Allan Gray asset management recently came under fire in an article, in which the author opined their recent poor relative performance. The author, who will remain nameless as I think he may have been looking for publicity, blamed the disappointing returns on stock picks and Allan Gray’s exposure to Orbis, their offshore sister company, who themselves have struggled through the recent cycle.
Going through a period of poor relative returns is very typical of Allan Grays history. The story goes that Allan Gray founded in the early 70’s by the late Mr. Alan Gray almost didn’t survive its first few years in business, after experiencing a period not too dissimilar to the current cycle, which saw investors sell-out en masse out of value managers. The cycle turned just in time rewarding those investors who had the fortitude to stay invested and creating one of the most successful South African businesses of all time.
To be a value investor is not for sissies, you often find yourself on the opposite end of the consensus view, of course this is where the opportunity lies, but it is difficult to leave the comfort of the herd and stick your head on the proverbial “chopping block”. “Whenever you find yourself on the side of the majority it is time to pause and reflect”. Mark Twain
Most investors will prefer to be wrong with everyone else than risk being wrong alone, therefore investing may be simple to understand i.e. “buy low sell high”, but not easy to do. But let us not feel too sorry for the asset managers who I would argue have a much easier and better paid job than that of an investment adviser.
Overcoming our emotional bias is near impossible to do without the help of a trusted financial adviser as we are not rational when it comes to managing our own money. Emotions and feelings always trump reason. When faced with bad news selling feels like the right thing to do and it feels right to buy when the news is good.
When the currency hit R/$19.26 in April last year taking money offshore felt like the right thing to do, as did selling the JSE All-Share Index at the low point of 2700 points. Those investors who sold the JSE and took the money to an offshore bank account have lost -74% of their money in Rands, made up by a 42% recovery in the JSE and a 32% strengthening of the Rand.
Had the trade been reversed, an investor repatriating his / her dollars from offshore to buy the JSE would have earned a phenomenal 74% in Rands. Now anyone who thinks investment advisers have an easy job try imagining if your adviser had recommended this to you. Did you listen!
Mcomm, CFP®, HdipTax
T. 021-205 1133