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RYK VAN NIEKERK: Welcome to this week’s edition of the Be a Better Investor podcast. My name is Ryk van Niekerk and in this podcast series I speak to leading professional investors in the country about their investment journeys. We look at their first investments and how their investment strategies have changed over the years. We also take a peek at their personal portfolios to see whether they practise what they preach. The idea is to identify a few nuggets of wisdom to help young amateur retail investors to become better investors.
My guest today is Lebo Thubisi, the deputy chief investment officer for alternative investments at Alexforbes Investments. He has been with Alexforbes for a long time – longer than 13 years. Lebo, thank you so much for your time today. Before we delve into investments, first tell us a bit about yourself. Where did you grow up and what did you dream of when you were young?
LEBO THUBISI: I really, really appreciate the time, Ryk. I was born in a very small town called Taung – I’m sure you’ve heard of it, Taung, skaap [the area is known for its sheep farming] – a small town that borders the Northern Cape and the North West.
We were stationed there because my father is a medical professional and was doing his community service; a very mono-ethnic Tswana-speaking sort of community.
We were there for about five years and then we moved to Pretoria, to Mamelodi. I’m clearly a Sundowns supporter. My mom actually was born and grew up there. It’s a very different community, a melting pot of different people from different backgrounds and the like. And so you if you look at those things now, they’ve kind of influenced one’s journey to be open-minded.
In fact, the story I always tell is while we were there, my folks, who were trying to figure out – when they [SA] started to allow black children to attend multiracial schools – decided it was probably a good idea to send them to a semi-orthodox Jewish school. And so the present-day Crawford [College] in Pretoria was a Jewish school called Carmel. I was there from Standard 1 to Standard 4 – and I’m using ‘Standard’ and exposing my age here.
We did prayers with everybody, we had Jewish studies, I learned Hebrew and the like.
And so I guess in hindsight you look back at some of the experiences there and [see] they influenced the way you view investments – that you need to be open-minded about different experiences.
RYK VAN NIEKERK: Did you always know you were going to be an investment professional, or what careers did you consider when you had to make the tertiary decision?
LEBO THUBISI: That’s a good question. As I said, my father’s a medical doctor and I remember – I think it must have been in Grade 10, Standard 8, when I was speaking to him and said, look dad, I think I want to be a doctor.
He listened to my justifications and all of those things and gave me a very sobering view of the life of a medical doctor.
One of the things is the sacrifice that comes when it comes to family time – you are always on call. He said it’s just a job for people – and you need to be sure that you have a passion for this. He said: ‘But you’re great at numbers, you’re good with people – and why don’t you think about something financial?’
That actually set me down a path. One was fortunate that the school that I attended had these sort of career days, where somebody actually came and said they had done actuarial science and the like. That really set me down a path. And my path to finance in fact wasn’t straight.
So I studied actuarial science at university until my third year. Then I realised I was chasing my sister’s dream.
And I think at the time somebody said, well, why don’t you consider finance? And so I switched, added an extra year to my studies, but I don’t regret it at all. Even then during university we were playing a sort of Stock Exchange Challenge on campus – and we won it the one year.
I think that’s really what set me down the path of just broadening my horizons – that the world out there is actually very broad.
RYK VAN NIEKERK: Yes, the Stock Market Challenge – I also participated many, many years ago, probably before you; actually a long time before you. And it does create excitement. The moment you make investments – and in those days you had to get the newspaper to get the share price, the closing share price – of the previous day.
And then it ignites discussions, and I think that’s a very, very good way for young people to start, even when they are still at school, because it piques the imagination of picking shares and going from one rand to a hundred grand. I would imagine that is the goal of every single professional investor – and actually any investor.
LEBO THUBISI: And whether you do it with money or not, the process is the same. You learn about different companies and how they’re structured, how they make money, the risks that they face, and how you recommend it. You are right.
And so my father himself, in fact, while he’s a medical doctor, he is well read. He used to invest in his own personal capacity.
I remember – I think it was in the late 1990s, when interest rates hit kind of double digits, if you recall – he was having a conversation with me at the time to say, look, times are really tough but you need to continually invest and find new opportunities.
There’s an interesting quote by Warren Buffett – and we all know him, being the father of value investing – where he says the essence of investment management is really about managing risk, and less about managing returns.
So as a youngster you need to cultivate that thinking around: ‘What is the risk that faces a mining company versus that of a bank?’ And you really test your teeth by doing some of these challenges.
And I know there was a time, by the way, where FX trading was such a craze among the youngsters. I do really encourage the young ones – regardless of what they are studying – that going in and testing your mettle at this will really edify [your] growth when it comes to investing.
RYK VAN NIEKERK: You said, ‘manage risk and don’t manage return’. That’s an interesting strategy. Just elaborate exactly what you mean.
LEBO THUBISI: I mean the company I work for, Alexforbes Investments, is what we call a multi-manager. We express our investment views through other asset managers, and you know the names that are out there.
But the mantra of really what has given our success is managing the risk that a certain asset manager, through their performance cycle, will go through bad times. So, blending the different managers together, some managers believe in a value style, others believe in a growth style.
Investment literature tells you that alpha – so outperformance – is cyclical. So if you’re good at managing the risk that the value manager goes through [in] periods of underperformance, relatively the other [is] actually able to blend them together. That is a risk-management exercise.
So if you manage your risks well, where you find uncorrelated performance – whether it’s the stocks themselves or the managers – typically what you find is that you protect your value.
So when markets correct, the value of what you’ve invested will then compound on a higher base.
Compound interest has been said to be the eighth wonder of the world, so if you minimise your downside, actually what happens over time is that it grows at a better pace.
And so risk management is as powerful as thinking about outperformance. Manage your risks and you’ll see that the returns will effectively come through – and this is what we’ve seen through the portfolios that we manage on behalf of pension-fund clients.
RYK VAN NIEKERK: But how should a young individual – who has just started their first job and would like to start investing – approach this strategy of managing risk, rather than trying to identify shares that will go up or unit trusts that will perform well? How should they approach it?
LEBO THUBISI: The only way I can talk about it is through my experience.
I entered the working world in 2006. What I was advised at the time was to form a stokvel. Find two or three, if not more, people who are equally minded wanting to try out and contribute together into some collective account and invest together. Then the risk you’re managing is that you’re not alone. There’s power in numbers. You read as much as you can, you collectively invest.
Listen/read: How to start an investing stokvel
And so when we started, our first share that we invested – I’m talking 2008 now – was Old Mutual. If I remember correctly, the share itself was trading at around R7/R7.50 – I can’t remember very clearly, but it doubled very quickly. And the reason why we were in Old Mutual is my friend was an actuary and he had a better understanding of how insurance companies behaved and those things. And I contributed from a financial services perspective, because I started my career at JP Morgan, so I think the power of numbers is very good.
So we opened a stockbroking account and had formal meetings. But I think it’s much easier today. There are platforms now where you have what they call ‘fractional ownership’. You don’t have to have a lot of money to invest. There are platforms now where you can invest passively.
And so I think to encourage the youngsters is just get started and if you want to get started, start with a few of you because in my view there’s power in collective thinking, [what] they call ‘diversity in collective thinking’.
RYK VAN NIEKERK: Yes. As we said earlier, the moment you do that, suddenly a whole new world opens up for you, a world of investments, which is not always only about money; it just broadens the world you live in. And it’s important, because the financial world and the investment world are critical in everybody’s lives.
What was your very first investment with money you had earned?
LEBO THUBISI: The very first investment that I made with money that I earned wasn’t actually a listed investment. As I said, I come from Mamelodi.
And one of the things I identified at the time was that a lot of people cooked using paraffin, and for them to kind of source paraffin was very difficult at times.
I saved up a little money, and my uncle had a Nissan one-tonner and I invested in a paraffin-delivery vehicle – we went and got a company to retrofit a tank on top of the van, and effectively we were delivering paraffin into the township communities.
We always felt that there was a need in that regard. I was fortunate that I grew up among people who were entrepreneurs at the time and [realised] that you needed to have a keen eye on basic needs, that’s how you tend to make investments.
That was the first investment.
The first listed investment that I made was in Safaricom. I’m sure you’re quite familiar with the business. I have a close friend of mine who is Kenyan and he told me that there was this telecoms company that was starting, and why couldn’t we put money into it? You know what Safaricom has done since then. So we held it for a very long time. It was probably one of the first – and probably the most successful – investments I ever made.
RYK VAN NIEKERK: And you still hold it today?
LEBO THUBISI: No, no, no [laughing], I don’t. I wish I still did, but we eventually moved on to other things. With investments you need to accept that you make mistakes. And so in 2014, if I remember correctly, African Bank went through a terrible time and we thought, why not punt?
We decided to put a lot of the proceeds of that Safaricom into African Bank. And we know that in around late 2014 African Bank ultimately went to the wall.
I’m sure most of the youngsters know a gentleman called Ray Dalio. There’s an interesting quote of his where he said that, ‘He who lives by the crystal ball will eat shattered glass’. He made some predictions about African Bank at the time, and unfortunately we ate shattered African Bank glass at the time.
But such are the lessons you learn in investments – that you need to make cogent and logical decisions and stay away from the emotive things.
RYK VAN NIEKERK: I normally ask this question last, but I would assume that would have been the worst investment you ever made.
LEBO THUBISI: [Laughing] That is indeed the worst investment, Ryk, I made. Looking back, we hear a lot about the impact of behavioural finance or emotions on one’s investment decisions. That’s a real investment lesson to be learned.
Listen/read: Investing: Are you your own worst enemy?
I think in hindsight that clearly was quite an emotive decision that we made, rather than wanting to look deeply around how bad the bad debt of those businesses were and those things.
So that’s one lesson that I think I’ll always talk about.
RYK VAN NIEKERK: Behavioural finance is a very interesting field, but how do you approach investment decisions, because sometimes you would expect markets to move in a certain way? For example, we will see interest rate cuts in the US in September – or I think 90% of analysts believe that we will see a cut in September – and in theory, the US markets should rise. But theory and practice are sometimes [far] removed, because the interest rate cut could have already been priced in. So then it’s not as intuitive as it seems at the moment. So how do you approach that?
LEBO THUBISI: I think coming back to this quote I made around crystal-ball gazing, there’s a lot that has happened in the past three years in markets that was unexpected, and many things will continue to happen that are unexpected.
We’ve seen that a lot of countries are going to elections. That brings about unexpected outcomes.
My perspective is what can you do today that is going to assist you clearly in an uncertain future? It is to diversify.
So my philosophy on investing is diversification – find uncorrelated investments. Again, as I said, working for a business such as Alexforbes Investments, [it] is the mantra at the heart of what we do as a business.
And so I go back to the back end of 2017 where we as a country sort of hit a point where real returns had disappeared.
We had to think what area of investments we should be thinking about that was going to assist us in clearly this uncertain volatile environment – and alternative investments was an area of focus of ours. We formalised ‘no investments into private markets and hedge funds’. We did not know in fact what was going to turn out. We just knew that the future was uncertain. In hindsight, looking at it, I think that form of diversification has actually really meaningfully added to client portfolios.
So no combination of equity bonds and cash over the last three, five and seven years would’ve given you inflation-plus-five as an example, which [for] something like pension funds typically is the target; but hedge funds have typically given you that over that period.
And so for me philosophically I believe in diversification.
RYK VAN NIEKERK: Diversification I think is a very sound strategy and most professional investors would support it.
Hedge funds – it’s an interesting segment of the investment world, and I think it’s growing in popularity because there is a perception that they are very, very risky. And then many of these hedge funds are structured to reduce risk significantly – and there are many different [examples] of these funds available. If you’re a young investor, how would you approach these funds?
LEBO THUBISI: I think education is very important, and I guess part of the market is classified in just this one name.
But in the way that they function – the types of investments and hedge funds – are very different. [Some] are equity oriented, others are fixed-income oriented, others a combination. They’re called multi-strategy funds.
And so, first and foremost, educate yourself in understanding the features of hedge funds, what typically they’re intending to do, what environment they do well in and what makes sense for you as an investor.
So if you have a longer-term view of the money you want to save, perhaps you would consider something that is slightly sort of more elevated in terms of a risk-return profile. And so maybe a long-short equity solution versus one where you think that you are more conservative in how you invest – and you’d probably look at a multi-strat solution.
So point number one that I always talk about is ‘educate yourself’. There are clearly barriers to entry in terms of regulation, the amount that you can invest and the like. But there are platforms that now allow it as a retail investor.
But I was always taught there’s investing versus saving. Never invest something that you are intending to save; and when you invest be willing to lose your whole investment.
Those are the two differences. Saving is clearly for something that you want to look after and let grow reasonably, versus investing where you are willing to take some kind of investment risk. So you need to be careful about what your intention is as an investor.
If you are trying to save for an education versus growing capital, those two things lead you to very different kind of investments. On the hedge-fund side, it is definitely a growing part of the market, but education is very important in that space.
RYK VAN NIEKERK: Yes, an interesting perspective on saving versus investing. Just tell us about your personal investment portfolio. You’ve said a few times that you believe in diversification, so how do you approach that within your personal portfolio?
LEBO THUBISI: In my personal portfolio, I have investments locally. If you look at what’s happened in South Africa over the last seven years, there’s been a lot of negative sentiment about the country on many fronts – whether low growth, the political disposition and all those things.
In that environment, when there’s negative sentiment, investments typically end up being cheaper – or assets are cheaper.
I have long taken a view that having investments into what they call SA Inc was important.
So businesses that are typically SA-oriented, because there’s a quote that says: ‘The value that you make from an investment is what you pay for it, not what you sell it for.’ There’ve been lots of investments that have been cheaper. I’ve [been] using my company products and even what you see on other platforms – a combination of active and passive. So I’ve got exposure locally.
Globally we’ve seen from a diversification perspective there has been lots of talk about cryptocurrencies. So I’ve got bitcoin exposure through an investment there.
But again, I always value investing through the intellect of others.
So, instead of taking the bitcoin exposure directly myself, I’ve gone through a business called SunMoney Capital, which is run by a gentleman called Robert Price. But that is a diversifier.
Many say that to understand how blockchains work, is complicated; but he understands that. And so let me rather invest behind somebody who understands it. At the heart of who I am, I prefer to buy things cheap and sell them high.
RYK VAN NIEKERK: Don’t we all! [Laughing]
LEBO THUBISI: It doesn’t always play out that way. In my experience, I haven’t always seen it play that way. It sounds logical, doesn’t it, Ryk?
Would I be a buyer of Nvidia? I’ve seen people buying Nvidia today. China has been hard hit, we’ve seen.
And so I’ve been a buyer of China of late, and so a good combination of SA, a nice combination of offshore, bitcoin and the likes.
I can’t tell you what things are going to be like tomorrow, but I can tell you that I’ve got enough exposure such that if certain things happen I have exposure there.
RYK VAN NIEKERK: Alternative investments in your personal portfolio? Do you stick to the Alexforbes products, or are there some interesting things also in the portfolio?
LEBO THUBISI: Again, I have a bias here. Maybe because I sit inside the organisation – I’ve been in the organisation now for more than 13 years – and I do believe that in some areas of investments you probably need to be behind other investment professionals.
You don’t use a great example in that: when we do our due diligence – an asset manager on the listed side – it’s anywhere between two to three hours and by then you have a good sense of the strategy, whether you think it can outperform or not.
On the private-market side, it typically takes two to three days, and it has a lot to do with the asymmetry of information, Ryk. You need to corroborate much more, you need to spend a bit more time trying to understand.
When the person says that you analyse the deals that they’re in, you need to analyse whether they’re good at making investment decisions, but you also need to analyse how they’re going to exit the deal.
And so I believe that when it comes to alternative investments you’d rather go behind somebody who does it, who has a track record and does it for a living. And so my exposure to private markets, as an example, is definitely through sort of company solutions, largely because I can see that there’s acumen there.
By the way, we haven’t talked about fees. So in that part of the market, it’s generally more expensive.
RYK VAN NIEKERK: A lot more expensive.
LEBO THUBISI: A lot more expensive. You typically would want to be behind somebody who can negotiate on your behalf to try and actually minimise the cost on your behalf. I’m not saying others haven’t been successful in going direct, but I think I’ve seen the value of going through an organisation that does it on your behalf.
RYK VAN NIEKERK: Just lastly, it’s interesting that the perspectives of professional investors differ. Sometimes they differ significantly. I’ve had so many of your peers on this show, and some of them focus on unit trust investments; others really focus, if they are young, on going directly into shares. Here you throw alternative investments in the mix as well. I think it just shows you that there isn’t a silver bullet in this industry. You need to be sober in your thinking, you need to be strategic, and once you’ve picked an approach stick to it. Would you agree with that?
LEBO THUBISI: I would a hundred percent agree with that. It’s not about timing the markets, it’s about time in the markets.
That’s what we always speak to our clients about, in that time favours those who have it. And so the longer you stay invested, the better the outcomes.
As I said, the only protection that you typically get is to try and diversify your investments, no matter how well you understand a single investment.
No one investment does well in all market environments, and so think about diversifying. But time is really the biggest contributor to how you create value.
RYK VAN NIEKERK: Lebo, thank you so much for your time. That was Lebo Thubisi. He is the deputy chief investment officer for alternative investments at Alexforbes Investments.
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