How resource king John Biccard stuck to his guns

Last year’s resurgence in the JSE’s platinum miners was vindication for Investec’s value fund manager, John Biccard, after a painful few years. The FM asked how much pressure he felt during the hard times.

JB: As a business, Investec knows that’s our strategy so there’s not open pressure … but obviously there is pressure.

Platinum’s a good example because it took three years of waiting and [that’s] a long time. So, I’d take people through how cheap [the shares were] and why it should come right. You go through it with people internally and externally and they’ll say: "Well, your logic seems entirely correct." But then another six months passes, and you can see that people start to think that you’re wrong. Personally, it doesn’t worry me. I’ve run the fund for 20 years and done this [numerous] times …

I’ll tell you a strange thing … I find it easier when it’s a time like that, because when a share starts going up quickly, then I have to start worrying about selling it. Like Impala was [a year ago], it’s easy in a way — you just buy more every day and the lower it goes the easier it becomes … you’re getting something at better value. But once something starts going up, then I have to start thinking: what is the fair price at which to sell, and what else can I buy?

Then you must be in a state now, given how share prices have risen?

JB: No, because we sold them. If you go back a year ago, Sibanye and Impala were more than 40% of the fund; today they are 5% of the fund. When the share was R20, we told people it’s worth R120, so when it got there, we sold them.

Do you find it hard to part with shares that have done well?

JB: There’s a lot of other things to buy, and we never have expensive shares in the portfolio.

As soon as a share becomes fairly priced, I’m quite happy to sell it.

Impala is a good example: we started buying four years ago at R80. And then it went down for three years from R80 to R20 and bottomed at R16. That last bit, from R40 to R16, I bought the share every day for maybe 100 days in a row, to keep it at 10% of the fund.

That’s very important because as a value buyer, it’s unusual that I buy a share and it goes up. We buy it, and it goes down some more, and you have to keep buying it to reduce your average cost. When Sibanye was R8 and Impala was R16 we had 10% in each and one’s gone up five, the other’s gone up 10 times. That reduced our average-in price to below R40. When we started selling, say at R90, you’ve already made about three times your money.

[But] you have to have done the work that the company is not going to go bankrupt while you’re waiting.

The lower it goes, the more you like it. Which is entirely logical. If I tell you you’re going to buy a fridge and the price of the fridge has halved, you’ll drive halfway across town to buy it.

In the stock market, people’s brains disconnect. They’ll say: well, the fridge this week cost double what it did last week, and they buy more fridges! That’s the stock market. When it goes higher, you get greedy and when it goes lower, you get scared — and it should be the other way around.

A very important point is that last year’s performance from the value fund was only because of platinum. If you take out how Sibanye and Impala did, the rest of the fund actually underperformed the market. But that’s how we do it. Basically, one of our four positions worked out in a big way and that gave us the performance.

Is there still a bull case for these shares this year?

JB: There is, and to be honest I think they’re going to keep going … because of all the bad years before and for all the reasons we said we liked it: electric cars are not going to hurt combustion engines for a long time, supply takes many years to come on …

But 15 months ago, the price of platinum group metals (PGMs) was the furthest below the 90th percentile of the cost curve. In other words, most [PGM] companies in the world were losing money. Now, PGMs are the furthest above the 90th percentile, and that’s the first warning sign because that is, in the end, what kills the commodity run: because it’s now profitable to build another platinum mine. [It’s] the first warning bell.

Are the JSE’s other cheap shares actually cheap enough, given our economic prospects?

JB: The banks have fallen about 30% and we think they’re fair value; the retailers have all fallen about 50%, but they came from such high levels — crazy 20-plus p:e [ratios] — even though they’ve halved they’re not value either. The only place we can find value is in the small-and mid-cap SA shares. There you can buy a lot of eight p:e, 7% dividend yield stocks. I think the outlook is so bad you just can’t pay 12 or 13 times earnings. When there’s a sustainable 7% dividend yield, that’s interesting to me.