Regarding… Vol 3 no 1 – Review of 2024

Dear Fellow Investors and Friends,

Welcome to the first edition of my investment (and other) musings for 2025. For those of you who are new, this letter is where I share my efforts to make sense of the world around me.

I do appreciate you taking the time to read this.

Today is Thursday, January 16th, the 16th day of the year. There are 349 days left until the end of the year. Right now, all those New Year’s resolutions are still in play. Good luck with them. And for those of you who, like me, set specific goals for the year – time flies, so make sure you execute on them daily! Before you know it, you’ll be wrapping your Christmas presents, thinking about what could have been.

Instead of discussing current market events, I’ll use the rest of this letter to review the year from a market, professional, and personal perspective. It’s quite long, so settle in…

Here is a nice summary of market movements for the year:

By @Richards_Karin

Our favourite currency, the Rand, weakened a bit against the US$ but strengthened against the Euro and Aussie $ while essentially flat against the Pound. Proving once more – given our interest rate differentials with the rest of the world – that it pays you to keep your cash in ZAR. Which nobody, of course, does.

The other standout item was the continued strength of US markets, with Japan not far behind. South Africa’s stock market performance was disappointing, albeit mainly due to weakness in resource stocks, driven by weak commodity prices, except for gold, which performed exceptionally well. Most emerging markets followed South Africa’s lead.

What is not shown in the table is how well China performed – its equity and bond markets were amongst the best-performing assets in 20204. I always find it interesting to look at what is missing. China is missing from most analysts’ bingo cards, as it is considered “uninvestable.”

Themes that defined 2024:

• Elections. Over 40% of the global population went to the polls. Results tended to go against most incumbents, with a distinct leaning towards the right. The “globalist technocrats” lost a lot of ground, which is not a bad thing. People are tired of net zero, and other woke nonsense. Now that the US has broken the ice, you will see one country after another shift. I intend to write about this in the future, as it will significantly impact the market.
• The US economy proved to be a lot more resilient than many expected, and this, coupled with 100bps in rate cuts, was a potent cocktail for returns.
• Chinese rates are declining to multi-year lows, while US rates are testing recent highs. This is a significant occurrence, and I will write about this in due course. Who would have thought the Chinese bond yields would ever be lower than US yields? This chart from Albert Edwards shows a picture of one of the most critical events in recent market history:

Figure 1: 30-year yields

• The Middle East and Ukraine are high-profile battlegrounds, but proxy wars are being fought everywhere. Christine Lagarde summed it up nicely: “We are witnessing a fragmentation of the global economy into competing blocs, with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values”. This will have consequences.
• Legacy media further accelerated into hell and increased financial ruin. Given their blatant disguise of (highly biased) opinion as news, I couldn’t be happier. Bring on “alternative” media.
• The most significant business story of the past year is not artificial intelligence but the success and proliferation of the Chinese car industry. It’s akin to the Japanese car invasion of the seventies. Seen as junk in the late sixties, the perception had flipped by the decade’s end. But the difference here is that Japan did a better job than Detroit was already doing, whereas China is doing something brand-new.
• Unsurprisingly, the much-hyped alternative energy sector is struggling despite government subsidies. This chart tells you more about the odds of the “energy transition” succeeding than any so-called expert.

The Japanese Yen remained super weak. Today, the cost of a ski pass in Vail, Colorado, is US$295 per day, compared with US$65 in Niseko. It’s now cheaper for someone from Los Angeles looking for a five-day skiing holiday to go to Japan than to head to Colorado. I’ve skied in Niseko, and it’s great. While the Yen is so weak, Japan should be at the top of your “places to visit before I die” list.

As for 2025?

Jason Zweig said, “Look back on 2024’s results. How much of that was in your forecast? Now, take the ideas you have the highest conviction about and ask yourself: Do I know what’s going to happen, or do I only think I know?”

Take heed of his advice.

Finally, as a clear sign of the times, two short-selling firms closed in 2024: Jim Chanos’ firm and Hindenburg Research. This is sad, as short sellers add a lot of value to markets regarding the price discovery process. The bad rap they get is unfair.

I co-manage this fund with Rudi van Niekerk, who replaced Brian Pyle during the year. I have been working with Rudi for a couple of years now, and he is an outstanding portfolio manager (more about him later).

The fund once more outperformed the JSE All Share Index, continuing its long track record of doing so. Toward the end of the year, it enjoyed some good inflows. As one of the few remaining value-orientated funds in the market, it is well-positioned for the future.

The fund once again delivered inflation-beating returns in US$ – continuing its track record since I changed the process in August 2020. Importantly, it has done so with extremely low volatility and high levels of liquidity. If you need your money – it’s always there, in real US$ terms.

I have a lot of fun co-managing this fund with Daniel King of Merchant West (more about him later). Although we rarely transact on the fund, there is always much to discuss and consider. Dan is a smart guy – he is great for bouncing ideas off.

I love managing this fund, where I have allocated most of my liquid investments.

2024 was an exciting year for RECM. We changed the name of our holding company – RECM Group – to Maximus Corporation and my business partner Jan is now the major shareholder in Maximus, with Theunis de Bruyn and myself as junior partners.

Amongst other assets, Maximus houses our investments in Questco, Wells Faber and Merchant West Investments.

Questco has had another good year, cementing its position as one of the top independent corporate finance boutiques in South Africa. When it comes to corporate finance, apart from a reputation for skills, integrity is the most important attribute one needs for a long-term business. The team of Mandy Ramsden, Ciska Kloppers and Nick Stevenson have been consistently building both their skills base (this year they added Fixed Income Sponsor capabilities and clients) and their reputation.

At WellsFaber, Carol Axten led the business to a record year of inflows and performance, as more clients entrusted their savings to our colleagues.

Merchant West Investments underwent a refreshing leadership change, and under new CEO Daniel King and CIO Ray Shapiro, the firm’s investment track record stands up to any other institution in South Africa.

I am proud of our association with all three firms.

Maximus also houses Capra, a new investment entity we created with our partners Anthony Steward and Tim Knapp. So far, Capra has made one investment, acquiring a stake in fast-growing Noola, a business specialising in high-quality baby products, particularly strollers and prams. If you or someone in your family is in the market for that sort of thing, check them out. We are super excited about our association with entrepreneurial founders Tatum Billson and her husband, Michael.

RECM Global manages Astoria, our Mauritian-domiciled investment company. It also houses our investment in Desert Lion, and it is the holding company for RECM South Africa.

Astoria is trading at a significant discount to what we believe is a conservative NAV. The market is sending us a clear message – don’t make any new investments and unlock the value. We hear it loud and clear.

Desert Lion is a US-domiciled investment company managed by Rudi van Niekerk. It invests only in South African shares and is aimed at the US market. It shot the lights out last year, returning 34.4% in US$ terms, and is well ahead of benchmark since inception. Desert Lion is a valuable diversifier for American portfolios. I’m sure it will start garnering more attention in future.

RECM South Africa houses our investment management business, which is responsible for managing Goldrush Holdings, our Hedge fund, Beagle, and the MWI Worldwide Flexible fund (aka the cockroach).

During the year, we finalised the restructuring of RECM & Calibre. We sold all remaining non-core assets and changed its name to Goldrush Holdings, as the only asset of any substance is now our 59% stake in Goldrush, the alternative gaming company. Goldrush had a tough year – industry dynamics are changing, and the consumer remains constrained by low economic growth and high interest rates. Under the leadership of Mergan Naidoo, Goldrush is doing a good job of navigating the changing environment – and we think it’s only a matter of time before the economy improves.

Our hedge fund, managed by Jan van Niekerk, had a muted year, for a change. It generated returns well above inflation but behind the All Share Index. Since its inception, it has remained well ahead of its benchmark, the All Share Index, and inflation.

Beagle – our BEE investment company – had another fantastic year, growing by 41,3%. Since its inception 14 years ago, it has compounded its NAV per share by 27,4% p.a. Its anchor investor, the RECM Foundation, has benefitted tremendously from this. Through Beagle, the Foundation has built a strong capital base from which it has now developed a sustainable giving program in partnership with the Centre for Early Childhood Development. The Foundation welcomed a new trustee on board – Ms Alicia Davids. I am thankful to her and the other trustees for their selfless guidance in managing the affairs of the Foundation. BEE investing and philanthropic giving can often be quite murky areas. I am proud of how Beagle and the Foundation have managed to avoid controversy and always kept a high standard of ethics. A special shout out to my wife Amanda, who has assisted the Foundation in developing a high-quality philanthropic program – for no remuneration at all.

During the year, I raised an investment consortium to exclusively invest in small and mid-cap South African listed companies. It’s called the “RECM Goede Hoop Consortium”, after the castle here in Cape Town, symbolising hope and opportunity. Small South African listed businesses are trading at significant discounts, and I think this will be unlocked over the next few years. If so, there is tremendous upside. If not, the downside is limited. Either way, we will return the proceeds of this adventure to the investors within the next 2 or 3 years as we think that is the appropriate time frame.  I was the first investor, and so far another 8 investors have joined me – all friends and family. Let’s see where this journey takes us. The consortium is closed for new investments.

My wife Amanda finally won the argument. After our landlord terminated the lease of the apartment we had been renting for almost six years, we ended up buying one. Playing “Homeless” by Paul Simon every evening while we were looking for a place to stay probably contributed to the eventual outcome. So, in future, whenever I comment about what a lousy investment property is, just ignore me. I no longer have any credibility on the topic.

All three of our sons had good years. Nic got a new job at a prestigious investment firm, Zach – in London – managed to work the system and have more holidays than working days in his first year of articles, and Ben landed his first job right here in Cape Town. Nic and Ben both have wonderful girlfriends, too. Our family is growing, and the payroll is shrinking. Both of these things make me happy.

I read fewer books than I had aimed for. 15 was the target, but I only managed 7. #fail.

They were:

1. Snow Crash by Neal Stephenson.

“Snow Crash” is a cyberpunk novel published in 1992. It foreshadows much of today’s technology and is set in a futuristic America where virtual reality has become indistinguishable from reality. It’s a great read, and it’s hard to believe it was published before the Internet became ubiquitous.

2. How the world works, by Vaclav Smil

The key messages: climate change is real, but what we do about it has to be realistic. Importantly, expectations of a “climate apocalypse” are unrealistic. We have enough resources to last a long time. Plus, humans are adaptable and ingenious. Also, large systems are by nature inert, so the fundamentals of our lives will not change much over the next 20-30 years. As a result, “Net zero” is not a sensible response to climate change – based on science, not opinion. It is a must-read for anyone interested in the science behind energy and natural resources.

3. Slaughterhouse 5, by Kurt Vonnegut.

This book tangentially examines the horrors of war – never too much horrible detail, but enough to make the reader realise how bad it is. Vonnegut does so in a style that is funny and sad at the same time. It’s a fantastic read.

4. Elon Musk by Walter Isaacson

Amongst other things, Isaacson is the ex-editor of Time Magazine. So he can write. But does he have to write such fawning drivel? Undoubtedly, Musk is a genius, but he is a flawed genius like most of them. A much more interesting book would have explored these flaws and how they correlate with his genius.

Of course, he probably would not have authorised such a biography.

I read the book to learn more about the man who has created more unicorns (billion-dollar companies) than anyone else. Surely, in doing so, he would have discovered profound truths about the human psyche and what drives consumer preference.

Surely, I would come away with valuable insights on how to scale businesses based on these truths and preferences.

But no, nothing of the sort was available. Just platitudes and thinly disguised hero-worship. But well-written and quite readable platitudes.

The least you can say about Musk is that he is an interesting character. Eleven kids (the last two of which are named  X Æ A-12 and Exa Dark Sideræl, understandably nicknamed X and Y) with three women is just the start.

I wouldn’t go out of my way to read this. This column by Sam Harris provides a lot more colour for better insights into the man.

5. Think Twice by Michael Mauboussin

Appropriately, this is the second time I have read this book. It is a punchy but easy read and the definitive guide on thinking about the decision-making process.

Mauboussin highlights seven practical tools you can use immediately to change your decision-making process for the better:

• Raise your awareness (mistakes are everywhere)
• Put yourself in the shoes of others (the outside view)
• Recognise the role of skill and luck (reversion to the mean)
• Get feedback (use a journal)
• Create a checklist (make sure you consider all essential angles)
• Perform a premortem (try to identify weaknesses beforehand)
• Know what you can’t know (which is most often a lot more than you think)

6. The Road to Serfdom by F.A Hayek

This seminal work, first published in 1944, critiques socialist planning and central control, arguing that these systems inevitably lead to totalitarianism and the erosion of individual freedoms. Once you’ve read it, you will understand the drivers of the narratives surrounding wokeness, BLM, climate change and other red-button topics.

Alec Hogg of Biznews kindly gave me the book. It is a gift that will keep on giving for a long time. Thanks, Alec!

7. The Stalin Affair, by Giles Milton

This is an excellent book that has as its primary take-away – for me, at least – how much luck was involved in winning World War 2. It could have gone either way, with terrible consequences. It also showed how calculating Stalin was and what a buffoon Churchill was – albeit precisely what Britain needed at the time.

The other interesting fact was how well the politicians lived while everyone else was on near-starvation war rations.

Plus ça change, plus c’est la même chose.

It is a well-written story that reinforces the importance of reading history.

In conclusion, upon reviewing my reading list, I was struck by how much I had learned from this short list of books. And the best books on this list were the oldest ones.

I WILL read more this year!

As opposed to my underperformance in the reading stakes, I did listen to a lot of music again in 2024. Many of you have asked about my “best of 2024: music playlists. Well, here they are:

First, the top albums for the year on Apple and on Spotify.

My vote for album of the year was a tie between Waxahatchee’s alt-country personal and introspective Tigers Blood and Father John Misty’s existential Mahashmashana. Andrew Bird’s Sunday Morning Put-On’s pleasant melodies weren’t far behind. Nick Cave did some of his best work in a long time, while The Smile (effectively a slimmed-down Radiohead) put out an album that took a while to digest but got better with each listen. St Vincent once again hit the ball out of the park. I know Beyonce put out a “country” album – but there was some excellent, real country music this year, Zach Bryan’s The Great American Bar scene leading the pack. Beyonce did identify the zeitgeist, though – country music is where it’s at.

Those are just the highlights, but all these albums deserve some of your time.

Here is my long list of favourite songs, unfortunately only on Apple.

Finally, the top 20 songs on Apple and on Spotify.

There is quite a lot of pop music here, with Torres, Dehd, The Last Dinner Party (quite ABBA-esque, in a way) and Billie Eilish. Sometimes I’m just a sucker for a well-crafted, popular tune! But there are some more reflective songs by Father John Misty (She Ceans Up is a reflective banger!), Waxahatchee, Bon Iver and Adrian Lenker (of Big Thief fame). A few country songs – I’ve included songs by Zach Bryan and Post Malone(!) but could have added at least 5 other country tunes. As I said, country is where it’s at.

The last song is one of the songs that affected me the most during the year: “Conversion” by Nick Cave and The Bad Seeds. It requires the volume dial to be turned all the way up.

And no, “Hop Hop Spinnekop” didn’t even make the long list! I would actually pay not to hear that song again.

I hope you find something you like – and didn’t know about – in this diverse “catalogue” of music.

My fitness goals for the year were to bench-press my body weight and be able to do ten (wide grip) pull-ups. I failed with the pull-ups (too fat) but succeeded with the bench press. In his book “Outlive”, Peter Attia says strength (a high grip strength) and fitness (a high VO2 max) are the two most important markers for being able to have a high-quality, long life.

This year, I aim to continue building on my gains in both metrics during 2024.

My other goal this year was to increase the circulation of this letter to 2,000 subscribers after starting the year at 624. Well, I failed in this, too, reaching 1,560 by year-end. But I’m not disappointed – I enjoy writing every week. In the process, I’ve learned a lot about myself and about topics I thought I knew something before I started writing – and then found out how little I actually knew.

I am gratified that so many people take the trouble of reading my weekly musings. I get a lot of feedback, mainly positive but sometimes negative. I enjoy both kinds, so keep it coming!

My goals for this year?

• I will continue my strength and fitness training but aim to lose 8kg. That’s the only way I’ll be able to do those pull-ups. This means I will have to cut down on my wine consumption. As they say, no pain, no gain!
• Read more. Seven books are too few – especially considering how much one can learn from reading. Especially from old books. This means I will have to cut down on watching sport. That will be hard, but I have also realised I am too invested in teams like the Stormers, Arsenal, Proteas, Bafana and others. I will, however, remain fully invested in the Springboks.
• Keep up the writing. It is one of the most fulfilling journeys I have embarked on in a long time. Last year, I wrote 46 letters like this. I aim to do the same this year – plus additional, mainly personal, writing.
• I continue to believe the asset management industry in South Africa is way overtraded and desperately needs consolidation. To the extent I can help MWI play a role in this consolidation, I aim to do so. Sanlam and NinetyOne are leading the way; the rest of us should take their lead.
• The cockroach deserves a lot more bandwidth from investors. It does a job many investors need, and it does so at a low cost. I will continue to spend a lot of time building out its presence.

That’s it for this week – I’ll return to my usual format next week. Do you have any views on whether I should change it a bit? Let me know.

And remember always to be very, very careful out there!

Piet Viljoen
RECM