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Don’t try to take profits too early

There are two kinds of money: bread-and-butter money and the yacht-and-caviar money – Viv Govender, wealth specialist at Rand Swiss.

RYK VAN NIEKERK: Welcome to this week’s edition of the Be a Better Investor podcast. It’s the podcast where I speak to the leading investors and business leaders in the country about their approach to investments and especially their personal equity portfolios. My guest today is Viv Govender. He’s a wealth expert at Rand Swiss, and he’s also a regular commentator on various media platforms. And he has been looking at financial markets for more than 15 years. Viv, thank you so much for joining me. You have an economics background: does it help you a lot when you look at investment opportunities?

VIV GOVENDER: I think it does. I mean, there’s many ways of approaching the market. Some people go from the technical analysis [point of view] where others look at company-specific kind of analysis. I prefer a more of a 30 000 feet view. So I like to look at things from very high vantage point, try and spot trends, and then try and take advantage of the trends thereafter. So the economic background does help with that.

RYK VAN NIEKERK: Yes, it’s so interesting because many different investors, especially professional investors, look at different aspects of companies in their process to evaluate opportunities. I’ve spoken to several CAs and they only look at the numbers. I’ve spoken to some hedge fund managers and they speak to former employees and suppliers about companies. And you’ll take a different approach as well. Is there a correct one? Is there a based one?

VIV GOVENDER: I think firstly it’s consistency that matters and there’s feedback as well. I mean, when it comes to making decisions, the most important thing is to understand that it’s 15 years …. In the almost two decades I’ve been in the market, what I’ve realized is that to certain extent your memory is kind of short and kind of skewed. You need to keep a track of what you are doing and why you’re doing it and see how that turns out. And over time, you’ll just see the patterns develop where you make your errors and where you make your wins and so on. And then I think [it] actually feeds into the whole, gain from experience that you get.

If you don’t actually learn from what you’ve done in the past, experience doesn’t matter.

Only by learning from what you’ve done does experience actually matter. You can do things like with anything, but improve how you learn stuff. I mean, just keep track of your performance, your decisions, why you made them, what the results were and so on. I think that’s very key in terms of becoming a better investor over time.

RYK VAN NIEKERK: Let’s talk about investments. When did you buy your very first share and what was it?

VIV GOVENDER: Oh this is a couple decades ago. I believe it was Sasol. The reason being at the time was, I was looking at some of the stuff out in the country and I was a bit more nervous about stuff. So I bought some Sasol [shares]. I sold them a bit too early, at a profit. And that’s one of the things I’ve learned over time is that in the stock market, you know, you can buy 10 shares and the one or two that does really well more than makes up for everything else: either there’s an average amount or even loses most if not all their value.

When you buy something and you think it’s a good company, tend to hold onto it. Don’t try and take profits too early.

Another example is I bought Naspers a while back and when I basically made a 10-bag on it, I thought, ‘Wow, 10 times my initial investment, step back. You’ve done very well for yourself.’ And obviously, you know, since then it could have been a lot more. And those are the kind of lessons I think that are key as an investor.

RYK VAN NIEKERK: It’s interesting, most professional investors are fund managers, wealth managers. They actually start to buy shares from a very, very early age. Many were still at school. Do you think getting into the market as a young person helps the individual when he/she invests when he/she is a lot older?

VIV GOVENDER: To a certain extent it does. I mean, obviously there are pro and cons. When I was younger, back in high school I unfortunately had to be putting money away for varsity because I had to put myself through it. And so of course that was a better investment (or almost a better investment) than if you look at some of the shares that I could have bought at the time and held until now – maybe that might have been a more lucrative thing. But I think it was worthwhile to spend money on that (education). At other times you are going to be looking at other expenses, like for instance, a car or a vacation. And then that might be a more smart thing to do to put some money away into stocks. But it does depend, I mean not all life circumstances are the same. But everybody can start investing as early as they would like. And of course you do have life issues coming about. And, you know, I would never say to somebody put money away rather than basically get your child to a better school, for instance? Those are the kind of like trade-offs sometimes people have to make. But generally in the stock market, the earlier the better.

But you must also recall a fact – one of my academic teachings and one of the things that I’ve learned looking at economics [and] history is: we must never be too confident about trends. We look at the last 70-something years since the end of World War II and think that that is how the world should be and has been. But you go back 20 something years before that, and you have the start of the Great Depression, you know what I mean? And 20 years on a chart doesn’t look like much, but in somebody’s life it’s a very different experience. So sometimes I can see based on the last 70 years, yes, buy shares, whole shares, etc. There are circumstances in the past that do indicate that that might not always be the right move for somebody.

RYK VAN NIEKERK: Yes, things change over time. That is definitely a reality we all face. But your personal portfolio, how many counters, or how many shares do you own and how do you pick them?

VIV GOVENDER: Well, I tend to work on a, a kind of a barbell strategy – I think that’s a statement or a saying that comes from [Nassim] Nicholas Taleb. I think there’s two kinds of money. You have your ‘bread and butter’ money: things that you use to basically support your lifestyle, to make sure everything is functional, to make sure your kids basically are fed and housed and schooled in the right way. And then I have what I call the ‘yacht and caviar ‘money: the money that you put out there to try and get the yacht and the caviar and the private plane and that kind of stuff. And that’s more of my speculative kind of investments. In my bread and butter money we have a portfolio, a global equity portfolio, which is a blue chip portfolio by the very nature of how we operate it.

VIV GOVENDER: It basically excludes anything outside the top 200 companies in the world…we’re talking the blue chips of the blue chips. Then in that particular portfolio, I make sure I don’t have too much exposed to any particular sector. I might be slightly overweight tech or slightly underweight tech, slightly overweight or underweight a particular sector, but I’m never going to be all in a company or all in a particular kind of thing. And that is what I’m consider to be the bread and butter money – the money that basically ensures my lifestyle continues at least on a certain level. And then I take a speculative bet …

RYK VAN NIEKERK: Can I just interrupt you there? Do you invest in a collective investment scheme or do you own those shares directly?

VIV GOVENDER: Directly. I mean, to be honest a collective investment scheme really doesn’t make sense. Once you have about half a million to a million rand invested, you really don’t need to have a collective investment scheme because one advantage you get in a collective investment scheme is it allows smaller investors to get access to the market in a diversified way, with smaller amounts of money.

But once you have like a million rand or even a million dollars, you can actually invest in quite a diversified portfolio by owning those shares directly,

saving a little bit of the costs, being a bit more active in terms of how you buy and sell them in terms of winners and losers and so on, [rather] than just buying a collecting investment scheme, paying those fees, but also having the middleman costs involved as well.

So it’s actually cheaper and better if you have enough funds of course, to buy the shares directly. And that’s what I do.

RYK VAN NIEKERK: Can you name a few of those shares? How many companies are in that portfolio and can you name a few?

VIV GOVENDER: It hovers around 20 or so going up and down. It’s not exactly a complicated portfolio. Basically, I’m looking at a conservative approach to things. This is not something where I’m going to take a very strong personal view on things and say ‘this is definitely the way things go’. It focuses a lot on looking at analysts’ recommendations, looking at basically market sense, and then looking at my trends, my overall 30 000 view on top of that. So companies I have in there, one of the ones I like a lot is Amazon. I think that is an excellent company; I think a company that has done extremely well, but still has a huge possible option to go to.

The one example I would say is this: Facebook and Google are playing around in the ad space, which is 5% of global GDP. Amazon’s playing around – at least in one part of its business – in the retail space. That’s five or four times larger than that. This is a much bigger possibility. The other one I like is Alphabet. To a large extent I think that the ad business is excellent, though it’s much better than Facebook’s. Although I might be looking at Facebook coming soon – not in the blue chip portfolio, but more in the punt kind of portfolio, because I think what they’re doing around VR (virtual reality) might be a bit of an interesting thing – I mean they’re spending close to $200 billion on this, on VR and that kind money on a particular topic, if it can be done, it will be done. And if they manage to crack VR to the extent that they think they will, I can imagine that being a massive business, but I’m not so sure they can. So that’s going to be in my more speculative kind of pool. But Alphabet is definitely in my …

Another one, which might not appeal to many people – and if you have ethical concerns, I can totally understand why you will not go for it – Lockheed Martin [because] I think what’s happening in the Ukraine right now, and the aftereffects that you’re seeing going through, for instance, with regards to the fact that you see Germany and the rest of Europe come out and say that they’re going to be effectively bound to spend a certain percentage of GDP on weapons going forward means that of three big players in the global market economy (the US, China and Europe,) … Europe had been effectively out of the arms market for the longest time. After the horrors of World War II, one can totally understand why they [would] not want to see the Germans armed again, why they wouldn’t want to be thinking of war and so on. But if you think the fact that the Chinese were, I mean, China, wasn’t going to buy Lockheed Martin. So Lockheed Martin had a market, which was the US. Now they’ve doubled their market. You know, people don’t understand how big an impact that’s going to have in the future.

Of course not all of it’s going to go to American companies; some of it will go to European companies as well. But [if] you’re talking about the developed market or the free world market, rather, [the] arms market has gone almost two X. And I think that is something that’s gonna feed through to a company like Lockheed Martin, despite what happens with the Ukraine crisis. I think we might see almost a permanent shift in terms of European defence spending, at least while, [Russian President Vladimir] Putin’s in power, even longer than that.

RYK VAN NIEKERK:

Interesting indeed. And your speculative portfolio, I would assume Lockheed Martin is in there, but tell us about the other counters.

VIV GOVENDER: Lockheed Martin is actually my blue chip. Okay. Facebook is my speculative portfolio. Actually my speculative portfolio is focused a lot on AI (artificial intelligence) and tech counters. I think that if you look in history … again, I like to take a longer view and by longer view, I don’t just mean until the 1980s; sometimes it’ll be the 1780s in terms of what I think of stocks and so on. And if you look through history, you’ll find that the biggest profits are always made in new technology. So when, for instance, railroad [was new] technology, the railroad barons. When, steel manufacturing was technology, you had Ford and you had those kind of guys and automobiles, you had Rockefeller, you find the biggest companies, the biggest growth that you see comes with this new tech.

We basically just lived through about a four-decade part where all the tech was happening in one kind of aspect, which was information. So we had the PC, the computer, the internet, the mobile phone, all kind of …operating in the same space. And so to a certain extent, we think of tech as being primarily that.

But tech can be bio, it can be manufacturing, it can be anything that’s new and interesting.

And so I think there’s a couple areas to look at: space is one of them. It also fits in with defence stuff as well, because a lot of defence stuff works in space. Unfortunately, the best count there, SpaceX, is not on the market, but I like some of the interesting AI plays out there. I mean, Google, for instance, that’ll give you access to some AI plays as well. But I mean, I would think Tesla is almost the AI stock.

RYK VAN NIEKERK: I want to ask you, is Tesla in your portfolio?

VIV GOVENDER: Not at the moment. The way I see Teslas as follows: it’s more valuable than every other car company in the world combined, according to the market cap, even after the fall, or just abou. But it’s definitely more valuable than any other car company in the world at the moment, but it produces a small fraction of the world’s cars. And surprising … people think that Tesla has this massive R&D spend. You know, VW spends multiples what Tesla spends on R&D? People don’t realise that Ford and VW and Toyota all have these huge R&D budgets. I mean, until very recently VW had the world’s largest R&D budget, if not, we’re still continuing. And so these companies have a lot of [R&D] spend, but Tesla’s advantages [are] as follows. They have cars on the road, collecting … information, that the Tesla fleet with that self-driving facility etc – those cars keep on sending information back to Tesla. And if you look at what’s happening right now, I don’t know if you wanna get into the meat of this, but have you seen the stuff around DALL·E 2 or around GPT-3? …

RYK VAN NIEKERK: No, I haven’t seen those.

VIV GOVENDER: These are all names of computer programmes that have been coming out recently. If you have any artistic kind of bent, there are videos on something called DALL·E 2, which is basically a programme that will paint or create a picture depending on the description you made. So you can say, I want an astronaut riding a horse on the moon and it’ll make a totally new, almost-photo, realistic picture of an astronaut on a horse on the moon. You can say, I want a girl climbing a staircase, it’ll create a picture or series pictures of a girl climbing a staircase. You can say I want the staircase to be made out of biscuits and it’ll make the staircase out of biscuits. And it’s not like, oh, this is some kind of cartoony drawing. If you looked at it, you would think a world-class graphic designer has designed this particular picture. And the inputs literally are as simple as I said, there’s no programming involved…. It’s one of those things, when, if you … were following the science and you saw that for the first time, I know it took my breath away and I was amazed by what I saw there. GPT-3, as a person involved in words [and] in writing, you’ve got to see what GPT-3 can do with this. Basically,it’s a programme that generates text based on prompts. So you can say, I want you to give me a poem Ernest Hemingway and it’ll give you that poem. A poem on ships in the style of Ernest Hemingway [and] it’ll give you a poem in Ernest Hemingway’s style, enough that a person that reads Ernest Hemingway will say, ‘oh, that’s kind of like Hemingway’. And it’ll be about ships. You can do that kind of weird stuff there. So these are the things that are really popping up really strongly on my radar.

And look, I mean, there’s been many, what’s called ‘AI winters’ where you had AI technology seeming to get to the point where it needs to be – just like VR technology has seemingly got to a point where you think, ‘oh, the next step is gonna take us there’. And then there’s been a winter in which, you know, things have fallen apart. But the thing with VR and with AI is that the day it does take off, it’s like for the first time, it’s like all those guys trying to fly, for millennia: you know, maybe they jump and they feel lighter for a couple seconds and they crash and burn, or crash and collapse or whatever. But one day the Wright brothers get it right and then suddenly you have a whole new industry. And I think we are at the point where the ‘Wright brothers’ of the AI/VR/some of the other techs out there, are about to, you know, really take off. And that’s primarily where I focus my speculative betting on. I’m not so keen on crypto.

RYK VAN NIEKERK: I want to ask you now, you’re very focused on technology. What do you think about crypto?

VIV GOVENDER: Look, I don’t understand some of the stuff. I always have come from a study of history again – and I go back to it all the time – I’ve come to the conclusion that this rule has always worked out: the guy with the gun wins. Okay. So the person that has the gun tends to win any kind of confrontation.

And in the modern environment, you have one side, the crypto guys with the computers and the other side, you have the governments with the guns. And I tend to believe that the governments with the guns are going to win any kind of dispute between the two parties.

I don’t know, what your belief system is, but I think that history shows that the guys that have the guns tend to be the guys that end up winning at the end of the day, irrespective of principles and irrespective of everything else. And so what do I mean by that? I think many of the use case scenarios around crypto is about government failure; it’s about getting around government; it’s about avoiding certain restrictions placed on you by governments. And I don’t think that in reality, that’s going to be the case. I think that in terms of the way the real world works – look at what happened in Canada recently, with regards to those truckers – when governments want to do something, they can do it at the level that will shock and awe the crypto guys. Your wallets no longer work, because you know, the government says, they’re confiscated. Your bank accounts no longer work because the government says you can’t play around in this space.

And when it comes to crypto, I think that one thing people don’t consider is that if crypto becomes as powerful as the crypto enthusiasts think, they will eventually come face to face with the fact that governments want to control how money is spent, where it is spent.

I mean, … there used to be a facility… especially out of the Middle East and Pakistan, where you could go to a shop in Pakistan and say, I want to transfer this much money to my cousin in the US. And you could basically put the money there; your cousin could go the same day to a shop in the US and get that cash. Okay. That seems like an incredible innovation. Shut down. Why? 9/11 money laundering. So the government stepped in and took what was on the face of it, not an illegal kind of thing and not even an amoral kind of thing, and made it illegal because they decided that it infringed too much on their ability to do certain things….

RYK VAN NIEKERK: It’s interesting because I think the way crypto works is based on a decentralized system. So we’ll have to see. But just lastly, what has been your best-ever investment and what has been the biggest dog you’ve ever bought?

VIV GOVENDER: My best-ever investment was traveling when I was a kid, when I was just out of varsity. Like I said, I mean, yes, you can buy a stock … if I had taken the money and bought maybe some … incredible company at the time, I might make more money. But I think investing in traveling in my early twenties was a very good investment for me.

In terms of the worst dog, I always think it’s quite funny. I shorted … Lonmin. This was back in 2008, 2009 in the financial crisis, or just before the financial crisis and I remember shorting Lonmin and taking a stop loss. And I swear since I took that stop loss, that stock price never went higher than that level ever again. And you all know what happened to Lonmin thereafter – you know what I mean? So I took a stop loss on a shot on Lonmin over a decade ago and I might be incorrect, I may be remembering you know, like a fish story or something, you know, ‘I caught this gigantic fish, blah, blah, blah.’ But I, I cannot recall that share price ever going above the point at which I took a stop loss all those years ago.

RYK VAN NIEKERK: Viv, thank you so much for your insights today. And yeah, I think you’ve given us some really, really interesting things to ponder regarding tech stocks and new technologies and AI and virtual reality. I think we can agree that’s going to be an exciting future. But thank you so much for your time. That was Viv Govender. He’s a wealth expert at Rand Swiss.

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