RYK VAN NIEKERK: Welcome to this week’s edition of the Be a Better Investor podcast. My name is Ryk van Niekerk and in this podcast series I speak to leading professional investors and business leaders about investment and we take a peek into their personal investment approaches and portfolios. We try to understand how they analyse investment opportunities, which companies and assets they invest in – and whether they have more hits than misses. The idea is to identify a few golden nuggets of wisdom to help amateur retail investors to become better investors.
My guest today is Craig Pheiffer. He’s the chief investment strategist at Sasfin Wealth. Now, he has had a very interesting investment journey. He was the chief investment strategist at Sasfin in the early 2000s. He was in this role for around seven years, then moved to Absa Stockbrokers for around 16 years, and then moved back to Sasfin and assumed his old role as the chief investment strategist.
Craig, thank you so much for your time today. It’s an interesting investment journey. Why did you return to Sasfin? Many people won’t return to a company they’ve worked for before – especially after you were at Absa for 16 years.
CRAIG PHEIFFER: Well, I think when I left Sasfin in the early days in 2007, it was more about just getting broader exposure. I think in those days you sort of felt like you’d done it all. You were doing a lot of repetitive stuff every month and you wanted to broaden your horizons – or I wanted to broaden my horizons. You get maybe the imagery of thinking you’re a big fish in a small pond, and now you want to see what you can do in a bigger pond.
So I went out to Absa. Yes, it was a good 15-odd years there. The company also morphed. I joined as the head of the private-client asset management business, which eventually, over time, merged with the stockbroking business. There were a lot of similarities in the back office, and even in the front office. So that’s why we joined those two companies together.
And yes, it was and is just the investment game. Wherever you are, it never gets any easier. But it’s exciting and I think I just wanted to go into Absa to see how I could fare, myself, in a big environment.
RYK VAN NIEKERK: It never gets easier. We’ll talk about that in a minute. But let’s go back. Where did you grow up and when were you first exposed to the investment world?
CRAIG PHEIFFER: When I was born my parents lived in a block of flats in Louis Botha Avenue, overlooking St John’s in those days. I still drive past there sometimes when I’m brave, and see where we used to live.
RYK VAN NIEKERK: Now you just need to watch out for those taxis.
CRAIG PHEIFFER: Yes. But eventually, long story short, I ended up in Alberton just before my ninth birthday, and I’ve been in Alberton ever since. Always a long journey in the mornings or whenever into the office in Sandton. Invariably I’ve worked in Sandton, and the traffic’s never great. So Covid was a good experience from that point of view because I didn’t have all of that travel, and you sort of got used to having more time on your hands to do what you’re supposed to be doing, rather than travelling. But even this week, going back one afternoon took me two hours to get home on a bad day with the rain and the load shedding and the robots.
So yes, I’ve been in Alberton virtually all my life, coming up to be 57. So that was [from] just before my ninth birthday. There was a time when we looked to move closer. We spent about a year looking at houses closer to Sandton and eventually moved a kilometre away from the old house.
RYK VAN NIEKERK: And the investment world – when were you first exposed to it, and when did it start to really tickle your fancy?
CRAIG PHEIFFER: I had an interest in it very early on. When I was at varsity I was aware of the financial markets. This was sort of the mid-80s.
RYK VAN NIEKERK: You studied economics.
CRAIG PHEIFFER: I first did a BSc in computer science. That was what I did at Wits.
I think to this day that I did the wrong degree initially. At that age – I was 17 when I went to varsity, 17 and-a-half – you’re not quite sure, you don’t always get the right guidance. I just knew I wanted to be in computers at that stage.
When I was at school, I had a little ZX80 computer. It had a little membranous keyboard. It had 1KB of memory, and you could get a little 16KB add-on in the back.
RYK VAN NIEKERK: I remember those. I’m also giving my age away.
CRAIG PHEIFFER: So it was all about computers. But what I should have done was probably go into business information systems on the financial side, sort of a BCom in that space, because that was probably one of my two loves – or my two interests – at that point in time. But I did the computer science degree.
I looked around, did my military service, ended up doing 18 months. It was just being phased out then.
I remember I got two job offers after all my interviews. The one was for R2 200 at the stockbroker, and the other was at R2 800 at Unilever. That was a massive difference in the money. But I chose to go to the stockbroker because that’s where I was more interested and I thought that’s where I wanted to have my career.
In my varsity days, my first little foray into the markets I think was buying Iscor shares.
RYK VAN NIEKERK: Was that the very first share you invested in?
CRAIG PHEIFFER: That was the very first share. I got to experience Black October. Things don’t always go up in a straight line – or even up.
When I joined the stockbroking business, the first share that I bought was MacAdam’s Bakery Supplies. I don’t know why. There was nothing about valuations or anything.
I didn’t know anything. I was doing a BCom part-time at that point in time. So it was one of those things – maybe it just seemed sexy as far as bakery supplies go.
RYK VAN NIEKERK: Did you make money on Iscor?
CRAIG PHEIFFER: I did in the end, because they unbundled and they also had a lot of rights issues or splits, and I stayed with it the whole time. We got Kumba out of it and Exxaro.
RYK VAN NIEKERK: Exxaro, yes.
CRAIG PHEIFFER: And then your [Arcelor]Mittal shares, which just went south after that.
RYK VAN NIEKERK: Do you still own that?
CRAIG PHEIFFER: I still hold all of them, to be fair.
RYK VAN NIEKERK: But the net effect would be a big positive. Exxaro and Kumba have performed phenomenally at times.
CRAIG PHEIFFER: At times, yes. [Laugh]
I think that probably comes down to my strategy – or maybe it’s just neglect sometimes. It is to try and buy good shares and keep them for the long term, just hold on.
RYK VAN NIEKERK: Buy and forget.
CRAIG PHEIFFER: Yes. That works probably with 90% of the shares. But you have to continually look at them as well, and monitor them. You don’t necessarily have to trade them.
But I think too, you do your homework, you buy the shares and you just stick them away generally.
RYK VAN NIEKERK: Let’s talk about that – doing your homework. So you were a very young, excited individual entering the stock market or stockbroking business. How did you do your homework, because I would assume it was totally different to the way you do it today?
CRAIG PHEIFFER: Yes, in those days, I think I took a lot of guidance from my mentors, those people I reported to or worked with in the business. I like to think that one of them was an angel on my left shoulder – there were two of them – and the other was a little bit of a devil on the right shoulder.
The angel would tell me, ‘Buy good shares and keep them, don’t trade in and out all day’. The one on the other shoulder would say, ‘Buy those gold shares in the morning, sell them in the afternoon’.
The angel on my shoulder pulled me aside one day and said, have a look: which of the two of us is the most successful here? That was quite a defining point I think for me as to how I developed my overall investment philosophy or how I thought about markets.
You can do a bit of trading, and sometimes it’s exciting to do that, but it’s on the side with a small part of your portfolio.
Rather look at good stuff – and I’ll get to that, valuation, or the ‘what’s good stuff?’. My little angel helped me there with what I think was my very first investment, and that was in Sasol shares.
I remember at a point in time I got a bonus of R2 000 and I went out and bought 50 Sasol shares at R40, and I just kept them. I still have those shares to this day. Maybe that’s not a good thing anymore. But over time that idea was also reinforced by my father-in-law, who also liked to dabble in the markets. He had his own investment portfolio, but he loved it that I was in the investment business and I was the guy he could always chat to about things.
But he always reminded me that he bought Sasol on day one when it listed at R1 or R2. I think they were R1 and they started trading at R2 or something like that. And he also just kept them over the years and, when he passed, we had to sell them out of the portfolio eventually.
RYK VAN NIEKERK: I think one of the benefits of being a long-term investor, especially when you invest directly into equities, is the dividend yield. A company like Sasol may have been for the past few years an anomaly for reasons we’re not going to go into. But have you calculated what your dividend yield is today, based on what the dividend paid, say, last year, and based on the actual investment amount you put in a few years ago?
CRAIG PHEIFFER: I haven’t done that exercise. But if you could think about even the cost price in a year, in later years you were earning a dividend that was virtually equivalent to what you had paid for the share. You got that multiple times and it continues to pay. The company as well has come into its own troubles, as we know. The world has moved on and it’s becoming greener.
Sometimes, if you hold a share for decades, management changes and it’s not always the same people you invested in, in that company.
That’s why you have to keep looking at it, and investigating that it’s still good, fit for purpose.
RYK VAN NIEKERK: The longer you own a share, the more cycles there will be. It’ll be interesting to see what Sasol does over the next few years, because it definitely needs to refocus and restructure the business in a greener economy.
That brings me to the point that many people buy a share for the long term and it performs really, really well. Should you look at a possibility of exiting that share to take a profit and maybe invest it in something else? How do you think about that decision – when to get out after a good performance?
CRAIG PHEIFFER: That’s why I think you do need to continue to evaluate whether the company remains a good investment. It’s not the case that if I’ve got, say, a one-year target price today and it reaches that price tomorrow, I’m necessarily going to sell that, [either] for myself or for the investments for our clients.
We buy these shares – now I’m talking from an investment manager point of view – for a much longer time horizon.
I’m thinking now when we look at shares we want to hold them for 10 years plus, that kind of time frame.
RYK VAN NIEKERK: Does it always happen? All of the investments Sasfin makes, do you hold them for 10 years? Or how often do you deviate from that strategy?
CRAIG PHEIFFER: Look, sometimes shares just become really, really, really expensive on a valuation point of view, and you kind of feel compelled to do a little something. We did that, we cut back on Nvidia and that was the wrong thing.
RYK VAN NIEKERK: When did you cut back on Nvidia?
CRAIG PHEIFFER: It had grown quite chunky in the portfolio and we cut it down at about R400, and now it’s R600-odd or whatever. So that might not be the best example of doing it. But it was a risk-management tool in the overall portfolio. When a share just gets too big in a portfolio, you want to do it more from that point of view than maybe for the individual merits of the share itself.
Again, there is merit in being concentrated, I think, in the portfolio – not having hundreds of shares and diluting the performance of all of your shares.
RYK VAN NIEKERK: I think the key point is you don’t need to sell everything when you decide to reduce your exposure because sometimes, if a share becomes 20%, 25%, 30% of a portfolio, it presents an inherent risk. So you can trim it down and invest it somewhere else – and yes, you can make mistakes. In 20-20 hindsight, all the mistakes are very, very clear.
But that is an interesting strategy to follow, and it’s one you really need to craft to perfection. I don’t know if that is possible, but how much do you actually trim it down when it has performed really well?
CRAIG PHEIFFER: If I think about our global equity portfolio – there are about 24 shares in there at the moment – when they start getting 6%, 7%, we sort of trim them back to maybe 5% or so.
That’s maybe a small tactical move and we don’t do that a lot because we are looking at shares, we are looking at companies that firstly have a great track record, they’ve got a great return on capital. So the capital that they have they’re providing good returns on. The income is there, and they reinvest into the business. So over the longer term, you get that compounding of someone that reinvests in the business which keeps growing.
So you’ve got to have that history for a start, and you as an analyst have to have the expectation that that’s going to continue into the future over the longer term.
So we want those kinds of companies; those are the ones we look for that fit – a kind of growth mould, and a quality mould.
Those ones you can keep for a long time, but maybe just tweak the weighting in an overall portfolio from time to time.
RYK VAN NIEKERK: Let’s talk about shares that underperform. Say you’ve done your analysis, you’ve spoken to many people, listened to the angel on your shoulder, and you invest in a company and it just does not perform – it performs poorly. You’ve got the 10-year investment horizon. At what stage would you cut your losses?
I think, firstly, it’s not a shame to sell something that’s gone down and hasn’t played out the way you thought it would.
Sometimes there are other circumstances that come into play that one could just never imagine – those kind of black-swan events or whatever they may be.
In my personal portfolio, I once bought Sappi, I remember at R117, and it started falling more and more, and eventually I got out. I think maybe it was R90 or something, but it just kept falling, into the teens even. So that made me think that maybe sometimes it makes sense to sell a share for a reason.
A lot of traders have that mentality of [having] a stop loss if it goes down 10%. That’s not how I think of it from an investment point of view. I think you’ve got to just look, reassess whether this is still an investment you want to be in. Is it just a temporary blip? Are there things that are just clouding over the issues just in the short term?
Companies like Apple go through these patches of cloudiness. China doesn’t want its people to use the iPhone anymore and then the market gets a little taken aback and the share slumps for a bit. But then they come out with results again, and they’ve managed to sell iPhone somewhere else to overcome the slowdown in China. And, hey, look, we’ve got these fancy goggles – and things move along.
So you’ve got to see what’s just cloud and noise apart from something that’s maybe structurally gone wrong with a company.
RYK VAN NIEKERK: Yes, I think a company like Apple redefined itself with the iPhone. They were nearly bankrupt before they launched the iPhone – and look at it now, one of the biggest companies in the world.
I’ve spoken to many investment professionals on this podcast and there is a feeling that a hit-miss ratio of six out of 10, or six to four, is a benchmark – six winners for every four losers. Do you agree with that ratio?
CRAIG PHEIFFER: I think yes, it is probably [so]. Firstly, you want to have more winners than losers, so that is probably a fair number. It’s what you do with those four as well, when they’re falling or not fit for investment any more – whether you hold them on for too long or you get out of them at a particular time. It depends on your overall success then out of your 10 stocks, I suppose.
RYK VAN NIEKERK: You want those six shares, the six winners, to totally outperform the losers – and that’s where you actually make your alpha or your yield.
CRAIG PHEIFFER: Yes, very much so. I think six out of 10 is fair. Maybe you’d want to stretch that to seven if you’re looking at those longer term, if longer term you’ve done that homework and you’re prepared to stay there for 10 years. A great track record looks great going forward, and the success will be defined over the longer term. You don’t always know in year one or year two if it’s a six or a four.
RYK VAN NIEKERK: Yes, absolutely. It won’t be constant. That’s a good point.
Let’s talk about retail investments [for] young professionals who enter the market. So what would your advice now be to yourself when you stepped onto the stockbroking floor, say, in 1990? What advice would you have given yourself to maybe try to ensure that your investments at that stage were better?
CRAIG PHEIFFER: I think at that point, you get excited, you want to be in the market. As I said, I went for MacAdam’s Bakery Supplies and Iscor and a couple of shares. You go by hearsay, you like the individual names and they’ve got stories. I think longer term I love being in individual shares. But if I talked to my younger self, I would’ve said, in those early days, instead of buying the bakery supplies or Iscor, I think there was–
RYK VAN NIEKERK: Sweets from Heaven.
CRAIG PHEIFFER: Those kinds of things. Maybe just invest in the index at that stage if you’ve got a couple of hundred rand.
RYK VAN NIEKERK: But could we have invested in the index at that stage? I think Satrix 40 launched only in 2000.
CRAIG PHEIFFER: I can’t remember, to be honest, but that might be a fair comment to young investors today. Rather try and build up your portfolio from a growing market in that way.
There are so many options these days as well. I’d say apart from just buying a Satrix 40 or an ETF [exchange-traded fund] that follows the local market, look at the offshore ones as well that are listed locally. That I would’ve definitely said – get into that as soon as possible.
When you’re younger, you don’t think about expatriating rands into dollars and all of that, but you could buy a local ETF in rands that tracks the S&P 500 or the global markets and when those markets go up you benefit, and when the rand depreciates you benefit as well.
RYK VAN NIEKERK: There are many of those index-tracker funds in international stock markets and countries which you can invest in, in rands, [such as] the MSCI. The S&P 500 is one I invested in for my kids for many, many years, and it has performed phenomenally – especially if you take the depreciation of the rand into account.
Lastly, let’s talk about your best investment ever. Which investment have you made with money you’ve earned – that’s important – that you are the proudest of? Which one has made the most money?
CRAIG PHEIFFER: Having worked at Absa for 15 years, I did manage to earn a few Absa shares in my day. Before that, I actually bought – it might have been a hundred Absa shares at something like R10 – and those have done well. As the years go on, the share itself might not always run away but it has grown over the decades. It pays a fantastic dividend and that’s always nice to see on your statement when they pay dividends every half year.
But I think the best investment I ever made was actually for my wife’s portfolio at the time. We had a little portfolio for her and Richemont came out with a trading update – call it a profit warning, even – in those days. This is going back, I think, to the early 2000s and the share went from R13 and traded down to R9.
I said Richemont is a great company, this is a fantastic opportunity. We were buying it on the day of the profit warning. It went down still further, I think, to R8.50 or R8, or maybe even a bit lower than that. But we just stuck with it.
Then it had its splits and all kinds of things. I think that has been a fantastic investment.
RYK VAN NIEKERK: What is its share price at now?
CRAIG PHEIFFER: Well, we had them at R80, we were trading the depository receipts here, and those have merged into one. So now it’s – I can’t remember – in the thousands.
RYK VAN NIEKERK: Reinet was spun out of it, Remgro as well.
CRAIG PHEIFFER: Yes. So you’ve done very, very well, absolutely. Sometimes you also get a little bit lucky. I remember buying De Beers and then they had a takeout quite shortly after that and you got a bit of a premium. But that’s just a bit of luck. It’s not anything more than that.
RYK VAN NIEKERK: Before we get to your worst investment ever, you referred to dividends. Do you re-invest dividends or take the cash and take the family for a fantastic dinner?
CRAIG PHEIFFER: No. I’ve stuck with my principle that in my stockbroking accounts, or my investment accounts, whatever’s generated in there stays in there.
Sometimes the cash pile grows, builds up too much over time and you’re actually a bit neglectful and should be reinvesting into the shares; but it all stays in there. So at least you’re earning interest if you’re not [reinvesting]. But definitely reinvestment is the key, I think.
RYK VAN NIEKERK: I think that compounding in the long term can be very, very significant.
Let’s talk about the biggest dog you ever bought, one you don’t really want to talk about, but tell us which one you think you may have got really wrong.
CRAIG PHEIFFER: I think there were a couple. I can’t think of all the names. But sometimes you are working so close to the coal face – and we were working at a stockbroking firm. There was the 2007 listings boom and there were so many new companies coming in, you’d go and listen to their stories, and they would sound appealing.
I remember Interwaste [Holdings] was one. It’s not listed anymore. There were a couple I took a small interest in. Some of them came to nought, actually failed and you got nothing back.
There were a few of those in 2007 and maybe that holding-on strategy didn’t work for that, but maybe it was also just that I didn’t think about it because that was fairly small.
That was probably a time I thought you don’t need to go chasing all of these little bits of excitement.
On the other hand, one of the listings in Afrimat has done extremely well. I think it was also sort of a 2007 listing stock. So that’s a converse story. I’ve still got Afrimat. Some of those years have come to nought.
RYK VAN NIEKERK: Yes, Afrimat has performed well.
Craig, thank you so much for coming in today and for sharing your insights.
CRAIG PHEIFFER: Ryk, thanks very much. It was great having a chat. Thank you.
RYK VAN NIEKERK: That was Craig Pheiffer. He’s the chief investment strategist at Safin Wealth.