Management shows its true quality only over time

‘It’s very important not to fall in love with businesses straight away. You need a long courtship if you’re going to buy something or understand a business’: David Shapiro of Sasfin Wealth.

SIMON BROWN: I’m chatting now with David Shapiro, chief global equity strategist at Sasfin Wealth. David, I appreciate your time. Next year – not quite yet, – you will have had 50 years on the JSE. Of course, that initially was open outcry at the various venues down in the city, and now it’s completely electronic, doing it all from home in Zoom boxes.

An article you wrote which really interested me talked around management. Warren Buffett always says buy a company that any fool can run, because one day a fool will run it. You’re saying, hang on, no, management really does matter and you want the best of the best in your investments.

DAVID SHAPIRO: Oh, absolutely. Simon, I know that comment and it was against that comment that I actually made the statement, because I think management is imperative. If you’ve monitored some of the best companies in the world, you’ll know that there’s a personality behind them, because there are so many decisions that one has to make. I suppose Warren Buffett was talking about companies like Coca-Cola, where the brand just sold itself, but even today that doesn’t happen any more. There’s so much more competition in the globalised world.

I think there was another element that I was referring to as well. In my 50 years I’ve gone through a number of booms where we’ve had new listings coming on, and at many of those small companies the CEOs are very good at running small and medium companies.

But to turn those into big giant businesses takes a special character.

A lot of those managers of small businesses would not recognise that they had taken the company to the best they could take it, and it’s after trying to grow it into big companies that they fail.

SIMON BROWN: The curse of the founder. You almost need to know when to leave. But it also makes me think. I look out and I pick Discovery, because it’s one I’ve thought about often, and Adrian Gore. The argument is that sure, he’s got a team behind him and everything else, but he is critical to the success so far of Discovery.

DAVID SHAPIRO: No doubt. He’s got some very, very good lieutenants that come in behind and talk on the various areas, but he is the driving force. It’s his strategy that guides them. We had Donny Gordon – the same at Liberty. Liberty was the same thing. It was a Donald Gordon company. As soon as he retired and went elsewhere, the company – yes, there were very good interim managers, they were very solid – never drove the growth that Donny Gordon did.

Brian Joffe: the same kind of thing with Bidvest. He knew how to grow a small business into a big business. Believe me, I was there with him in 1988 when Investec gave R7 million to complete his fundraising. He started with a market cap of R20 million back in 1988.

That’s the point I’m making. Yes, inflation’s taken over and so on, but there are a lot of other companies that came in 1987 with R20 billion that are only at R100 billion today.

SIMON BROWN: I suppose that’s the point. It’s not that they’ve sort of failed in the sense that they’ve disappeared. Bowler Metcalf – a great little business; the operative words there might be ‘a little business’, even though they are great. I love Bowler Metcalf and I’m probably throwing them under the bus a bit.

The hard part, I imagine, for an outsider is knowing it at the time. I mean, when you’re there on the floor with Joffe, when he’s listing in ’88, do you see it then? Is it something that’s easy in hindsight and hard to look forward?

DAVID SHAPIRO: No. That’s why I’m saying – you can’t tell. We are always after instantaneous gratification; we want it tomorrow. We want to make money tomorrow. Here is a great new company. I say, hold on a sec, you don’t even know the company. You’ve got to follow it over years, you’ve got to follow management over years.

Who is management caring for – you or themselves? Are management more interested in making money for themselves and making money from you, or making money for you? That’s important.

It takes time to understand who a good manager is and whether that management team have got the feet to run the distance.

It’s very important not to fall in love with businesses straight away. I think you need a long courtship if you’re going to buy something or understand a business.

SIMON BROWN: I like that. I take that point. Typically we want to buy on day one, because we want the hundred-bagger. But if we give it time to prove itself, maybe we only get to a 50- or a 60-bagger, but we still do very well. I like that idea, a courtship – let the company prove its credentials before we get excited.

DAVID SHAPIRO: Look at Capitec.

SIMON BROWN: Capitec – there’s a fair point. It’s a stock that did nothing forever and a day, and now it’s a R2 000-share and the second-biggest bank in South Africa.

David Shapiro, chief global equity strategist at Sasfin Wealth, I appreciate the time.

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