Hi new broker,
My two Rands worth:
Taking Steinhof as an example was this a recommended share by you or your brokerage.
What strategy would you recommend to beat the Top40/ALSI over 5 years.
What companies are overvalued?
What companies are undervalued?
Do you think ETFs are the answer considering the cost charged for running a fund?
Do you think mining/resources stocks are a good fit for an individual long term portfolio?
I hope the list works
Taking Steinhoff as an example, was this a recommended share by you or your brokerage?
I have never personally recommended Steinhoff, no. But I can tell you that if I had, I would have changed my mind very quickly once reports started surfacing of investigations by the authorities in Germany. Nevertheless, when we recommend stocks, we never do so based solely on personal opinion. We have access to an array of sell-side reports from a multitude of institutions such Investec, PSG, Deutsche Bank, etc who all viewed Steinhoff as a buy. We only form opinions and recommendations after going through those reports which we happily share with clients for their own input. But yes, there were people at the firm who recommended Steinhoff as it was recommended by institutions with research departments bigger than our entire firm. We own up to that mistake, but we cannot be faulted too much when even institutions 100 times our size missed it. Not an excuse. Just saying.
What strategy would you recommend to beat the Top40/ALSI over 5 years?
It is extremely difficult to beat the Top40/ALSI and we will never claim that we are able to do it. We do not play the creating alpha game. With that said, though, considering how heavily weighted the Top40 is on Naspers, you would have a better chance of beating an equally weighted Top40 index. But even then it would involve a high-risk strategy where a large part of your portfolio would have to be in extremely volatile stocks like small caps. In all honesty, we just focus on a GARP strategy which is growth at reasonable prices. To put it in simple terms, just buy good companies with good growth prospects at reasonable prices.
What companies are overvalued/undervalued?
I hope you do not mind me bundling those to questions into one, but we run a bunch of screeners to find stocks based on a multitude of fundamental metrics. I guess I can sit here all day going through a multitude of stocks considered to be over or undervalued but let’s rather do 2 examples. If you have read the latest Investec report on Naspers, you might start to wonder if that is not an overvalued stock which is something that really needs to be taken a look at. On the flip side, with good fundamentals, a really beaten up stock like Lewis is seeming undervalued. At the end of the day, though, it is not always that simple. Stocks are affected by outside factors all the time such as politics and even the weather. They can go from overvalued to appropriately valued to undervalued very quickly.
Do you think ETFs are the answer considering the cost charged for running a fund?
Not such a clear cut answer. Fund fees are related to performance. If they beat the market, then yes, the fees are worth it. If they don’t, then it is not. So I guess that is what the question should focus on: Managed fund performance vs ETF performance. In this case I guess it is still not looking good for actively managed funds because 8 out of 10 fund managers do not beat the market. But on the other hand, after subtracting ETF fees, they NEVER beat the market. So now you see how it is difficult to answer that question? But we are not anti-ETF. Not the least bit. Just as we use the GARP strategy, we also use the core and explore strategy. Basically it means finding an ETF or 2 as the core of your portfolio and then exploring individual stocks to compliment your core. It is all dependent on your age and risk profile, of course. The older you become the more we would prefer you moving out of stocks and ETFs and more into bonds and the like.
Do you think mining/resources stocks are a good fit for an individual long term portfolio?
If you think Steinhoff was difficult to predict, resource stocks are a 100 times worse. You can find a great resource company, but if the underlying resource price takes a huge hit, it will take the whole company down with it. Take for instance Sasol. It was a great company but then OPEC decided to meet the frackers in America head on and flood the market with oil. Oil prices dropped to ridiculously low prices and Sasol suffered heavily through no fault of their own. But again, it is all dependant on your risk profile. Some resource stocks are fine for a 20-year-old but horrible for someone going on 70.