It has been an interesting few months in markets across the world. However, I think one of the most interesting things that has come up is Viceroy. Think there is a lot to take from this as it showed some worrying things about the market.
The first thing is if you get something spectacularly right (Steinhoff), all of a sudden you are a reliable source. Whereas I thought investing is about getting it right over an over again. Now admittedly a lot of analysts were skeptical about Steinhoff, but none really said much about it and almost two thirds backed the company. I could forgive them although would not have bought it myself (and didn't).
People make mistakes but you have to ask yourself what can I take away from that mistake. What has been highlighted is the importance of good governance. This is something that has come into the spotlight with the increase in "scandals" across the globe. In the finance profession specifically, ethics is core. Most of the portfolio managers I listen too would never do anything unethical in their work life. Now when you looking at a company, management is key. So understanding managements culture and ethics is important to ensuring the company is sustainable. If you cannot rely on their ethics one day you going to land up losing hard. Culture and ethics starts from the top, you just need to look at South Africa and Jacob Zuma to see the impact that has.
What is concerning is what happened after Steinhoff. (Aside from the fact I think it is borderline illegal what Viceroy does
My view: I think it equates to market manipulation. They know they got Steinhoff right, and people are still catching up and lost in the confusion. Now they are short sellers, so spreading doubt about other stocks and then shorting large quantities. This obviously is going to cause the market to drop and the more it drops the more people join in the selling. I am not sure why the JSE hasn't investigated this. That aside...
Let's talk about Capitec, Resilient etc. Now one mention of a company by Viceroy and market mayhem. Surely analysts, who do this for a living, would back themselves rather than an unknown entity? Unfortunately not, and this proves and shows an interesting flaw in the market. People trade a lot of sentiment and follow a herding mentality. Also shows analysts are easily swayed. Now you can't control this but you can use it to your advantage.
"Mr Market is your servant, not your guide". Warren Buffett
It is important to step back and not act with the market, it easy to get enticed to act. Obviously sometimes you should, and others you shouldn't.
So I own NepiRockastle and have for a while, and still think is a good buy. Now due to its association with Resilient (resilient owns shares in it) it got hammered (Almost halved). I was never a fan of Rockcastle, but inherited it through the merger. Obviously got me a little concerned given the market reaction so I read the results, prospectus, financials again (had before everytime they had results). So was chatting to my friend, Gio, and he asked how much I lost? So I said have I really lost? When you buy a share, theory says you are buying future cash flows. I bought for the future Euro dividends and high growth offered. Whether the share price is R200 or R120, the dividends are the same, and it is still growing. If I wasn't going to sell when it was at R200 or at R120, does it matter what the price does? If I was holding for 5, 10 or 20 years, does the price ever matter? So my future cash flow is still the same, but now I can buy that cash flow for cheaper. So I borrowed some money and bought some more. As now I can get a 7% yield in Euros from a BBB stable rated company, when the BBB corporate bond index currently yields 1%, it is a win in my view (probably add a little bit of a risk premium for Eastern Europe). Effectively NepiRockastle is being priced as a South African property company and its yield in Euro's rather than Rand.
"Mr Market is a drunken psycho. Some days he gets very enthused, some days he gets very depressed. And when he really gets enthused you sell to him, and if he gets depressed, you buy from him. There's no moral taint attached to that." Warren Buffett
What's key that is not obvious above is that you need to have done your research on that company before you jump in. Have to know that your company is going to produce the cash from operations. If you don't you will catch the knife falling.