We cannot fix problems if we cannot be honest enough to admit that they exist. If we are honest with ourselves, there is something deeply wrong with the JSE’s stock market and it appears systemic. One way to see it is that the JSE’s ecosystem is stuck in a negative feedback loop. Our stock market…
Ascendis Health: Why I Sold
OLD ARTICLE – Original posted on March 29, 2017 I have been following Ascendis Health since it listed and, while I was sceptical at first, I warmed to the company as I saw management executing their stated strategy. If you see here, I even use them as an example of how acquisitive growth can work: How…
EOH: The Cracks Appearing
OLD ARTICLE – Original posted on July 28, 2017 It may sound like I am picking on EOH Holdings (EOH), but I am not. My job is to look critically at companies and, where appropriate, disagree with the consensus view. Even if this is uncomfortable and hurts peoples feelings, it is important that I do…
Master Drilling: Illustrating Value
OLD ARTICLE – Original posted on March 22, 2018 I have written about Master Drilling (MDI) previously and I refer you back to these articles for some of the narrative: Master Drilling: Hidden Gem Master Drilling: The Big Mistake You will notice a consistent theme: I like them. The Group recently put out some soft…
Master Drilling: The Big Mistake
OLD ARTICLE – Original posted on August 26, 2016 Previously I wrote the following article on Master Drilling (Master Drilling: Unknown Gem). I will not rewrite the investment case that I noted in that article for Master Drilling as a world-class, niche industrial technology play with global, growing scale and sophistication. Pretty much all of that…
Master Drilling: Hidden Gem
OLD ARTICLE – Original posted on March 29, 2016 When I first encountered Master Drilling (MDI), I was mildly impressed and put them on the radar to follow closer. Over the subsequent three years, I began to become quite impressed with the business and its operations. Did you know that Master Drilling (run out South…
Santova: Growing & Undervalued
OLD ARTICLE – Original posted on October 11, 2017 Santova (SNV) is a non-asset based supply chain manager with more than 65% of its earnings coming from outside of South Africa, including the majority of hard currency in this. Santova put out a H1:18 trading statement yesterday that can be summarised as follows: H1:18 EPS and…
Good Businesses Tend To Stay Good
OLD ARTICLE – Original posted on January 24, 2018 I have a counter-intuitive argument that scale can create problems. Why do I say this? Anecdotally, we know that you cannot choose which stock to invest in based purely on the size of the company. We know that investing is not that easy. But can we prove…
Warning Signs: Retailers, Shopping Centres & Retail REITs (Part 2 of 2)
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….