Dear Fellow Investors and Friends

Welcome! I do appreciate you taking the time to read this.

I’m Piet Viljoen, and today is Thursday, the 13th of June, the 165th day of the year. There are 201 days left until the end of the year.

Quote of the day

“[Financial] history is merely a list of surprises. […] It can only prepare us to be surprised again.”
– Kurt Vonnegut

On this day in 2003, the first T20 cricket match between Hampshire and Sussex was televised. An unconvinced Daily Mail commented: “Whoever chose the traditionally unlucky Friday the 13th to launch this bold format had better hope there is nothing to the superstition.”

Here we are 21 years later, and the 8th edition of the T20 World Cup is underway. Domestic T20 leagues have proven highly popular worldwide, with the IPL being regarded as the format’s pinnacle. Love it or hate it (I’m not convinced), the game has brought in the crowds.

Most games have a beginning, middle, and end, resulting in a final winner. To win, you need to take a big risk now and then. Even with a lot of skill, some risks don’t pay off. A finite game is won by the player with the best combination of luck and skill.

In contrast, infinite games have no result. They are played for the express purpose of being able to continue to play. To be able to continue playing, you can’t take big risks or rely on luck.

Creating wealth means taking big risks, for instance, as an entrepreneur.  This can sometimes go badly awry. Creating wealth is a finite game.

To preserve wealth means avoiding big risks, as you can’t afford to wipe out. Preserving wealth is an infinite game.

The MWI Worldwide Flexible Fund is managed with the infinite game in mind.

Cockroaches have been around for an estimated 320 million years. They are hard to eradicate and are said to be able to survive even a nuclear blast.

I have named the MWI Worldwide Flexible fund “the cockroach”.

My investment philosophy in managing the cockroach is simple: stay in the game, never take undue risks for short-term gains, protect capital, and grow it in hard currency terms when appropriate opportunities present themselves. The fund does not aim to make headlines and win awards. It aims to ensure the capital entrusted to it is intact and available when needed.

The fund aims to solve a problem for its investors that few other funds do, explicitly or implicitly. That is, once you have made enough money, there comes a point when you need to maintain the purchasing power of your wealth. Whether for your peace of mind, to preserve your spending power, or to pass it on to the next generation, it is a problem that needs solving.

The cockroach is a “stay rich” fund, not a “get rich” fund.

Which leads directly to the risks the fund manages explicitly:

  • Inflation. The fund aims to preserve the real value of the capital entrusted to it in US$ terms.
  • Volatility. Volatile returns can drive value-destructive behaviour and get in the way of compounding.
  • Liquidity. It’s not good enough that the value of your money grows steadily on paper. It has to be available when needed, not locked up due to liquidity constraints.

All investors, including myself, love trying to forecast the future despite there being absolutely zero evidence of us being able to do so consistently and accurately.

The antidote to this dissonance is diversification and the implementation of strong guardrails within which the fund is managed. A diversified portfolio contains assets that respond differently to different future outcomes. Guardrails remove the ability to act while intoxicated with the thrill of “I can see the future”, which we all experience from time to time.

Markets are good at producing a show to get investors to transact. After all, that is how exchanges and stockbrokers make their money – they take a fee on every trade. Those fees come out of your returns. Conscious inaction is the best antidote to the stock market’s flashing lights. To preserve wealth, boring is better.

To achieve its goal of real returns in hard currency, the fund will always be fairly evenly invested in four main asset classes: Cash, Bonds (defensive assets), Equity (growth assets) and Commodities (hard assets). This will always protect against some economic environments and gains from others. The fund’s exposure within the asset classes will be tilted towards assets with low embedded expectations, but never in an extreme fashion. Rebalancing occurs every 3 to 6 months, keeping transaction costs low.

What returns should one expect?

  1. The returns on cash have been roughly equal to the inflation rate over time.
  2. Bond yields have averaged around 1% above inflation.
  3. Equities have returned 4% to 6% above inflation. A 4% real expectation from equities is reasonable.
  4. Over the past 20 years, Gold has done 8,6% or 5% above inflation. Oil has done 5,8% or 3,2% above inflation. An expectation of 3% in real terms here is reasonable.

Allocating 25% of the fund to each asset class provides a blended return of 2% over US$ inflation.

So, that’s the cockroach in a nutshell. Not predicting but preparing.

And it is the fund where I look after the bulk of my savings.

“New lows are bearish”

1. Italtile

The story of Italtile is the story of the South African economy writ large. It used to be very popular and a staple of any well-managed portfolio. Then, around 2016, the rot started setting in with corrupt politicians. COVID exacerbated this and was further negatively impacted by high interest rates.

Italtile is sensitive to the economy, and like the economy hasn’t grown since 2016:

Italtile chart

My take: A lost decade, indeed. This well-run business will only start firing again when confidence returns to the economy. Until then, stay out.

2. Renergen

This company has been a perennial disappointment. Its only consistency was making promises and not delivering on them. It was initially listed on the JSE in 2015 when Renergen bought 90% of a Virginia gas project from Windfall Energy (aptly named and owned by Renergen CEO Stef Marani). For the transaction, Windfall was valued at R650mn. Windfall originally bought the project from Molopo Energy for R1.

In 2016 Renergen announced it had signed a deal to supply Afrox with Helium. It has yet to deliver any. Its phase one project to produce Natural Gas has also underdelivered on promises.

Renergen is now trading below its IPO price of 2015:

Renergen chart

My take: Mining projects are speculative investments. That Marani was the only person to have made money out of Renergen should be no surprise. Here’s an article from the Daily Investor describing the sorry history. The South African market offers many ways to lose money; you don’t have to choose this clown car.

“New highs are bullish”

1. Nvidia

This stock is the gift that keeps on giving. Over the past year, the share price has tripled, and it’s a ten-bagger since the lows of 18 months ago. On Monday, it split ten for one, which was announced at the time of the results a few weeks ago. News of the split caused a further updraft, and the gain in value over the past 6 weeks is greater than the total market cap of Berkshire Hathaway, which Warren Buffett has spent 6 decades building:

Nvidia chart June 2024

This is a bull market on steroids. A share split makes no economic difference, but apparently, it’s a good sign for the business. And then you have the CEO with this bullish sign:


The semiconductor (chips) business is notoriously cyclical. Jensen Huang, the CEO of Nvidia, seems to have found a way around it. However, the Wall Street Journal reports that one source of demand for Nvidia chips is that some countries have been accumulating GPUs, and now other countries want to do so defensively.

My take: Could the cycle reassert itself sometime? There doesn’t seem to be a sign of that. Yet. For now, you can’t afford to be on the wrong side of this one if you’re playing a finite game. Career risk is an issue here.

2. Apple

Apple has been the odd technology giant out when it comes to artificial intelligence. Instead of developing their own AI programs, the company’s goal seems to be making existing products work better. Apple remains a hardware company at its core and has partnered with companies like Microsoft OpenAI instead of spending massive capex on developing in-house expertise. If this results in intuitive hardware, it might drive an iPhone upgrade cycle.

This is what the market seems to be expecting after this week’s Apple developer conference:

Apple chart

The share price reached a new all-time high on Tuesday, gaining $215bn on the day, for the third largest market value gain in one day. Ever.

My take: I wouldn’t bet against Apple. They create the best product, and AI makes high-performance hardware more relevant. However, the stock is not cheap; for me, it’s in the too-hard pile. So, I have outsourced my investment decision-making on this one to Berkshire Hathaway. The cockroach has a large holding in Berkshire, and Apple represents nearly 40% of its value.

Did you know?

1. Mining is a smaller industry than you think

This from @IGWTreport on X:

Precious metals

Incrementum is a research firm that publishes a regular report on the gold market, which you can find here.

Apple, on its own, is bigger than the value of the listed metals sector!

My take: Imagine what would happen if, say, a quarter of Apple’s investors wanted to diversify their share portfolios into the metals mining sector. Or energy, for that matter.

2. The BRICS economies are more significant than you think:

Brics vs G7

This week, Europe announced sanctions on Chinese goods. Russia remains heavily sanctioned. Brazil, India and South Africa have escaped so far. But the world is becoming balkanised, less global. This means higher inflation than otherwise, less trade and less growth. The next 30 years could be the opposite of the last thirty.

Tellingly, the fundamentally stronger economies – in terms of debt, GDP growth, industrial and manufacturing capacity, and resource access  – are being sanctioned. The ones doing the sanctioning are laden with debt, with governments hell-bent on de-industrialising.

My take: Two things: 1. Politically, whether you like it or not, South Africa is on the strong side of the global divide. 2. The most important thing to do in setting an investment policy is NOT to extrapolate the last 30 or 40 years.

What I’m reading

Stock market concentration, by Michael Mauboussin:

A few interesting points from the article:

  1. The US market has rarely been more concentrated than now.
Market concentration
  1. But the US market is by far not the most concentrated market in the world:
Global equity concentration
  1. “Stock market concentration may be justified if the market capitalisations mirror the value creation prospects.”
Economic profit top 10
  1. “The top stock has historically been a bad investment.”
Relative returns
  1. “It is reasonable to ask whether stock market concentration in the U.S. is too high today or too low in the past. Even after a decade of increasing concentration, the U.S. stock market remains one of the more diversified markets in the world. But the U.S. has an outsized impact on global indices such as the MSCI All Country World Index because it represents about 60 per cent of the capitalisation of all equity markets.”

My take: Trees don’t grow to the sky. But they can grow quite tall. I wouldn’t use concentration as an excuse to index or not to index. Whatever your investment process is, if it’s sensible and based on fundamental factors, it will work out over the long term.

What I’m listening to

1. How to sell like Steve Jobs.

Why wouldn’t you want to learn from the entrepreneur who built one of the most successful businesses in the world? And yes – to build a business, you have to sell. This podcast is based on the book: “The Presentation Secrets of Steve Jobs: How to be Insanely Great in Front of Any Audience” by Carmine Gallo.

The money quote: “When most people give presentations, they try to squeeze two megabytes of data into a pipe that carries 128 kilobytes.”

I’ve sat through far too many poorly constructed and boring presentations. It was as if the presenter disrespected my time by not preparing well. Any chance the presenter had of selling to me was zero.

My take: If you’re building a business or a career, you need to live by the saying, “Always be selling” – this podcast has many valuable tips on how to do that.

2. Dexy’s Midnight Runners, “Don’t Stand Me Down”

I’m busy working through the music of 1985 as part of my musical journey of documenting the best music in each year since I was born. Yesterday, I came across this album, which I hadn’t heard for a long time.

Everybody knows the song “Come on Eileen” off their second album “Too-Rye-Aye”. That was a hard act to follow, and this follow-up album was panned by critics and the public, eventually leading to the band’s break up.

I think this album was much better than their “hit”. I’m unsure if it’s because of nostalgia for the time (in 1985, I was 23 years old with the world at my feet – or so I thought) or because of the sheer fun you can hear the band having.

It is an underrated album, and I find myself singing along to almost every song despite not having heard it for over 30 years.

I hope you enjoy it as much as I am!

On Spotify

On Apple Music

What I’m watching

1. The Future of Energy

In this video, Adam Taggert interviews Doomberg, the nom-de-plume for a team of analysts behind the leading finance publication on Substack. They are level-headed and never venture into hyperbole like many attention-seeking publishers sometimes tend to do.

According to their website, “We started writing Doomberg in May of 2021 to highlight the fundamentals missing from many economic and policy decisions, and it quickly grew to be one of the most widely read finance newsletters on Substack. This publication is our passion, and the content is borne out of our team’s deep experience in heavy industry, private equity, and the hard sciences.”

(I subscribe to their publication; it’s well worth it.)

This specific interview focuses on their view on the energy sector. A few takeaways:

  1. The world is currently well supplied with energy, which is cheap in real terms relative to its long-term history.
  2. This results from oil companies being unable to resist “the temptation to grab the marginal dollar by drilling more.”
  3. They do not subscribe to the theory that current under-investment will lead to shortages, as technological advances enabling more efficient production and energy use will be a countervailing force.
  4. They expect the nuclear industry to have a well-deserved renaissance.

Here’s the link to the video on YouTube.

2. Interview with Gareth van Onselen

With our election results fresh in our memories, here’s an interview with Victory Research CEO Gareth van Onselen.  (whom I wrote about in last week’s letter “Structure drives Strategy”).

Here, he is interviewed by Alec Hogg of Biznews, who does an excellent job extracting the implications for South Africa’s political parties, both big and small.

By the way, Biznews is one of the few media outlets I subscribe to, as Alec and his team present the news objectively and from different angles. Unlike mainstream media, they give us the information without telling us what to think. You might not always agree with what you see and hear, but at least it’s out there for you to consider.

Some other snippets

  1. At the start of the year, I set myself a goal (amongst others) to bench press my body weight. Not to show off; but to increase my muscle mass and strength, an essential longevity indicator. On Monday evening, I managed 90kgs. I weigh less than that.
  2. On Friday morning, my colleagues at Merchant West Investments, Daniel King, Brian Pyle and I will discuss the MWI Value fund on a webcast. You can register at this link:
  3. This week, RECM also closed on a transaction to buy an interest in Noola, which designs and distributes prams, strollers, car seats and other accessories for babies and toddlers. We are very excited to work with the founders to help the business grow even more. If your family is expecting a baby, they only deserve the best. Check Noola’s kit out here. If you buy a pram from them, you will avoid this situation.

And remember, always be careful out there.

Piet Viljoen