Piet Viljoen, SA’s CFO, says it is time to buy shares

JSE registered mining shares have been in terrible hiding since March, with many losing up to half their value. But it’s a trademark for South Africa’s best money governor, Piet Viljoen, which manages the Counterpoint Value Fund. In this broadcast with BizNews’ Alec Hogg, Viljoen captures the appeal of a number of South African stocks, from obvious (coal) to exciting rebounds (Absa, FirstRand, Sanlam). Viljoen is a favorite among the BizNews community and will be the only speaker at next month’s event to deliver the keynote address. BizNews forums at Champagne Sports Resort in Drekasberg.

Curator Piet Viljoen about putting a cap on your fund when it gets too big and whether he would put a cap on his current fund

We did. We kept our money at RECM in 2006. I think it was a roundabout there, a combination of two. They were getting too big and also the market was getting rather expensive. Of course, it was not a popular move at the time, but a year and a half later, with the global financial crisis, it turned out to be the right one.

Not with the current fund, but there will come a time if the flow continues and the performance continues, that we have to start thinking about it because size is the enemy of performance. You can just take a look at what’s going on in the South African equities class. The funds that perform best are the smaller funds. The large funds all consistently met the benchmark.

About the asset management conflict and how we as a public can analyze that conflict

They’re right there in front of your eyes. When asset management boasts of assets under management, it’s the conflict there. But the thing is, people are herd animals. They feel safe in large herds. That’s why you feel safe when your investor is a large fund manager because everyone else invests with the big fund manager. But investing with your animal nature is the enemy of good performance. When stock prices fall, your first instinct is to escape. You flee from fear, from danger. It’s your animal instincts that come in. And it is not always right to do in investments. And shepherding is another animal instinct we have as human beings. And it is also not great to do in investments.

On some resource stocks that have fallen sharply in recent months and whether it’s just the blow one might expect or fluctuations

So if it’s unexpected, such a hit, you probably would not have had them three months ago. You probably would have sold them. I can not say that I expected such a blow. But yes, one expects such fluctuations from time to time. You just do not know when it will happen. That’s the case. But it does happen from time to time. Stock prices sometimes rise sharply, as they did last year and until March. So much up. Nobody calls it instability, but it is also instability. And now they are falling a lot and now it is volatile to the conclusion. I would like to point out one thing, that the net year to date, the first six months of the year, despite the decline in some resource shares over the past three months, the fund itself has still risen by one and a half percent for ISK. years so far, which I think is really an index and most other funds up there are still showing good results. So yes, there has been some downside, but before that it was a lot against. So the flaw is not as bad. But I think what one should focus on is whether this reduction involves a permanent loss of capital or is it a temporary loss?

I guess there are three things you need to think about in this regard. The first is, is it outright fraud? Are you investing in outright fraud? Because then you could face a permanent loss of capital, something like Steinhoff or Tongaat or something like that. This is a permanent loss, you are not making that money back. It’s gone. Is it a growth bomb? In other words, a company with very high built-in growth expectations where the underlying reality does not match it. So the stock price reflects expectations and our underlying reality does not reflect it. And then you can lose a lot of money permanently. You’re not doing it again. Something like Naspers was an example of that until about nine months ago.

On what is to happen in Naspers and what could cause you to lose stocks permanently

At one point, Naspers was in business with very, very high built-in expectations for the future. And while I believe that for some of that company, the future is bright, it will never reach the highs that the market expected, for example, 18 months ago. That’s very unlikely. In addition, I expect that there have been some mistakes in the allocation of funds in the meantime. But these are just examples. And there are many, of such examples, over-priced growth stocks that can represent a permanent loss of capital. And the third is these value traps where you buy cheap stocks but it stays cheap forever and possibly also decreases because it does not create shareholder value. So these are three types of stocks that could cause you to lose money permanently.

I think when you look at your portfolio you should look at whether you own any of them and the indication of whether you own any of these types of stocks is cash flow and balance sheet? Does the company generate strong cash flow? And does it have a solid balance sheet? If you can tick these two boxes, then a reduction in stock prices in the short term represents a buying opportunity. It does not represent a permanent loss of capital. But when there is a lack of cash flow or a very stretched balance sheet, it could represent a permanent loss of capital.

About what is happening with shares in financial services

I think both FirstRand and Sanlam have a strong internal culture that leads to value creation over time. And they are both available today at a price that does not allow for further value creation further. So I think this is a pretty strong combination. And in the case of Absa, you have a company where I think the culture is busy changing. It was poorly managed for a long time. But I think that is about to change, it is recovering and the stock price expects a continued decline and continued poor management. Again, this is a good combination to achieve. So slightly different for FirstRand and Sanlam versus Absa, but in all three cases I think the stock price is reducing continued bad things and underestimating the good fundamentals that all three companies have.

On his offshore vs local challenge with Magnús Heystek

I’m not watching on a short term basis. I would guess I had given up a lot. I do not know if I have given up the whole world yet, but I guess I have given up a lot. I continue to be full of stocks that are very cheap. So my views are the same despite short-term fluctuations. Or the short-term fluctuation is actually a good opportunity because the fundamentals are still intact. Strong cash flow, strong balance sheet. And if you look at commodities in general, the world in 5 to 10 years’ time will probably be a sub-supply of a wide variety of commodities because of the dynamics that are happening, especially in the western world, in terms of ESG and carbon and all sorts of things. And the world needs these things. The world is growing every year. GDP grows by 2 to 3%. Demand for raw materials increases steadily over time. There may be a year where it decreases slightly but it takes over again and the demand line for commodities is a diagonal line that increases over time and supply is unstable. And at the moment there are no signs of an increase in the supply of many, many products. But at some point this will have to recover.

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Piet Viljoen, SA’s CFO, says it is time to buy shares

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