OLD ARTICLE – Original posted on November 24, 2016 See Part 1 over here: Warning Signs: Retailers, Shopping Centres & Retail REITs (Part 1 of 2). There are three harmonious parts to a Real Estate Investment Trust (REIT): Income: These are predominantly rentals from tenant renting space from the REIT. The lower the vacancy rate…
Warning Signs: Retailers, Shopping Centres & Retail REITs (Part 1 of 2)
OLD ARTICLE – Original posted on November 22, 2016 Following an exchange with Byron Lotter on Twitter (see here) after what I believe (and the market believes) was a very poor trading update from Woolies (WHL). But Woolies is not alone in this regard. Here are the key listed retailers, their like-for-like same-store growth, inflation…
Management Shareholding Abuses
OLD ARTICLE – Original posted on June 21, 2018 A traditional view wants a listed company to have their management as large shareholders. This gives them skin in the game, aligns them to shareholders and incentivizes them to succeed. All perfectly good reasons. But, this did not prevent Steinhoff from happening. If anything, this was…
What Is & Is Not Fraud?
OLD ARTICLE – Original posted on July 24, 2018 The American-styled short-selling model works on aggressive negative press releases, research and other PR stunts (now apparently including legions of anonymous Twitter accounts) to drive a share price down. Fair is fair, none of these actions are illegal if they disclose their beneficial interest. While this…
Sabvest: Unique Opportunity
OLD ARTICLE – Original posted on August 21, 2018 What makes for a good investment? Simple: (1) Quality underlying, (2) Growth / yield / return, & (3) Underpaying for all this. What makes a good investment fit into a diversified portfolio? Simple: (4) Being as little correlated to existing investments as possible. What makes all of…
When Does Valuation Matter & When Doesn’t it?
OLD ARTICLE – Original posted on October 5, 2018 Introduction: Fundamentals are what you get but valuation is how much you pay for it. The less you pay for a given set of fundamentals, the more you weight the odds in your favour that the investment will have a positive outcome. Hence, even if fundamentals are…
Tax-Free Savings Accounts: Buy Risk & Sell Time
OLD ARTICLE – Originally posted on June 4, 2019 A Tax-Free Savings Account (TFSA) offers a superb, tax-efficient mechanism to compound long-term investments for South African citizens. In the below example, I use an assumption of 15% CAGR per annum from a basic South African equity investment and assume that you are paying a marginal…
What Do Auditors Do & Not Do?
OLD ARTICLE – Originally posted on June 11, 2019 Following all the local corporate failures, the media and many (ill-informed) investors have savagely turned around and blamed the external auditors. While easy–and very human–to blame someone else like an external auditor for fraud, two things have become quite apparent: Many people do not actually understand what an “external financial…
Why Quality Matters for Small Cap Investors
The below is extracted from the December 2019 Alpha Prime Small & Mid Cap Fund investor letter where I briefly unpack our argument for quality in the small cap space: Quality: Above all else, we try to find good-quality, fast-growing, listed small cap businesses. Value: We invest in the cheapest of these options, constrained by our concentration &…
Santova: Global But With a Domestic Rating…
OLD ARTICLE – Originally posted on December 4, 2019 Santova Logistics (SNV) has been a core holding in the ASM Fund since its inception due to its unique, capital-lite business model with global reach and the potential for a compounding network effect across its operations. In brief, Santova offers a fourth-party logistics (“4PL”) solution for clients….
Lessons: Over-reliance on Management
OLD ARTICLE – Originally posted on January 7, 2020 The last couple of years have been very hard on those that invest in South African small cap stocks. Unfortunately, me, the Alpha Prime Small & Mid Cap Fund and my (incredibly resilient) investors have been no exception to this. Since the FTSE/JSE Small Cap Index’s…
Lessons: Two-edged Blade of an Anchor Shareholder
OLD ARTICLE – Originally posted on January 9, 2020 More than any other directive, human beings act in line with their individual incentives. In the natural world and bleeding into modern-day addictions to drugs, social media and pornography, human beings are predominantly incentivized by dopamines. In business, though, human beings are typically incentivized with money. The ability…
Lessons: Mining is (Dam) Complicated
OLD ARTICLE – Originally posted on February 10, 2020 I’ve been invested directly in a growing, junior coal miner for going half a decade, amongst several other mining-related investments. Likewise, I’ve followed a wide range of mining companies closely for even longer and previously was invested in a mining exploration company and poked around a…
Lessons: Management Over-value Themselves
OLD ARTICLE – Original posted on January 16, 2020 Per Wikipedia’s definition, “…illusory superiority is a condition of cognitive bias wherein a person overestimates their own qualities and abilities, in relation to the same qualities and abilities of other people.“ People tend to think that they are of above-average intelligence while, statistically, at least half are not….
Lessons: Narrow Doors Make for Tricky Thoroughfare
OLD ARTICLE – Original posted on January 27, 2020 As a fund manager of a small cap fund, I am keenly aware of liquidity in the stock market. It is not just a constraint but a risk that needs to be managed on both a granular and an aggregate basis. And, sometimes, it can also…
How Does Acquisitive Growth Work?
OLD ARTICLE – Original posted on January 4, 2017 Due to consolidation accounting (or “Group accounting”) rules, when one company controls another one (from 50% + 1 vote up to full-control of 100%, depending on circumstances), that first company (or the “parent” company) gets to accounting for both the financial performance of itself and the financial performance of all…
Lies, Damned Lies & Adjusted Earnings
OLD ARTICLE – Originally posted on September 23, 2016 When investing in a listed share, you are buying part of a business and own a portion of its future profits (or losses). Therefore, the per share earnings of a listed company are a big deal for investors with shares rising and falling base on them (or at least…
Forgotten Safeguard: Diversification
OLD ARTICLE – Original posted on April 7, 2016 The global economy is desynchronised with significantly diverging views at both global and country-level. China could implode, Europe could fragment and USA could falter. All of these could happen. And then you get commodity volatility coupled with massive forex swings (up and down)…. If you listen to…
Five Reasons Not To Invest In A Stock
OLD ARTICLE – Original posted April 1, 2016 Given the small cap space as a capital growth asset class and my predisposition towards being long, this website tends to be about which stocks to buy. Let me turn that on its head and give some (hopefully intuitive) pointers for which stocks to not buy. When you are…
Why Are You Investing in Small Caps?
OLD ARTICLE – Original posted on February 16, 2016 All the global uncertainty and domestic panic is a great opportunity to re-evaluate your risk profile as an investor. If you are reading this website, I think it is a fair assumption that you are interested in (if not actually actively) invest in the JSE small cap market….
The Value of Forecasts
OLD ARTICLE – Original posted on June 30, 2015 In the context of the stock market and its underlying individual listed companies, what is the value of building, making and using forecasts? By their very nature, forecasts for companies are an attempt to anticipate the future earnings of a company. They are not a promise of what the…
Independence = Overrated; Incentive = Underrated
OLD ARTICLE – Original posted on June 18, 2015 There is a lot emphasis on independence in various roles in financial markets. External auditors have to be independent, advisors hopefully too, wealth managers, some members of company Boards, and so on. All independent. But why? The theory goes that if a person is independent, then…
Understanding the “Quality” of Revenue
OLD ARTICLE – Original posted on May 6, 2015 Analysts love to reference the quality of a business’s revenue streams, but what exactly is this “quality”? How does one find “quality” revenue streams? Let me give you a fictitious scenario of Company A and Company B. Both companies are equal in every financial respect, for…
Pan African Resources: The Cheapest Hole-in-the-Ground
OLD ARTICLE – Original posted on December 29, 2014 Firstly, I have no strong conviction on gold. I think that it is largely an ego-based commodity driven by investment fashions. In the short- to medium-term I suspect that the collapsing gold price has less to do with gold and more to do with the strengthening…
How to Read Results Like an Analyst
OLD ARTICLE – Original posted on September 23, 2014 Here is a (brief) list on how to read a listed company’s results on the JSE like an analyst. I’m going to list a couple key things to work through with the intention that in a matter of minutes you’ll be able to work out if the…
Key Attributes of a “Ten Bagger”
OLD ARTICLE – Original posted on September 1, 2014 A “ten bagger” is colloquial for a share price that rises a thousand percent or, in other words, makes you ten times your money. In some ways the Holy Grail of investments, the key consideration is how do you go about finding a ten bagger? Firstly,…
Look Beyond the Numbers
OLD ARTICLE – Originally posted on September 29, 2019 When analyzing a listed company for investment purposes, its financial statements are obviously a key variable to work through. If you have to ask ‘why’, then I kindly refer to this series of short webinars I did a few years back: Four Pillars of Fundamentals. While…
Five Lessons with Liquidity
OLD ARTICLE – Original posted on July 28, 2013 Besides all the usual skills and knowledge that goes with investing in stocks, operating in the small cap space forces you to master handling positions in low liquidity stocks. Here are five rules to help you handle low liquidity stocks: 1. Stretch your time horizon Low…