You're listening to Strictly Business Podcast with Lindsay Williams.
With me is John Bickard, Portfolio Manager, Value Fund at 91, speaking to us
from his Manhattan base.
John, welcome.
We haven't spoken for a long time and there's a lot of water gone under the
bridge.
I just want to say that sometimes I find markets really, really intriguing and dare
I say enjoyable.
And I thought of you occasionally when I see markets selling off.
And then seeing all the value stocks getting even cheaper.
And I can imagine you licking your lips and enjoying yourself.
So it's interesting on the whole value thing is there's only one market in the
world where value is still
underperforming, and that's the U.S.
market.
So it's been an interesting split that in South Africa and other emerging markets
and in Europe,
value has actually been outperforming growth for a couple of years now.
So.
like in South Africa our domestic stocks have massively outperformed the market and
internationally they have as
well but in the biggest market which is obviously very important the US is 70%
of the world market the value is continued to underperform massively because you know
we had that correction in
in April in all the growth stocks and all the magnificent seven and they've regained
everything they lost and so the markets rally back to
an all-time high So.
Yeah, that's just an interesting split.
I think it speaks to the power of the Magnificent Seven and the story and the
bubble that is in US stocks.
But the rest of the world actually values doing very well.
Very good.
Long may it continue.
Before we talk about the fund and the strategy, you've had an opinion on an
article that appeared in the Wall Street Journal.
And here's the first paragraph.
It says the following.
A reckoning is coming for South Africa.
The Trump administration sees it.
So does Congress.
But financial markets don't.
And that's a problem.
I tend to think you disagree.
So I did read the article with some interest.
And the first thing I would just point out that if you look who wrote the article,
it appeared in the Wall Street Journal, but it is, let's just say, a very
right-wing commentator.
And, you know, it's not the views of mainstream America.
It's the views of some parts of America.
So it shouldn't be taken as the views.
of everyone in America.
That's really important.
And if you look at the history of the author, that's, they have a particular
bias.
So that's the first thing.
I mean, there are some elements of truth in it.
But I think the key thing for me is, you know, he concluded, you know,
all this bad stuff is coming to South Africa because of their policies,
political and economic.
And, you know, Wall Street doesn't see it.
In other words, in this case, he's talking about the JSE He doesn't see it.
And I think… That's where I really disagree, because if you look at the
valuation of South African shares,
they pretty much do agree that the day of reckoning is coming for South Africa,
because the fact of the matter is, you know,
the JSC has done pretty well recently, especially in the last year or two,
but it's been driven all by gold stocks and platinum stocks and NASPAS.
and the shares that every South African share has.
Had a nice rally on the election, but gave most of that back up in the first half of
this year.
And South African shares, South African shares, that is shares that are based on
South African earnings,
pure South African incorporated shares,
are basically trading as cheap as they've ever traded compared to emerging markets,
as cheap as they've ever traded compared to world markets, and in absolute terms,
pretty much as cheap as they've ever traded.
So.
That's where I really disagree is the day of reckoning is pretty much priced into
South African shares.
So it may or may not come the day of reckoning.
I personally don't think it will, but the shares think it is coming.
So that's the kind of thing that where we make money for the value fund is we don't
know what's going to happen in
the future, but the shares are pretty much priced in the worst case for South Africa.
And I think just to take a step back, why are South African shares so cheap?
I think A third of the reason is exactly because of that article.
And the market, South Africans and offshore, are worried about
South Africa's political positioning and their antagonism with the United States.
And it's called that the political worries are a third of the reason.
And two-thirds of the reason is the disappointing GDP growth the last year.
And there, I have to say, if you wind back a year ago, I would say, you know,
if you said interest rates are going to come down then.
everything that was going to happen in South Africa, I would have thought the
economy would be growing at two or three percent, and it's growing at one.
And I think two-thirds of the problem with South African shares is the disappointment
in growth.
Basically, a lot of South African shares have now priced in, you know, that South
Africa will never really grow again.
And I think the last point on this is the best example is something like Nedbank or
ABSA.
You know, they trade on like 10% dividend yield for Nedbank, 8% for ABSA.
So let's call it nine.
You know, the cost of 10-year money is 9.5% in South Africa.
So you can buy a South African bond, which is a nominal yield.
in perpetuity at 9.5%, or you can buy those two banks and get a 9% yield.
And that suggests that the market does not expect the dividends of APSA and NetBank
to
grow, even in nominal terms in the future, leave alone in real terms.
So the lack of growth is now priced into selling.
Okay.
So you disagree with the article, and you must be licking your lips during that
disagreement.
Now then, let's talk about the value fund.
Did it start 25 years ago or did you start with the fund 25 years ago?
So I started 25 years ago and the fund, I think, was run about,
it started about two years before I took it over.
But it was, let's just say it was a 50 million rand fund.
It was, you know, we'd run it for two years, but it hadn't gained.
Okay, certainly gain traction now because 25 years later, it's over 8 billion.
We can maybe talk about some numbers later, but what I'm more interested in is
the philosophy and how it's grown because
there was one piece in an article that you kindly sent me or your organization kindly
sent me,
and it was to do with what you'd learned.
And I thought to myself, so this is a sort of living, breathing organism.
You're continually learning.
Has your learning come to a halt now after 25 years?
Or, for example, has 2025 taught you a few new things?
I would say, I mean, I'm still learning about different markets and different
shares,
but I'm not learning about the process anymore because I've been doing the same
thing for 20 years.
So I'd be a very slow learner if I didn't work it out by now.
So I have learned.
I'm not learning anymore about the process, but I would say one thing is as
you get older and you do it more and more,
I think you get more confident because you've seen.
that situation play out a lot of times.
So I feel, to be honest, I feel that I'm doing the best job I've ever done with the
fund,
but it's not because I'm learning more, it's more because I've seen that situation
play out now.
You know, 10 years ago, I saw the situation play out once, and 15 years ago,
twice, and now it's been four times.
And every time it happens, you're a little bit more confident.
And so you...
place you you you place bigger bets on the situation and so i think that's the part
that you learn is that you you
get more confident in saying before like a share of interest me i'd buy two percent
day 20 years ago now i'd buy eight
percent in it because i've i've seen it so i think that's that's the part so you
think history is going to
repeat itself you're confident it's going to repeat itself and you're confident
again that south africa is not going to fall on its head
And these stocks that you so eloquently told me were...
at their lowest in so many different ways, they are not going to stay that low for
that much longer.
No, I think, look, I don't know for 100% certainty that South Africa is not going
to fall on its head,
but I would say the probability it's not.
But, you know, the thing about investing in the stock market is it's really just a
game of odds.
You know, the shares are discounting a very high probability of a problem as
described in
the Wall Street Journal.
and South Africa's GDP growing at 1% in perpetuity or even 0%.
And my view on everything is it's 50-50 because I've been around long enough to
know you can't really tell the future.
But in this case, I would think it's 70-30 that South Africa won't run into that big
problem as
described in the Wall Street Journal and that South Africa will, in a year's time,
will be sitting here and the growth will be 2% or 3% in GDP.
That's what I think.
I could probably ascribe a 70% probability.
But the shares, I think, ascribe a 10% probability.
So all buying South African shares is really just playing the odds between,
let's call it 50-50,
if you have my view, or 70-30 on my view.
And the market's saying it's 10-90 the other way.
And the interesting thing about South African shares, I think we spoke 18 months
ago prior to the election.
and that was the same story and you know we bought a lot of south african inc
shares
basically the whole fund was south african inc in april before the election april
last year south african shares went up
50 in dollar terms in the next six months and to be honest i sold most of them
because i made so much money in
six months and then they came down pretty much all the way down A month ago,
they got almost to the same level as they were prior to the election on these two
concerns that we've discussed about.
So all I've done in the last three or four months is buy back into South African
shares.
And because once again, they're basically nearly as cheap as they were prior to the
election, which doesn't make sense to me.
And if you actually wind back a bit, in December, I went back and looked in
December and I said,
what was the cost of 10 year money?
I think the 10-year bond was 10 or 11%. Got to 11, yeah.
Yeah, got to 11.
It's now 9.6.
The rent was 18, 15, 19.
It's now 17, 50.
And we've also had the news that South Africa's,
we're now running a current account surplus and our terms of trade are at an
all-time high.
So if you would have said to me in December, gold price and the platinum
price are going to go up.
more than 30% in RAND, that the cost of money is going to fall from 11% to 9.5%
and that the RAND is going to strengthen from 1850 to 1750 and South African shares
were trading on
that.
I would say, I think anyone would have said South African shares would be up 20%
in RANDs this year if that happened because that's what drives the returns and
yet South African shares,
most of them are down 20%.
because of those two concerns we discussed.
So the macroeconomic drivers for South Africa are moving in the right direction.
We run a current account surplus and we run a fiscal surplus
before interest.
So you know what we like to do is add those two deficits or surplus together.
So we run a maybe two or three percent current account surplus and maybe a four
percent deficit, five percent deficit.
So you add the twin deficits together you get like minus two for South Africa.
That number in the U.S.
is more like minus 13.
So from a macro point of view, our terms of trade are improving.
Our fiscal situation is improving.
Our current account is improving.
The cost of money is coming down.
Interest rates are being cut.
The GNU is just hanging in there.
It's doing okay.
It's not brilliant, but all those things are moving in the right direction.
I think the only real negative is the politics, which we discussed about the
Wall Street Journal.
And then obviously what happens on the ground in South Africa, which is, you
know, the lack of municipality delivery,
the lack of water.
Lack of jobs.
Those things, the lack of jobs.
Those things are still there and those are impediments.
But, you know, and that but the bigger picture that the way the country's been
run from a macro
point of view, not from a micro point of view, is actually very positive.
And I can build a whole portfolio of between five and 10 percent of it in yield
shares.
So.
Yeah, it's a combination of, yeah.
So that's the interesting thing.
So all I've done is I've rotated back into South African shares, although this time
around
I happen to have bought different types of South African shares than prior to the
election, just because of price movements.
Just because you can.
And essentially what you just did was you bought,
they weren't shooting up because of the government of national unity plus a couple
of other factors.
They fell on their head because of government of national unity.
and it's infighting.
And now you're buying them back again, or have been buying them back again.
It's very, very interesting.
So as I thought, you've been having an enjoyable time, certainly in South Africa.
But has it been a fertile field of opportunities elsewhere as well, apart
from the United States?
So, yeah, offshore actually, this year we've done better offshore than South
Africa.
And interestingly, our offshore components...
30% in dollars this year, which is really good.
And the reason for that is firstly, it's got 20% in gold shares.
And I've got no gold shares in South Africa because South African gold shares
have been the best gold shares in the world by so far.
For whatever reason.
So I've sold out of them mainly because they just did too, too well.
But the international gold shares, and I've got three gold shares
internationally, Barrick, Newmont and Frisnillo,
which is gold and silver.
You know, they have literally, you know, in the last, off the top of my head, the
last three or four years,
South African gold shares up four times in dollars and these shares up one times.
So this gap is enormous.
So the gold, I like to get it rather international and they're starting to do
really well internationally.
And then I've got money in emerging markets in China and China's quietly done
very well.
You know, the last year, China's actually outperformed America by a massive amount.
in constant currency, remembering the dollar's been weak, and the Chinese market
a year ago was considered uninvestable.
Well, even though everyone's so happy the U.S.
market's back at an all-time high, the Chinese market's killed it in the last
year.
And other emerging markets.
have also done really well.
I mean, even South Africa's up, I think the number's something like 25 in rand, 35
in dollars in the last year,
which is way ahead of the US market.
So, offshore, we've got our money in emerging markets.
We've got it in China.
We've got it in gold.
And then we've got a lot of special situation shares that are across the world
that are really, really cheap.
And every now and then, one of them gets bought out.
And so, yeah, there's a lot of opportunity in the rest of the world.
I would just say, if you just forget about where the US market is, if you just group
a line of the MSCI
Emerging Market Index, just in absolute terms, not relative, you know, it's been
gradually moving up for years now.
And it's actually a very, very good chart.
It's sort of gradually breaking out.
It's trades on like 12 times earnings.
There's nothing wrong with emerging markets.
You don't have to worry.
So you can go and play, hope that the Magnificent Seven keep going up, or you
can just put your money in.
12 e-merging markets and go to the beach okay you can also go to the beach if
you've been adjusting gold
now a few people i will admit have probably sort of drifted off a little bit
and started fiddling with
the tv remote control and then they suddenly heard gold and they say so what
was that what was what was what did the nice gentleman say and
suddenly their interest is peaked and that's just the nature of gold you're
still bullish aren't you yes
so i think People think the gold price has gone up because of Russia and geopolitics.
It's got nothing to do with that.
The real story with gold is we've got to the end of the road of the debt,
the debt bubble in the developed world.
So we're talking about Japan, Europe, and the US.
And we have got to the situation where all those three regions are completely
bankrupt.
And there's no debate.
There is no debate about that.
You know, if you look at Greece, they saved their way back to prosperity in the
last 10 years.
Those three regions,
the debt to GDP and the deficits are so big that there is no saving your way back
from here.
There is only one way out for those three regions, and that is to inflate away the
debt.
And, you know, what you're seeing in America with
Trump being so vocal about rates coming down and interfering with the Fed.
is exactly because of that, because he knows that's the plan.
And they have to reduce interest rates back to negative in real terms.
And all those three regions have to run negative real interest rates like QE was
10 years ago.
They have to run it for the next 10 or 15 years.
And if you're going to have negative real rates, you're going to have those three
currencies depreciating and a real asset
like gold keeping going up.
So the gold price is in.
a multi-decade bull market because in the inflating way of debt you cannot hold
government
bonds and you cannot hold cash because you're going to get negative real returns
on cash and government bonds to
be honest they can't really pay you back so all they can do is raise inflation and
keep interest rates low
and basically steal from the savers of the world to pay the debtors of the world
which are the governments and that's the case for gold so I mean, it's incredible
because they raised rates in the U.S.
so much, and interest rates went to positive 2% in the U.S.
in the last couple of years, and the gold price just went up because you can't hold
the dollar anymore.
And aside from the economic thing, what's happening to the dollar,
obviously there's the other thing about all the policies of the U.S.
at the moment being pretty bad for the dollar.
That's another aspect to the whole thing.
So I think the gold price...
the gold price will continue to go higher and the gold shares have only just started
especially internationally just in the last three or six months
have started to recognize the story so the average fund manager in the world has not
participated in gold
in south africa they have but in the rest of the world you know if you look at
barrack or newmont the shares of hardly but
they got into date notes it's very interesting because people listening to
this will say well you know people go
People always say gold never doesn't pay a dividend.
It doesn't yield anything.
You've just completely countered that argument.
And another person will say, well, then,
why do I need to buy South African banks with their high dividend yield in the
state of the South African bond market when I can
buy gold?
Which sounds so much more exciting, John.
Well, it is more exciting, but it is nice to start every year.
You know, gold doesn't pay a dividend.
You buy Nedbank and Absa.
You start the year 9% ahead of the gold price, which is a good start.
And so that's the first thing.
The second thing is...
If the gold price keeps going up, you know, the platinum price will also keep
going up because they are linked somewhat.
And that's good for South Africa and good for the economy.
And gold and platinum is still pretty important to South Africa.
The economy will improve and you're in a 9% yield.
So in a funny way, you can buy those two banks and you're getting a fantastic
dividend yield and
you're getting the shares at the same level.
I think Nedbank's the same level as 25 years ago in Rands.
You're getting really cheap shares.
And you have actually got some exposure to gold.
So you should have both, would be my one.
Yes, or you should have one fund, and I won't mention which one it is.
Now, to end off, I need you to do something for me.
I need you to pick a share,
a share that could be a favourite of yours because of a previous history with it or
you've just bought it.
I just want a share that sort of characterises and epitomises the value
fund.
Just give me one, please, and why.
Probably the best one is the one that I just finished buying yesterday.
It's always nice to talk about a share that you just finished buying yesterday,
which is Woolworths, which is interesting,
a share that I haven't held for probably 20 years, and it's done incredibly badly,
so it ticks the box.
I mean, it was 110 Rand six years ago.
It's 50 Rand today.
At 50 Rand today, you know, it fits the mold of it's a South Africa share.
They've given up on all that David Jones nonsense, so it's back to South Africa
only.
At 50 Rand, if you place the food business on the same valuation as ShopRite, which I
think is justified because
Woolworths Food is, in my view, the best business in South Africa, you get to 50
Rand a share.
So you basically get all the clothing and homeware for free, and you get Country
Road for free.
And Country Road is losing money.
People will say it's not worth anything.
Obviously, that's not true.
It's still worth something.
It's a great brand, and they may sell it, and they may not, but it's worth
something.
So basically, I think you're getting those two businesses for free if I value the
clothing business at the same as the average
valuation of other clothing businesses in South Africa and put Country Road at a low
valuation that they may sell it at,
you get over 70 Rand and the shares 50.
And it's a quality business still.
And the last thing is, the easiest thing is it just came out of the indexes, the
MSCI World Index.
And as an aside, all these nice fundamental stories I tell you,
if you just bought the shares that came out of the MSCI index every three or six
months,
you could actually make a living because that is always the biggest buy signal.
And in the last few years, I remember Tiger Brands coming out of the index at
130 rand, today over 300.
Impala Platinum coming out of the index at 35, today 160.
Last year, earlier this year, Xara came out at 140.
It's now 200.
And Woolworths came out yesterday at 50 rands.
That's such an interesting story.
And the reason is, of course, is because people have to get out of the stock
because it's no longer in the index and they're an index tracker.
Correct.
And do you know how much the index held of, because it's the MSCI World Index,
they held over 8% of Woolworths.
So they had to sell 8% of the company, which they traded yesterday.
John, as always, I asked you about learning new things, and I've just learned
something from you, as I always do.
John, thank you very much for your time.
And we'll speak again, not in 18 months' time, but in around about six months, I
hope.
John Bickard is Portfolio Manager, Value Fund at 91.
The views and opinions expressed in these podcasts are those of Lindsay Williams and
various contributors and do not reflect the policy,
position, or opinion of any other agency, organization, employer,
or company associated with StrictlyBusinessPodcast.com.
Assumptions made on the analyses are not reflective of the position of any other
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And since we are critically thinking human beings, these views are always subject to
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and rethinking at any time.
Please do not hold us to them in perpetuity.