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Truth, lies and bitcoin

The world of asset management according to those who’ve been there, done that.

In the South African asset management industry you would struggle to find three people more experienced and more straightforward than Louis Stassen, Sandy McGregor and Dave Foord. The three have each spent decades at their respective firms – Coronation, Allan Gray, and Foord Asset Management – and have seen the sector develop from its early years into the significant player in the economy it is today.

Stassen, McGregor and Foord shared a stage at the Morningstar Investment Conference in Cape Town on Thursday, and delivered some fascinating insights into issues facing the asset management world, and their lives in the industry:

What impact does local politics have on your investment views?

Sandy McGregor: We’ve been here before. We’ve managed money through very difficult times in the past. So what we’re going through now is not new. Of course it is always the last crisis that does you in, and there’s always the worry that this is the one, but I personally have seen six or seven crises, one way or another in my investment career. If you think back to the time of the Rubicon speech in 1985, that was a pretty bad time. We survived apartheid. So it’s not unique. And the interesting thing is that we do survive.

What’s your view of cryptocurrencies?

Dave Foord: I think they are not what they are made out to be. A currency needs to be stable, and they are definitely not stable. They don’t have any of the other characteristics of a currency. There will be a lot of pain in due course.

What is the impact of regulation on the industry?

Dave Foord: Regulation to me is the biggest disruptor in the industry. There is a lot of movement around, and I would like to say that a lot of that movement is to the benefit of the investor, but unfortunately I don’t think it is. The impact of regulation is not just the cost and the time. There is an opportunity cost as well. There are things that we could do if we had an open mandate that we can’t, so returns are lower because of regulation.

What is the biggest mistake you have made?

Louis Stassen: We definitely took on mandates that we shouldn’t have. When you sit down, particularly on the institutional side, and you have to debate whether you are going to take a mandate or not because there is some issue with the client, or the fees, or the mandate itself, 90% of the time just the fact that you have to have a debate about it tells you that you shouldn’t take it.

What has been your greatest asset as a firm?

Sandy McGregor: What our strength has been is the consistency of our corporate culture. There are a lot of clever people in the industry, and lots of good managers around. But to create a business that lasts over a long period of time, you need to have a consistent, successful corporate culture.

What do you think about passive investing?

Louis Stassen: In South Africa, you’ve had good fund managers that have consistently outperformed the indices, so that makes the value proposition of passive a lot less appealing.

Sandy McGregor: My view on passive is that it’s an investment style that is flawed. The key thing about investing is very often not what you buy, but what you don’t buy. With passive you are not avoiding the things you should not buy. It works now because we have a global market that is rising thanks to the central banks’ money creation and low interest rates, but in a different time you could find that passives do very badly

Dave Foord: It’s a fad. It’s a trend. And it’s amazing how these fads and trends come in at exactly the wrong time. Why go passive now when on a global basis bonds are expensive and equities are expensive?

What’s the hardest lesson you have learnt?

Louis Stassen: That people lie. It’s a rude reminder of just how fickle the human race is. If they don’t lie actively, they lie because they believe their own nonsense. And CEOs are meant to do that because they are implementing their strategies, and they must fully believe in what they are trying to tell you. But on the other side of the table, sometimes you get taken when there’s a lot of enthusiasm and positivity.

What advice would you give your younger self?

Dave Foord: In most things in life you have to work hard and perseverance is important, but in the markets and investing, perseverance only pays when you’re right. So you need to be sure you’re right and that involves admitting and acting on being wrong as early as possible. So you need to be flexible.

Sandy McGregor: One of my early mentors told me that investing is like the number 10 bus. If you miss this one, another one will come along. You have to learn to be patient. A lot of people feel under pressure that they have to do something. I once had a client who came to me and complained that I hadn’t done anything on his portfolio for four years, so why should he be paying me a fee. I said: “well, actually, you’re the best performing client in Allan Gray”. You don’t have to be frenetically active.

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Did you name drop bitcoin for click bait?
FYI many currencies are not stable…at least bitcoin volatility is an upward trend.

Upward, until …

Bitcoins are essentially…nothing. However right now that “nothing” is outperforming my portfolio on the JSE!!!! I have now more growth in “nothing” than in the SA economy. Thus the SA economy grows less than “nothing” 🙂

yip, honeslty iro passive v active you are asking them if they feel investors need them or not – what answer were you expecting – “markets dont need us, we are just here to make a shite lot of cash at your expense”.

BTC – they are not allowed to invest in it – yet – as it is unregulated. You want them to be pro BTC “actually our investors would have made a helluva lot more money if they had pulled their cash from us 8 years ago and placed it in BTC” a heluva lot more!

From July 2010, the last 6 years, US$ 1300 – the price of a Kruger Rand, would be worth north of USD$ 22 000 000.00 I could have retired my entire family

I don’t understand their comment re. passive. 1. There have been managers consistently outperforming passive, ie the benchmark… duh! There are also lottery winners, what is your point? Doesn’t mean that you can pick that manager!

2. Entering passive when global equities and global bonds are expensive – so… that’s an asset and geography allocation decision. It has been proven multiple times that asset allocation choices matter far more than tactical shares selection. The fact you’re going into equities has nothing to do with active vs passive debate.

These guys just talk their book – of course, what answer were you expecting – difficult to work in this industry and not talk your own book.

Anything “Bitcoin” gets lots of views ..I remember advocating alone in these comments *2 years ago* words were met with silence or sharp criticism so I quickly tired of people’s unwillingness to do some research.

I know Dave through work and I can confidently say that, while he is very knowledgeable on global markets, he has inadequate knowledge of crypto-currencies (hence his most obvious mistake of implying that crypto currencies are comparable to actual currencies – majority of crypto-currencies explicitly aim to be tokens of value [commodity-like] or tokens of use [fuel that aids the function of a blockchain] ..only a minority are currency-like [bitcoin] because it’s was the first use-case which gained popularity).

My point is that Dave is not the right person to comment on crypto currencies.

The active fund managers say passive funds aren’t worth it? What a surprise. It seems it’s getting harder and harder to convince people that the fat fees you charge are worth it. Although these are the best of the best, so maybe they are worth it?

As for brushing of cryptocurrencies. Of course they will be unstable in the beginning. Bitcoin may well disappear in the next few years. It’s not the cryptocurrencies themselves, individually, that are the exciting prospect, it is the technology behind it. I’m rather convinced you will eat your words when we’re all transacting in a crypocurrency twenty years from now.

The there is only two things I know for certain.

1. Times Change.
2. No one can predict the future.

Grammar is clearly not on your list.

Apologies, I didn’t realise there’s a grammar nazi in the room.

Turkeys will never vote for Christmas

How do you explain 11m people voting ANC then?

Hehehe. excellent!

Perhaps they are all sheeple?

A fund damager not seeing the value in index funds. There a surprise.

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