credo group

Climbing a wall of worrySJ du Preez, Credo

November 2014 Credo Capital Plc is an Authorised Financial Services provider (FSP No:9757)

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…and the information comes from?- bearing in mind that 6 of the top 10 world “populations” are websites now

CREDO CAPITAL PLCBackground to Credo

An independent private client wealth management group established in 1998

An international business with offices in London, Geneva & South Africa and associations in Australia &

Luxembourg

80% of the group owned by senior management

Manages & administers assets in excess of £1.3bn and employs 65 skilled staff

Member of the London Stock Exchange (authorised & regulated by the FCA)

Custodial services supplied by Pershing Securities Limited (wholly owned subsidiary of Bank of New York)

Operates in partnership with a variety of institutions & IFA businesses

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Credo Capital Plc is an Authorised Financial Services provider (FSP No:9757)

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Wealth preserved & created by following long term, low turnover strategy

Value-based approach

Unconstrained, high conviction strategy (balanced by sufficient diversification)

Yield: key when selecting securities

Importance of transaction costs (low-turnover; consider transaction size)

Strategic focus (not obsessed with daily news-flow)

Risk defined as potential to lose money (focus on capital preservation)

CREDO CAPITAL PLCInvestment Philosophy

Credo Capital Plc is an Authorised Financial Services provider (FSP No:9757)

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“Going back to 1957, the S&P 500’s average daily gain is

0.0255%. Roughly speaking, that means for every $39

you have in the stock market, you make an average of

one penny in capital gains each trading day.

Yet the average daily swing is about 40 cents. This means

that you’re seeing 40 times the volatility of the value that’s

actually being created, each day.

That’s more than 97% noise.”

(Eddy Elfenbein, Oct. 2014)

Seven deadly sins………GLUTTONY

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"The market is fond of making mountains out of molehills &

exaggerating ordinary vicissitudes into major setbacks.”

(Benjamin Graham)

GENERALLY BEST TO IGNORE THE NOISE…

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"The market is fond of making mountains out of molehills &

exaggerating ordinary vicissitudes into major setbacks.”

(Benjamin Graham)

GENERALLY BEST TO IGNORE THE NOISE…

EMOTIONS!

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Managing someone else’s EMOTIONS(from website: A Wealth of Common Sense; www.awealthofcommomsense.com)

2014 GOT OFF TO A “ROCKY START”, FOR EXAMPLE…

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What is NOISE and what ISN’T NOISE

OCTOBER!!!!!

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“Dit is die maand Oktober,

die mooiste, mooiste maand,

Dan is die dag so helder,

so groen is elke aand,

So blou en sonder wolke

die hemel heerlik bo,

So blomtuin-vol van kleure

die asvaal ou Karoo...”

(C. Louis Leipoldt)

OCTOBER- for those who understand Afrikaans…

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OCTOBER- a peculiarly dangerous month to invest in stocks…

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OCTOBER- a peculiarly dangerous month to invest in stocks…

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1 19 Oct. 1987 −22.6%

2 28 Oct. 1929 −12.8%

3 18 Dec.1899 −12.0%

4 29 Oct. 1929 −11.7%

5 6 Nov. 1929 −9.9%

6 12 Aug. 1932 −8.4%

7 14 Mar. 1907 −8.3%

8 26 Oct. 1987 −8.0%

9 15 Oct. 2008 −7.9%

10 21 Jul. 1933 −7.8%

11 18 Oct. 1937 −7.8%

12 1 Dec. 2008 −7.7%

13 9 Oct. 2008 −7.3%

14 1 Feb. 1917 −7.2%

15 27 Oct. 1997 −7.2%

16 5 Oct. 1932 −7.1%

OCTOBER- what’s the big deal?

(S&P 500: biggest daily declines in stock market history)

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1 19 Oct. 1987 −22.6%

2 28 Oct. 1929 −12.8%

3 18 Dec.1899 −12.0%

4 29 Oct. 1929 −11.7%

5 6 Nov. 1929 −9.9%

6 12 Aug. 1932 −8.4%

7 14 Mar. 1907 −8.3%

8 26 Oct. 1987 −8.0%

9 15 Oct. 2008 −7.9%

10 21 Jul. 1933 −7.8%

11 18 Oct. 1937 −7.8%

12 1 Dec. 2008 −7.7%

13 9 Oct. 2008 −7.3%

14 1 Feb. 1917 −7.2%

15 27 Oct. 1997 −7.2%

16 5 Oct. 1932 −7.1%


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1 19 Oct. 1987 −22.6%

2 28 Oct. 1929 −12.8%

3 18 Dec.1899 −12.0%

4 29 Oct. 1929 −11.7%

5 6 Nov. 1929 −9.9%

6 12 Aug. 1932 −8.4%

7 14 Mar. 1907 −8.3%

8 26 Oct. 1987 −8.0%

9 15 Oct. 2008 −7.9%

10 21 Jul. 1933 −7.8%

11 18 Oct. 1937 −7.8%

12 1 Dec. 2008 −7.7%

13 9 Oct. 2008 −7.3%

14 1 Feb. 1917 −7.2%

15 27 Oct. 1997 −7.2%

16 5 Oct. 1932 −7.1%


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1 19 Oct. 1987 −22.6%

2 28 Oct. 1929 −12.8%

3 18 Dec.1899 −12.0%

4 29 Oct. 1929 −11.7%

5 6 Nov. 1929 −9.9%

6 12 Aug. 1932 −8.4%

7 14 Mar. 1907 −8.3%

8 26 Oct. 1987 −8.0%

9 15 Oct. 2008 −7.9%

10 21 Jul. 1933 −7.8%

11 18 Oct. 1937 −7.8%

12 1 Dec. 2008 −7.7%

13 9 Oct. 2008 −7.3%

14 1 Feb. 1917 −7.2%

15 27 Oct. 1997 −7.2%

16 5 Oct. 1932 −7.1%


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1 19 Oct. 1987 −22.6%

2 28 Oct. 1929 −12.8%

3 18 Dec.1899 −12.0%

4 29 Oct. 1929 −11.7%

5 6 Nov. 1929 −9.9%

6 12 Aug. 1932 −8.4%

7 14 Mar. 1907 −8.3%

8 26 Oct. 1987 −8.0%

9 15 Oct. 2008 −7.9%

10 21 Jul. 1933 −7.8%

11 18 Oct. 1937 −7.8%

12 1 Dec. 2008 −7.7%

13 9 Oct. 2008 −7.3%

14 1 Feb. 1917 −7.2%

15 27 Oct. 1997 −7.2%

16 5 Oct. 1932 −7.1%


19Source: Credo Group, Datastream

85

90

95

100

105

110

115

01/11/2013 01/12/2013 01/01/2014 01/02/2014 01/03/2014 01/04/2014 01/05/2014 01/06/2014 01/07/2014 01/08/2014 01/09/2014 01/10/2014

Global equity indices (1Y)

Dow Jones S&P 500 FTSE 100 Euro Stoxx 50 MSCI World ($)

GLOBAL EQUITY INDICES- 1 Nov. 2013 to 20 October 2014

Dow Jones S&P 500 FTSE 100 Euro Stoxx 50 MSCI World ($)

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THE CANARY IN THE COALMINE?

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THE CANARY IN THE COALMINE?

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S&P Oct. 10 close: 1,906 (5.2% below 2,011 on Sep. 18) (Source: Sam Ro, Business Insider, 10 Oct. 2014)

OCTOBER 2014- "We’ve seen uglier sell-offs in 2013, 2012, 2011, 2010…”

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IT’S NOT ALL NOISE THOUGH…

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1. Germany feeling eurozone slowdown

2. Ebola

3. Oil

4. Fed turning off taps

5. Emerging markets

6. Europe continues to waver

7. Middle East conflict

A WALL OF WORRY…- as summarised in press reports

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- share of world exports: 8% (v. 2007: 9.1%)

2. Ebola

- will it follow route of previous pandemics?

3. Oil

- more complicated (on balance: good!)


- the real risk: deflation in Eurozone

5. Emerging markets

- “new normal”: China grows +/- 7%?


- ditto point 4 above


- what has really changed?

A WALL OF WORRY…- some perspective

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EBOLA -Tweet: SkyNews; 31 October 2014

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EBOLA - another case of “misplaced” perception of risk?

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S&P 500 over the last 15 years

1999: Y2K scare in 1999 in the context of a highly overvalued stock market

2001: Sep 11th NYC terroristattacks followed by anthrax scare

2002/03: SARS breaksout in China and spreads across Asia in 2003

2009: Swine flu breaks out in Mexico and spreads across the world gradually

2010/11: Protests in Tunisia and Algeria, setting the basis for the upcoming "Arab spring"

2013/14: Ebola breaks out in Guinea and rapidly spreads across many West African countries

2014: Russia seizes control of Crimea in Feb'14

2014: ISIS takes control of Mosul, Iraq in Jun'14

2004/05: Avian flu pandemic breaks out in Asia and gradually spreads across Asia and rest of the world

Source: Credo Group, Datastream

PANDEMICS IN THE PAST- quickly shrugged off by markets historically…

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- share of world exports: 8% (v. 2007: 9.1%)

2. Ebola

- will it follow route of previous pandemics?

3. Oil

- more complicated (on balance: good!)


- the real risk: deflation in Eurozone

5. Emerging markets

- “new normal”: China grows +/- 7%?


- ditto point 4 above


- what has really changed?

A WALL OF WORRY…- some perspective

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ANNUAL INFLATION RATES (UK)(1265 – present)

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DEFLATION RISK?

“Each success only buys an admission ticket to a

more difficult problem…”

(Henry Kissinger, 1979)

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…or Sliding down a Slope of Hope?

CLIMBING A WALL OF WORRY…

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SLIDING DOWN THE SLOPE OF HOPE?

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Jan ’12: 1st profit warning

Apr ‘13: Pre-tax profits halve

Apr ‘14: Profits fall further 7%

May ‘14: Credo sells stake

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Source:

The Motley Fool

A POPULAR VIEW- May 2014, Tesco share price: 290p

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Jan ’12: 1st profit warning

Apr ‘13: Pre-tax profits halve

Apr ‘14: Profits fall further 7%

May ‘14: Credo sells stake

Jul ‘14: CEO steps down

Sep ‘14: Profit misstatement revealed

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HAVE WE SEEN THE BOTTOM IN THE TESCO SHARE PRICE?- hope is not a strategy…

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Share prices went

down today on

rumours that

share prices were

going down…

PESSIMISM HAS CERTAINLY BEEN RIFE…

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WE REMAIN OPTIMISTIC ABOUT THE LONG TERM

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“Optimistic people play a disproportionate role in shaping our lives.

Their decisions make a difference;

They are inventors, entrepreneurs, political and military leaders – not average people.

They got to where they are by seeking challenges and taking risks.”

Daniel Kahneman

WE REMAIN OPTIMISTIC ABOUT THE LONG TERM

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Over the long term, the stock market news will be good.

In the 20th century, the United States endured two

world wars and other traumatic and expensive military

conflicts; the Depression; a dozen or so recessions

and financial panics; oil shocks; a flu epidemic & the

resignation of a disgraced president.

Yet the Dow rose from 66 to 11,497.

LOOK TO THE LONG TERM- quoting Warren Buffett (again)

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Things that

matter

Things you can control

What you should focus on

FOCUS!- source: www.behaviorgap.com

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Launched: April 2011

Diversified portfolio of high conviction, global equities

Long term, value investing

Bias towards developed market, large capitalisation stocks

Aims to generate sustainable excess returns through careful stock selection

+45.4% vs. MSCI World +37.3% (14.04.2011 to 30.09.2014)

+41.3% vs. MSCI World +31.5% (14.04.2011 to 17.10.2014)

CREDO BEST IDEAS PORTFOLIO

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Launched: December 2012

Diversified portfolio of high conviction, global equities

Focus on companies that pay attractive, sustainable, growing dividend yields

Bias towards developed market, large capitalisation stocks

Aims to provide investors with a sustainable & growing income stream

+31.7% vs. MSCI World +30.6% (28.12.2012 to 30.09.2014)

+28.3% vs. MSCI World +25.1% (28.12.2012 to 17.10.2014)

CREDO DIVIDEND GROWTH PORTFOLIO

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BY ALL MEANS FOLLOW A CAUTIOUS APPROACH…

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BUT DO NOT TAKE ALL RISK OFF THE TABLE!

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“The best time to plant a tree was 20 years ago

The second best time is now.”Ancient African Proverb

BUT DO NOT TAKE ALL RISK OFF THE TABLE!

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#ThankYou

FINALLY…

credo group

Economy & Finance