Dear Fellow Investors and Friends


I do appreciate you taking the time to read this.

I’m Piet Viljoen, and today is Thursday, the 18th of April, the 109th day of the year. There are only 257 days left until the end of the year.

On this day in 1772, the Economist David Ricardo was born. His big economic insight was that to employ all resources worldwide fully, one should allocate resources within countries to each country’s comparative advantage industries and allow the countries to trade freely after that.

Today, 252 years later, the world’s governments believe a combination of trade barriers and fiscal profligacy is a better strategy. Thinking about what this means for our investments is time well spent.

On a completely different note, a few years ago, to my family’s horror and utter amusement, I acquired a personalised number plate for my car. The number plate reads STOIC WP. A lot of people have asked me what it means.

This is the story.

In 2015, RECM – the firm I founded in 2003 – suffered a near-death experience. I was early on a pretty big investment call.  So early that I was wrong. I mean, ultimately, I was proven right, but in the meantime, most of my clients had decided that I was wrong and had fired RECM as their investment manager. And, as we all know,  the first rule in business is that the client is always right.

I went through two years of hell. I used to dread taking phone calls from clients or even opening my email first thing in the morning, as it was almost always bad news – another client or friend terminating their mandate with us, quietly leaving without saying goodbye.  I lost many good friends and old colleagues.  Our staff numbers went from over 50 to under 10. Knowing they lost their job, it’s hard to look someone in the eye because your investment idea didn’t pan out quickly enough.

The worst was when people in the industry – whom I once respected – took pleasure in the slow-motion public train wreck that was my firm’s downward spiral.

It was during this time that I came across the philosophy of  Stoicism. According to Wikipedia, “Stoicism is focusing on things in your control, overcoming negative emotions, living in the present moment, helping others for the common good, and finding opportunity in every obstacle.”

This strikes me as an excellent way to think about investing; what else is investing but overcoming emotions and obstacles?

And so it is with businesses, too. Building redundancy into your business makes it less susceptible to the inevitable downturns or competitive pressure.

Charlie Munger always spoke about the merits of having low expectations, which often leads to being positively surprised.

Seneca, one of the original Stoic philosophers, said:  “It is in times of security that the spirit should be preparing itself for difficult times; while fortune is bestowing favors on it, is then the time for it to be strengthened against her rebuffs.”

Controlling your emotions, margin of safety or redundancy, low expectations, and preparing for bad outcomes before they happen are all pillars of the stoic way of thinking.

This line of thinking helped me realise that my mistake was twofold: I had made a poor investment decision and not built a resilient business. The cost base was too high, there were too many clients who were not aligned with my investment philosophy, and we had a one-dimensional set of products. The clients were chasing performance; I was chasing revenue – a combination that pretty much guaranteed a lousy outcome.

To be sure, with a solid dose of good luck, one can pull it off, and more than a few big fund management businesses have been built this way. But bad decisions, bad luck or bad business structure can cause everything to come crashing down around you.

This is what happened to RECM in 2015 and 2016.

Since then, together with my partner Jan van Niekerk – without whom I probably wouldn’t have survived the meltdown – we have rebuilt RECM. (I’m probably underplaying Jan’s role a bit here) Today, it is a smaller but more resilient business. We have the pleasure of working with good, honourable people, and we manage multiple differentiated pools of capital. We also have various direct interests in private businesses, where it is a joy to see the management teams deal with both triumph and adversity and help them when required. And most gratifyingly, the RECM Foundation has gone from strength to strength.

As Jenson Huang said in his commencement speech at Stanford recently, “I don’t know how to do it, but for all of you Stanford students, I wish upon you ample doses of pain and suffering. Greatness comes from character, and character isn’t formed out of smart people but out of people who suffered.” He said: “People with very high expectations have very low resilience—and unfortunately, resilience matters in success.”

I cannot tell you how much this resonates with me, and I highly recommend this way of thinking about life, investments and everything else.

“New lows are bearish”

1. Memestocks

We’ve all heard the financial media talk about meme stocks, but what are they actually? A meme is an idea or a style that spreads rapidly through culture. It’s generally an imitation of reality, not the real thing. Meme stocks are stocks investors buy based on emotions, momentum and the hope that something will drive the value of the stock higher. The herd mentality influences the price of the company. So, it’s momentum-based speculation on a copy of something rather than basing decisions on the fundamental value of the actual thing.

The popularity of meme stocks indicates speculative activity is rife. But recently, meme stocks have been struggling:

  1. The original meme stock, Gamestop, became popular during COVID-19 and is trading 90% below its all-time highs. To recap, Gamestop is an analogue retailer selling analogue toys and games, far removed from real action in gaming, which is all about being digital and online. At one stage, the crowd paid a high price for the stock. But not any more:
  1. Then we had AMC – the chain of movie theatres, whose stock – not the theatres! –  became very popular post-COVID despite having teetered on the brink of bankruptcy before COVID. And since then, with Netflix, watched from the couch, things have deteriorated for them, dominating our video entertainment world. Despite its complete irrelevance to how we live our lives today, 2021 AMC commanded a very high price. Not any more:
  1. Vinfast is a Vietnamese EV producer. I’d also never heard of it before, but I learned this week that it had become a meme stock for EV makers – as if Tesla wasn’t a strong enough meme. Vinfast delivered just 11,000 vehicles in the first half of the year. Volkswagen, for instance, produced over 9 million cars last year. It’s safe to say Vinfast is a meme, an imitation of a car maker; it’s not the real deal. Volkswagen is worth around $75bn, and Vinfast was “worth” almost $200bn after listing last year. Not any more:
  1. Finally, on our list of crummy imitations of real businesses that get popular for a while, we have Trump Media & Technology Group (ticker DJT). This is a “business” that Donald J. Trump conceived of to compete with X because they kept kicking him off the platform due to things he said that they thought he shouldn’t.

    But it’s not much of a business at all. It lost $58mn last year, on revenue of just $4mn. It has big plans to issue more shares to Mr Trump (for free) and the public (at market prices). Mr Trump has also filed to sell a bunch of his (free) shares by September. That didn’t stop DJT from achieving a market value of over $6 billion soon after listing via a SPAC combination. But not anymore:

DJT Media

My take: The popularity of meme stocks is another symptom of the extreme speculation which has taken hold in the US stock market. I am happy to be underweight that market, notwithstanding all the good news “stories”.

“New highs are bullish”

1. Gold

I have mentioned gold before, in Vol2, Nr 9   when gold first hit a new all-time high early in March. Four years ago, just after COVID-19 hit, gold surpassed its previous all-time high, set way back in 2011. Now, it’s going to new highs almost every week. I think this an amazingly bullish picture:


My take: Over the long term, gold retains its value, not because of any unique characteristic or magic, but simply because there is only so much of it around. On the other hand, more fiat money is created every day. And currently, the printing presses are working over time. The MWI Worldwide Flexible Fund (aka the cockroach) has 20% exposure to gold – bearing in mind that a quarter of the fund will always be invested in hard assets.

2. Long-dated South African Government Bonds

The SA government bond, which matures in 30 years, currently yields 13,3%. What does that mean? If you hold this bond until maturity, regardless of what happens to interest rates, you will earn around 13% on your investment. That’s not a forecast; it’s maths. If the Rand continues to depreciate by its customary 5%-7% against the US$, your return will be c. 7% in US$ over that period.

The chart below shows that bond yields started rising (capital values falling) in 2016. That is roughly where our government, under ex-President Zuma, lost its fiscal prudence.

How about the short term? The modified duration of a bond tells you what your capital loss will be if bond yields rise, as they have done over the past 8 years. Long-dated bonds with yields of 13% have a modified duration of around 7,5%, so for every 1% increase in yields, you lose 7,5% of your capital. But remember, this is only applicable for shorter periods. If you hold until maturity, you will earn 13%.

SA Government Bonds

My take: I have been bullish on these bonds for more than a year now, over which time yields have increased by 1% – which means I have lost 7% of my capital but also earned a 12% yield. So, a net return of 5%. With inflation at around 5%, that’s not too bad under the circumstances.

The cockroach has 18% of its assets in these and similar bonds. Bonds will always make up around a quarter of the fund; most of that is in South African bonds, with almost nothing in American – or any other developed market bond.

Did you know?

1. The world’s top flight routes by value

An old saying in markets is if you want to find out what’s happening, to “follow the money”.

Well, here’s a trail to follow:

Airline Routes by Revenue

I wasn’t surprised by most of them. JFK to LHR has long been part of the money trail. And Riyadh/Jeddah/Dubai is another well-known money centre. But seeing Sydney/Melbourne at #1 was a big surprise. And how about Peth/Melbourne coming in at nr 10? Say what you want about Australians, their rugby skills, accent or love for sheep – but they have built a powerful economy. Arguably the envy of the world.

My take: You could do worse than trying to build a business in Australia. The place works, and there is a lot of money floating around—apparently more than you would think. At one stage of my life, I spent a lot of time in Melbourne, a world-class city. Almost as good as Cape Town…

2. Astoria will be featured on “Unlock the Stock” next week

“Unlock the stock” is a knowledge-sharing platform for retail investors. It was created by The Finance Ghost (27 400 followers on X – and if you’re not one, you should be) and Mark Tobin. They tend to feature the less well-covered stocks in the market. You know, those not part of the institutional investment universe.  Yes, the really interesting ones. At 12h00 on 25 April, they will feature Astoria Investments, the Mauritian-domiciled – and listed – investment holding company managed by RECM.

You can find a link to register for the session, here.

My take: In my admittedly biased opinion, Astoria is an interesting investment situation. It will be an hour well spent.

3. Matt Levine hits the sweet spot again.

Matt Levine (@matt_levine) is a Bloomberg columnist and writes a free, almost daily email called “Money Stuff”. He is probably the most entertaining business writer I have come across. If you don’t subscribe to his mail yet, you should. It’s free, and your life will be better for it.

This week, he highlighted three articles in Bicycle Retailer and Industry News with the following perfect sequence of headlines:

Scott Sports replaces CEO ‘to refresh’ brand” (March 29)

Beat Zaugg says he’s still CEO of Scott Sports” (April 1)

Police called to Scott Sports headquarters” (April 4)

You can click on the links to read the stories, but I think the joke writes itself here.

Matts’ take: Every dispute of this kind is generally between the majority shareholder and the chief executive officer, and the CEO can’t usually deny that (1) the majority shareholder owns a majority of the shares and (2) that ultimately gives them the power to fire him. So the CEO is reduced to saying, “Well, sure, they could fire me, but they have to follow proper procedures, and they forgot to send the notice of the board meeting by registered mail, so nyah nyah nyah nyah nyah, here I still am.” Usually, the CEO stands on some minor, debatable point of procedure. This is the first time I’ve seen a CEO stand on a secret point of procedure. I like this guy’s style.

What I’m reading

Tim Urban wrote a good piece back in 2013 (time flies!) about expectations & happiness. In it, he came up with another great formula for life:

Happiness = Reality – Expectations

You can read the full article here:

My take: I’m a sucker for simple formulas that helps one think about improving your life. This is one of them. But the full piece is worth reading, especially for Gen Y’s – those born from the late 70’s to the early 90’s.

What I’m watching

The Tim Ferris show, specifically the episode where he interviews master negotiator William Ury.  There are so many learnings here! If you are at all interested in improving your negotiating skills, watching this interview is a good place to start:

Then you can read his books, as well:

Getting to Yes:…

Getting Past No:…

Possible: How We Survive (and Thrive) in an Age of Conflict:…

My take: Life is a negotiation. Learn how to do it well.

I hope you have as much fun reading this as I had writing it. And I welcome any feedback.

To all my Jewish friends (especially my family), Chag Sameach for Pesach on the 22nd!

To all my readers: It’s a mess out there; be very, very careful.

Piet Viljoen