EXTRAORDINARY PROFITS FROM ORDINARY SHARES * STOCK MARKET STRATEGIES*
THE STEINHOFF SORRY SAGA
C S I 101 – SO MANY LESSONS FROM THE STEINHOFF CORPSE
The shock “resignation” last month of Steinhoff’s CEO, Markus Jooste, and the subsequent collapse in the share price amid the allegations of accounting irregularities has sent tremors (Tsunami to follow) throughout the investment community both here and abroad.
The scandal has erased around eighty five percent of the company’s value – losses of over two hundred billion rand
It remains to be seen if the company will survive – if it does it certainly will be a very much smaller version – and whether or not the directors will do serious jail time.
Steinhoff was widely held in South African unit trusts – and at its peak the market capitalisation was R290 billion – the largest retailer on the JSE.
According to Morningstar the largest holders were Old Mutual Top Companies (6.5% of the portfolio), Coronation Houseview Equity (6.4%) and Truffle General Equity (6.4%).
Nedgroup Value, Managed by Foord Asset Management, held 6.2%.
Sanlam Investment Management and Nedbank Private Clients were also very large shareholders.
The SIM Top Choice Equity Fund had 6.5% exposure to Steinhoff. As the Financial Mail hilariously says: “It’s always asking for trouble when a fund makes a big promise in its name and the SIM Top Choice Equity Fund had a 6.5% exposure to Steinhoff. Top Choice sounds like a dog food, so maybe it’s appropriate.
Fidelity Emea had a huge 6.5% exposure – what could go wrong with the world’s second largest furniture retailer?”
Warren Buffett offers some rather sage advice on investing “Rule number one: never lose money. Rule number two: never forget rule number one”.
This discipline is entrenched at Fenestra. The key is not only to pick winners but to avoid companies with a big risk of calamitous price collapse.
This is not the first time Fenestra has avoided capital – destroying disasters.
At the time of the big collapse Fenestra had absolutely no shares in Steinhoff.
The accounting at Steinhoff was very complicated – aggravated by acquisition after acquisition. This made year on year comparisons most difficult.
Some of the Steinhoff lessons/mistakes include:
Investors not really understanding their investment
Investing in a cyclical/commodity business and not being aware of the stage of the cycle
Investing in a business that has overseas assets managed by South Africans
Investing in a company dominated by a charismatic alpha male (e.g. Markus Jooste previous Steinhoff CEO)
I will elaborate on this in future articles.
If you are not happy with your portfolio performance or would like a second opinion, please do not hesitate to contact Fenestra for a confidential consultation.
William Meyer – Cell: 079 624 4031 Email: firstname.lastname@example.org