Invest for the long term, have patience and discipline and look for companies that have good management, a sustainable business model and where the price of the company is trading at an attractive margin of safety.
Also look for those companies in which their management have significant equity holdings themselves. That is a strong indicator of an appropriate alignment of interests in the long-term success of the company.
This is the advice to investors from Jan Mouton, manager of the PSG Flexible Fund, which he been managing for nearly 10 years.
Commenting in PSG Asset Management’s Angles & Perspectives for the second quarter of 2014 he says that the fund is not out there to make a quick buck. “Just as we take a long-term view on all our investments, so too should investors take a long-term (three to five years) view when investing in it.
“Just as we are required to stick to our investment process in a disciplined way and to have the patience to allow the companies in which we have invested to produce the returns we expect from them, so should investors follow a patient and disciplined approach to their fund selections,” Mouton says.
When the markets are falling and company valuations are becoming cheaper, PSG tend to buy these companies, allocating cash to them and not pulling investments from them. So should disciplined and patient investors ensure that if markets are falling they do not disinvest for cash. They should realise that these corrections are the times when future returns will be acquired and they should remain resolute and invested.
“The PSG Flexible Fund should be considered as a way to co-invest with a manager who is personally invested in the fund,” says Mouton.
The ten lessons that he has learned over the decade managing the PSG Flexible Fund is:
• Develop an investment philosophy
• Maintain a flexible approach to asset allocation – wait for the right opportunities
• Stick with the investment philosophy, even when it is not working
• Follow a bottom-up approach: focus on companies, not the economy
• Invest in companies where management are large shareholders
• Reduce risk through global diversification in undervalued shares
• Focus on shares with a low PE ratio
• Focus on shares with a low price-to-book ratio
• Avoid large losses
• Invest for the long-term