Many stocks on the JSE are currently overpriced. It is therefore especially appropriate to always carefully consider the risks before committing capital to new investments. Mean-reversion opportunities should be avoided where one cannot eliminate the possibility of permanent capital loss.
Commenting in the latest quarterly commentary for the PSG Equity Fund, fund manager Shaun le Roux is of the opinion that this two-pronged approach of avoiding both overpriced stocks and potential value traps should give investors comfort that risk management is at the forefront of PSG Asset Management’s investment process.
“Global equity markets enjoyed a very strong start to the year, extending the gains of the previous five years. It is thus not surprising that many commentators are questioning market levels and some are going so far as to suggest that a crash is imminent.
“We do not think that we can add any value by trying to predict the near term path for the market at an index level. Instead, we have found that focusing on building conviction in our individual stock ideas gives us the best chance of beating the market over time without taking on excessive risk.
“Here, we take comfort from the fact that we can still find good opportunities to buy reasonable to high quality businesses at attractive prices. We expect the five year returns from the stocks we own to comfortably exceed our hurdle rates,” Le Roux said.