‘Treat your investments like relationships’

RYK VAN NIEKERK: Welcome to this week’s edition of the Be a Better Investor podcast. It’s a podcast where I speak to professional investors and we discuss how they approach investments, how they pick winners and losers, and what they do with losers. This is of course in the context of their personal portfolios, not the professional portfolios they manage. The idea is to find golden nuggets of wisdom from their perspectives and experiences to assist amateur retail investors to become better investors.

My guest today is investment rockstar David Shapiro. He’s officially the deputy chairman of Sasfin, but he’s been in the industry for more than 50 years and he has seen it all. He has also won most of the investment awards available in South Africa. David, thank you so much for joining me. I just want to start off with you joining the JSE in 1972. You must have seen so many market crashes, recoveries. How do they relate to what we’re currently seeing?

DAVID SHAPIRO: They are all the same. They always test you and you always think you’ll never see the end of the tunnel. You know, you only see bleakness. But things pass and this one will also pass. It rattles you, it tests you, but this is the time that people do stupid things. So I think the advice, in very simple terms, Ryk, is if you go back to when I started on the market in 1972, if you go back another 50 years before that, and you look at the market and you look at where it is today, that chart is still going from the bottom left hand to the top right hand corner. That’s how markets work. Economies will grow, companies will emerge, there will be opportunities.

So there are ups and downs and what I’m saying to you is probably trite, and might not give you comfort. But we get through these things and you know it’s going to come.

After every drunken spree you get a hangover. That’s how it works.

Even while you’re at that party, you know what you’re going to feel like in the morning, and I think that’s really what it is.

RYK VAN NIEKERK: Do you still get anxious when you see those big dark-red numbers?

DAVID SHAPIRO: Well, I prefer not to have that, but Ryk, what you do – and there are so many lessons that I’ve learned along the way –what you learn to do is you learn over the years just to focus. I know that’s a easy word, it’s a five-letter word. But what you do is you keep looking for quality investments that you know you’re going to be with for a long time. And that takes experience.

How do you find quality companies? You know that they’re going to emerge and you know that they’re going to be stronger and they will continue to pick up – and you just ride it through.

It’s easy for me, it’s easy to select those shares. The difficulty is handling the emotions of clients and people that you talk to; the difficulty is managing the aspirations and emotions.

RYK VAN NIEKERK: Yeah, emotions. I think that is the worst – to react on emotions. It’s been proven over and over again that it’s going to cost you a lot of money.

But you have invested, and invest, all people’s savings, their life savings. Your success will determine their quality of life post retirement. You also manage your own personal portfolio. Do you manage them differently?

DAVID SHAPIRO: Nah, exactly the same. In other words, I would not buy something for my clients that I wouldn’t buy for myself. I’m not speculatively minded at all. Not at all. I’m a theme-driven person. Even now I’m battling with a lot of commentators, I’m battling with a lot of analysts. The question I keep asking is, okay, where are we going to be in two years, three years, four years, five years down the line? What are the companies that we are going to be investing in? In fact, I answered a question about passive investment versus active investment, or why not just buy an index. I said the beauty about active investment is we are not looking for the companies that are dominating the market now.

We’re looking for the companies that are going to dominate the market in three, four, five years.

They might be the current companies. I’m not saying they won’t be there, but you’re always looking for other areas of growth and development. That’s always been my approach. What worries me at the moment – and I think the Fed has really bummed things up this time, because I think things have gone out of control. When you see markets performing the way they are at the moment, all that’s exposing is a lack of control. They’ve lost control of things. In other words, they haven’t comforted investments. This is not, yes, you want to let the air out of the tyre slowly or out of the blue. What’s happened is they’ve popped it. I’m not sure how they’re going to blow it up again, or how they’re going to fix the puncture – just to carry on with an analogy.

But I’m saying we at the moment are going to clients and saying, look, the companies we’ve got, the companies we own, are still in very good shape, all well – funny, you name it –there. And they’re still going to be around in three, four, five years. They’re still going to be the companies that are dominating the economic landscape. I must say, a lot of these are offshore businesses and that. So that’s what we focus on. From the macro side it’s very difficult. The micro side – that’s easy, it’s not difficult.

RYK VAN NIEKERK: Let’s go back. You grew up in Turffontein in the south of Joburg.

DAVID SHAPIRO: That was my dad.

RYK VAN NIEKERK: Where did you grow up? I thought you were there.

DAVID SHAPIRO: I grew up in Greenside. But my dad was Turffontein, Rosettenville. He went to Forest High. Forest Town is snooty – that’s by the Zoo Lake. This is Forest High, which was Turffontein, La Rochelle, all those areas. So he was brought up in a very, very tough environment.

RYK VAN NIEKERK: Did he introduce you to the stock market?

DAVID SHAPIRO: He joined the market in 1933, and there was a break in the market. Listen, I wasn’t around there, but there was something to do with, I think, either South Africa going off the gold standard, or that era. Something happened which created a boom on the market and, having just matriculated, [he found] there were no jobs. You were in the depths of the depression. He never had money to go to varsity. His dad was deceased. His mom – I think she was really supported by our relatives. He just went to the stock exchange – he had a friend who worked there – and he was given a job and never left. He started in the job in 1933, and he left when he died. That was the last time. So he spent 60 years on the market.

He loved to trade gold. Now, he was a gold trader but, Ryk, they traded in gold shares. There’s a big difference between gold shares and gold. It was the golden age of our market.

RYK VAN NIEKERK: Most of the shares at one stage were gold shares.

DAVID SHAPIRO: Well, that’s what I’m saying. People, sometimes they say to me, oh, your dad was a gold bull. Yes, but he was a gold mining bull, because each mine had its own characteristics. You would measure the grade, what they called the pennyweight that companies could mine. There were some very rich mines, there were some very poor mines. The mind manager was important because you had to know how to mine it, the costs and so on. So each mine itself was an industry. That’s what we traded in.

One of the things he did do with his partners, he idolised Eric Freemantle, who was a doyen on the market. They used to go round the continent and introduce gold shares to Zurich. They did it in Paris and Belgium, and obviously London had been a big-time player in gold shares and that. That was their history. The continent [was] very big in buying gold shares. And of course the US, New York, were also places. That was the market then.

RYK VAN NIEKERK: So when did you look at the market and say, ‘Listen, I want to make a career out of this’?

DAVID SHAPIRO: I’m a chartered accountant. I qualified as an accountant. Then I wasn’t quite sure what I wanted to do, and I joined the market. I was a runner. I literally came as a chartered accountant, was on the floor running orders to the dealers, talking to clients on the phone, giving them prices through the binoculars. You know, everything was on [the trading] floor. It was a lot of fun.

I learnt a lot there. I learnt a lot about the market, just being around, knowing when the market was going up. You know, you could feel the pulse in those days. The tone on the market changed and you could feel when markets were getting stronger. There were many poor days as well. Believe me, there were days when we did nothing. But it’s an experience I wish everybody could have had, rather than sitting in front of a screen as I am now, and just looking at red.

RYK VAN NIEKERK: Well, what was the very, very first share you bought?

DAVID SHAPIRO: I’m trying to think – it was Wesbank Letters. There you are. I remember that. I made a profit and with the profit bought my wife a gold coin. Wesbank was part of the Schlesinger group. I think today it is part of FirstRand or something. I think it was the same. My history’s a little blurred on that. But they were having a rights issue and I bought the letters.

RYK VAN NIEKERK: When was that?

DAVID SHAPIRO: This was in 1972, or thereabouts. I remember I sold them a few minutes later, made enough money to buy my wife a gold coin, which was all of about R30 or R40.

RYK VAN NIEKERK: So you held the shares for a few minutes and then sold them again? That was easy!

DAVID SHAPIRO: Yeah, that was it. The world’s greatest trader [laughing].

RYK VAN NIEKERK: What would you regard as your best investment ever?

DAVID SHAPIRO: My best investments are my current portfolio now, and the current shares that we are holding for clients at the moment. For me, the tech boom is just something that we haven’t witnessed before – the whole move to technology, which started in the nineties, Ryk. You know, it started there and has developed into where we are at the moment. I think the gains that we have made holding companies like Amazon and Alphabet and Google and Apple, and other companies like ASML, which is the Dutch company. I’ve never made percentage profits like those before. I still think this is going to continue.

RYK VAN NIEKERK: When did you get into Apple?

DAVID SHAPIRO: The early stages, very early stages. We held them and we held them for a long time with no returns. But most of the tech shares we’ve had we continue to hold. Ryk, you also have to understand that the markets that we are presently engaged in, being international, are far different from the markets that we traded on the JSE in the seventies and the eighties – and even into the nineties. It was a very parochial market, and in fact generally markets were very parochial. They were never international.

I’ll tell you when the best period as well here was: I think in the late eighties, that ’87 era, where we had companies like Didata, Bidvest, Investec. The nineties was a very good period for us, particularly in financials.

As this country came into the new era that we are in at the moment, I think there were a lot of businesses there which do very well here. There were some superb little businesses around then – a much greater choice than we have at the moment.

RYK VAN NIEKERK: But that run came to an end in the late nineties; it came to end quite abruptly. And then in the 2000s, a whole different world economy emerged. It was not as linked to technology as it was. And now currently we seeing technology shares dominate again and now we are seeing it coming to an abrupt halt. We don’t know where the bottom would be. Do you think we could see a repeat of history?

DAVID SHAPIRO: No. I think that we’re going into another era of massive fixed investment. You know, the last decade was more social media, Instagram, YouTube, Facebook, even to an extent Google. It didn’t help productivity.

I think the next decade that we’re going into now is going to help productivity and it’s going to be a different decade of technological advancement…

…when you think of the advances that are being made in medicine, in health, mainly through technology, helped by 5G and issues around that, when we think of the cloud.

I’m sitting here at home now and I could never have done this decades ago, or even a few years ago, where I’m completely operational. We’ve got this new hybrid model where I can go anywhere in the world and access global markets. Those companies now are doing their books on zero. In other words, you’re getting real-time, up-to-date accounting, management accounts, which we never had before. And then we’re getting the move to electric vehicles – and this is dominated by the consumer.

So the more themes I give you, the more excited I am about the companies that are going to emerge – all of them technologically related.

RYK VAN NIEKERK: The key is you’re going to have all these themes. You have all these companies that will emerge, but how do you pick the winners?

DAVID SHAPIRO: You know what, you can’t have everything. A friend of mine who used to work with me said, ‘You know, you can’t go to the dance and kiss every woman there’. Know what I mean? You’ve got to whittle it down to a few selections. Or, to put it in another way, Warren Buffett used to say it’s like the horror of women, he says you don’t get to know all of them. So it’s far better to find one woman or two – sorry if I’m being a bit sexist in this conversation – but you’re getting the point. I’m saying eventually you have to choose.

I find that’s one of the issues.

You know, people want to own a lot of shares. They want to own everything. You can’t. Just find the ones that you like. And if these companies fail you – which they can, sometimes they don’t end up fulfilling the kind of expectations that you had’– move on, find something else. I’m finding that with Tencent at the moment.

I was a massive Tencent person [for] Naspers. Suddenly you are looking at it and saying, hold on a sec, this is going to take a long time. This is not their fault, this is not the company’s fault. This is political. You can’t blame management, But realise that, whatever it is, you made a bit of profit or you might be in a loss – move on, find something else.

So I think you have to make those decisions where you know it’s wrong. Don’t let your ego get in the way, just get out. Don’t get attached, never get attached to shares.

RYK VAN NIEKERK: Now the big question. What was your worst investment ever?

DAVID SHAPIRO: I think in the eighties, in the late eighties, we had a boom. I don’t know whether you were around at that stage.

RYK VAN NIEKERK: I was still at school in ’87.

DAVID SHAPIRO: We had a massive boom here, which I think was similar to [that in] 1969. Then a huge number of businesses came on and I think we just went for anything there. Everything was being listed. I think they would list a flag pole [chuckling] and remember on October 20 or 19 in America, I think it came out [on the 20^th].

The markets collapsed 20%, 25% and I think it was that era that we all got caught with a whole lot of investments. I remember we had Wembley Toys. I’m trying to think of the others that we had – IB Joffe. These weren’t bad businesses; they were quite reasonable businesses, but I think the markets just trashed them after they listed. They weren’t worthy of being listed in the true sense. They were very good little businesses. Everybody took advantage to make a few ‘bob’ [shillings]. There was a printing company and we also ended up with those shares and I thought, oh gosh, I just saw my wealth being absolutely whittled away by these new issues. But it taught me a lesson. It was a major learning curve on how to invest. That’s a good 30-plus years ago. We just said, okay, from now …

RYK VAN NIEKERK: … only good companies.

DAVID SHAPIRO: Only good companies. Look for liquidity, know the management, know the balance sheet and so on. I’m trying to think of some of the other companies that we did. But during that period we had a portfolio of stuff that ended up just being paper.

RYK VAN NIEKERK: Of course you’re a CA, and you have research teams who really look at the numbers in a lot of detail, but do you use gut feel at all?

DAVID SHAPIRO: Yes, all the time.

Gut feel is not gut feel. Gut feel is reading. In other words, I read a lot and I follow the market. What I find with gut feel is that in your head there’s a data point that’s measured there. And then somewhere along the line, all these data points come together and help you form an opinion.

I think that’s very important. The more you read, each day you are learning a little bit more. And I think it’s very important to do that kind of reading. And you learn about companies as well, Ryk.

What I’ve said – and I’ve said it in other interviews – we tend to fall in love too easily. Somebody promotes a company and tells us what they’re doing and all of a sudden we get very infatuated and buy it, [though] we know very little about it.

I’m saying when you buy a share or when you make an investment, it must be similar to building a relationship with a person. Your friends are made over time. You might meet someone and not like him, or alternatively meet someone very nice, whom you like, like a partner – and you think, oh, this is the love of my life. Three days later, it’s like ‘What am I doing?’ kind of thing.

I think it’s important to treat your investments like relationships. So if you want to learn about management, you want to monitor management for a long time before you make it. Just think of Steve Jobs, just think of such an Satya Nadella, who has taken over Microsoft now and is a superb operator. When they first joined we didn’t think much of them but over time we’ve learned to love them. It’s the same kind of thing as Google. I’m trying to think…

RYK VAN NIEKERK: Elon Musk?

DAVID SHAPIRO: Yeah, look, he’s too flamboyant for me, you know what I mean? What’s the word – phlegmatic. I don’t know what the trite word is, all over the place.

RYK VAN NIEKERK: Deurmekaar [laughs].

DAVID SHAPIRO: Deurmekaar. I can’t hold him. I can’t understand what he is doing next. Hold on, this is just too much for me. Of course, we would’ve been incredibly well off if we had bought him. He’s too difficult for me to understand. What he has done and where one has to commend him is what he did with electric vehicles. Everybody now is trying to follow him, trying to play catch-up.

But I’m trying to think who else we only grew to like. Well, Koos [Bekker] was great – up to a point. I think we did very well out of him; he’s that kind of person, yes. But I think lately I’m not sure I’m fully in favour of where [Naspers] is going at the moment, of where Naspers is heading. But those are the kind of chaps that you learn to support and trust, a chap like Jebb McIntosh from CMH or his predecessor – these are solid, good people.

I’m sure there are plenty of others that we can identify as well. The Joffes, even a chap like Stephen Saad. Yeah, he’s going through a few issues at the moment, but you learn to support them. You learn to trust what they say. Poor old Stephen – this is something that really turned to bite him. It’s not his fault. He thought he was doing the right thing and he was doing the right thing. But he’ll come out of it. [There are] a lot of good men, and South Africa has produced superb managers. Piet Erasmus now at Shoprite – superb job.

RYK VAN NIEKERK: Look at Capitec, Riaan Stassen.

DAVID SHAPIRO: Great example.

RYK VAN NIEKERK: Did you get into Capitec, and at what stage?

DAVID SHAPIRO: You know what, I remember a meeting with Riaan Stassen, and he told me they were rejects from Boland Bank, if I’m getting the story right. This needs to have some fact-checkers, because remember at the whole Absa consolidation I think they were just discarded. But what they did have – and I remember the story – was that they had the most superb IT, and they never had to add on. If you understand, the whole model of Capitec was around their technology. But also you can see by the way that they’ve captured their clients – a huge amount of trust passed on from one consumer to the next.

I think it’s been one of the biggest successes in South Africa, a massive success.

I don’t want to measure it in terms of size but, coming from where they have, I think they’ve fast surpassed any other financial institution. Discovery might be one as well, but I think Capitec has kind of headed the lot.

RYK VAN NIEKERK: We’ll have to leave it there. David, thank you so much for your participation today. I really thought it was extraordinary and very, very interesting. That was David Shapiro, the deputy chairman of Sasfin.