Bullsh#t antenna working overtime
By Magnus Heystek
The litmus test for any investment: would you invest your mother’s money in it?
Some years ago, fund manager JP Verster described me in an article in the Financial Mail as someone who has a well-developed “b#ullshit antenna” when it comes to overzealous marketing claims by investment companies and also scam artists.
I took that as a major compliment and he is probably right: after 20 years as a financial journalist at various newspapers, all sadly now shrinking rapidly or gone, plus another 20 years in the investment business, have I seen many investment scams come and go.
I reported—and in some cases exposed—investment scams such as Masterbond, Supreme Bond, Newton Investments in the 80’s and 90’s and more recently Sharemax, Picvest, Leaderguard, and even the Bernie Madoff scheme.
The Sharemax story was an interesting one. I hosted a programme called RSG Geldsake for 11 years during the time Sharemax was launching one scheme after the other.
Naturally, many readers called into the radio and asked whether it was a good investment. After spending a lot of time reading the various prospectuses, I raised my doubts about whether it was a good investment, but I couldn’t come right out to say it on air. That would have led to immediate legal action by the promoters of these schemes.
I got around that problem by saying “I wouldn’t recommend this product to my mother”. Even this comment elicited a stream of legal threats, but I stood my ground.
In the end, it was a report in Rapport, written by Jacques Pauw about Sharemax that I engineered, that led to the collapse of Sharemax.
I took Jacques to The Fern Shopping Center, close to Dainfern where I live, which was the latest investment scheme promoted by Sharemax.
I showed him the prospectus which showed clearly that any investment made into the scheme was a loan to the developers, and not a direct investment into the bricks and mortar as was claimed by marketers of these schemes. Big difference and when the pawpaw hit the fan—investors lost almost everything.
Another scam I exposed was the MP-Investment scheme run from Vanderbjilpark in 2001 which was attracting massive amounts of money from unsophisticated investors in the area, many of whom had just been paid out retrenchment packages and early retirement lump sums from Yskor.
I called Marietjie Prinsloo – the MP in the name – and pretended I was interested in investing, asking her a lot of questions.
Based on her answers – or not – I wrote an article published in Rapport soon thereafter wherein I clearly said that the scheme was a scam and that investors must get out.
When I arrived at my office the next day my secretary came running to me saying “the phones are ringing off the hook”. Thinking that these messages were to congratulate me on my article, but I was wrong: they were mostly to attack me, calling me all names including being “from the devil” as I was killing off a very good investment scheme.
Not soon thereafter, the scheme was closed, and the operators ended up in jail with almost a billion rand gone.
It was this kind of experience over many years that shaped my “b#llshit antenna” which automatically comes out when I attend or hear an investment presentation. Even by some of the largest investment companies in SA, or the world for that matter.
Colleague Brian Butchart, now the MD of the Brenthurst group of companies, was present when representatives of Maddoff, operating out of Dubai, came around in 2007 to solicit business for their investment scheme, purportedly offering a straight line 12% return in US dollars. It was a classic case of “if it is too good to be true, it probably isn’t”.
No sooner had they left when I scribbled “rubbish” all over the prospectus and chucked it into the waste basket. A week later, the Madoff story hit the global headlines. I rummaged through my wastebasket and found my scribbled notes to show to a few people. I think The Citizen did a little story where I was quoted on this issue.
THE TEN LOST YEARS
Now onto more recent times.
It’s no secret that I have been writing and talking about the economic decline of SA over the past 10 to 12 years. In countless articles, radio shows, and television programmes, I pointed out the slow-moving economic train wreck caused by several factors, mostly attributable to the dysfunctional economic policies of the ANC.
These views, initially, did not endear me to the mainstream economists and fund managers who, no doubt, were under pressure to present a state of normality to the larger investing public. Invites to golf days and long lunches dried up. I wonder why?
I also suspect that I have been “ghosted” by several media outlets for many years now. I suspect it may be due to pressure from a large financial services company that is a big advertiser.
In particular, my recommendations to invest offshore—long before it became mainstream—did not go down well with local asset managers and economists.
Some of SA’s top economists almost stood in a queue to try and discredit my views, with one calling me “cynical and stupid” that I didn’t see the glowing economic future he was predicting (a growth rate of 4% and investment credit upgrades, etc.). He also took umbrage at my views that Pravin Gordhan was a poor finance minister.
The advice to invest offshore has since become mainstream, as I remarked recently, as almost every major asset manager is now on a marketing drive to somehow capture some of that capital flowing out of the country.
Sophisticated and well-informed investors are increasingly moving their offshore allowances offshore. As Standard Bank remarked recently—rather candidly, I thought—that the number of offshore accounts has risen by 126% over the past financial year.
Offshore has now become mainstream in the SA investment world, and rightly so, as the offshore returns over the past 10 years have been double and even treble the returns of the local market.
LOW HANGING FRUITS
I cannot count how many presentations I have attended over the past 10 years where the one after the other local fund manager has raved enthusiastically about the “low-hanging fruits” the JSE has to offer.
The JSE has shown sporadic bursts of outperformance, such as from November 21 to May 22—when global markets boomed, and the rand strengthened—only to fall back on a lack of follow-through buying from offshore investors.
They have relentlessly been major sellers of equities on the JSE, to the tune of R1,6 trillion since 2018.
I will only change my views when I see foreigners returning to the local market in greater numbers, for starters.
Perhaps the worst offenders in the “Uber-Optimistic” camp has been a large local insurance giant.
In March of 2019, it went on a massive countrywide roadshow to its broker force with its message “The JSE will be one of the best-performing markets in the world over the next 5 years”. This was also the headline of a front-page article in Business Day in March 2019.
I publicly disagreed with this very confident forecast and made a note to come back to it 5 years later. Lo and behold, five years later the JSE was one of the worst-performing stock markets in the world, with its flagship fund showing a return of a mere 4,3 % per annum over that period. The 10-year return, by the way, is 3,8% per annum, which includes costs, which would be another 1,5% or so.
In real terms, any investor who kept on drinking the “local is lekker Kool-aid” has become worse off in purchasing power terms over that period.
Offshore equity funds have grown at 16% per annum over the same time while other, more tech-centered funds have shown returns of over 20% per annum over the same period. But the large insurers and asset managers know they cannot go on a large marketing drive promoting offshore funds.
First, they will quickly come up against offshore capacity limits and, second, it would mean a large withdrawal from its local equity and balanced funds, which is their bread and butter.
The charade therefore must carry on. As it cannot fall back on historical returns, it needs to create the fear of losing out on the dubious expected future returns. And so, it was again two weeks ago during a media conference.
“The market is as cheap as it was after the sell-off in 2008,” a fund manager of a large company said at the media briefing reported on Netwerk24 on Friday 14th June. It would have been nice to get some comment on the reasons for the poor performance over the past 5 to 10 years.
Other asset managers, coincidentally with large offshore exposure and funds have been more honest in their assessment of future returns on the JSE.
In recent weeks both Allan Gray and Coronation have warned that the JSE could face another decade of poor performance unless the economic policies of the country are adjusted in a material way.
To confidently forecast a rosy future for shares on the JSE, is just marketing-speak in overdrive in my view.
In the same week, a leading economist was being quoted as saying that he sees the rand at around R14/USD soon.
At the beginning of 2023, he said he saw the rand at R15,20 to the USD. It ended on R19,20, just for context.
He is known in economic circles as being almost ‘exuberant” in his overly optimistic economic forecasts. Two years ago, he said economic growth would pick up to 2,5% per annum. Thus far it has been below 1% per annum.
A final note on the media’s role. I can understand that the large companies have massive advertising budgets, but that’s no reason not to question these over-optimistic projections. It seems to me the media is reluctant to question, criticize or cross swords with large companies. I hope I am wrong.
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*Magnus Heystek is a director investment strategist at Brenthurst Wealth, which celebrates its 20th anniversary this year. He can be reached at [email protected].
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