“There is no such thing as a ‘popular investment opportunity’. If it’s popular, then that popularity will already be reflected in the price you have to pay. And if it’s a very good investment opportunity, then it’s unlikely to be very popular.”
This is according to Dan Brocklebank, a UK director at Orbis, Allan Gray’s offshore investment partner. Speaking as part of a panel at the recent Allan Gray Investment Summit, Brocklebank explained that Orbis believes it is critical to invest differently.
“Investing differently can feel uncomfortable and counterintuitive, but one has to look beyond the short-term noise, dig deep to find hidden value and be patient,” he says.
Brocklebank further explains that contrarian doesn’t just involve buying shares that have been beaten down a lot; a contrarian view is that the growth rate is going to be far higher than the market ascribes to the company.
“Investing for Orbis is not about putting stocks into boxes; it’s about looking for differences between price and intrinsic value.”
Brocklebank also emphasises the importance of diversification when it comes to your portfolio.
“Investing involves taking decisions about the future under inherent uncertainty and therefore even the best investors make plenty of mistakes. That is why investors should always diversify their holdings to spread the risk,” he notes.
This is particularly relevant for South African investors. The South African stock market makes up less than 1% of the value of world markets. Furthermore, there are over 8 000 listed companies globally in total, or about 2 000 if you just focus on the larger and most marketable ones. This compares with 160 or so South African stocks.
“Investing offshore gives you access to sectors and companies that are simply not available on the local market. South African investors need to explore beyond their borders to access a broader range of attractive opportunities and benefit from the trends that are shaping markets globally,” he says.
So how much is enough offshore exposure?
“It is impossible to state a single number that is appropriate for everyone as the answer depends on, among other things, your risk profile, objectives and investment time horizon. For example, research on average South African household’s spending habits on imported goods/services, suggests that investors should look to holding at least 30% – 40% of their total investment portfolio offshore to protect against an erosion in local purchasing power.”
In summary, Brocklebank offers three tips for successful offshore investing:
- Make sure your portfolio is well diversified
- Adopt a regular approach to investing offshore, rather than making one-off investment decisions or trying to time the rand.
- If you partner with an offshore manager check that they have an investment philosophy that you believe is sustainable and that they have proven they can implement.
“A good, independent financial adviser can assist you with this process,” he concludes.