00:35:04:09Alec Hogg:It shows how complex your work is. Thanks for sharing it.00:35:04:09 - 00:35:28:07Sean Peach:The next few weeks in US earnings will be very interesting.00:35:28:09 - 00:36:04:01Alec Hogg:We’ll miss you at the conference, but thanks again. Let’s stick to the basics and not get caught up in the narrative.00:36:04:01 - 00:36:13:09Sean Peach:Watch out for the lions.00:36:13:12 - 00:36:21:22Alec Hogg:I’m Alec Hogg from BizNews, and we’ve been talking to Sean Peche, founder and chief investment officer of Ranmore.

Why smart investors don’t graze where the lions wait: market masterclass from Sean Peche

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