After 25 years of managing the Ninety One Value Fund – which has outperformed both the JSE all share index and the average general equity fund over that time – I’ve learnt that success in investing doesn’t depend on complex forecasting. It comes down to discipline, patience and the conviction to go against the crowd.
I firmly believe that, over the long term, value investing trumps all other styles. We’ve consistently applied the six principles outlined below – without exception – for the past quarter-century.
1. We don’t come up with stock ideas; the market does
Our ideas stem exclusively from our focus on the worst-performing stocks – not those that have dipped 10% or 20% from highs, but those that have collapsed by 80% or more, and preferably over several years.
To quote Bank of America’s Michael Hartnett, our mantra is to “sell hubris, buy humiliation”. We don’t bet on predictions. Our experience tells us no-one is consistently good at forecasting the future.
2. We don’t make forecasts
In our experience, forecasts are usually wrong, and we don’t believe that a larger analytical team improves the success rate, which seems to remain stubbornly around 50%. Instead, we embrace uncertainty and manage it by preferring to “play the odds” and buying stocks with extremely low valuations.
That protects us: if bad news hits, the low valuation already reflects it. If good news arrives, the market is surprised.
3. We only buy low-valuation stocks
There are no exceptions. Valuation is our cornerstone. Among the many factors that affect returns – such as earnings, industry growth or return on equity – historical valuation is the only variable we know with 100% certainty. That makes it the dominant factor in our investment decisions.
4. We average down relentlessly
We don’t expect shares to rise just because we bought them. We always ask: if this stock dropped another 50%, would we buy more or panic?
We took this approach with platinum group metals (PGMs) in the mid-2010s. We started buying Impala in 2014 at R90 and were still buying four years later at R30.
5. We ignore catalysts and believe in ‘value traps’
Waiting for a catalyst means you’re too late. If we see one, the market already has, and the stock has moved.
A “value trap” is often just a stock the market has completely written off. Those are the ones we want.
6. We define risk differently
The market focuses on two types of risk: share price volatility (i.e., how much the share moves up and down every day) and tracking error of the portfolio (i.e., how your portfolio differs relative to the index). We don’t. Our only concern is permanent capital loss from company or industry collapse. That’s why we focus so intently on industry fundamentals and company balance sheets.
This helped us avoid Kodak, brought down by industry disruption, and African Bank, where liquidity and capital structure were the issues.
A crucial part of long-term returns is knowing when to go big – when the market’s aversion becomes narrative. These narratives often take the form of catchy dismissals like “China is uninvestable”.
Our fund’s long-term outperformance has come from a few bold calls: SA Inc stocks during the 2001 rand crisis and again in 2024 amid the Eskom crisis and election uncertainty; gold and PGMs from 2014 to 2018; and avoiding commodities in 2008.
Today, we’re focused on mid- and small-cap SA Inc stocks trading at absurdly low valuations. We also hold South Africa-listed commodity companies like Exxaro, African Rainbow Minerals and Sasol, where prices are depressed. Globally, we prefer China, emerging markets and beverage stocks. We have almost no US exposure.
This process is simple – but not easy. Technical skills help, but the real edge lies in tenacity, going against consensus and staying patient through underperformance.
After 25 years and many cycles, we know: do the work, hold your nerve, and the rewards will come.
John Biccard is a portfolio manager at Ninety One, where he leads the Value Equity Strategy. A CFA Charterholder, he has over three decades of experience, including senior roles at HSBC and Simpson McKie. He holds a BCom in economics from Wits and an honours from Unisa.
Top image: Rawpixel / Currency collages.
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