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Exceptional companies at low prices key to investment success

19 November 2014 Jan Mouton, PSG
Jan Mouton.

Jan Mouton.

Buy shares in exceptional companies at low prices. If exceptional companies trading at low prices are not on offer, stay in cash.

This is the core philosophy of the PSG Flexible Fund, now celebrating its 10th year in existence and its 10th year under the management of Jan Mouton.

With R5 692 million invested in the fund as at 31 October 2014, it provided consistent outperformance throughout the 10 years, receiving three Raging Bull Awards in the process. The fund managed top quartile performances over all rolling 5-year periods, and R100 000 invested ten years ago now be worth R542 780.

According to Mouton the characteristics of exceptional companies are that they have some form of sustainable competitive advantage and that it is easy to understand the industry they are operating in and how they make money. A company must have positive free cash flow (which is shared with shareholders in the form of dividends), must be managed by individuals with proven track records and must have honest and transparent financial reporting.

“In 21 out of the 35 shares that we hold, we have invested where management have a large shareholding or where a large strategic shareholder exists. Where management are shareholders, interests are aligned with a focus on the long-term sustainability of the company.

“With this investment philosophy the PSG Flexible Fund fell less than the FTSE/JSE All Share Index (incl. dividends) during the 2008/2009 financial crisis and reached a new high after just 15 months. It took the All Share Index 30 months to reach a new high,” Mouton said.

The fund employs an integrated domestic and foreign equity process with eight years of experience in direct offshore investment.

“Our first direct offshore investment was 25 Berkshire Hathaway A shares in October 2006 for US$ 103 587 per share.

“We invested offshore during the 2008/2009 financial crisis and experienced the panic, with Berkshire tumbling by 32% in USD over the four months to 28 February 2009. Our strategy was simply to buy when everyone was in panic.

“Global diversification reduces risk and gives our clients exposure to industries not available on the South African market,” Mouton said.
The PSG Flexible Fund is suitable for investors who have a medium- to long-term investment horizon and wish to have exposure to the equity market, but with managed risk levels.

The fund manager and investment team are co-investors in the fund, as they believe that one of the biggest comforts of flying is that the pilot is also on board.

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