How to make the best out of the BizNews Share Portfolio – a chat with Barry van Zyl

I'm Alec Hogg from BizNews.com, chatting to musician and friend Barry van Zyl. When we launched the BizNews Share Portfolio in December 2014, I had little idea of the fascinating journey that it would take us on. The idea was sparked by a conversation with Standard Bank online shared tradings head Brett Duncan, who was looking for innovative ways to launch his operation's new Webtrader product. The portfolio was always meant to be a model rather than a product into which money could be injected and then forgotten and we agreed that we'd update it monthly in a webinar, which in those times was quite novel so that those investing could hopefully earn while they learned. As we approach the sixth anniversary of the BizNews Share Portfolio, the performance has been spectacular. .We've had compound annual growth of over 20% in US dollar terms and 30% in Rand. Some of those early investments have done incredibly well, particularly Amazon, which has delivered an almost tenfold return in those six years. That brings a new dilemma, particularly for those who want to jump aboard today. Among them is my friend Barry van Zyl, he's a Henley MBA and a world-class musician who for decades was the drummer in the late Johnny Clegg's band. Barry is new to offshore investing, but he wants to start soonest. When he looked at the portfolio, though, he wasn't sure how he would be able to replicate it, given the different changes that have occurred in the weightings over the years. He asked me how and with his permission, we recorded this conversation, which helps him and others in the same position to see how to make the best out of the BizNews Share Portfolio and its monthly webinar updates. .Firstly, thanks for the intro to Webtrader. They've been very helpful, very patient with me. I'm probably, possibly not at the investment level they are used to. I don't know what kind of investment level they usually deal with, but it doesn't seem to be a base entry, it seems to be like EasyEquity, pretty much anybody can jump on board. The one thing I found was that the Webtrader website, in the demo account that you can play with is perhaps a little bit daunting for a newcomer like me. I'm determined to get my head around it and to figure it out but the easy equities model is much more user-friendly and intuitive and I guess it was designed that way, for people with very little investment experience. Right up front, I found the Webtrader interface a little bit difficult to get my head around, but I'm getting better. .It might also have something to do with the partnership they've got with Saxo Bank. It is a global partnership and they also have every stock exchange on there whereas Easy only have a number of shares. Easy also designed it for retail investors and fractional share purchases and they've done a fantastic job. Whereas Standard Bank and Saxo Bank as a partner are a little bit more upmarket. From even before they launched these… that the philosophy always was that they want to keep it open to everybody and then grow with them. .___STEADY_PAYWALL___.Their whole process was based on Commonwealth Bank of Australia, who used to go around Australia and do seminars and educational seminars and things so that they would then teach people how to invest and then give them the tools that they can invest through. It was a guy called Richard Seddon, who was an Aussie who came in and set up online share trading for Standard Bank and that was the philosophy that they started off with. Richard's moved on and Brett Duncan, who took over there, has been doing exactly the same as Richard. You'll see Standard Bank Online Share Trading they've got lots of webinars, lots of educational things. They really do take that seriously and that's why we found them a fantastic partner because most of the online stockbrokers want you to trade, whereas Standard Bank's one, their whole philosophy is they want to educate you and they want you to invest. .That makes perfect sense to me. It answers a few more questions right there. They've been really helpful in terms of being hyper-responsive by email and addressing all my questions. I'm not a Standard Bank account holder, I had to open a Standard bank account in order to activate my Webtrader accounts. That's a little bit tricky with the current situation in terms of getting FICA documents and things in place, but I'm getting there. It's taking a little bit longer than it would have outside the lockdown, but they've been amazing. .I will out of pure due diligence, start paying attention to the webinars and to the tutorials and to the demo lessons. It's very exciting. I'm delighted to be starting this journey. It is a lot of learning, but it's exhilarating as well. Can I just describe to you how I see the BizNews Portfolio, the Global Portfolio integrated with Webtrader, then you can tell me if I'm joining the dots correctly. The way I understand it, my interest is to duplicate or mimic the BizNews Global Portfolio by buying in individual shares on Webtrader in the same basket as the BizNews Portfolio. Exactly the same companies and then also weighted in the same way that you've weighted your portfolio. In essence, I'm seeing like an exercise in mimicking something that's already there and although the investment amounts will differ, the percentages will be the same. Am I understanding it correctly?.Partly, but maybe I should go back because when we began the portfolio in 2014 the whole idea there was how would you structure a portfolio? What I did then and it's quite relevant for the conversation was I looked at three bankers. My bankers were the S&P 500 index because I was learning as well. Remember, I knew very little about international investing. I knew Berkshire Hathaway, I knew the company well having gone to the AGM since 2006 and being a huge fan of Warren Buffett and his ways so that was my other banker. Buffett had said quite often at his AGM that he just could not poke a hole in the Google model, so I had Google as my other banker. I also knew a bit about Google, given that I'd been in the online digital publishing world since 1997, I got the model. .What I did with a portfolio to start with, we had 20% in the S&P 500, 20% in Berkshire, which is a little bit like the S&P 500 but does outperform it and then 20% in Alphabet. Those were the three bankers were 60% of the portfolio. That comes back to what Buffett said, put all your eggs in one basket, but watch the basket very carefully. That's a philosophy that I completely endorse. .Then you have wild cards, companies that I wanted to learn more about, that you can only do a certain amount of research by reading through annual reports and so on. What the best education process is, is when you actually own the stock and then you follow it. For instance Amazon, you'd have a Google alert every time something from Amazon comes through, you read them. Quickly you start embracing the company, understanding the company, seeing what the company's doing. As you progressively watch that over the years, you almost get an intuitive feel for the company. I thought that I would take five wild cards at 8% each. Amazon, which is now I think about a third of our portfolio, started off at 8%. It just shows you by doing it this way, you're giving yourself a chance to ride the winners. .Another big thing that Buffett preaches, first of all, when you buy into the company, imagine you're a co-owner of the company. You wouldn't go and give money to somebody, say if you know nothing about the restaurant business, who happens to buy a restaurant and says, come and be my 50% shareholder. You wouldn't put money in there cause you don't know anything about restaurants..How do I choose my bankers and how do I choose the wild cards without spending 10 years paying school fees? I'd like to try and do this smarter and faster..In the same way, why would you buy a stock if you know nothing about it? For you, with your background as a musician and as your MBA, you would look at a Walt Disney and understand Walt Disney better or look at some of the other entertainment sector stocks. You'd have an intuitive feel that these are companies that people in the business believe they would like to be associated with and actually these other companies that I want to be associated with. It's a little bit like, what is it that I know and how do I align what I know with the way that I'm going to learn in future and what I'm going to know more about?.You need a base and that's what I did with the portfolio. I was very lucky as well, because in 2013, just after BizNews started, we had a visit to South Africa by Singularity University, it's a Silicon Valley university. Their faculty are incredibly smart people, Peter Diamandis… if you Google him, you'll see he's a friend of Elon Musk. He started a thing called the X Prize, which is based on the prize that they used to have in the 20s and the 30s, to try and get people to do extraordinary things… like Charles Lindbergh flew across the Atlantic. Six people died before Lindbergh got it right and why did Lindbergh do it – not just for the glory, but for the money. Basically put up a prize and Lindbergh won that prize, that's why he was so happy and I guess the fact that he actually survived. The X Prize is a similar thing where there are all kinds of challenges. How do you fast-step, leapfrog education in Africa? People will come up with ideas and the one who does it first or does it best gets the five million dollars or whatever it is and I know Elon Musk puts money into it and the Google guys put money into it. .I'm a fan, incidentally. Something that I think you'll find interesting if you don't know already. There's a lady from Johannesburg, grew up in Johannesburg called Lara Stein, that was one of the formative inner circle at Singularity, and I think she was the head of the global expansion strategy. She went on to then found and direct TedX. She mentored the TedX model and now has a global think tank called Boma. She's based in New York but ex-Jo'burg and the reason I'm mentioning it is that you often pick out prolific, successful South Africans. Lara is probably somebody you'd want to check out at some point, especially if you're a fan of Singularity. .Absolutely. She is somebody that I must track down and interview. There are so many exceptional South Africans. To get back to Singularity, where the advantage was, was that when they came to South Africa we were the media partner. I spent days with these guys interviewing Diamandis and some of the other faculty. Suddenly it dawned on me that what they were talking about, exponentiality, was something that hadn't clicked in my mind before. .The only parallel to this was in the early 90s when I got a similar lesson from Hendrik du Toit who's the guy who started Investec Asset Management in 1991. He explained to me what growth investing was all about. Up to that point, I was completely besotted with value investing and didn't understand growth investing, and that completely changed my mind..This opened my mind to what exponentiality was. Given my experience in digital media, given this portfolio, I look for exponential companies. That's where Amazon came in and that's where so many of the other participants in the portfolio came in. That's really why the global portfolio was structured the way it was. It's done phenomenally well. In five years, our compound annual growth rate has been just over 20% in the Biznews portfolio, in US dollars, which is phenomenal. It is because we had this virtual 10 bagger in Amazon. .We got out of some of the dogs, we could have really taken a hiding with Metro Bank, which we sold at £30 pounds a share, now it's just over £1 a share but because of scandals. Again, using the Buffett principles, but then also having exponential companies. Metro Bank, incidentally, is an exponential company and growing like a Capitec in South Africa but when the scandal hit there, it was a flashing light that this isn't a Capitec, you better get out of this one. .The ability to ride the winners has been a huge thing. It's a long answer to that initial question but Buffett says, be a co-owner of the company. So okay, I understand exponential reality, I understand digital, I understand the Internet world, 4IR if you like because I have been doing this since 1997. Then the second thing he says is to invest forever. Whatever you're buying, whatever you're putting in the portfolio, don't sell it. Don't fiddle with it, don't trade it. Don't say oh I've made a profit. .Unless you do something where there's just a screaming, opportunistic opportunity like we did with Sasol, we bought it at R28, it went up to R140. It looks like it's being driven there by day traders or at least the last 20% of it. It's not a long term business I'm very comfortable with… chemicals and products with the internal combustion engine. When we'd made that opportunistic profit that we sold out of it but it's very, very rare to do that in any portfolio. Certainly, in our portfolio, it's the only time we've done it. .We've only sold a handful of stocks over the five, nearly six years now, it's because there's been a scandal and Barclays had a scandal, we sold out of Barclays. Novo Nordisk had a scandal, we sold out of that company as well. In those cases, it worked well. It's been because of extreme volatility. .Remember, when you invest in a company, the idea has to be that you can sleep at night and that you're investing forever. Although we had a nice little run with Tesla, the volatility in the stock was just too much for me and we sold at $300 and it's now $1,500. If you had more of a risk appetite, you could be very happy with where Tesla is today. At the time we sold out, Elon Musk was doing some very, very strange things and the share price was bouncing all over the place. It wasn't the kind of company that I think one invests in if you take it from an investment perspective. .For most of the rest, we've bought into companies where I understood them, there were exponential companies and they changed their model. For instance, a very big change in the business models is moving to an automated billing system. When Microsoft moved from what they used to do in the past of primarily selling through stores to the Microsoft 360, where they bill you every month or on an annual basis, that suddenly became a very appealing counter and they have done amazingly well. .Apple, the ecosystem of Apple, which was hugely undervalued at the time we bought when the shares were around $120 and that's now come to fruition. In fact, it's the only share that I can proudly say we bought in our portfolio before Warren Buffett did, everything else. He's been incredible. .We've had everything go right for us in this portfolio and we've done, in five years, compound annual growth of 20%, Buffett has done 20% over 50 years. It keeps you humble and it makes you realize that even though just about everything you touch turned to gold, he's done this for 50 years. The whole structure that the portfolio is on is Buffett's philosophy, Buffett's approach to things, and primarily with a huge dose of humility because you realise that you get lucky sometimes and when you do get lucky, you ride your luck but keep trying to explore. Keep trying to open that circle of competence. .That's a huge insight. As you know, after reading your Buffett book and being exposed to Buffett's philosophy for the last few years, I'm also a fan. I don't have anywhere near the understanding that you do, but I totally do take all your points. I appreciate how valuable they are. .Getting back to the portfolio, it's really not a good idea now to replicate the portfolio as it is. What you should replicate is how we started. Find three bankers at 20% each and five stocks at 8% each. That is what I would suggest. .The way to get that insight, because somebody in my position, I want to piggyback the experience and insights that you've had putting together the BizNews Portfolio, not pick the bankers and the wild cards based on my experience, which is very limited. I'd like to get insight. I'm following the BizNews webinars with you, with David Shapiro and I'm learning fast about this environment. .How do I choose my bankers and how do I choose the wild cards without spending 10 years paying school fees? I'd like to try and do this smarter and faster. I realize this experience is work-based, but I'd like to fast track this to some degree based on the experience that I'm seeing you guys put into the market. To replicate the BizNews portfolio as it is wouldn't be a great idea now because you've already benefited from the growth in a lot of those companies. If I was going to buy for instance Spotify, that's a company I really love and I understand, but it's perhaps not a great time to buy Spotify shares. I should have done that a few years ago. Ditto for Apple, which is another company I love. Is it still worth buying into those companies or is it too late? Should I be looking for other early startup versions of Spotify and Apple, what do you suggest? .Again, you're going to go back to Buffett and he says that the market is a weighing machine, it's a voting machine. Doesn't tell you anything about the value of the company. You like Spotify and you like Apple, you shouldn't think that at a time that Mr Market, in other words, the determinant of the share price was extremely depressed, that the valuation of those stocks reflects anything other than his extreme depression. .We get back to Apple, for instance, we bought Apple at $126, it went down to $90 and instead of panicking, which a lot of people would have done, I knew why I'd bought Apple in the first place and the reason I bought Apple in the first place for this portfolio (and we explained it in the monthly webinars), was to say that we don't believe that the market is valuing it correctly because the market is looking at iPhone sales rather than looking at the ecosystem. The ecosystem was completely ignored by Mr Market. Whereas to us, that was where the value existed. We ended up buying Apple in 2015, I think we actually bought two lots of Apple but it goes back a while and it's been an amazing performance. It's up 188% in dollars since then. If we'd bought it on iPhone sales, we would have lost money on it. .A similar thing with Adobe. I understand Adobe quite well because in our world we use Adobe Audition. We also know that Adobe provides software that allows publishers like ourselves to fight against the duopoly of Alphabet or Google and Facebook, who have over 60% of online advertising. Now, you can't believe that anyone is going to let that duopoly continue with 60% of online advertising. Who's going to benefit when that duopoly at some point in time gets restricted? Clearly the Adobe system, quite apart from it being the inventor of the PDF and lots of other software that's used around the world. I love Adobe because of that because I understand it. .Getting back to what you were saying earlier, don't base your judgement on what you select on whether or not you think those shares are cheap today. Base your judgement on whether you would like to be a co-owner of the company. In your case, if you start off… Amazon to me would be a banker today. Apple to me is a banker and Spotify, because of the way Spotify is moving into podcasting and so on, I think it's a banker, especially if you know it. Although my banker there would more likely be something like Netflix. .You've got to decide who would you really, really want to be partners with and then put those in as your three bankers. If you're not sure about the third one, say, in a case like this, because Amazon and Apple pick themselves, maybe you put in the S&P 500 as your third 20%. Don't replicate what we have in our portfolio. The reason we haven't changed it, is after five years we let the portfolio continue to run and that's the reality of it. If I'm helping you to design your portfolio from scratch, I'd say Amazon is 20%, Apple is 20%, S&P 500 is 20%. Then you can follow the progress of Amazon and Apple through our monthly webinars. .For your five wildcards from what is in the portfolio today, we've got Microsoft in there, Adobe, Netflix, Spotify and CloudFlare, there you have your portfolio. That would be a good way to start. Don't be scared to put in a stock that you like. For instance, I like this 2U, I'm finishing off my research and I'll probably put that into the portfolio coming up. I also love Slack as another company, both 2U and Slack haven't had a run in the same way as most of the other stocks have had. Slack is a little bit like a Netflix and a Spotify because it is based on the philosophy that they've got huge competitors. Slack's got a bigger competitor in Microsoft, as Spotify has and as Netflix has, but they're in a whole new area of the market where there is plenty of opportunity. That would be a way I would structure the portfolio. .The penny's dropped, I now understand the game, I understand the strategy. That's wonderful advice. What really made sense to me now is the concept of the Buffett advice of where would you like to be a co-owner of a company, you're not just buying pieces of equity. You are embarking on co-ownership of a firm. That's the metaphor. On that basis, it's all falling into place for me. Taking advice from people with deep levels of expertise in this system is a no-brainer, you have to find two or three people whose advice you really trust and then run ideas by those people in a sort of a triangulated way from time to time. Long story short, thanks very much. It's been a masterclass in understanding this. .Barry posed the questions. Hopefully, it answered many of yours as well. Don't forget to join me every month for the webinar where I'll update you about the latest developments for the portfolio's constituents. The webinar is held at noon on the last Tuesday of every month, and it's exclusively for BizNews premium subscribers.

How to make the best out of the BizNews Share Portfolio – a chat with Barry van Zyl

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