I was very interested in the shares of Putco Properties. This company owned the properties from which the related Putco Bus Company ran its operation. I wanted to build a position without moving the share price substantially higher. I placed my order with a broker and was halfway out the door when I was called back.
A senior partner, Mr Dixie Strong, wondered if he could have a quick word in his office. He was curious about what I knew about Putco properties. I had no intention of telling him but just politely asked if he wouldn’t mind completing the transaction.
I was still a teenager so he took the fatherly approach and gave me some unsolicited advice: “William, just never forget that the Johannesburg Stock Exchange is a place where crooks roam free”.
I have never forgotten those words and I remember them like it was yesterday! And nothing has changed!
Dodging the bullets when operating on the Exchange is still a full time occupation. Picking true growth stocks at an acceptable price is one side of the coin, avoiding the hype and inflated asset prices is the other. If you buy the right assets at the right price you may never have to sell but alternatively if it’s a dud, dump it and dump it quick!
This approach is certainly entrenched at Fenestra Asset Management. The key is not only to pick winners but to avoid companies with a high probability of a meltdown in price. Fenestra had no exposure to African Bank, Steinhoff, Capitec, and the listed property sector. Those shares have fallen dramatically in price – bullets dodged! And when it comes to Tiger Brands, Fenestra used to own the “princely” quantity of 2000 shares – another bullet dodged and exposure to Woolworths and EOH – none!
One of the reasons Fenestra has dodged the bullets is that our portfolios are so concentrated. We rarely have more than 10–12 shares in a portfolio. Our experience is that concentrated portfolios usually achieve significant out-performance.
Warren Buffett – who has said that diversification is simply protection against ignorance but makes little sense if you know what you are doing – would approve.
There are still some good growth stories on the local exchange and plenty overseas e.g. Fenestra started buying Amazon at $169 a share. Amazon is now trading at $1600.
But investors must dodge the bullets and never forget Warren Buffett’s two rules of investing:
Rule number one: never lose money.
Rule number two: never forget rule number one!
If you are not happy with your portfolio performance or would like a second opinion, please do not hesitate to contact Fenestra Asset Management for a confidential consultation.