Are most JSE-listed companies uninvestable?
Should we not be more concerned as South Africans that the engines of growth that drive our economy are of such poor quality that only a handful can be considered future-fit?
We subscribe to the newsletter of a local asset manager who is renown for having an honest opinion about markets and the opportunities they offer to investors.
In a recent edition of the mail, one of the contributors made a statement that is worrying in its brutal truthfulness:
'From time to time, existing or prospective clients send us statements from portfolios they hold with other service providers. I am often shocked to see more than 30 different holdings in a single account, usually in a JSE portfolio. I would struggle to find more than 10 JSE-listed companies worthy of our clients' hard-earned savings.
We prefer focused portfolios filled with high-quality businesses.'
Ouch.
Could it be true, that out of over 400 listed companies on the JSE, there are less than 10 that are worthwhile investments?
If it is true, should we not be more concerned as South Africans, that the engines of growth that drive our economy are of such poor quality, that only a handful can be considered future-fit?
What future are we facing if even the companies that employ 'our brightest minds' are not able to successfully court investors into supporting their long-term ambitions?
What's the real problem here?
What are the 10-standouts doing differently?
Part of the issue (yes. obviously) is the dismal policy environment that government has stewarded over for the past couple of decades. It's difficult to confidently grow a business while facing crumbling infrastructure challenges, a restrictive regulatory burden and a consumer marketplace charged with high levels of unemployment.
But simply parking blame at the door of government might feel satisfying, but in all of the decades that this has been going on, hasn't as yet made any difference to the problem itself.
Whining about the ANC, the ports, the Rand, gambling, loadshedding, crime, corruption...or whatever else that's available on Daily Maverick, doesn't magically make it go away.
Another part of the issue is that in our experience (having carefully read many of the so-called strategies that JSE-listed companies vomit up in their annual reports) the quality of strategic thinking and the appetite for innovation within those companies is largely non-existent in most.
How existing shareholders can be happy with the quality of management employed in these companies is beyond us. Very little accountability is demanded by corporate boards, who just seem to be happy to sign off weak strategy thrown together by ineffective operators.
Most executive teams of JSE-listed companies simply do not possess the skillsets, competence nor mindsets to explore alternative futures outside of the narrow myopic worldviews in which they find comfort.
In the absence of any kind of creative, imaginative or speculative thinking about the future the result is simply more of the same tired, old approaches that were relevant a few decades ago.
As South Africans we often feel outranged by the conduct of government officials; it's very easy to access this well of rage on a daily basis.
But we should logically also feel outrage that those who have been put in charge of our most important companies have managed to do such a poor job of unlocking the growth and development our economy so badly needs.
Many are in the headlines for what their CEOs get paid, rather than how many local suppliers they have successfully onboarded into their value chain.
Surely it's time for something new? How much longer can we feasibly carry on believing that our future lies in more of this approach?