Richland Investment Partners
INTRODUCTIONFor the equity investment asset class Richland Investment Partners (Richland IP) collects and allocates capital to equities listed on the Johannesburg Stock Exchange (JSE). Richland IP uses a Value Investing approach, therefore all equities are selected based on principles laid out by Benjamin Graham en Warren Buffett.
Our marketable securities (or common stocks) investments are structured in the form of various investment partnerships. The three founders of Richland Investment Holdings each hold positions in one or more of the partnerships, which helps to ensure that a our philosophy and principles are consistently applied to all the partnerships. We sometimes refer to ourselves as an investment club, but we believe the concept of a club feels a little relaxed and therefore choose the term investment partnership. The business of money and wealth creation should be serious fun, and thus we prefer the term partnership to club. As far as 'clubs' go, we believe we are the most professional investment club in South Africa for shares and other alternative asset classes. |
HOW TO INVEST
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Why join one of our partnerships?
Have you ever wondered how to grow your wealth on the stock exchange – how to start investing on the stock exchange – where to start - which are good shares to buy or even how to invest and empower yourself more to grow your family wealth, while at the same time associate with like minded people who have a high value on wealth creation? Richland IP offer you this opportunity.
Over the past six decades, the U.S. stock market has averaged an annual return of about eleven percent per year. However, except for a few renowned Wall Street gurus such as Ben Graham, Warren Buffet, or Peter Lynch, the vast majority of investors, both amateur and professional, failed to come anywhere close to those eleven percent average annual gains. The question is: Why do most investors fail? And what do those very successful investment gurus have in common? At Richland IP we have studied this question in detail and have developed a rational, business oriented, approach to match the investment principles of these guru's while investing in shares on the JSE.
Our rational for investing in the shares include the fact that:
Whether you are an investor just starting out and would like to know where to start, or if you are already investing but would like to improve your returns, join the Richland IP. We provide a platform for everyone to learn, invest, and create wealth.
Why does Richland IP focus on the JSE? We believe that:
We regularly schedule investment training and information sessions at Bella Vida Centre – 268 Bryanston Drive, Bryanston. Please contact us to find out when we will be doing the next meeting and how you can become a partner in one of our investment partnerships. Note that space is limited to 20 people during any one session, so please contact us as soon as possible to book your seat. We look forward to you becoming a partner.
Over the past six decades, the U.S. stock market has averaged an annual return of about eleven percent per year. However, except for a few renowned Wall Street gurus such as Ben Graham, Warren Buffet, or Peter Lynch, the vast majority of investors, both amateur and professional, failed to come anywhere close to those eleven percent average annual gains. The question is: Why do most investors fail? And what do those very successful investment gurus have in common? At Richland IP we have studied this question in detail and have developed a rational, business oriented, approach to match the investment principles of these guru's while investing in shares on the JSE.
Our rational for investing in the shares include the fact that:
- shares have shown the highest returns in the long term, outstripping other assets such as bank deposits and property.
- investing in shares gives one a good chance of beating inflation. South Africa’s inflation target is between 3% and 6%. To make a profit, the return on investment should, therefore, be greater than 6% (excluding the effect of tax!). Research done indicates that the return on shares on the JSE has in most cases exceeded this percentage for the last hundred years.
- the return on equity over time is always better than the return on debt. Learn how to find the balance between paying off your house, investing, and achieving good return on equity.
- the value of shares would in the longer term often increase creating capital gains.
- some companies pay a portion of their net profits (return) to shareholders – this is called a dividend and over time will be multiple streams of passive income.
- investing is a good way of providing for retirement or unexpected expenses.
- when buying different companies' shares you are diversifying your collection of good (or exceptional) companies, while at the same time limiting your risk of losing your investment.
Whether you are an investor just starting out and would like to know where to start, or if you are already investing but would like to improve your returns, join the Richland IP. We provide a platform for everyone to learn, invest, and create wealth.
Why does Richland IP focus on the JSE? We believe that:
- the JSE protects its investors through rules and regulations and guarantees all trades transacted on the JSE.
- the JSE has a variety of companies and products, which gives you a wide choice when it comes to investing.
- the JSE has got an active and liquid market (typically more than R6-8billion worth of shares change hands every day).
- the JSE is a convenient and efficient place to trade: information is readily available from stock brokers and other sources. At Richland IP we also rely on information provided by Validea to help us screen and evaluate what to buy or sell.
We regularly schedule investment training and information sessions at Bella Vida Centre – 268 Bryanston Drive, Bryanston. Please contact us to find out when we will be doing the next meeting and how you can become a partner in one of our investment partnerships. Note that space is limited to 20 people during any one session, so please contact us as soon as possible to book your seat. We look forward to you becoming a partner.
Richland IP Investment ProcessPlease download the attached file and have a look at the process we follow to find extraordinary businesses we can invest in. If you have any questions regarding the process please contact us or join one of our meetings to experience the investment valuation process live.
In summary, our partnerships are managed for long-term growth using value investing principles. We invest in businesses that have underappreciated strengths trading at inexpensive valuations. They should be understandable businesses with good management in place, a durable competitive advantage, great economics, a large margin of safety and a significant chance for large gains over the long-term.
We do not attempt any economic forecasting, nor do we obsess over short-term results - whether good or bad. We do not unnecessarily limit ourselves to specific size businesses nor industries. We do, however, focus on businesses and industries we know and understand. Please download the Investment Process Overview document above for a more detailed explanation of our process. |
Richland IP ApproachRichland IP is structured into a number of different partnerships each with a maximum of 20 members. We choose to limit each partnership to 20 members to ensure personal contact and interaction.
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About Richland IPs Investment Process
The process of investing in marketable securities (or common stocks) is essentially a simple process. It involves the sourcing of capital to invest, the valuation of various possible investment opportunities, the purchasing of appropriate investment stocks, the holding of those stocks for a number of years (preferably indefinite), and finally the possible, but very infrequent, disposal of investments.
Our disciplined approach to investment starts with an objective. For the funds supervised by Richland IP, except for the funds held in cash or cash equivalents awaiting more suitable investment opportunities, the objective is that they be invested in a very small number of outstanding companies (ten to fifteen) that, because of their simple nature, their clear competitive advantage, their superior management quality, their above average returns (both balance sheet and income statement) and are expected (with a high probability) to both grow sales and profits at a higher rate than the industry as a whole.
Richland IP will allocate investment funds proportionately, investing the most on the highest probability events. Once invested we will leave this portfolio largely intact for at least five years (longer is better), except in certain cases (to be discussed). These simple standards impose strict limitations on the type of investments considered made by Richland IP. No investment philosophy develops in its complete form in a day or year. Richland IPs approach grew over a considerable period of time, mostly based on sound business principles, partly as a result of reason, partly as a result of intensive study of the most successful money managers in history, and some of it through the more painful method of learning from our mistakes.
Benjamin Graham's favorite allegory was that of Mr. Market. He said that Mr. Market turns up every day at our door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but often it is ridiculous. We are free to either agree with his quoted price and trade with him, or to ignore him completely. Mr. Market doesn't mind this, and will be back tomorrow to quote another price. The point is that we are better off not being concerned with Mr. Market’s often irrational behavior except when we can benefit from it. If Benjamin Graham is right, if market prices are frequently nonsensical, then we would be foolish to use price as a sole indicator of performance. Although this is true, the majority of the investment industry is focused only on price. If prices go up, most investors assume something good is happening, and if prices go down they assume something bad is happening. At Richland IP we prefer not to base our actions on the ups and downs of market prices.
This problem is compounded by the foolish habit of evaluating price performance over very short time periods. Not only do most investors depend on the wrong thing, i.e. price, they also look at it too often. Richland IP believes this price based, short term mentality is a flawed way of thinking. We don’t check stock quotes every day and we don’t buy and sell at the snap of a finger. At Richland IP we do not want to participate in the senseless short term game of chasing performance, measured totally by price. There is considerable pressure on portfolio managers to generate eye-catching short term performance numbers. These numbers attract a lot of attention and are praised by financial commentators and reporters. This fixation on short term price performance attracts a lot of new deposits into the top performing funds. Richland IP does not believe that focusing on short term performance is sustainable. Shareholder wealth in businesses is created over time and therefore we expect our investments in great businesses to follow this trend. We believe that any other approach all but guarantees underperformance. Buffett states that we have to drop our insistence on price as the only measuring stick, and we have to break ourselves of the counterproductive habit of making short term judgements.
Richland IPs approach opens it up to short term underperformance. Shahan showed that investors focusing on short term performance will inevitably achieve it, but at the expense of long term results. We accept that in order to achieve long term results we have to be indifferent to short term performance. Examining portfolios managed by Buffett, Munger, Ruane, Simpson and Keynes shows that on average their portfolios underperformed the S&P500 26% of the time during the lifetime of the fund. Munger and Ruane’s portfolios respectively underperformed the market 36% and 37% of the time, with Carlie Munger trailing the market by 37 percentage points at one time. These superinvestors all experienced trailing performance at one time or another, some having to endure years of trailing the market.
At Richland IP we therefore know we could be trailing the market for some periods of time. If we know that price is not a good measure of performance we have to define an alternative. Here we follow Warren Buffett’s lead. Just like Buffett Richland IP believes that our economic fate will be determined by the economic fate of the businesses we own. We believe that shareholder value and operating results are the correct measures of performance. At Richland IP we let the economics of the business dictate whether we are increasing or decreasing the value of our holdings. We believe, like Buffett, that the market will at times ignore business success, but eventually confirm it. There is a strong correlation between the operating earnings of a company and its future share price, given the appropriate time horizon. In other words, the longer the time period, the stronger the correlation. Buffett says that a strong business will eventually command a strong price. He does caution that the translation of earnings into share price is both uneven and unpredictable. Benjamin Graham gave the same advice saying that in the short run the market is a voting machine but in the long run it is a weighing machine.
At Richland IP our investment horizon is measured in years and we are in no hurry to affirm what we already know is true. What is important is that the intrinsic value of our investments is increasing at a satisfactory rate!
Happy Investing!
Myles Rennie
Investment Manager
Richland Investment Holdings
Our disciplined approach to investment starts with an objective. For the funds supervised by Richland IP, except for the funds held in cash or cash equivalents awaiting more suitable investment opportunities, the objective is that they be invested in a very small number of outstanding companies (ten to fifteen) that, because of their simple nature, their clear competitive advantage, their superior management quality, their above average returns (both balance sheet and income statement) and are expected (with a high probability) to both grow sales and profits at a higher rate than the industry as a whole.
Richland IP will allocate investment funds proportionately, investing the most on the highest probability events. Once invested we will leave this portfolio largely intact for at least five years (longer is better), except in certain cases (to be discussed). These simple standards impose strict limitations on the type of investments considered made by Richland IP. No investment philosophy develops in its complete form in a day or year. Richland IPs approach grew over a considerable period of time, mostly based on sound business principles, partly as a result of reason, partly as a result of intensive study of the most successful money managers in history, and some of it through the more painful method of learning from our mistakes.
Benjamin Graham's favorite allegory was that of Mr. Market. He said that Mr. Market turns up every day at our door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but often it is ridiculous. We are free to either agree with his quoted price and trade with him, or to ignore him completely. Mr. Market doesn't mind this, and will be back tomorrow to quote another price. The point is that we are better off not being concerned with Mr. Market’s often irrational behavior except when we can benefit from it. If Benjamin Graham is right, if market prices are frequently nonsensical, then we would be foolish to use price as a sole indicator of performance. Although this is true, the majority of the investment industry is focused only on price. If prices go up, most investors assume something good is happening, and if prices go down they assume something bad is happening. At Richland IP we prefer not to base our actions on the ups and downs of market prices.
This problem is compounded by the foolish habit of evaluating price performance over very short time periods. Not only do most investors depend on the wrong thing, i.e. price, they also look at it too often. Richland IP believes this price based, short term mentality is a flawed way of thinking. We don’t check stock quotes every day and we don’t buy and sell at the snap of a finger. At Richland IP we do not want to participate in the senseless short term game of chasing performance, measured totally by price. There is considerable pressure on portfolio managers to generate eye-catching short term performance numbers. These numbers attract a lot of attention and are praised by financial commentators and reporters. This fixation on short term price performance attracts a lot of new deposits into the top performing funds. Richland IP does not believe that focusing on short term performance is sustainable. Shareholder wealth in businesses is created over time and therefore we expect our investments in great businesses to follow this trend. We believe that any other approach all but guarantees underperformance. Buffett states that we have to drop our insistence on price as the only measuring stick, and we have to break ourselves of the counterproductive habit of making short term judgements.
Richland IPs approach opens it up to short term underperformance. Shahan showed that investors focusing on short term performance will inevitably achieve it, but at the expense of long term results. We accept that in order to achieve long term results we have to be indifferent to short term performance. Examining portfolios managed by Buffett, Munger, Ruane, Simpson and Keynes shows that on average their portfolios underperformed the S&P500 26% of the time during the lifetime of the fund. Munger and Ruane’s portfolios respectively underperformed the market 36% and 37% of the time, with Carlie Munger trailing the market by 37 percentage points at one time. These superinvestors all experienced trailing performance at one time or another, some having to endure years of trailing the market.
At Richland IP we therefore know we could be trailing the market for some periods of time. If we know that price is not a good measure of performance we have to define an alternative. Here we follow Warren Buffett’s lead. Just like Buffett Richland IP believes that our economic fate will be determined by the economic fate of the businesses we own. We believe that shareholder value and operating results are the correct measures of performance. At Richland IP we let the economics of the business dictate whether we are increasing or decreasing the value of our holdings. We believe, like Buffett, that the market will at times ignore business success, but eventually confirm it. There is a strong correlation between the operating earnings of a company and its future share price, given the appropriate time horizon. In other words, the longer the time period, the stronger the correlation. Buffett says that a strong business will eventually command a strong price. He does caution that the translation of earnings into share price is both uneven and unpredictable. Benjamin Graham gave the same advice saying that in the short run the market is a voting machine but in the long run it is a weighing machine.
At Richland IP our investment horizon is measured in years and we are in no hurry to affirm what we already know is true. What is important is that the intrinsic value of our investments is increasing at a satisfactory rate!
Happy Investing!
Myles Rennie
Investment Manager
Richland Investment Holdings