Registered users can save articles to their personal articles list. Login here or sign up here

Steinhoff, Resilient, bitcoin…

What you don’t invest in is as important as what you do.

Over the past few months South Africans have enjoyed the bounce in confidence brought about by changes in the country’s politics. The rand has strengthened, bond yields have come down, and the country has  become a far more attractive place in which to invest in a very short space of time.

There have been some positive moves in the equity market as well. The Banks Index has gained over 22% since the start of December, with Standard Bank and FirstRand showing particularly strong gains.

Retailers have also been given a boost, with the General Retailers Index having gained over 20% in three months. The Foschini Group has shot up over 60% since the start of November, with Mr Price not far behind.

Some industrial counters with significant exposure to the South African economy have also picked up. Barloworld and Bidvest have both gained a little over 15% in the past three months.

Despite these impressive gains, however, the biggest stories in the local market have been about stocks that have gone the other way. The attention has been on Steinhoff, Capitec and the Resilient group of REITs.

Steinhoff’s share price is still over 90% down from where it was trading in the week before Markus Jooste resigned, while Capitec has shed 20% since the release of the first Viceroy report. Among the Resilient group, Resilient itself is off nearly 60% since the start of 2018, Nepi Rockcastle and Greenbay have shed over 45%, and Fortress Income Fund B is down over 60%.

For investors, it’s worth thinking about these ups and downs in the context of a portfolio. The reality is that if at the start of December anyone had held an equally-weighted portfolio of the 12 stocks mentioned above, they would now be substantially worse off than where they began.

The losses from the poor performers would have more than wiped out the gains from those that have done well. This would be the case, even if one excluded Steinhoff.

Counter Performance
Standard Bank 24.0%
FirstRand 30.7%
TFG 38.0%
Mr Price 29.9%
Barloworld 16.2%
Bidvest 15.9%
Steinhoff -92.4%
Capitec -14.5%
Resilient -56.3%
Nepi Rockcastle -45.6%
Greenbay -50.6%
Fortress B -63.0%
Portfolio return -14.0%
Portfolio return excluding Steinhoff -6.8%

Source: Profile Data

While it’s extremely unlikely that anyone actually held this portfolio, it does reveal a very important lesson for investors – picking stocks that benefit your portfolio is only half of the battle. You also have to avoid the ones that will hurt it.

Of course this is easier said than done. In the case of Capitec, for example, while you could argue that the company was over-valued, nobody could have foreseen the release of the report that caused the sudden drop in its share price.

Steinhoff and Resilient are, however, slightly different. While perhaps nobody anticipated the extreme drop in their share prices, plenty has been written about the warning signs that suggested that things were not quite as they seemed.

It’s easy to miss these indications when shares are performing strongly, however, and that was certainly the case in both instances. When a share is going up, our natural biases will be to believe that it will continue to do so.

For investors, the vital thing is always to go back to the fundamentals. In the case of Steinhoff, where were the cash flows that should have been coming in? For Resilient, what was underpinning the large premium at which these companies were trading at to their net asset values?

Nobody will always get every investment right, and even professional analysts sometimes miss what in hindsight seems obvious, but a process of analysis is the only way to get the odds in your favour. You only have to get more right than you get wrong.

Consider that if you just exclude the Resilient group of companies from the above portfolio, its performance turns positive. This is even despite the drag from Steinhoff.

Counter Performance
Standard Bank 24.0%
FirstRand 30.7%
TFG 38.0%
Mr Price 29.9%
Barloworld 16.2%
Bidvest 15.9%
Steinhoff -92.4%
Capitec -14.5%
Portfolio return 6.0%

Source: Profile Data

Of course, it’s not just stocks where this matters. It’s important to consider the fundamentals of any investment so that you can avoid those where the odds of making money are not in your favour.

Anyone who thinks that they have invested in bitcoin should perhaps give that some thought.



To comment, you must be registered and logged in.


Don't have an account?
Sign up for FREE

Whether one considers the outcome of a portfolio of handpicked stocks or the performance of various unit trusts or ETF’s for that matter, the main differentiating factors influencing ultimate performance (or return on investment) continues to be the willingness to steer your investment exposure according to developing market trends, the presenting market opportunities and proper analysis.

The above article demonstrates the increased volatility in markets and market segments over shorter term periods (one to three month cycles) and also the huge effect of proper investment analysis. It is the recurring short term performance data that makes up the medium and longer term investment performance data, not the other way round.

Therefor it has become imperative not to ignore short term trends, market opportunities or investment analysis in the management of investment capital.

Bitcoin doesn’t belong in the title of this article. Otherwise, great.

This speaks to having a diversified portfolio – because stock picking has a huge element of luck. So diversify, whether via building a portfolio or index.

Following the listing on a stock-exchange, the shares of a company always belong to somebody. When one investor sells his shares because he has negative expectations, the shares are bought by the next investor who has positive expectations. So who are we writing the articles for? It is impossible to educate the general investment population on share selection because if we were successful at this attempt, there would either be no sellers or no buyers for a particular share at a specific time.

This is what makes the market so challenging, you can follow all the rules and lose money, then you can break all the rules and make money. Sometimes the most prudent investor with the best analytical models performs poorly relative to cowboys who just buy Steinhoff at R5.00 because Warren Buffet said to buy when everybody sells.

When we look at the recent successes of some investment managers and how some owned Steinhoff, Capitec, Resillient, Aspen and PSG and others did not, we are merely fooled by randomness. We are confusing luck with skill. In the end this is a probability game, but nobody wants to hear that. Retail investors believe they are buying certainty and predictability, so that is what the industry sells to them. Although everybody knows that it is impossible to deliver certainty and predictability in an uncertain and chaotic environment.

Random factor effects are far more significant than one may believe. Nicholas Taleb wrote great books on this. Randomness is especially significant in the short terms, but tend to get smoothed out somewhat over longer terms.

I see the following factors in data set analysis:
Trend: very significant in medium to long term
Cycles and seasons: significant in medium terms
Randomness: significant in short and very short terms.

Trends are fairly easily identifiable, randomness, not at all.

So everyone is a cowboy if they buy risky stocks that you’re obviously too scared to invest in? Got it.

Many things about SNH isn’t known, but the 50-ish sens announcements since December plus trading results plus the fact that the units are decentralized means that many things ARE known. Some of us can actually make informed decisions with little information.

No need to dismiss everyone who don’t want to invest in money market investments and offshore etf’s.

Don’t mention Resilient in the same sentence as Steinhoff. Steinhoff an absolute stinking disgrace to South Africa and the world and all who live on her.

I take it you work for PWC since you know what happened?

Oh wait, you probably don’t. Resilient is falling mice and hard. Should probably sell. 🙂

It would be nice if the accountants of these companies did accounting and not financial alchemy.

Perhaps the lesson is to avoid companies with incestous boards, serial acquirers and all those involved in businesses (such as predatory consumer lending) your grandmother would not approve of.
Steinhoff tick
Capitec tick
Resilient stable tick

Please individually identify each of the incestous board members of the companies you mention? What is the issue with acquiring companies/asset/ to grow. You make very shoot-from-the-hip comments. You short these shares?

Research the boards of Steinhoff, Capitec and Resilient and the relationships among the board members for yourself. Lots of mates

Other than compelling bargains (which buying mattress world at more than double what the market price certainly did not represent) strategic advantage (eg technology or blocking) companies that buy buy buy end up going bye bye bye. Doubly fast when they buy on debt and new share issues.

A company like Apple’s biggest acquisition ever was $3b in context of say $900b market cap. And they bought it cash

I am not short but wish I was November last year. I have never owned any of these SA shares.

Prediction for the next problem : Curro. Symptoms are the same. Maybe less fraud, but same non-existent return on capital, buddy boards, manic buyer

So Johan…i assume you shorted all those stocks?

Same can be said of avoiding Governments with incestuous boards, serial acquirers and all those involved with businesses your grand mother would not approve of ( on borrowed money). Thank you Jacob Zuma, Donald Trump, Steinhoff, African Bank etc for the lesson. We’re all paying the price for it..when will you be held to account?

Load All 15 Comments
End of comments.





Follow us:

Search Articles:Advanced Search
Click a Company: