Don’t harm yourself with emotional perspectives: Hlelo Giyose

First Avenue Investment Management’s founder and CIO offers insight into his investment journey and explains why he made it his career.

RYK VAN NIEKERK: Welcome to this week’s edition of the Be Better Investor podcast. It’s the podcast where I speak to the leading investors and business leaders in the country about their approaches to investments. We also take a peek into their personal investment portfolios.

My guest today is Hlelo Giyose. He has been in the investment industry since 1993. He is the founder, chief investment officer and principal at First Avenue Investment Management. Prior to founding First Avenue, he was a portfolio manager at Stanlib and Investec Asset Management (now Ninety One).

Hlelo, thank you so much for joining me. Tell us about your investment journey. When did you decide to make it your career?

HLELO GIYOSE: You know, I have to trace back my [propensity] for investing to my teenage years. I have to say that I was very fortunate to have a mother who herself had had fallen in love with accounting. She was an accountant and she looked at everything through an accounting lens. What’s really unique about her is it extended from just debits and credits to the stock market. So she actually put me, before the stock market, onto banking. She helped me open up my first bank account. I must have been 11 years old. She said to me, “If you save what you can in your bank account … I’ll come around a year later every October and double what you have in it”.

So I took up all manner of jobs that any young person can do, working in a hardware store on Saturday mornings, doing stock-taking, any kind of job that was on offer to a young teenager to earn money to put into the bank.

And then she doubled it every October. And so it went from ‘Well, mama, I like the feeling of seeing this money grow”. She said, “If you really want to see money grow, then try the stock market”.

So she advised me by the way of my first share to buy, the first company I owned, which was a security company providing men’s security. So it went from that to buying the next stock, to buying the next stock. And of course when I got to university I joined the university investing club. I was really a business student at university.

It went from that to getting my first job at HSBC in the United States, and just working as an analyst, first on TMT (technology, media and telecom companies) and branching out into other sectors. Then it went from there to doing a Master’s in Investment Management. Then it went from that to working at what is Ninety One now as an analyst and assistant portfolio manager. Then it went from that to the IDC [Industrial Development Corporation] for two years, and then Stanlib, where I headed up the Value Investing franchise.

So my whole life has been about how to grow assets, being interested in companies and what they do – and how they do it, more importantly. So I can’t look at life in any other way, through any other prism, but that.

Read: List viable SOEs on JSE to facilitate economic growth – Giyose

RYK VAN NIEKERK: Where did you grow up?

HLELO GIYOSE: My parents were obviously South African people. They were refugees from South Africa. They left the country before I could even live in this country. So they took us around the world; first, when they left South Africa, to Botswana, Uganda, Kenya – they were on the move – United States. From there I went to London to do my Master’s, and then back to South Africa.

RYK VAN NIEKERK: You referred earlier to your very first share. What exactly was that share? You said your mother recommended it. Why did you agree?

HLELO GIYOSE: It’s really interesting how parents tell you. You have an alarm system in your house and they say, well, if you really want to buy something, you have to own something that you know something about. And so this company called ADT Security company now used to be owned by a company called Tyco.

I think Tyco is situated in northern United States, I believe in the state of Vermont – sorry, Chubb Securities in northern Vermont. So she said, well, you know, buy Tyco. That was the first share that I bought and it was really easy because I could relate what I knew about the company to what I saw in the household and around me.

That’s really the quickest way to get someone involved and curious and interested, even to get to love investing: is to relate what they know and they see and what they ‘touch’ and ‘feel’ to a share.

Then you can discuss from that how the company makes money. Then you can go on from that to discuss strategy. And then you can go on from there to discuss now things that become really, really difficult – which is financial statement analysis.

But that’s not where you are as a kid. You just look at how many homes have the security company – well, this security company – how many homes use it. And you look at everybody and you say, well, you know, I know about this. You grow up that way. But it gets complex as you get older to analyse a company. So that’s how it happened.

RYK VAN NIEKERK: Did you make money from Tyco or ADT?

HLELO GIYOSE: I don’t remember, by the way, very well. But I can tell you this much: you get sucked in by what you see to be success. I do remember that the first few or so investments were really successful.

The other one that I picked up along the way was IBM, because the penetration of computers was growing at that point in time. I think IBM was a company that went to Microsoft and said, “Why don’t you put your stuff in our boxes?” That’s what really made Microsoft, by the way. I know that IBM was the next one that I bought, and I saw that work.

Now, you think you are good when you see stuff working and you’ve done a little work, only because you are buying what you see; but over time you begin to make mistakes and you actually lose money.

RYK VAN NIEKERK: Obviously you run First Avenue, but do you also have a personal investment portfolio?

HLELO GIYOSE: Running an investment management company is one of the most complex things you can do, even though I must say that the president of Ukraine, Zelensky, might like to differ with me that it’s not that complex relative to what he has to deal with. [Chuckle].

But at First Avenue we made a decision that we don’t allow investment staff anyway, but staff in general, to buy shares. If they want access to shares, they buy them in the portfolios which we run, so that we don’t create a conflict between the investment analyst or a portfolio manager, and what we’re doing and what we’re getting and what the client is getting: eat your our own cooking, if one can call it that.

So I’m very happy to talk to you about what we own in our portfolios, because it’s also for me. I’m getting the same outcomes as my clients.

RYK VAN NIEKERK: Surely you would have a different risk appetite in your personal portfolio versus managing people’s savings?

HLELO GIYOSE: Yes. there’s a sense that that that would be the case, but it’s actually not. If you take your best thinking, and your best thinking for your clients, you do get to find out that actually that is the best thinking for you too. Now, to make this interview very useful, because you are interested in my personal portfolio, I can talk to that about our global stocks.

In local stocks we really don’t want people to go into EasyEquities and trade better there, and front-run what the company’s doing for clients, Ryk. But in the global arena I certainly do have a portfolio that at times is different from what we offer our clients. So that’s an easy one to talk about,

RYK VAN NIEKERK: But let’s talk about the global portfolio. You, I and Magda Wierzycka of Sygnia were on a panel (at Moneyweb’s Better Investor Conference) and she said South African fund managers are not that good when they pick foreign shares; it may be better to use an international fund manager to do that. You disagreed with her quite strongly. So how do you go about picking your global stocks?

Watch the panel session with Giyose and Wierzycka at the Better Investor Conference: 

HLELO GIYOSE: I think that comment she made was actually not a really well-informed one, because here’s a really, really good example. Even though it’s an extreme example, it’s a really great example.

There’s one guy in this world called Warren Buffett. Warren Buffett really has been sitting there picking stocks by himself, together with his colleague, Charlie Munger. Just the two of them. They have over $400 billion worth of assets – well, their market cap anyway – in Berkshire Hathaway. They are the most successful investors in the world.

So if you really want to just demystify the myth of having a large investment team or having to be close, to be in New York, or you are having to be in the United States to do something, here’s a guy (Buffett) who’s in the cornfields of Nebraska.

He’s lived all his life [there] and he hasn’t had any help, and he’s been really, really successful.

I can tell you of another guy called Seth Klarman down in Florida in the United States. These are not big investment teams, because I think what Magda is referring to is you need to have a team about as large as Goldman Sachs or Aberdeen Asset Management and so on – but it’s not necessarily true.

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Another statistic, by the way, is when you look at most global managers; their teams are not more than five people. I have to tell you there’s not much of a transition that an asset manager or an analyst in South Africa has to make from owning one company and understanding a company in South Africa to understanding a company in the United States. It really is no more than three years’ worth of a transition, should you apply yourself to it.

So there’s an implication in what Magda is saying – that we must be too stupid to make the transition or we must be too small an investment team to be able to do that. Both are untrue. So how we do it, by the way, at First Avenue is actually unique and very novel.

This is what I want people to actually focus on: [for] the ability to pick stocks in a global pond [it] is incumbent upon you to really do it creatively.

So at First Avenue we are part of something called a ‘group of boutique asset managers’, which is an association of boutique managers around the world – there are about 21 of us. We come together to really replicate the breadth and depth of large managers, because we know there’s no point in going to London and opening up an office in London, going to New York and doing that in New York, France, and so on.

So we actually collaborate with other asset managers around the world who are also boutiques about as small as we are, and we share company research. We research companies together, we visit management teams across the world, around the world, together. We do research reports, we show each other, we have a quarterly investment meeting, we have staff exchanges where we share: their analysts come and visit us, we go and visit them. We spend time in different geographies with different managers. We don’t all have the same philosophy but that’s really nice because there’s a diversity of views.

This is really critical – how you go about putting yourself in a position to extend your legs and to understand the complexity that comes at you from a global company. Just do that for three or four or five years and, before you know it, there really is no difference between how you think and how a person born in the UK or born in the United States thinks about companies themselves. That’s how we do it, how we have a plethora of knowledge from our partners around the world that comes into us, and we’ve formed a repository of knowledge about it.

RYK VAN NIEKERK: Do you analyse global stocks differently from how you analyse South African stocks, because the macroeconomic conditions can vary significantly between different geographies?

HLELO GIYOSE: I think what you want to say, Ryk, is not that we analyse companies differently. It’s that we have companies in developed markets that are themselves different from companies here.

So you have a whole biotech industry that exists in the United States that does not exist in South Africa. Biotech is a derivation of a pharmaceutical company. So once you can analyse GlaxoSmithKline or Pfizer, that becomes a commodity-type company in the pharma space. Now you’ve just delved deeper into the business model of a biotech company.

And an example of a biotech company is like Moderna, the vaccine company. They use MNRA technology to produce an inoculation product – whether it’s for vaccines, for cancer by the way, or to deliver therapies. So those are languages, those are terms that you are not familiar with when you’re in South Africa, and [they are] not difficult to learn at all and to understand their place in service delivery, product delivery, [or] revenue generation on a global scale.

Another differentiation I can tell you is the arms-contracting business, defence- contracting business. When you look at Norfolk Grumman or Lockheed Martin, these are defence companies. Now, if someone tells you about the opportunities that exist in a nuclear submarine, how long it takes to build one, and how you account for that using project accounting, it’s different from anything you see in South Africa. But here again, let me put you in it for about three years and you’ll get it just as easily.

Then here’s another difference, which you and I know about. When you look at Amazon, it’s a retail company. But it’s obviously a digitally based retail company that’s really different from, say, Truworths or Foschini. But to transition from knowing Foschini or Truworths or Woolworths to Amazon does require a transition period of accumulation of knowledge.

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But once you’ve done that over two or three years, again, it’s not too difficult to carry on from there because then you can go from Amazon to looking at how Walmart introduced digital strategy into its strategy, into its business – the same as Target.

So there’s a transition of business model because these companies are different, but you don’t analyse them any differently, really. You just look for the same markers.

RYK VAN NIEKERK: Let’s talk about companies that do not perform according to expectations. First of all, what was the worst investment you ever made?

HLELO GIYOSE: The worst investment I have ever made? Mmm. I have to say the worst investment I’ve ever made, locally anyway in South Africa, was Tiger Brands. Tiger Brands I think has had a diminution – or its business has been diminishing at a gradual rate over time. I think it peaked at the time when Tiger Brands made an acquisition over in Nigeria on Dangote.

It really burned a hole in our clients’ pockets. It burned a hole in my pocket because we owned it from that point until we gave up on it. I don’t even remember the price at which we gave up on it, but the share price peaked at that point, and it’s never gone back to that level.

Since then, Tiger Brands has not become a better business. It’s been struggling to look for a reason to exist…

It has, quite frankly, been disrupted and usurped by other bread companies, for instance, who’ve now taken over the efficacy of providing better – ……14:50 but there’s no difference [between] Tiger Brands bread and Pioneer Foods bread.

So it’s really lost efficacy over [time]. We lost a lot of money on this company. I think they paid R5 billion for Dangote and they sold it back for R1. Right? That’s just how much value was lost. And it taught me a great lesson, by the way.

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RYK VAN NIEKERK: What is your hit ratio? How many winners do you pick over losers?

HLELO GIYOSE: [Laughing] Well, hit ratio – hmm, I’ve never looked at it that way. Actually that would be an interesting statistic. We obviously just look at our hit ratio in terms of investment performance and I know it’s associated with also investment style. I would have to say I can put it that, in terms of style, when your investment style is in favour your hit ratio is north of 78% to 80%. When your investment style is out of favour, your hit ratio can go down to 5% or 10%.

We’ve been in a period of the market at First Avenue where we’ve been out of style for I think four years, because we tend not to own cyclical companies. So we haven’t had exposure to resource companies, and resource companies have driven the bulk of returns on the South African stock market since 2016. So our hit ratio has been very poor.

But since the inflection point of having inflation and interest rates rising now, we’re back to having a high hit ratio. Our performance is turning around really beautifully. We are now in the 78% hit-ratio mark.

RYK VAN NIEKERK: Amateur investors or retail investors sometimes act very emotionally, especially when stocks lose value or go down. How long do you hang on to a stock? And, as you’ve said with Tiger Brands, when do you give up and when do you take the emotion out of that decision? Well, how do you take it out of that decision?

HLELO GIYOSE: That’s actually a great point, I have to tell you – a great, great point. As an investor one of the things you do get to learn is not to harm yourself with emotional perspectives, or with your own emotions, is what I want to say. So one of the things that I do, the way I go about it, is whenever I have an inkling to do something I always ask myself and just check in with myself how much of the decision that I’m about to make is driven by emotions.

You can usually feel that ‘I think I’m a little concerned here, I’m a little more concerned than I should be’ or ‘I think I’m upset, I think I’m annoyed or I’m actually fearful’. So I have a great ability, [and] I think it’s out of habit now that I check in with my emotions and I check in with the motive that I’m feeling to do something.

But, feelings aside – because I don’t think that’s enough – you really have to codify what you do to cut a losing position.

So we like to think about it as follows. We like to ask: is the information I’m getting discomforting or is it disconfirming? If the information that you’re getting for a company or about a company’s performance when you look at its results, for instance – and you talk to management about it, or you read about it – if that information is discomforting, that’s the emotional element. It’s discomforting, it makes me uncomfortable. It can make me actually panic. It can make me become excited in a negative way, I get to say.

But if it’s disconfirming your thesis – okay, now the thesis part is your investment thesis – then that’s when you acknowledge that ‘I’m wrong’. Now, when you acknowledge that you’re wrong, you go back into the reasons you bought the company and you rebuild those reasons. When you rebuild them and you come up with a different thesis, then you’re conforming to yourself that indeed ‘I was wrong’. No matter how much you are in a loss-making position, cut it.

I think you’ve seen that with Warren Buffett two years ago when Covid hit, and he realised that airlines are going to be challenged to the point that they may actually go out of business. He’s actually proven to be wrong on that point; they didn’t go out of business. But he knew that airlines may never be the same again and they may actually go into bankruptcy. When he felt that what he was seeing from Covid was disconfirming his theory, he lost a lot of money, but he cut his position completely. And that’s how we felt with Tiger Brands. We just cut it.

RYK VAN NIEKERK: But it’s a different type of decision when you want to sell out of a stock to take a profit, because the risk there is that you become greedy and you really want to make as much money as possible. Of course, if you sell the stock you won’t benefit from any upside. That decision may be based on greed while, when you sell out of a stock to cut a loss, that must be a decision based on fear. Is there a big difference?

HLELO GIYOSE: There is a difference, but the difference is not exclusive, meaning that fear does play a role when you are fearful of what could happen at airlines, as an example on Buffett. When you’re fearful, if you can back up your fear with facts then it’s not a bad thing. Fear is really terrible when you can’t back up with facts.

So here comes Covid, for instance, and you say to yourself, well, Warren Buffett says to himself: ‘I’m really fearful of what could happen to this industry. It could actually be decimated.’

Now he hasn’t been proven to be right that the airline industry actually came out okay because the government, by the way, stepped in. But he wasn’t wrong. Factually the companies haven’t come back to where they should have been, or at least to pre-Covid levels.

But you’re right. There is an element of fear. If you can only inform that fear with facts, it’s not such a bad thing to have been fearful. It’s a bad thing to be fearful without any facts. And when you go back to us with Tiger Brands, yes, we were fearful about capital allocation, about the huge amounts of money that were spent on Dangote and not getting returns back. And so we were obviously fearful of what could happen to the business – and that is defocusing the business away from its core business in South Africa. So back up those fears with facts.

In the long term, when you look at what has happened to Tiger Brands since then, our fear was justified. It actually proved correct. So fear can prove to be right. Just make sure that as an analyst you have the facts to back it up.

RYK VAN NIEKERK: Is there a difference between subjectivity and emotion when it comes to investment decisions?

HLELO GIYOSE: Subjectivity and emotions? I think that every investment decision is subjective, even in the application of facts, because we all have different investment philosophies. What I choose as my investment philosophy is subjective. But [there’s] being subjective and being greedy.

The other example we haven’t talked about is when a share goes upwards and you’re subjective and make a decision that, ‘Well, this is still a good company, it deserves to trade where it does’. Meanwhile, you don’t realise that of course you are going to think that way – it’s called ‘confirmation bias’. You are biased to confirm what you subjectively thought was correct because you’re greedy.

So these things intersect and they really require you to never forget to bring the facts along the way. If you are greedy or you’re fearful, but you never bring along the facts to justify them, then I think you’re making a mistake. But I think the point you raise is mostly what I see with the retail investors. They can get really excited about a stock going up, and they don’t need to summon the facts. They say, well, ‘Let me just ride the trend as it lasts’. That’s what people in technical analysis do; they just ride the trend when it goes up, they ride it when it goes down. Again, when it goes down they’re fearful, but they don’t bring along the facts.

RYK VAN NIEKERK: I think hope also plays a role – and that is your worst investment strategy because when something falls you hope it will go up again and you don’t base your decision on fact, as you’ve just said.

But anyway, we’ll have to leave it there. Hlelo, thank you so much for your time, and good luck with the future – the next, what, 30 years of your investment journey.

HLELO GIYOSE: Oh, I appreciate that. Long may those years last. I appreciate that, Ryk. And thank you by the way – you do a great job yourself.

RYK VAN NIEKERK: Thanks Hlelo. That was Hlelo Giyose, the chief investment officer, founder and principal at First Avenue Investment Management.



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Nice interview.
It is now clear to me why the fruit factory in the Cape is being closed. Tiger seems to be unable to run a bath!

“They have over $400 billion worth of assets – well, their market cap anyway – in Berkshire Hathaway.” And never paid a dividend – which helps with the cash reserves. Stayed at zero growth for three years from 2018 to 2021.

Over ten years Richemont has beaten him by 70% and paid a dividend. I really think BH are overrated in the investment world,

End of comments.



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