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RYK VAN NIEKERK: Welcome to this week’s addition of the Be a Higher Investor podcast. It’s a podcast the place I converse to main buyers and enterprise leaders about investments and the way they strategy investments of their private capacities. We attempt to get a way of how they analyse funding alternatives and whether or not they have extra hits than misses of their portfolios. My visitor at present is funding legend John Biccard. He has a popularity as being the most effective fund managers within the nation. He’s additionally seen as one of many nation’s foremost deep-value or contrarian buyers. He invests in principally unpopular shares, which most different asset managers steer away from.
John, thanks a lot for becoming a member of me. How do you’re feeling in regards to the title of being one of many main contrarian buyers within the nation? I might think about it’s between you and Piet Viljoen.
JOHN BICCARD: Nicely, I believe it’s variety. However I’ve been within the trade a very long time. I’ve been principally within the inventory marketplace for 30 years, so there’s a little bit of bias. A whole lot of success in life is should you’re the final individual standing – I believe. I believe my largest energy is it’s not our sensible I’m, it’s how I decided I’m. I believe that numerous the key, particularly in worth investing, is to maintain going and to stay to your positions.
All kinds of investing is to make the choice, persist with it and hold compounding your cash by persistently doing the identical factor over and over. Even should you begin small, should you make numerous appropriate choices in the long run, finally you’ll make some returns and also you’ll make some cash.
RYK VAN NIEKERK: We’ll get again to that dedication in a while, as a result of typically it is advisable to actually grind your tooth when issues go towards you.
However simply inform us about your background. How did you develop into knowledgeable investor?
JOHN BICCARD: After I studied I joined the promote aspect, which is the stock-broking trade. That was in about 1990, and I joined an organization known as Simpson McKee Stockbrokers and principally I used to be a gross sales analyst for 10 years. That’s analysing and writing stories for the asset-management trade.
Then finally Simpson McKee acquired purchased out by HSBC, and I labored for them for just a few years. After 10 years I needed to go on to the purchase aspect – that’s, make investments the cash reasonably than advise the individuals who investing the cash – and I joined Investec principally 10 years into my profession, 20 years in the past. For the final 21 years I’ve been with Ninety One, which is the previous Investec, and I’ve been operating the Worth Fund for that full 21 years.
RYK VAN NIEKERK: Earlier than that how did you resolve to pursue a profession in investments and investing?
JOHN BICCARD: I’ve all the time been within the inventory market, even once I was 20, however at 20 you don’t actually know what you’re going to do precisely. Once I completed finding out I truly had a spread of job interviews from retail to industrial firms and I occurred to only get a job interview at Simpson McKee Stockbrokers, and I acquired employed. So I can’t say I spent my complete life eager to be that, as a result of I believe at 24 years previous you don’t actually know what you need to do. However I did have a monetary diploma and it seemed an fascinating job. In order that’s how I acquired into it.
For the primary 5 years I didn’t actually know what was occurring in any respect. I used to be studying and writing stories, however I can’t say I used to be a worth investor then. I in all probability all the time had that bias, however I solely actually labored that out after 5 to 10 years available in the market, though I believe everybody does have a pure funding fashion. So, as a result of I’m a little bit of a pessimist, let’s say, I all the time see what can go unsuitable greater than what can go proper, I believe I’m naturally biased to develop into a worth investor.
However I solely actually turned a worth investor correctly, as in I labored out precisely how I’d like to speculate after 10 years available in the market. In order that’s the opposite factor. It takes a while to work out what sort of investor you’re, and that doesn’t actually matter. Clearly I’m a worth investor and that’s how I do it. However you’ll be able to truly earn a living as a progress investor or as a momentum investor, however the secret is to work out what fashion you want, after which to stay to it and to not flip-flop between the kinds, such as you’re a worth investor, however then the share halves and you then promote all of it, and you then purchase one thing that’s doubled since you need to be a progress investor.
The key is to work out what your strengths and weaknesses are, and your plan, after which to persistently persist with it in the long run. The long run means 10 years of the identical form of investing. Traders will not be investing their very own cash. Even should you’re shopping for funds, , funds are like shares. In the event you’re shopping for funds and also you resolve you’re like your fund, you must persist with it. You may’t change if the funds begins doing badly.
RYK VAN NIEKERK: You additionally name that have, as a result of historical past appears to repeat itself. However what was the very, very first share you obtain in your private capability?
JOHN BICCARD: I believe there was an previous share on the JSE known as Masoli. Masoli Asbestos, I believe it was. That’s how way back, folks nonetheless mining asbestos 30 years in the past, However I didn’t actually know. I believe that was the primary share I purchased; I used to be 20 years previous. I used to be like wanting on the chart and saying it seems good. They’ve acquired a pleasant mine. However I didn’t actually know what I used to be doing.
RYK VAN NIEKERK: However you even have a giant private funding portfolio. Do you handle that portfolio in a different way to the Worth Fund you handle at Ninety One?
JOHN BICCARD: No. You’ll see, and it’s fairly simply disclosed today – what private holdings everybody holds. The shares that I maintain are all discovered within the Ninety One Worth Fund. I’ve acquired various my cash within the fund as nicely however what I discovered is that, particularly within the smaller cap shares, when there’s nice alternatives I purchase. Initially, we have now very strict dealing laws at Ninety One, so it’s a really well-regulated course of, so principally I purchase as a lot of a share that I can for the shoppers and, once I’m completed doing that, then if I like the thought, then I purchase for myself too. After which [in] appropriate methods I first promote out the shoppers after which I promote myself out after that.
So in institutional asset administration, should you’ve acquired two concentrates in a portfolio, that’s if in case you have 10 shares at 10% every your short-term volatility of returns goes up lots – and in institutional cash administration folks don’t like a lot volatility as a result of it makes a consumer nervous.
So, whereas in my private capability I don’t thoughts having 10 shares and principally I’ve 10 shares. Typically they’ll be smaller cap concepts, they usually’ll be the ten greatest concepts within the Worth Fund that I’ll have as my very own private investments too.
RYK VAN NIEKERK: Is it biased in direction of South African shares?
JOHN BICCARD: Sure, as a result of most of my cash is in rand. So sure, it’s as a result of it’s a rand funding. And truly in the previous few years, particularly within the small and midcap area, I believe South Africans’ small and midcap shares will compete with any international concept in greenback phrases of being nice worth and provide you with nice returns. That’s truly been appropriate within the final two or three years.
Two years in the past South African midcap shares in {dollars} in all probability acquired to a 20-year low by way of value and valuation. That’s the time when it is advisable to clearly put as a lot as you’ll be able to into them, and within the fund – and my private capability out of that.
RYK VAN NIEKERK: However the midcaps and small caps carried out very poorly for round a decade.
JOHN BICCARD: Sure.
RYK VAN NIEKERK: From 2010 to 2020. You spoke about dedication earlier – how lengthy do you abdomen that poor efficiency earlier than you realise, hear, possibly my strategy isn’t working.
JOHN BICCARD: You don’t; you retain going. You do the work to begin with, and should you purchased the share at a sufficiently low valuation, it doesn’t actually matter if the share halves. You simply purchase extra and if it halves once more you purchase extra nonetheless.
RYK VAN NIEKERK: What do you name that? Averaging?
JOHN BICCARD: Averaging. Nicely, it’s an enormous factor. Simply on the averaging. As a result of I’ve performed the work and I resolve the share’s low-cost, and the share’s down no matter %, it’s not possible that the share’s going to show up on the day that I occur to purchase it [laughing]. You might be unsuitable by three years or 4 years. However it doesn’t matter. When you’ve got performed the work and you purchase it, and it goes down the subsequent day, you purchase extra.
Then each time it takes one other step down, you’d go and verify the numbers once more and verify that there hasn’t been some materials change. The reality of the matter is that 95 out of 100 occasions nothing has modified and you retain shopping for. Sometimes, 5 out of 100 occasions, one thing has essentially modified or that’s worsened the scenario. In that case, possibly you don’t purchase extra. After which possibly one out of 100 occasions, I truly change my thoughts and promote the share at a loss.
However should you’ve performed the work to begin with, and should you’ve purchased the share with a ample margin of security that you just suppose this share’s value R100 and also you’re shopping for it at R50, it’s not possible that one thing’s going to alter, that’s going to alter your honest worth from R100 to R50. It’s going to alter it from a R100 to R80, or R100 to R90, or R100 to R120.
However should you purchased it at a 50% low cost to what you suppose the honest worth is, the chances are you’ll be able to hold shopping for it. It’s unlikely that issues are going to alter sufficient to alter that valuation down by 50%. That’s the key. I believe folks typically then lose religion and lose confidence within the funding, they usually promote out. Typically that’s the underside. And the purpose is it doesn’t matter to me how a lot time it takes, as a result of usually on this type of investing, you make nothing. You make nothing on reality. Most likely in 12 months one you lose cash, and 12 months two you lose cash and make investments. However no matter, the catalyst involves unlock the worth [and] you make an outsized return in that third 12 months or fourth 12 months or fifth 12 months to compensate for the truth that you needed to wait for 2 or three years. I believe instance could be in Impala Platinum. In Impala Platinum we made some huge cash within the final 5 years in parlour was a R300 share. We began shopping for at a R80 after it’d been falling for like six or seven years.
The share truly bottomed at R20. So it is advisable to take into consideration that. We began shopping for at R80 and like three years, 4 years later the share was R20, however we had been nonetheless shopping for it. And the averaging down meant that the value that we paid at R80, by persevering with to purchase all the way in which to R20, our averaging value acquired to, say, R35, or R40 I believe it was ultimately. After which finally the share went from R20 to R200, , in an area of two years. Individuals would say, you’re loopy, you’ve misplaced cash, you’ve been ready. However finally you make 10 occasions your cash to compensate for the truth that you first halved your cash.
RYK VAN NIEKERK: Did you additionally put money into Kumba and Sasol once they had the spectacular implosions, then unbelievable recoveries?
JOHN BICCARD: No, Impala was the one. We missed Sasol two years in the past and Kumba as nicely. However the precise story between these three shares is nearly similar. Really the fascinating factor about all three of them was on the backside. Sasol, Kumba and Impala, their share value was equal to what the shares earned like two years later. We purchased Impala at R20 and it earned solely R20 two years later. The identical with Kumba, however I didn’t purchase Kumba or Sasol. It was simply Impala.
RYK VAN NIEKERK: I’ve spoken to many buyers, and many of the CA buyers I converse to actually imagine within the numbers. They analyse the annual monetary statements of all the businesses to a T, they learn all of the footnotes after which they formulate an analysis after which they persist with it.
However, curiously sufficient, most of these buyers imagine a 60% hit ratio is appropriate. That’s what they intention for. After which hopefully they don’t lose a major amount of cash by means of the 40% of losers they really purchase. However the longer you maintain a share, the likelihood will increase that you just hit ratio will probably be greater. How do you strategy hit ratios and winners versus losers?
JOHN BICCARD: I believe you’re one hundred percent proper. The longer you maintain, that 60% goes greater. Within the quick time period, on a day-to-day foundation, your hit is about 50:50, as a result of it’s simply playing, actually. Whether or not she goes up tomorrow, or at present is a random stroll. After which, as your time horizon goes decrease, the true worth of the share comes out. So one hundred percent – the longer you maintain it, the upper the hit ratio.
I truly don’t know what the quantity is. The precise hit ratio, should you have a look at the 21-year historical past on the Worth Fund, I believe the return is like 17% each year, which is nicely forward of some other fund. So if that tells you successful ratio is sweet sufficient to beat the market and beat different buyers, what precisely that quantity is, I truly don’t know, whether or not it’s 60%, 70%, however you must persist with that and the longer you follow the upper your hit present.
The second level is I’m a kind of buyers that begins off by studying the annual report and going by means of each single line within the annual report. After which formulating what you suppose the honest worth is on a clean piece of paper with out studying different folks’s stories, simply saying, ‘I do know what the enterprise does, that is the long-term observe document, these are the money flows. I believe it’s value X and if it’s buying and selling at a 50% low cost, that that’s once we get .
RYK VAN NIEKERK: Is that your funding methodology – to analyse the precise numbers, as a result of I do know of different fund managers who converse to X staff, they converse to suppliers, they usually converse to shoppers a few particular firm, as a result of usually you get numerous make-up on views once you learn the annual report or once you converse to the executives, do you employ different strategies to affect that valuation?
JOHN BICCARD: No. I believe that’s vital as a result of the start line for me is any share that has massively underperform the marketplace for numerous years, ideally like 5 to 10 years. So it’s buying and selling at a multi-year low to the market. It’s buying and selling at very depressed multiples and sadly the case is, when that occurs, usually the corporate has issues. So it doesn’t actually assist to go and converse to suppliers and even to administration, as a result of all you’re going to do is hear extra information in regards to the issues within the trade or the corporate, and that’s going to truly dilute your conviction to purchase the share.
So I truly converse to administration little or no and positively don’t hassle to talk to suppliers or folks within the trade, as a result of I can inform you it’s solely going to be dangerous information. So there’s no level in simply rehashing the dangerous information.
The underside line is you must have a look at the elemental worth of the enterprise and say the start line is [that] the issues within the trade or the corporate in the long run will get resolved, and the worth will get unlocked.
So simply to deliver it to sensible issues, instance, the most important holding within the Worth Fund in the intervening time is Tiger Manufacturers. Tiger Manufacturers was R400/share 5 years in the past; at present it’s R140. It’s buying and selling at an all-time low relative to the JSE. If I’m going and converse to you, folks within the trade, everybody will say Tiger Manufacturers is doing badly. Nicely, that’s hardly information to me, that’s hardly information to anybody, as a result of the share is R140 for a motive.
So I’m not going to fret about that, what’s occurring at present. I’m going to take a look at the long-term money flows that Tiger Manufacturers has generated. I’m going to take a look at the manufacturers that they’ve stored for 100 years, I’m going to take a look at their stability sheet and I’m going to say the issues they’ve, a few of that are is self-inflicted and a few is the trade, as a result of meals inflation’s very excessive and it’s crimping their margins. When these issues imply revert to what’s occurred within the final 10 or 20 years, the deep worth that’s within the share will probably be unlocked.
I simply hold checking the stability sheet and the numbers and type of the anecdotal proof or what’s occurring everyday is irrelevant to me.
RYK VAN NIEKERK: You’ve referred now to Tiger Manufacturers. Are there different shares you’re shopping for now to carry for 10-plus years?
JOHN BICCARD: Sure. The brand new shares that we purchased within the final six months are Tiger Manufacturers, Netcare, Spar and Reunert. All of those shares have one factor in widespread – all of them are possibly between 40% and 70% under their all-time highs, the place the market is near its all time highs. In order that they have massively underperformed the market. All of them pay very good – we’re speaking between 5% and seven% dividend yields, all of them have wholesome stability sheets. All of that are basically good companies which have fallen, for numerous causes, on more durable occasions and the markets develop into disinterested in them.
Return to your Tiger Manufacturers. When the share was at R400, which was solely 5 years in the past, the narrative of Tiger Manufacturers was it’s the main meals firm in South Africa, it’s acquired 11 number-one manufacturers in South Africa, it generates masses of cash, it’s rising, it’s an ideal enterprise. And other people pay 20 occasions earnings for that.
Then, within the final 5 years, we will checklist all of the issues which have gone unsuitable. The earnings have principally halved – not halved, they’re down 60% within the final 5 years, and now the share trades on11 occasions earnings. So the earnings are depressed and, on the similar time that the earnings get depressed, the PE will get depressed, and that’s the error the market makes over and over. When the earnings go up and the corporate’s doing nicely, they pay a excessive PE, you get a double whammy you’re paying. The earnings are on the excessive stage. 5 years in the past Tiger Manufacturers was incomes practically R20 a share and the market was over R400. So the market paid greater than 20 occasions earnings for the upper earnings. Right this moment our Tiger Manufacturers are incomes R13/share, and the market’s paying 11 occasions earnings for it.
I can inform you, Tiger Manufacturers is the similar firm it was 5 years in the past. Individuals don’t suppose so, however I can inform you it’s okay. In order that’s what you’ve must do – you do the work and also you wait. The reality is Tiger Manufacturers will take years for one thing to occur and that can unlock the worth, and folks don’t have the endurance. However then one 12 months out of the blue the earnings will begin rising once more and the PE will increase, and that’s when you’ll make these outsized returns.
RYK VAN NIEKERK: Let’s speak about retail buyers. What’s your notion of South African retail buyers? Are they good possibly relative to US retail buyers or newbie buyers?
JOHN BICCARD: I don’t actually know the reply to that, however I might say American retail buyers, from what I see, numerous them aren’t buyers. Clearly the US has been in a 15-year, large, one of many largest bull markets of all time, which culminated on the finish of final 12 months in one of many largest bubbles you’ve ever seen in valuations. So [like] we buyers, most aren’t buyers in any respect. They’re simply speculators in a bubble, whereas South Africa has been the alternative.
We’ve principally been in a horrible inventory marketplace for 10 years, so o the chances are South African buyers are extra buyers than American buyers are, as a result of they’re when there’s an enormous bull market folks’s primary funding functionality will get thrown out the window, as a result of simply every part’s going up. You simply flip right into a punter greater than an investor. In order that’s all I’d say. I don’t truly know in regards to the specifics, however I can inform you that in an American market, should you simply comply with what occurs on Twitter and in social media, nobody’s actually worrying what something is value. They’re simply making an attempt to catch the factor that goes up subsequent week.
RYK VAN NIEKERK: The Robin Hood impact.
JOHN BICCARD: Precisely. And that’s not investing. Ultimately, once you make investments like that, you get caught out, like folks have been caught out within the final six months in America – and also you lose some huge cash.
RYK VAN NIEKERK: What would your recommendation be for a retail or newbie investor in South Africa, someone who desires to purchase a shareholding for not less than three years and tries to construct his or her personal wealth whereas additionally studying within the course of?
JOHN BICCARD: To begin with, I believe the very first thing I’d say is you mustn’t fear should you don’t have some huge cash, since you’ve have to begin someplace. In the event you begin with R10 000 and also you make 10%, you’ll say, oh, it’s solely R1 000. However you must flip your R10 000 to R100 000, then to R1 million. And once you make the ten% on 1,000,000 rand, you then’re making R100 000 rand, you’re making correct cash.
So that you’ve have to begin someplace and compound the cash as a result of in 12 months 20 is once you’ll make the true cash – once you make percentages on the true cash. So you must begin someplace.
The second factor is you could choose your fashion and the way in which you need to make investments, and persist with it.
Once more, clearly I’m a worth investor, I can inform you how I do it, however you don’t must do it like that, however you could hold a constant fashion.
Then thirdly, should you resolve you need to purchase essentially under-priced shares, begin by taking a look at all of the losers on the JSE, take the annual report, attempt to perceive the enterprise, the trade they’re in, after which perceive the numbers. Then, very importantly, make certain there’s a margin of security, that there’s not an excessive amount of debt on the stability sheet, or ideally there’s money, and the valuation a number of is low and it’s out of favour. These are the beginning factors. Clearly it helps should you’ve acquired some monetary information that you may truly analyse the financials – however that’s one thing you’ll be able to study in time as nicely.
RYK VAN NIEKERK: What has been your greatest funding ever? And what has been your worst one ever?
JOHN BICCARD: The worst funding ever was the previous Liberty Worldwide, which was extremely leveraged and was a play on UK property. It was on the restrict of the form of leverage that we had. Then Covid hit at precisely the worst time and shut down the retail aspect of their enterprise, which actually resulted in liquidation. We misplaced all our cash on YouTube. In order that’s in all probability the worst funding and the perfect funding.
Twenty years in the past, Cashbuild, which is an enormous enterprise at present, it’s R280 a share. Cashbuild traded at R1/share, I believe it was. I all the time keep in mind taking a look at Cashbuild at that specific time, 20 years in the past. The share was R1. They’d like 20 million shares in problem. So the market cap was R20 million for Cashbuild they usually had no debt.
In these days I’ll all the time keep in mind the turnover was R1 billion. They bumped into some short-term issues with inventory holdings and inventory losses so that they didn’t make something. They had been making no cash, so the market stated the enterprise is value nothing. I keep in mind wanting and considering it’s a R20 million market cap, and there’s no debt. So for the entire enterprise you pay R20 million, however you’ve acquired a billion ran value of turnover. And that’s a pleasant method to take a look at it. You say, how can a billion rand value of constructing product gross sales in model title be value solely R20 million? The chair then went from R1 to R100 within the subsequent – no matter – six or seven years.
RYK VAN NIEKERK: Do you continue to maintain it?
JOHN BICCARD: No, sadly that’s the opposite factor. Worth buyers all the time promote too early. So purchased it at R1, in all probability – I truly can’t keep in mind what stage I offered it at. I in all probability offered it at R30 or R40 or no matter. It then went to R100 and finally it truly went to R400. However then issues modified. You purchase these closely distressed property. While you purchase a enterprise for R20 million that turns over a R1 billion, the market is principally saying it’s a enterprise that’s simply not going to make it long run. It doesn’t have a enterprise. And anybody who goes right into a Cashbuild share, will see it does have enterprise.
RYK VAN NIEKERK: John, thanks a lot to your time and insights, and for sharing your insights at present. I believe it’s been a beautiful dialogue and thanks. And hopefully Tiger Manufacturers and the opposite firms you’ve talked about inside 10 years’ time will mirror Cashbuild.
JOHN BICCARD: Appropriate. Thanks to your time, Ryk.
RYK VAN NIEKERK: Thanks. That was funding legend John Biccard, and he’s the fund supervisor of the Ninety One Worth Fund. He’s been managing that fund for greater than 20 years.
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