Quarterly Commentary - Q2 2021

What to expect from Granate

“My mama said, ‘you can’t hurry love
No, you’ll just have to wait’
She said, ‘love don’t come easy
Well it’s a game of give and take’
You can’t hurry love
No, you’ll just have to wait
Just trust in the good time
No matter how long it takes”

You can’t hurry love, The Supremes (1966)

If your investment managed by Granate in any given year is your best-performing investment, it is coincidental. Just plain luck. The best-performing funds are normally heavily invested in specific themes or run very concentrated portfolios – which we don’t do. We don’t judge this approach. Our stomachs simply aren’t strong enough for such all-or-nothing bets. We do build portfolios that are high in conviction, but they will still be diversified across different industries, companies and themes. We sometimes even invest extensively in plain old government bonds (which currently offer good yields).

We are focused on batting averages rather than big swings. But, over the long term, we target high batting averages. We have big ambitions for your savings.

Why do we think our long-term batting averages will be good?

We have several reasons for this conviction. One of them is the order in which we arrange price and people. Many people follow share prices. But we believe share prices follow people. What does this mean? When people follow share prices, they look for upward-trending prices to catch on to, or falling prices to buy on the cheap. This shorter-term focus can result in tremendous returns. However, we believe our competitive advantage is being on the opposite side of the transaction. Patience in markets is abnormal. Consistently buying from or selling to impatient people could therefore result in abnormal returns.

How do we decide which investments are worth the wait? 

Very smart people operate in healthy working cultures and run good business models, empowering them to make the right decisions. We believe that the share prices of businesses under this type of leadership will follow. Importantly, prices do not follow people like an obedient Labrador, but rather like a rescue Jack Russell. The little dog darts around all over the place but ultimately ends up alongside its owner. Therefore, we focus on the long term.

There is a rare exception where good companies don’t deliver good long-term returns. This happens when the share price has run to the point where it is completely detached from any realistic future. This risk can be managed by a few inversion calculations. If the current share price can only be justified by extremely optimistic assumptions, it is best to stay clear. An example would be when you need to assume that the supply of a commodity will not increase to bring industry returns down to a reasonable cost of capital. Free lunches are rare.

The importance of people is just as true in fixed income markets

When you are buying a bond, you are lending money to someone. Any experienced banker will tell you that the person you lend the money to is far more important than the rate you lend at. You need to get the money back. If we lend money to the right people at attractive rates (for us), the odds are good that we will get the money back – or even sell the bond to someone else at a higher price. If we repeat this process many times over, our clients will achieve above-average batting averages over time.

Our funds are currently performing well. But the day will come that we ask you to remember about the random run of the Jack Russell, and to give the Supremes another listen.


Portfolio Manager: Henno Vermaak

Portfolio Manager

Henno joined Granate in July 2019 as an Executive Director and Investment Professional. He founded Capensis Capital (now a subsidiary of Granate) in 2016. Prior to this, he was a portfolio manager at PSG Asset Management, where he was responsible for the PSG Global Flexible and PSG Global Equity funds.

Qualified actuary
CFA Charterholder
BCom (Hons) from the University of Stellenbosch