Opportunistic investing – an oxymoron, or a smart approach?

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Welcome to the Supernatural Stocks podcast on Moneyweb, with your host The Finance Ghost – your weekly fix of local and international insights for investors and traders.

In this highly charged geopolitical environment, the stage is set for significant volatility. We are seeing this in South African equities, with some substantial one-day moves even in blue-chip names like Clicks and Sasol in the past week.

Read:
Sasol plunges below R100 on JPMorgan downgrade
Truworths feeling the pinch in SA

Truworths also had a significant move, but I’m quite reluctant to refer to it as a blue chip based on the state of play in the Truworths Africa business. You’ll just have to forgive me for that.

Naturally, these moves drive intrigue and market activity.

There are those who shy away from these moves based on how gut-wrenching it can be to watch the value of your money change so much in a day. There are also those who run towards these opportunities, hoping to profit from investing in dislocations. The beauty of the market is that there’s something for everyone.

The word “investing” tends to be reserved for very long-term horizons.

It makes us think of offices with dark wooden furniture and shelves of iconic books, staffed by people who are terrified to buy a car newer than 2015 for fear of judgement by co-workers who are still “driving their first Toyota” and “investing 50% of what they earn each year” in the market.

Those people do tend to build generational wealth with this approach by the way, but they aren’t representative of how the average market participant behaves. Of course, that’s also why they don’t have average balance sheets!

This week, I’ve decided to address whether it is fair to use the word “speculator” to refer to those who look to profit from significant volatility.

After all, how many self-styled “investors” really have such impeccable long-term habits? Is the concept of “opportunistic investing” an oxymoron, or is it maybe the right way to do things?

I’ll also be covering off how to think about valuations in this context, an important element of how we define being opportunistic in the market.

But first, do valuations actually matter?

With a truly long-term horizon, valuations don’t matter that much. The obvious exception is if you run at full speed into a gigantic bubble, in which case you are going to harm your returns due to a poor entry point.

It’s not easy to spot when a market is overvalued by say 20%, but you should be able to apply some logic – and common sense – in identifying a market that desperately needs to drop by 50% or more.

Leaving the extreme examples aside, a spicy entry point isn’t really going to matter over 10 years and certainly 15 years. This is exactly why the common advice is to regularly put money into equities regardless of the macroeconomic cycle.

Provided you are willing to ride the volatility, the foundational principle of investing is that equity markets will pay you for hanging around and stomaching that risk.

There’s an important caveat here: this applies primarily to broad equity markets, not single stocks. If you buy an index regularly, then you are naturally allocating more capital to winners over time – they become a bigger part of the index – instead of losers. You also have a diversified basket of stocks rather than a concentrated portfolio.

Listen/read: Financial market outlook for 2026: Cautiously optimistic about SA

With single stock exposure, you have to be careful of how your portfolio mix changes over time, as the index isn’t there to do it for you.

This suggests that the time horizon of each underlying investment isn’t quite so simple, which implies that valuations do matter.

But what if you promise to hold all the stocks you buy “forever” – do valuations still matter?

Let’s talk about ‘forever’

Sadly, the divorce rate tells us that “forever” isn’t quite what it seems.

So let’s be more realistic – let’s assume that a really long-term investment horizon for a single stock would be anything beyond 10 years.

To buy and hold a single stock for over a decade would require you to either pick tomorrow’s winners with extraordinary accuracy, or to focus on today’s winners and hope that they keep on winning.

This overall strategy would require you to be looking for wide moats and market leaders, with perhaps a sprinkling of disruptors in your portfolio where you accept that some of them might disappoint you and others could head to the moon.

The latter approach sounds a bit like venture capital, doesn’t it?

Even if you do happen to pick an incredible growth story, holding onto it for a long time isn’t easy.

We could draw a long-term chart of Capitec’s share price and kick ourselves for not buying it over two decades ago at just a few bucks per share, with the current share price at nearly R4 400.

But let’s be honest – how many of us would’ve held the share throughout that period and banked that full gain?

With loss aversion as a major driver of investor behaviour, it’s just about guaranteed that early investors banked the gains and deservedly patted themselves on the back for finding a ten-bagger. Goodness knows it turned out to be so much more than a ten-bagger!

In fact, Capitec is a ten-bagger for those who bought in 2015, let alone those who bought in the 2000s. Remarkable.

Buy a great name with a plan to hold it “forever” and you’ll probably end up selling it too early. Buy a wrong name for the long term and you’ll be wishing one day that you had sold it.

It therefore seems unlikely that most investors are buying stocks with a truly long-term lens and actually following through with that approach.

In practice, referring to “forever” as a decade in the markets is probably too kind. It tends to mean a few years at best, or until 100% gains do us part!

Read: Moneyweb’s stock picks competition is back!

And over just a few years, the valuation at entry point is going to matter a lot – no matter what your best intentions are.

This means that investing will never be as easy as just buying the best companies you know, as a great company at a terrible valuation is still probably going to hurt you. The one exception is if you happened to time it perfectly in a bull market, in which case the macroeconomic conditions are doing the heavy lifting to make you look like a hero anyway.

So is investing opportunistic by nature?

If you accept a practical take on investment horizon and then apply it to portfolios that include stock picking rather than just index tracking, we arrive at an interesting conclusion: opportunistic investing may not be an oxymoron. In fact, it’s probably smart!

What makes it opportunistic?

Identifying stocks where there are disconnects between price and value is one thing, but there also need to be near-term catalysts for that disconnect to close.

Markets love to close a gap, which is why it’s easier to identify an upside catalyst if we know exactly what the downside catalyst was that caused a sudden move in the price, rather than a slow and steady decline.

Mr Price is a perfect example. The NKD deal angered the market so much that the share price shed practically the entire value of that transaction.

I’m certainly no fan of the deal and the way they’ve behaved, as I’ve discussed before on Supernatural Stocks – but it’s still an extreme response from the market that arguably creates an opportunity.

Listen/read: Why the Mr Price deal sucks

Mr Price got off to a rough start in January as the selling pressure continued, but the stock is up more than 5% in the past week as buyers have come to the table.

You could be playing it safe in Clicks instead, down 9% in the past week thanks to disappointing same-store sales and an underlying warning around margins.

The difference is that Clicks is still on a price-to-earnings (PE) ratio of 23.5x after that fall, whereas Mr Price is trading on a PE below 13x.

I don’t think that anyone buying Mr Price in the past week is promising themselves that they will hold it forever, but I do think that a good chunk of buyers will be treating this as a great opportunity to get in at a depressed price and ride out the volatility in the hope that the NKD deal isn’t as bad as the market thinks.

Read:
Mr Price hits 52-week low as NKD questions linger
Shareholder asks JSE to intervene in Mr Price’s NKD acquisition

If the multiple rerates to the more typical levels along that journey (Mr Price has traded in the high teens many times before), it will turn out to be an astute decision.

Clicks

As for Clicks, a stock that has been expensive for longer than anyone can remember, is the tide finally going out based on investors finding more interesting “risk-on” opportunities in South Africa?

With Clicks sitting at approximately the 52-week low, this is an important support level that goes back to December 2023.

Personally, I would wait to see if it holds.

Support level? Did I say support level in the context of investing?

I did. And I firmly believe that if you’re going to invest opportunistically, which is just another way of saying with a realistic outlook, then you would do well to learn some basics around technical analysis as well.

For me, opportunistic investing is not an oxymoron.

There are some very, very good people in the market who make it work all the time.

Read:
Uncertainty towards global markets favours SA equities
South African stocks set to ride broad EM rally: Momentum

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