Investment Process

 

The basis for investment decisions is fundamental research. We believe that the market continually misprices assets. Our process to determine mispricings is highly systematic and disciplined. Information is gathered by performing detailed “bottom up” analysis of individual companies. A deep understanding of industry dynamics is informed by decades of coverage of most sectors of the JSE. The "bottom up" research allows us to construct a detailed financial model for each company with free cash flows as the mainstay of valuation. The output of individual company models is fed into a master information model that incorporates forecast earnings and predicted ratings for each stock.


We adjust for risk and rank the output in terms of forecast returns for individual shares. Forecast returns incorporate a margin for error in the event that we may not have anticipated every possible outcome. We are unemotional when making decisions. Our logic must be clear and compelling. Pre-determined entry and exit prices are determined. Our assessment of the quality of management is the single most important factor when making the investment decision.


We enjoy longstanding relationships with many of the executive directors of listed companies and this allows us good corporate access. We try to anticipate catalysts, positive and negative and believe that the decision around position size is as important as the investment decision.


Our preference is to invest where we have an established competitive advantage. Our focus is predominantly on the top 100 companies by market capitalization but do look at smaller companies provided that the return profile compensates for the increased risk. We limit the use of derivatives in hedging and our preference is to accomplish any hedging via the use of short stock positions