‘Markets could fall further’, says Platinum Portfolios

“There is a sale on right now, and traditionally investors like to run from that, but this is precisely the time when we get interested,” says Mel Meltzer, co-founder of Platinum Portfolios.

Meltzer was speaking in the aftermath of the wave of punitive tariffs that US President Donald Trump slapped on countries across the world, which walloped markets. The S&P 500 index in the US has tumbled 13.5% this year, the UK’s FTSE 100 index has fallen 2.4%, and the JSE’s all share index is down 3%.

These tariffs, Meltzer says, have thrust the world into a new paradigm where the sudden higher cost of imports is likely to see US inflation rise, slowing growth. Trump, however, seems unwilling to acknowledge this economic consequence, much less back down.

“Stocks have fallen over the past few days, yes, but I think it [the market] is still going to fall further,” says Meltzer. “The problem is, the market is still expensive — the US S&P 500 is still trading on a price:earnings ratio of 18, compared to its 60-year average of a 16 p:e. So it’s not as if stock markets are now cheap.”

Make no mistake, this is an immense moment for the US, with the potential to alter the trajectory of the world’s wealthiest country in a major way. A strategic shift to isolationism, and away from globalisation, is a huge risk for that country too.

“Over the past 30 years, America became one of the richest countries in the world because of globalisation,” says Meltzer.

“This helped its own consumers, as the cost of durable goods went down 40% over the past decade. So, for example, if the Swiss make better watches, it makes sense to import them. But Trump is now trying to thread the needle by saying he can switch production to the US and prevent inflation going through the roof.”

Meltzer is sceptical that the US will be able to achieve that.

But for a company like Platinum Portfolios, which manages about R6bn on behalf of private clients and celebrates its quarter-century birthday this week, this is an opportunity to buy certain stocks which have suddenly become a whole lot cheaper.

It is well placed to do this, explains Charolyn Pedlar, who co-founded the investment company, as it has kept a large amount of its fund in cash and near-cash in recent times, believing the stock market had become too expensive, and was due for a correction.

“Right now, about 30% of the fund remains in cash, which we did intentionally so that we could deploy it when the time is right,” she says.

It is this equanimity that has allowed it to ride out a number of market storms – think Covid and the 2008 global financial crisis – and produce enviable returns of more than 12% annually since its inception. While a tariff shock might cause retail investors to panic and hit the sell button, experienced hands have seen these sorts of waves before.

Calm in a storm

There is a certain congruity in the fact that Platinum Portfolio is facing just such a market ruction as it celebrates its 25th birthday, since this was the environment it was thrust into when Pedlar and Meltzer first launched the company in 2000.

That was the time, Pedlar says, when the dot-com bubble burst and technology stocks imploded. And then, just a few months later, two hijacked planes flew into the World Trade Centre in New York, sparking a further cratering of stock markets – and currencies – across the globe.

“That was by far the toughest period,” she says. “I’d worked in a senior position in large corporates until then, so to start your own shop, and have the rand crash almost immediately, and then the dot-com bubble burst, was gruelling. But, once you’ve come out the other side of that, and done quite well over a long period, smaller market moves don’t worry us.”

Part of that confidence comes from putting in place an algorithm they trust, which identifies promising stocks, and excludes others early.

“We put a lot into examining any one company before we decide to invest,” says Pedlar. “There are 45 stocks we look at every day, and we haven’t bought anything at a value that doesn’t make sense to us, or which didn’t pass the quality test. The companies have to have a wide economic moat, and they are shares we’d want to own for the longer-term.”

Walmart, Microsoft and Berkshire Hathaway, for example, crack the nod. Yet stocks whose values have spiked based on the zeitgeist at any one point in time – like military stocks in Europe – wouldn’t pass muster.

Platinum Portfolios does have wide exposure to AI stocks, however – though not Nvidia.

Meltzer says that every well-run multinational company has a focus on AI, if only to improve their productivity, and this will continue to be a big theme.

“We wouldn’t set out primarily to buy an AI company, but the higher-quality companies would all look to use technologies to improve their productivity,” he says. “Sure, a lot of companies have poured an enormous amount of capital into AI and we’ll have to see, in 18 months, whether these decisions have been sound. But we’re really at the beginning of the AI-driven investment cycle, not the end.”

Besides investing in Berkshire Hathaway, Meltzer and Pedlar admire the rigorous investment process of its two founders, Warren Buffett and Charlie Munger: buy great businesses at the right price rather than simply stocks that are cheap, and only buy what you understand. “We have been to Berkshire’s AGMs in Omaha, and theirs is an incredible philosophy which we have implemented in our own business,” says Meltzer.

The algorithm certainly appears to be doing its job. Besides the longer-term returns, the Platinum Portfolio funds are flat for the year – far better than most global indices, which have bled badly.

Searching for growth

While Platinum Portfolios does have some South African stocks in its portfolio, it remains wary, given the country’s low growth prospects. In recent weeks, a number of global analysts have cut their projections of South Africa’s growth to nearly 1.4% this year, reaffirming its wariness of the local environment.

“South Africa is a hard environment for companies to do well in. We do have companies like Richemont, Reinet and Remgro in our worldwide fund, but the equity risk premium for South African companies is pretty high for such low growth, and you can get that sort of performance with far less risk,” says Meltzer.

Which is true – but then it’s hard to even predict what will happen in global markets over the next few months. Even US companies are reluctant to make earnings forecasts given their inability to read the regulatory environment.

Meltzer agrees that it’s a perilous time – but that’s precisely why you need cool heads.   

“Markets like certainty, so [they don’t] like what Trump is doing,” he says. “Our view is that a lot of countries across the world will adjust to what is happening by deregulating their economies, because of competition on tariffs. And if things settle down on tariffs, this could ultimately be good for markets.”

And if that happens, and you have been able to hold your nerve – as he and Pedlar have now done for 25 years – you’ll be well placed to benefit.

_{Top image: Platinum Portfolios’ Mel Meltzer and Charolyn Pedlar. Picture: supplied.}