Surviving Steinhoff, and listening to the team naysayer

Chantal Marx was a fresh-faced 20-something when she burst onto CNBC Africa in 2016 to give her views on the stock market, often alongside somewhat more wizened commentators like Sasfin’s David Shapiro, who’d had decades in the business. With less than 10 years’ work experience under her belt, Marx was definitely a newbie to the broader investment community. 

Now the head of research at FNB Wealth and Investments, she rapidly became the highly prepared go-to for producers of South Africa’s business programmes alongside her better-known colleague, the unflappable Wayne McCurrie, also a veteran of the country’s markets scene for at least the past 30 years. 

It seems clichéd now, but for a long time, women weren’t exactly a feature in stockbroking firms. So what made the BSc graduate get into investing at all? 

“I was pursuing a BSc in mathematics and economics, and I really liked the economics bit, but I found the mathematics quite challenging and frankly a little bit boring,” says Marx. Still, she powered on and ended up doing her Chartered Financial Analyst (CFA) level 1 course in her last year at varsity, just as it happens, when the global financial crisis hit. 

“It wasn’t as if I was interested in investments; it was more looking for something to do. But I absolutely loved everything that was in that curriculum – everything: fixed income, quants, technical analysis, portfolio management sections … I even enjoyed ethics,” Marx says. So after finishing her CFA level 1 – one of the more gruelling courses out there – she did an honours degree in investment management “and everything just kind of happened from there”. 

Though jobs were scarce in the aftermath of the global financial crisis, where market carnage engulfed banks and investment companies (US bank shares had slumped a horrifying 70% from their May 2007 peak by September 2011, for example), Marx got an interview for a graduate programme at the once legendary stockbroker, Barnard Jacobs Mellet. The company is long gone – it was broken up in a 2010 deal that saw Renaissance Capital buy its institutional business, but FNB pounced on its private client and stockbroking arm, and Marx found herself embedded at 5 Merchant Place. 

When BJM split in two, it no longer had research capabilities. “The guys on the trading desk were putting together the morning newsletter and the asset management team were doing stock commentary. I enjoy a bit of writing, I love sitting with my spreadsheets, so I asked them if I could step in and start co-ordinating this and start putting stuff out to clients,” she recalls. 

This, apparently, came as a huge relief to the guys on the trading desk; guided by veteran Mark Appleton, the chief investment officer at FNB securities between 2000 and 2020, he made sure she and fellow newbie, economist Alex Smith (now a financial expert at the International Monetary Fund), “weren’t writing garbage”, laughs Marx. “When you’re young you don’t see the mistakes you make, so you always need someone to check up on you. And then we grew the team from there. And thankfully over time FNB was able to give me additional resources.” 

The Steinhoff schlenter

With the scars of the global financial crisis still fresh, Marx nonetheless had the benefit of mentors like Appleton and McCurrie. “I always knew we would come out of it because we always had people like Wayne McCurrie read the room. And he’d say: ‘The world has gone through every war and plague, and the stock market has always recovered. We are buying, not panicking!’” 

In fact, it was the implosion of a particular company nine years after the global financial crisis that really rattled Marx and made her question her choice of career: Steinhoff. 

“When the scandal broke, my husband (who is also in financial services), and I were sitting at an Engen petrol station and I asked him: ‘What are we doing with our lives? Is there even a point to what I’m doing if people can just blatantly lie and misrepresent information?’” recalls Marx. “That was a very low point for me as an analyst because I’d looked at the numbers, I saw stuff that didn’t look quite right, I tried to dig a little deeper … but if someone is hiding the truth and misstating facts and the auditors don’t pick it up, you as an analyst have almost no chance.” 

It’s true; barring maybe two diligent naysayers – such as Prudential’s Craig Butters – the Steinhoff schlenter took almost everyone in, from corporate geniuses like GT Ferreira and Johan van Zyl, to Steinhoff’s own auditors, Deloitte. 

The lesson Marx took, she says, is perhaps the most basic of adages: where there’s smoke, there’s fire.  

“I remember us sitting in a broader investment meeting (before the December 2017 revelations) and one guy kept on going on about how Steinhoff’s transfer pricing didn’t make sense. The tax rate was too low. But everyone got so carried away by the excitement of Steinhoff and the speed at which it was growing, and the share price was just going up … and from him I learned that you really need to focus on the dissenting view in the room.

“If you can’t answer the question, or you can’t figure out why, and the management team is glossing over the issues you’re mentioning, it’s just not worth investing in.”

Marx also gets the jitters from an overconfident management team. “It’s a red flag,” she says. “The swagger is actually a bit scary. That’s probably a more personal thing than an FNB thing, but I feel very uncomfortable when the management team is just too slick.”

The dissenting view was also key to none other than Berkshire Hathaway’s extraordinary success in the markets. Warren Buffett affectionately described his long-term partner Charlie Munger, who died in 2023, as “the abominable no-man” for so frequently turning down his investment suggestions.  

“You only have to do a very few things right in your life so long as you don’t do too many things wrong,” Munger once famously said. 

Yet that’s much easier said than done – especially when the market, or a share, is running a certain way.  

“Your clients ask you: why don’t you have (X stock). What else are you missing? Clients put a lot of pressure on you and that’s what makes the private client space very interesting relative to unit trusts,” admits Marx. 

So how do you hold your nerve when the market is going against you, and your clients are shouting at you, and you believe the market is wrong? 

“I think it’s important to go back to the reason why you have a certain view. Unless something has changed to drastically alter your view on something, I think you need to back yourself,” she says. 

What’s more, “you have to be comfortable being challenged because you will be if you’re in a strong team. There will be people who don’t believe a stock offers value when you think it’s a screaming buy, and you need to revisit your investment case and then get back to the team before you just dismiss it as someone who wants to challenge for the sake of it,” says Marx. 

In the case of Steinhoff, a lesson hard learned was that she had changed her view on the company based on how others viewed the share. “I didn’t like Steinhoff (initially) and then I started liking it because it was going up.” 

Don’t panic

That ties into some of the classic mistakes investors make. 

Says Marx: “People get really excited by a broader narrative or a big personality. So, for example, people really like the CEO of the business and they think he’s an absolute visionary – but they don’t look at the fundamentals of that business. That can blind you to the reality of cash flows and financial position and growth outlook. And just because the share price is going up doesn’t mean that it’s a good business. Momentum is a very powerful force and herding is a very powerful behavioural bias and people succumb to it constantly.” 

And then there’s buying high and selling low. “A lot of investors get spooked when the market goes down but that’s what it does. And ultimately it ends up on a positive trajectory over the very long term. Selling low because you’re panicking means you’re selling because everyone else is and you are locking in those losses. Obviously when there’s been a fundamental shift in a specific company or index – that’s a different story, but selling for the sake of it because of momentum, is not a good enough reason,” she warns. 

Asked what else we get wrong about investing, Marx points to misconceptions about the risk of the stock market. “People think it’s like gambling, but it really is not. And the second thing is that they think it’s for rich people – it’s not.” 

Maybe the worst mistake we make is not starting soon enough. “You should get started as soon as you possibly can. With your first job you should already start by paying yourself a segment. Obviously you’ll have your pension savings but you should also pay yourself for your discretionary savings. And if you do that early then there’s no pain later when you suddenly have to save a huge amount of your personal income in order to achieve your retirement outcomes, for example,” says Marx. 

Asked whether she has a particular investment philosophy, Marx laughs and says: “I’m copying Mr Buffett, but quality at a good price is probably my philosophy. And then sticking it out.” 

Quality, as she explains, is an understandable business model, a rock-solid balance sheet, strong cash generation and returns that are well above the cost of capital.  

Marx admits to not wanting to be bored by a business, either. “I don’t like to invest in stuff that I find extremely boring. Though sometimes I’ll find something that seems boring but when I dig into it, it becomes exciting.” 

The unknowable future

Asked whether she believes that drip-feeding your money into the market via a monthly debit order is better than an occasional big purchase, Marx is agnostic: “It depends on your cash flow. Personally, I have debit orders going off my account into my retirement annuity, my tax-free savings account and my discretionary unit trust account. And then with my stockbroking account it’s more chunky: if I get a tax refund, or if I get a bonus then I’ll put that into my account. But someone who works on commission, for example, will have a much more volatile income stream and in months when it’s really tricky you could end up having nothing to go into monthly savings.” 

As for the obvious question on gender, and how women fare in the market, Marx says: “We’ve done some analysis on the stockbroking accounts and it’s a few years old, but women tend to be more conservatively positioned; they don’t take big punts. There are some exceptions but most of our female clients are invested in the top 80 stocks of the JSE whereas the men will take bigger bets on small-cap stocks.” 

For example, in 2023 says Marx, some of their male clients’ biggest holdings were Renergen and Orion; the women – who make up 40% of their clients – didn’t own those shares at all. 

While Marx sees her role as giving good information to empower the company’s customers to make their own decisions, there’s still the inevitable pressure of making money calls based on an unknowable future. 

She’s philosophical about this. 

“You don’t know what the events are going to be that will disrupt the market, but you do know that the market will ultimately give you decent returns. High-growth companies end up making bigger parts of the index; they’re exposed to new technologies and big, broad thematics and that will continue to outpace inflation over time,” she says. 

Of course, there’s an element of “survivorship bias”, because companies that don’t make it end up falling out of the index, like the JSE top 40 or the S&P 500.  

“Your job as a manager is to identify the guys that are going to have staying power and will outperform the index. You’re not going to get every call right, but if you can stay away from the biggest lemons you’ve already done very well.” 

This story was produced in partnership with Stanlib.