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So I attended the bi-annual Allan Gray investment road show on Tuesday and I’d like to share some of the nuggets with you…
Here’s the first nugget which I found educational!

GDP growth is conversely related to share market growth in a country


Andrew Lapping of Allan Gray informed us that South African Gross Domestic Product (GDP) growth was in the region of 4, 5% yet the growth in our local stockmarket had far outstripped it.
In China, the gross domestic product growth is very high yet their stockmarket returns were rather mediocre in comparison.

This of course raised the question of how could this be, and Andrew then went on to compare it to a gentleman in the vacuum cleaner business…

In a country with a robust economy (like China’s), when you’re in business – and onto a good thing – a lot of competitors will jump on board (kind of like the insurance industry in South Africa!).
Of course with more competition for the same amount of customers, it means less profits as more and more competitors share a slice of the pie.
Less profits means poor returns for investors which means poor performance of the stockmarket.
To be honest, I never thought of it in that way before…

Here’s nugget number two!

The trick is to invest when markets are negative!

Andrew then went on to give us another pearl of wisdom when he mentioned that the trick to successful investing is to buy shares when market sentiment is negative. That’s because the negative sentiment is already priced into the market.
When sentiment towards any one company is optimistic you’ll find that its shares are overpriced. When sentiment is negative you pick up bargains.
Once again…common sense!

How Allan Gray buys shares in a company…

Step one:
Calculate a sustainable level of earnings for the company in question
Step two:
Decide on what price you’re willing to pay for that level of earnings
Step three:
The correct price is one which reflects a low price earnings ratio (P/E)
The incorrect price is one which reflects a high price earnings ratio

Well…you can’t argue with that!

Why Allan Gray believes that Japan is a bargain hunters dream…

Allan Gray is currently very skeptical about our local sharemarket.
Andrew mentioned that currently you are paying R250 for every R100 of net asset value on the JSE (Johannesburg stock market).
In stark contrast to this is the Tokyo stockmarket where you pay 90 Japanese Yen for every 100 Japanese yen of net asset value.
So where’s the clever money investing? Japan it seems!

And the most priceless comment of all?

For the past two years Allan Gray has been advising caution when it comes to investing in overpriced local equity markets. Time and time again (no pun intended!) they were proven wrong to such a point that their most avid supporters were jumping ship.
Now that they’ve finally been proven correct – a tongue in cheek comment was made about how “even a broken watch is correct twice a day”!

That had me rolling in the aisles…Overall a thoroughly enjoyable and informative roadshow!

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Until next time.

The InsuranceFundi Team


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