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 27th of June, the 179th day of the year. There are 187 days left until the end of the year.

Quote of the day

“If everything you do needs to work on a three-year time horizon, you’re competing against many people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people.”
– Jeff Bezos

This weekend, my favourite time of the year starts: the three weeks of the Tour de France.

The Tour de France is one of the most gruelling sporting competitions in the world. It consists of 21 stages held over the first three weeks in July. Each stage is an individual race, and winning can make a cyclist’s career. To win a stage, you need to take big risks. High-speed descending, repeated attacks and bunch sprints run the risk of a crash or going over your physical limits, which leaves you in bad shape for the next stage and the stage after that.

The winner of the overall Tour is the one who has the lowest cumulative time over all 21 stages, regardless of the outcome of any individual stage. The overall Tour winner gets the yellow jersey or the maillot jaune in French – the most coveted piece of apparel in sport.

To win this jersey, you not only need to be a top cyclist, but you also need a special team around you. A team that protects you, keeps you out of danger, sets the pace for you, and shelters you from the wind – keeping you around the “Tete de la Course” without expending too much energy. Enabling you to turn up tomorrow morning and do well again.

And again and again, for 21 days.

Sometimes, a rider can win the yellow jersey without winning a single stage. Over the years, 8 riders have done so, including Greg LeMond, Chris Froome and Egon Bernal.

Managing investments is like trying to win a lifetime Tour de France. It isn’t about a series of accomplishments or winning stages. That’s nice, but it brings great, often uncompensated risk. To win investment awards over the short periods of 3 or 5 years, you need to embrace volatility, as that is how to generate competition beating returns over those brief periods.

But volatility works both ways. What goes up a lot can come down a lot. And if you lose 50%, you need to go up 100% to break even. That’s hard.

By contrast, a long period of average returns results in an outstanding return over the whole period.

Over the past three years, 34% of equity funds in South Africa have outperformed the All Share Index. That’s not great. But if you take a step back and look at it over 5 years, the percentage drops to 24%. Zooming out even more, only 11% of equity funds are above average over ten years. This 11% is subject to strong survivorship bias, as investment houses tend to kill off their poorly performing funds. The actual percentage of race-winning funds is way lower.

The index – the stock market’s average return – beat (at least) 89% of actively managed equity funds over 10 years.

That’s why investing is so much like the Tour de France. Many can win stages, but very few can win the overall Tour. To do so:

  1. You need a good team around you. Domestiques keep their lead riders safe, fed and watered and will work to chase down breakaways or try to dictate the pace of the stage. Investment teams can do appropriate research, ask the right questions, and help develop investment ideas.
  2. You need to avoid crashing out of the race. Concentrating your investment into a risky proposition can sometimes turn out well but often doesn’t. Your portfolio crashes, your race is over.
  3. You should always have an energy reserve to get up tomorrow and be ready to race again. If you expend too much energy too soon, you blow up. Picked up by the broom wagon, your race is over. This equates to building an adequate margin of safety into your investment decisions.

And you don’t need to win any awards in your long-term investment race to win the general classification of investing. Investment awards are a MacGuffin invented by the industry to help it sell more product.

“New lows are bearish”

1. Palladium

The palladium price chart does not look healthy. It’s down 68% from its all-time high in 2021. Excluding Brait, very few assets have done this poorly over the past 3 years:

Palladium chart

In his newsletter this week, The Passive Income Guy (@hazelwood_dave, on X) made a solid downside case for the Platinum Group Metals.

It boils down to increasingly fewer PGMs used in catalytic converters as the world moves to EVs. Palladium is especially vulnerable, as 90% of palladium production is used in catalytic converters.

He pointed out that the one hope for PGMs had been the move to hybrids, which use more PGMs, for technical reasons, which he explains very well. But now there is a “New Hybrid” with extended-range engines. They use a lot less PGM’s than old hybrids.

My take: a few years ago, when prices were rocketing, Palladium was the belle of the ball. But now it seems to be on the wrong side of a technological sea-change. This is not good for that previous high-flyer Sibanye Stillwater. More importantly, this is also not good for South Africa, as PGMs are a significant export for us.

I recommend a subscription to his newsletter. I don’t agree with everything he says, but he does good work.

In news just out, Sibanye’s purchase of a palladium mine in the USA – offshore diversification anyone? – looks increasingly misplaced.

“New highs are bullish”

1. Lewis Group

Lewis Group is the poster child of South African small-cap shares. It sells furniture to lower LSM consumers, using credit as a marketing tool. This is something the high LSM fund managers hate. They pay cash for their designer furniture and cannot comprehend that a house-proud person in LSM 3 cannot do the same.

On top of that, Lewis’s market cap is only R3bn – such a tiny little company. They could never justify a speculation like this with their index-tracking institutional mandate!

Lewis also has no interest in any offshore businesses. Let alone an AI angle. Are they stupid or something?

This is how the average institutional investor thinks about Lewis.

But then Lewis says – hold my beer! –  and proceeds to buy back over a third of their shares in issue over the past 5 years:

Lewis shares outstanding

Over the same period, their net income has almost doubled from R216mn to R425mn.

Lewis net income

Per share, their earnings have grown from R3,07 to R8,05 over the past 6 years, despite Covid. That’s a growth of 17% p.a. over the past 6 years. It is not exactly a slouch compared to Naspers, whose earnings per share has flatlined since 2018.

My take: Lewis is like the little engine who could. A good business, run by people who are both good managers and good allocators of capital. A rare combo. But best of all, you can still buy the shares at below liquidation value (current assets minus all liabilities) despite their share price having tripled from pre-Covid levels:

Lewis share price

This is one of the more significant positions in the MWI Value fund, which owns many others like it. The South African share market is rife with opportunities like this.


I know we are all very depressed about our weak currency. But spare a thought for the Japanese, who have seen their currency depreciate by almost 20% against the Rand since the Rugby World Cup of 2019:


When the Springboks won the Rugby World Cup in 2019, the Rand bought you around 7,3 Yen. Today, you can buy 8,9 Yen for every Rand.

My take: The Cherry trees blossom in April. If you like travelling, book your tickets now. And stop whining about the Rand. There’s always someone better off than you, but  – there’s also always someone worse off than you. So just get on with it, and take your gaps when they come. Right now, the gap is in Japan, which is a fantastic place to visit. Yokatta!

3. Amazon

Yesterday, Amazon joined the $2 trillion club, closing at a new all-time high:


I have nothing insightful to add here. Amazon is a widely held stock, with an army of analysts covering its every move. It’s launching a discount store to compete with Temu and Shein. Who knows if that’s the reason for the move?

My take: On a P/E of 54 times and a free cash flow yield of 2,2%, this one has to do much growing to justify its current share price. But the market seems to think it can, so who am I to argue? If you hold this – I don’t – dancing close to the door would make sense.

Did you know?

1. The “green” energy movement has problems

I’ve always believed that consumers are savvy and governments are not. The invisible hand of the market will guide consumers to what is best for them instead of the heavy hand of the government pushing them in an unnatural direction.

Today, the “green” energy movement is one of the most heavily subsidised industries ever.

And this makes me suspicious. I don’t have the technical know-how to advocate for or against categorically. But let’s just say my “Spidey-Senses” are tingling. This article highlights some of the issues.

Look, I’m not saying the author of that article is unbiased. But when:

  • One of South Korea’s deadliest chemical fires led its president to call for improved industrial safety measures after at least 22 people were killed at a lithium battery factory
  • BASF pulls the plug on their $2.6bn Nickel project due to waning EV demand
  • Ford suspends new EV models after losing $1.3B from its EV division.

You must wonder what’s really going on.

My take: I wrote about abundant, positive-sum thinking vs Malthusian zero-sum thinking in “Malthusian Malady” earlier this year. The bottom line is that the negativity of the Malthusians won’t win the debate; the common sense of the average Joe is a far superior weapon.

2. Bill Gates is building a nuclear facility.

I had always thought Bill was one of the Malthusians. His views on COVID-19 were a case in point. So why is he so pro-nuclear, a clean, abundant source of energy, when his WEF friends are encouraging us to develop a taste for bugs instead of meat and wear jerseys instead of turning up the heat?

It’s a puzzle – unless he has realised that all the data centres, LLMs, AIs and other computing infrastructure will need much more energy than the system can produce.

In any case, AP News reports the Microsoft co-founder and chairman of TerraPower was in Wyoming to break ground on its advanced nuclear reactor.

My take: I have a few strongly held opinions, and nuclear energy is one of them. For a change, I am in the Bill Gates camp. What could be better than abundant, continuous, clean and safe energy?

What I’m reading

Universe 25

This was brought to my attention by the blog “Cultish Creative“. It’s a piece called “Is Silicon Valley Building Universe 25?” on Ted Gioia’s substack, The Honest Broker.

It’s a scary read.

The short version is that a scientist named John Calhoun built a “paradise” for mice. An environment where they lacked for nothing, food and water on tap, no hamster wheels to spin, no predators or disease, and all needs and desires met.

The upshot was that around day 560, the mouse population stopped growing and started declining. Eventually, the last living mice in Universe 25 were totally anti-social. They had been raised without maternal affection and nurturing and grew up in a society of extreme narcissism, random violence, and disengagement.

For humans, our phone provides for all our needs. There’s an app for whatever you want – a pizza, a driver, a lover, a game. Who needs friends or family, if you have the latest iPhone? With the rise of AI and algorithms, you don’t even need to choose. The technocracy tells you what you need and delivers it immediately.

Provocatively, Gioia asks: Is Silicon Valley building a Universe 25 for humans?

My take: I am trying to consciously spend less time on my device. I won’t upgrade my phone, even if the new one can take better pictures. I also spend more time reading actual books than “reading” my phone. But it’s not easy; the algorithm wants to pull you back in all the time.

Look, I’m not arguing for some Luddite way of life, ignoring the benefits that technology brings to us. But I do think we have to be careful here.

What I’m listening to

Ted Seides’ podcast, Capital Allocators.

Famously, Ted Seides was the person who bet Warren Buffett that a fund of hedge funds – put together by Seides – would beat the S&P 500 index over 10 years. Seides lost badly. But he does have an excellent podcast. This week, he interviewed Ben Hunt.

I have mentioned Hunt before in these letters. He is the creator of Epsilon Theory (another site well worth subscribing to). Epsilon Theory is all about seeing the world through the stories we tell each other. Hunt says narratives drive markets, and he studies these narratives.

Notably, he says that it’s not essential to understand what we as individuals believe or that we understand what the crowd believes, but that we understand what the crowd believes that the crowd believes.

The money quote:  “Every time you read something, you should ask yourself, why am I reading this now?”

And another piece of advice from Hunt: “Always go to the funeral”. It’s not always easy to do so; but there’s a nuclear reactor of positive effect and energy for those who go. The bereaved and the other attendees create a strong, positive human bond.

My partner, Jan van Niekerk, pointed out this podcast to me, and I found it fascinating. I hope you do, too!

The podcast is on Apple or Spotify.

What I’m watching (apart from the Tour de France, that is):

Nick Cave and the Bad Seeds have a new album called Wild God, coming out at the end of August. I know you, just like me, are on tenterhooks in anticipation.  In the meantime, here is a teaser – the making of Wild God part 1:

And here is the making of Wild God part 2.

In other news, our listed investment holding company RAC released its results this week. The big news is that RAC is changing from an investment holding company to an operating business. It will also change its name to Goldrush to reflect this new reality. Goldrush is one of the leading alternative gaming companies in South Africa. You can read about the results here.

At the same time, our BEE investment company, Beagle, also released its results. The RECM Foundation is one of the cornerstone investors in Beagle. Over the past 14 or so years, Beagle has compounded its NAV per share by 27% p.a., placing the Foundation in a robust financial position. You can read more about Beagle here, the shareholder’s letter here, and the RECM Foundation here.

That’s it for this week.

And be very, very careful out there.

Piet Viljoen