SIMON BROWN: I’m chatting now with Craig Antonie, chief investment officer at AnBro Capital. Craig, I appreciate the early morning time. Of course, you’ve got a unit trust, an ETN on the JSE, a unicorn USD listed portfolio. It’s been a tough couple of months for the tech space. I chatted with your colleague toward the end of last year around what you were looking for in a company, the long runway, the cash flow, the inspired owners, and so forth. I wanted to get back and talk around exiting. What I’m assuming is that the price falling is not going to sort of shake you out. You’re looking beyond just the price. You’re looking at that longer-term earnings ability and cash flow generation from a company that you’re invested in. Am I correct?
CRAIG ANTONIE: Yes. Good morning, Simon, to you and your listeners. Thanks very much for the time and the opportunity. You’re right. The last few months or so haven’t been fun. They’ve been pretty uncomfortable for long-term growth investors like ourselves. But I think it’s at times like these where, as you rightly say, one’s got to look at the fundamentals and understand why the market’s falling – and that story at the moment is pretty much around inflation. Everyone’s stressed about that and what it might mean for growth stocks.
But one looks at the portfolio as a whole, and we’ve just come into the end of the first-quarter earnings season. Overall the results have been phenomenal. We’ve seen revenue growth of between 30 and 40% in the stock that we own. Despite that, with all the market jitteriness share prices have fallen; the median share price fall has been about 25% across that kind of a market.
So yes, markets have these come along every now and again. At least once a year they fall by about 10% or so; that’s pretty normal, so we’re used to that. At the end of the day, it’s why the share price is falling, and that would determine whether or not we’re concerned. So with the results that we’re seeing, we’re not stressed at all. We actually see this as a pretty nice opportunity for people to invest in very well-run companies because sometimes the market’s sketchiness gives you that opportunity, and we think we’re there now.
SIMON BROWN: Yes. It’s that Buffett quote that the market’s manic-depressive. What you’re saying there is look through the noise of the share price, look to the business. You bought it for a reason – is that reason still valid? Are they executing on what they are promising the market? And if that is in place, as you say, if anything weak share prices are an opportunity. The key is to know why you own the business, I suppose.
CRAIG ANTONIE: Exactly. The one thing we like to stress first and foremost for people investing in this space is you do have to have a long-term view. In the short term, when markets are a little bit schizophrenic, as they are now, the share price does not necessarily equal the company. The result of that is really because of the moods that the markets have – and at the moment they’re really not feeling very happy about growth stocks – or rather are a little bit stressed about them.
At the end of the day, as you rightly mentioned, what is it that you’re investing in? Have you done your homework, is the thesis still there? In this case, we are building a portfolio around founder-led companies. These are people who are solving a problem out there in the world that makes life easier for everyone who uses their product or service; customers are often willing to pay for that service. And, as they grow and develop, they start becoming very sticky with those products or services that they use.
You can imagine, for example, if you’re a business that’s spent an enormous amount of money on technology during Covid and it’s made your business more efficient, it’s topped your margins, now that you’re coming out of a pandemic you’re not likely to stop using that investment or cancel it. If anything, you may very well keep using it and perhaps use it even more. That I think is the big issue here – what are we investing in? What is the future like? And what is the opportunity like? In many cases the opportunity is enormous – many, many years ahead – for very fast, above-average growth in our view.
SIMON BROWN: I saw a presentation from the listing of the ETN. Listeners can find that; UADCPA is the code. The one point you did make which I really relate to is if a position is keeping you awake at night if it’s stressing you – which I suppose would be a scenario where you like it but perhaps it’s not quite executing, perhaps there’s competition coming or something – that certainly is a candidate for at least lightening, if not completely exiting the position in its entirety. Nothing is necessarily forever.
CRAIG ANTONIE: Exactly right. I think there are a couple of circumstances that we consider when it comes to selling or lightening a position. One is if it’s growing significantly in the portfolio to where it starts carrying an inordinate amount of risk; we don’t want the portfolio to be too concentrated or too reliant on the performance of anyone or two or a handful of stocks. So if that starts bothering us, we’ll definitely trim and take some off the table there.
The other option is if the thesis has changed, things have changed and we no longer believe in what they’re doing. We’ve had a circumstance or two where we’ve had a founder that’s stepped down, or is a very sad example of a founder that passed away. Then we re-look at that and decide if it’s still a place we want to be.
Also if the portfolio is running low on cash and we’ve seen a massive fall down, like we’ve seen now, we do have a sort of a clean-slate approach as well and say, well, of all the opportunities out there are there perhaps one or two that are far more compelling than what we have now. If it does appear to be true, then we’ll take some off and reallocate, or sell some and relocate.
SIMON BROWN: You’ve got a better opportunity out there. We’ll leave that there. That’s Craig Antonie from CIO AnBro Capital. I appreciate the early morning.
In our conversation on our social media, our poll today on LinkedIn, Facebook, or Twitter, we ask whether you have a clear idea of when to sell investments, even perhaps your best winners? It’s hard. It absolutely is tricky.
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