Ghosts are transparent by design and The Finance Ghost is no different. I love sharing my portfolio moves and the way I arrived at decisions. Goodness knows I don’t always get it right, but if I’m not prepared to publicly share my decisions, then how can we all learn from each other?
To close off 2020, I’ve decided to give a review of my JSE portfolio this year. I have an offshore portfolio as well which is a topic for another day.
Before we dive into the detail, I want to remind everyone that I am not a trader. I’m an investor. I generally buy things with a long-term view. I use an ETF underpin in my portfolio (index tracking funds that give me broad market exposure at low cost), stock pick the rest in search of elusive alpha (market outperformance) and include some speculative plays as well (because life is short but your portfolio doesn’t have to be).
The initial basket – 17th March 2020
I started just before we were plunged into lockdown, without doubt the weirdest weeks of my life thus far. It felt like a horror movie.
I opened an Easy Equities account and funded it from my access bond, thanks to bonuses over the years that I had saved. The JSE had underperformed for a long time and so I had focused on paying down my debt for the past few years, creating a buffer for me to eventually get going on specific shares.
It was also impossible in my previous investment banking job to follow a stock picking strategy because I never knew when I would become an insider on something or when a company would go onto the restricted share list.
17th March was just too early. The absolute bottom was a couple of days later. This explains why I funded the account several times over a few days at that stage (see more detail later).
My very first trade was Sasol at R36.54 per share. I then bought Transaction Capital and Capitec. Yes, I said Capitec. I was quite bullish on it to start with, until it became apparent just how badly the South African consumer would be assaulted this year.
BHP was also in my initial basket (diversified resources play), as was Altron which had a strong recovery story before the March collapse. Those were both good calls.
Massmart was a high conviction play for me. I liked the assertiveness coming from new CEO Mitch and the buy-in he clearly had from Walmart to fix the business. Unfortunately, I bought Massmart much too early. More on that to come.
I figured that Clicks would do well with people getting sick (remember, this was March and we didn’t know much about this virus). I was wrong. It was overvalued and the lack of social interaction over winter cost Clicks money because there wasn’t a proper flu season in the traditional sense.
Bidcorp was also in the original selection, as the stock has great Rand hedge properties and I assumed that restaurants worldwide would recover quickly after just a few weeks of lockdown. Lol.
In the interests of diversification, I also bought Mediclinic, another bad move.
I added Stor-Age to my portfolio because it looked like the baby that had been thrown out with the REIT bathwater. The company has no exposure to malls or offices, so why did people assume that Stor-age would do just as badly as deserted malls?
I wanted more banking exposure so I chose Standard Bank, the option with the biggest balance sheet. I felt at the time that Capitec was a growth play and Standard Bank a defensive play, with the likes of Nedbank and Absa languishing in the middle and of no appeal to me.
Finally, I wanted to figure out how the offshore portfolio on Easy Equities works, so I opened a USD account and bought a global tech ETF.
When the bug bites…
The stock picking bug had well and truly bitten. I’ll never know where the bravery came from to keep pumping money into equities, but it was there. Mrs Ghost agreed with the strategy but I’m not sure she fully appreciated how risky it actually was.
I funded the account on 17th, 18th, 19th, 20th and 30th March. Not done yet, I put in more on 7th, 8th and 15th April. More went in during May and June as well, but I slowed down after that.
Subsequent funding of the account was mainly to take advantage of Rand strength and build the offshore portfolio. That primarily happened form September onwards.
My big winner: Sasol
There were only three Sasol transactions in my portfolio this year:
- Bought on 17th March at R36.54
- Bought on 15th April at R63.78
- Sold on 21st December at R134.33
I bought in during the worst of lockdown because I couldn’t believe my eyes that a giant like Sasol could be brought to its knees so quickly. It felt like a once-in-a-lifetime opportunity and indeed it was.
I planned to hold on for Sasol 2.0 to give management a shot at improving things further, but this extensive second wave spooked even this Ghost. I don’t want to be involved if oil crashes again.
I assessed the probably of a 50% jump vs. a 50% drop in the next 12 months and decided the drop was far more likely.
Winners know when to stop.
A good idea, executed too early: Massmart
As mentioned, I had high conviction over Massmart. I thought that management was doing a good job of reorganising the group and that it wouldn’t take much to at least improve the messy situation at Game, with Makro and Builders Warehouse as strong underpins.
I was right, but I was early.
The first tranche was bought at R31.41 and the second at R29.44. I topped up again at R27.00 and R21.04 in late July before I finally started to see rewards. As it started to turn, I bought even more at R33.40.
I’ve just exited 80% of my Massmart stake at R41.07 per share, a tidy profit. It could’ve been much better but of course hindsight is always perfect.
I am skeptical of a consumer durables business if lockdown strikes again, especially since Massmart’s online offering stands little chance of success against the juggernaut that is Takealot. I’m prepared to keep 20% there because I think the company’s upside potential still exists over time, at least to a greater extent than Sasol. Massmart isn’t dependent on a single commodity price in the way Sasol is.
The twilight zone: Capitec
I have a weird relationship with Capitec. I bought in March at a blended price of R891.61 per share. I sold out in June at R854.98 per share. I must be the only investor in South Africa who managed to make a loss on Capitec this year.
It’s now trading at R1,405 per share. Talk about getting it wrong.
However, if I am not prepared to form a view and then act on it, I may as well be throwing darts. I sold in June because I lost faith in management. I believed they weren’t giving the market a reasonable picture of the effect of lockdown on their business.
I still think the chickens will come home to roost in 2021 for this business. They may be signing on loads of new customers, which is why the traded multiple is much higher than other banks, but they are also banking the most economically vulnerable client base out of all the banks.
Time will tell.
The time that I got scared
In April, I bought some marginal SA Inc stocks in the hopes that they would also do well. By July, I couldn’t deal with the risk anymore. The economic horrors of lockdown had been laid bare and I decided to rather start focusing elsewhere.
Between my capital deployment phase in March – May and my loss of bravery in late July, I bought and sold:
- AB InBev (in at R804.15 out at R894.84)
- Clicks (in at R235.54 out at R216.30)
- Distell (in at R83.10 out at R69.30)
- Mediclinic (in at R58.00 out at R54.62)
- Motus (in at R27.70 out at R30.43)
- Mr Price (in at R131.72 out at R131.91)
- Telkom (in at R21.78 out at R25.53)
I made losses on Clicks, Distell and Mediclinic. I did well on Ab InBev, Motus and Telkom. I ended flat on Mr Price. It was never my intention to only hold the stocks for 3 months but nothing about that time in our country was predictable or normal.
A quick look at latest pricing suggests that I could’ve held all of them except Mediclinic and I wouldn’t feel upset today. It’s a lesson in not panicking, but I felt it was a reasonable decision at the time to get nervous of SA Inc. .
Enter the ETFs
After exiting the SA inc marginal stocks, I decided to buy global Exchange Traded Funds (ETFs) instead. I put equal amounts into Sygnia’s S&P 500 tracker and the Sygnia 4th Industrial Revolution fund. These were good decisions.
October to November: selective local plays
The Finance Ghost and my portfolio aren’t my full-time gigs, so I sometimes bought shares purely because I finally got a chance to take a proper look at a company. Cartrack was one such decision. I think the company has an incredible growth story and has plenty of trajectory. I bought in heavily in October at R45.49 per share. It’s been pretty flat since then but it’s a long-term play and a strong Rand hedge.
I took advantage of the Impala Platinum odd-lot offer. Literally, money for jam.
I took two punts at JSE small caps recently: Tower Property Fund (highly speculative) and Adcorp (great turnaround story but the fundamental business isn’t great). In both cases, I think there is room for price action, although neither are shares I would put in my drawer and forget about.
The great rebalancing
On 21st December, as international travel was banned again in many cases and Italy demonstrated that the second strain is making its way across Europe, I decided it was enough on Sasol and Massmart.
But, what to buy?
In my opinion, the Rand is overbought (too strong). Gold miners have pulled back recently after a great run. Agriculture is the sector with the best prospects heading into 2021. In general, “real assets” feel like a good punt for next year.
I sold all my Sasol, 80% of Massmart, all my Standard Bank and all my Bidcorp. I put equal amounts into AngloGold, Harmony, DRD and Gold Fields (frankly because I don’t have time to decide which one is best). I bought Invicta as a strong play for a recovery in mining and agriculture. I bought Afrimat because it’s a long-time favourite of many and I keep missing out.
Because I can’t resist a punt, I also bought EOH. It’s got Sasol potential in 2021 in my opinion. They’ve done a good job of cleaning up that shop under new management and tech is resilient under lockdown conditions. I will look for further entry points into EOH as the story unfolds.
I also bought Capital Appreciation Group because I like the company. Very cool small cap play in the tech space.
After all this, how did I do?
I’ve put money in several times this year and so I should actually be doing a fancy calculation to work out an annualised return.
Let’s keep it simple instead. I have 45% more Randelas in my JSE account than the value that I’ve put in.
As a fascinating statistic, thanks to current Rand strength, the ZAR value of my USD portfolio is only up 7.5%! That will change if the Rand weakens in 2021. Most of my JSE portfolio is now a Rand hedge so I’m positioned for Dollar strength in 2021 if the world shuts down again.
Looking ahead to 2021
Please, NOTHING you read here is financial advice. Don’t buy or sell something just because that’s what I did. I get it wrong like everyone else. I make decisions based on my own risk tolerance and ideas about what could happen in the markets.
If you decide to play in stock picking, then read as widely as you can. There’s a wealth of knowledge on Twitter and elsewhere. Use common sense and make sure you build a diversified portfolio.
Good luck in 2021. To be honest, I think we all need it.