<\/p>\n
You can also listen to this podcast on iono.fm here.<\/p>\n
JIMMY MOYAHA: With the investment landscape changing by the day, finding good quality investment assets is what separates good returns from mediocre returns after a long year.<\/p>\n
We\u2019ve had such a long year. The year isn\u2019t even over yet, but we\u2019re going to be taking a closer look at how it is that quality can be identified and spotted in the markets.<\/p>\n
I\u2019m joined on the line by equity analyst at Merchant West, Joshua Viljoen, to take a look at this and see what we make of it. Josh, lovely having you on the show. Thanks so much for taking the time. What is quality investing, what do we mean by that?<\/p>\n
JOSHUA VILJOEN: When we think about quality investing, really what we are looking for is we are looking to invest in businesses that are durable and built to last.<\/p>\n
A good example I like to think of is if you\u2019re going out and buying a pair of leather shoes, if you don\u2019t buy a good pair, a high quality pair the first time, often you end up having to buy another pair later down the line, and ultimately by not paying up for a quality pair of shoes, often having to buy another cheap pair ends up costing more in the end.<\/p>\n
Often the same is true when we\u2019re thinking about investing in shares in a company. We really are looking to pay up for something that is high quality that we can hold for a long time.<\/p>\n
So generally, when we are looking for a high-quality business, typically we\u2019re looking for something that has pricing power.<\/p>\n
Typically, a quality business has the ability to raise prices ahead of inflation without losing demand from customers.<\/p>\n
Ultimately, that may be because customers really value what a business has to offer. So either their product or service is much better than alternatives out there, or maybe the business operates as a monopoly and there are no real alternatives.<\/p>\n
Generally, when we\u2019re looking for quality, we\u2019re looking for something with high pricing power and another trait of quality in businesses that we ultimately look for when we make investments are companies with high returns on capital. So every rand that the business is able to put back and reinvest back into the business is able to generate strong returns, and those returns can compound over time.<\/p>\n
That\u2019s often where we see a lot of the value creation coming from, is when businesses do have those high returns on capital, and they\u2019re able to then deploy that back into the business.<\/p>\n
JIMMY MOYAHA: Josh, when we specifically look at the Johannesburg Stock Exchange (JSE), there are more than 300 companies listed on the JSE. How do we identify quality in a bunch that big across so many companies, across so many different sectors?<\/p>\n
Where do we even start to position that quality lens when looking at an exchange like the JSE? Understanding, of course, it\u2019s not even the biggest exchange in the world.<\/p>\n
JOSHUA VILJOEN: Yeah, the JSE is, as you mentioned, relative to other exchanges, is quite small. There aren\u2019t that many businesses. So obviously with that comes less opportunities to find high-quality businesses. But that doesn\u2019t mean that the JSE is without high-quality businesses.<\/p>\n
I think on the JSE we are fortunate enough to have a handful of extremely high-quality companies.<\/p>\n
One company, for example, is a company like OUTsurance, the short-term insurer that operates locally in South Africa, as well as in Australia. What really drove their success was obviously offering a different business model.<\/p>\n
They were the first insurer in South Africa to pioneer that direct model, selling directly to their clients instead of the traditional model where insurance was sold through brokers and the underlying insurer didn\u2019t have that direct relationship with their customer because customers were going through a broker.<\/p>\n
So by pioneering and offering that direct model, OUTsurance was able to carve out quite a strong competitive advantage in the local market because that direct model gave them a much lower cost to operate, so they could then price their risks better.<\/p>\n
Ultimately, for an insurance company, what determines your success is your ability to price risk competitively and price risk accurately.<\/p>\n
That ultimately is what determines being able to generate sustainable underwriting margins. So yeah, that\u2019s a good example of a high-quality business on the JSE.<\/p>\n
JIMMY MOYAHA: Josh, before I let you go, I want to take a look at how external factors influence your view on quality, whether they influence them positively or not at all. We find ourselves in times where macroeconomic news is moving markets more and more by the day, particularly when it relates to the global conflicts.<\/p>\n
How do these macro factors influence your view on quality assets, or do they further enhance some of the criteria that you mentioned when you look for quality assets?<\/p>\n
JOSHUA VILJOEN: Yeah, that\u2019s an excellent point.<\/p>\n
A lot of businesses are very sensitive to macroeconomic factors. Like you mentioned, we currently have elevated oil prices, rising global bond yields, consumer confidence is quite low.<\/p>\n
But ultimately when we are looking for a quality business, we want a business that is in control of their own destiny.<\/p>\n
[A company that is] able to grow regardless of the environment, whether it is by taking market share from other competitors or still being able to price ahead of the market in a tough environment.<\/p>\n
So ultimately, a tougher macro environment for us is the true test of quality.<\/p>\n
The businesses that really have pricing power and are able to grow through other levers, rather than just growing in line with the broader macro environment.<\/p>\n
Those are the businesses that really are high quality and that can thrive when other businesses may be struggling.<\/p>\n
JIMMY MOYAHA: Identifying quality in markets that remain uncertain could be the difference between investing for growth prospects and potentially making some investment mistakes in the future.<\/p>\n
We\u2019ll have to leave the conversation on that note. Equity analyst at Merchant West, Joshua Viljoen, joining us to take a look at quality investing, how it is that you identify quality assets and where they might lie in the markets.<\/p>\n
Brought to you by Merchant West.<\/p>\n
Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.<\/p>\n
#Quality #investing #separates #winners #rest<\/p>\n","protected":false},"excerpt":{"rendered":"
You can also listen to this podcast on iono.fm here. JIMMY MOYAHA: With the investment…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[4],"tags":[40,2186,3172,4689,2493],"_links":{"self":[{"href":"https:\/\/stock999.top\/index.php?rest_route=\/wp\/v2\/posts\/18352"}],"collection":[{"href":"https:\/\/stock999.top\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stock999.top\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stock999.top\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/stock999.top\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=18352"}],"version-history":[{"count":0,"href":"https:\/\/stock999.top\/index.php?rest_route=\/wp\/v2\/posts\/18352\/revisions"}],"wp:attachment":[{"href":"https:\/\/stock999.top\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=18352"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stock999.top\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=18352"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stock999.top\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=18352"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}