Truffle nov12

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Truffle nov12

  1. 1. Presentation to: 9 November 2012A truffle is a scarce, valuable and highly sought-after, edible fungus. Truffles grow undergroundand are notoriously difficult to find. Searching for truffles is carried out with specially trainedpigs called Truffle Hogs.
  2. 2. Agenda1. Introduction2. The Seven Deadly Sins3. Truffle InsightsValues Value
  3. 3. Truffle• Founded by: • Louis van der Merwe (ex CEO: RMB Asset Management) • Hannes van der Westhuyzen (ex Head: Global Trading, Nedbank Capital) • Charles Booth (ex CIO: RMB Asset Management)• Licensed in March 2009 (FSP no 36584: Categories I, II and IIA); Section 13B approved• Building a quality boutique to manage co-investor assetsValues Value
  4. 4. The Truffle message• Values:  Alignment  Fairness• Value:  Maximising benefit by delivering sustainable alpha over time  Minimising costs by offering a competitive feeValues Value
  5. 5. Performance: Truffle General Equity1(period ending 31 October 2012) 21.6% 20% 18.6% 15.4% 15% 11.8% 11.4% 9.8% 10% 5% 3.0% 3.6% 0% 12-months *Annualised since inception Annualised Std Dev Truffle General Equity Alsi Outperformance1 aftermanagement fees *Since 1 Jan 2011Values Value
  6. 6. Performance: Truffle Flexible1 (period ending 31 October 2012) 25% 22.9% 20% 18.6% 15% 12.1% ALSI 10.8% 11.5% 11.0% 10% 7.1% 6.2% 5% 1.0% 0% 12-months *Annualised since inception Annualised Std Dev Truffle Flexible CPI+5% Outperformance1 after management fees*Since 1 Jan 2011Values Value
  7. 7. Performance: Truffle Balanced1 (period ending 31 October 2012) 20.5% 20% 15% 10.8% ALSI 9.7% 9.6% 10% 6.1% 5% 1.0% 0% *Annualised since inception Annualised Std Dev Truffle Balanced CPI+4% Outperformance1 after management fees*Since 1 Nov 2011Values Value
  8. 8. The Seven Deadly Sins Source: Behavioural Investing James Montier (2007) Other sources: The Warren Buffet Way Fooled by Randomness Triumph of the OptimistsValues Value
  9. 9. Forecasting (Pride) • A test: • Answer the following questions, by • giving a range for each answer • that you believe has a 90% probability of being correct • Example...Source: Behavioural investing, James MontierTest: Russo & Schoemaker (1989)Values Value
  10. 10. Forecasting (Pride) i. Martin Luther King’s age at death ii. Length of the Nile River (km) iii. No of countries that are members of OPEC iv. No of books in the Old Testament v. Diameter of the moon (km) vi. Weight of an empty Boeing 747 (kg) vii. Year in which Wolfgang Amadeus Mozart was born viii. Gestation period of Asian elephant (days) ix. Air distance from London to Tokyo (km) x. Deepest (known) point in the ocean (m)Values Value
  11. 11. Forecasting (Pride) i. 39 years ii. 6,738 km iii. 13 countries iv. 39 books v. 3,476 km vi. 176,901 kg vii. 1756 viii. 645 days ix. 9590 km x. 11,033 mValues Value
  12. 12. Forecasting (Pride) Russo & Schoemaker results: • Sample = 1000 • < 1% got >9 answers correct!!  Forecasting is difficult to CONSISTENTLY get right  We can easily deceive ourselves  Truffle: Bottom-up, fundamental research with minimal macro viewsValues Value
  13. 13. Illusion of Knowledge (Gluttony) • Belief: the more information I have the more knowledge I have • Belief: I need to know more than everybody else to outperform • More information may increase our confidence rather than our accuracy (Pride) • Truffle: Focus on long term normalised fundamentals (cut out short term noise) and keeps the process simpleValues Value
  14. 14. Meeting companies (Lust) • Lust after information (previous point) • The truth: we’re lousy at spotting liars  Enron, Worldcom, Madoff, Tannenbaum………… … Lance Armstrong • Truffle: can add benefit outside of Top40, but we believe in talking to competitors, suppliers and clients as well as managementValues Value
  15. 15. Thinking you can outsmart everyoneelse (Envy) • Belief: now that I understand X, I can outsmart everyone else • I don’t have to outrun the lion…. • Truffle: our experience tells us we are not smarter than everyone else. It is not what you DO know that gets you, it what you DON’T know! • Our risk and construction process limits our active positionsValues Value
  16. 16. Short time horizons (Greed) • I want to double my money, NOW! • Short time horizon and overtrading • Must manage expectations • Truffle: it is time IN the market, not TIMING the market. • It takes time for fundamentals to normaliseValues Value
  17. 17. Short time horizons (Greed) Earnings vs Price over Long Term10000 1000 BIL Price BIL Earnings 100 10 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Values Value
  18. 18. Believing everything you read (Sloth) • We all love a story, but do your homework! • We have a tendency to obey figures of authority • Test: do intrinsic values correlate with movement in share price? • Truffle: >95% of our research is our ownValues Value
  19. 19. Group-based decisions (Wrath) • Group decisions are better than individual decisions? • Belief: in a group we offset each others’ biases • Truffle: common valuation philosophy, but individual responsibilitiesValues Value
  20. 20. Truffle insightsValues Value
  21. 21. Truffle insights The value of an equity is a function of: • Normalised earnings • Normalised yield relative • Market yieldValues Value
  22. 22. Truffle insights10000 All Share Index Earnings Indexed to 1993=100 1000 100 Dec-92 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13Values Value
  23. 23. Truffle insights10000 INDEX EARNINGS Indexed to 1993=100 All Share Index Resource Index1000 100 Dec-92 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Values Value
  24. 24. Truffle insights INDEX EARNINGS Indexed to 1993=10010000 Consumer Services Resource Index1000 100 Dec-92 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Values Value
  25. 25. Truffle insights What can we conclude: • Resource earnings have not underperformed the ALSI • Resource earnings have not underperformed the more defensive sectors (consumer services) • Defensive sectors also exhibit cyclicality in earningsValues Value
  26. 26. Truffle insights INDEX EARNINGS Indexed to 1993=10010000 Consumer Services Resource Index Consumer Services Normalised Earnings Normalised Resource Earnings1000 100 Dec-92 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Values Value
  27. 27. Truffle insights Truffle Investment Process: • We do not extrapolate to establish normalised earnings • We compare historic vs projected ROE • Detailed financial modellingValues Value
  28. 28. Truffle insights Earnings Yield vs Index Value13% Resources 100000 Earnings Yield Index Value11% 9% 10000 7% 5% 3% 1000 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13Values Value
  29. 29. Truffle insights Normalised Earnings Yield vs Index Value15% Resources 100000 Normalised Earnings Yield13% Index Value11%9% 100007%5%3% 1000 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13Values Value
  30. 30. Truffle insights Earnings Yield vs Index Value13% Consumer Services 100000 Earnings Yield Index Value11%9% 100007%5%3% 1000 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Values Value
  31. 31. Truffle insights Normalised Earnings Yield vs Index Value Consumer Services 1000009%7% 100005% Normalised Earnings Yield Index Value3% 1000 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13Values Value
  32. 32. Truffle insights Normalised Yield Relative4.0 Resources vs Consumer Services 4.0 Normalised Yield Relative Price Relative3.5 3.53.0 3.02.5 2.52.0 2.01.5 1.51.0 1.00.5 0.50.0 0.0 Dec-92 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Values Value
  33. 33. Conclusion • Sector ratings do change over a 3 – 5 year period • The relative attractiveness of resources (cyclicals) vs consumer services (defensives) has never been as extreme since 1997Values Value
  34. 34. Thank you -The Truffle Hogs
  35. 35. Truffle Asset Management is a registered Financial Services Provider (FSP Number: 36484). Registered for Categories I, II andIIA.This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation isnot authorised or to any person to whom it would be unlawful to make such offer or solicitation, and is only intended for theuse by the original recipient/addressee. If further distributed by the recipient, the recipient will be responsible to ensure thatsuch distribution does not breach any local investment legislation or regulation.Prospective investors should inform themselves and take appropriate advice as to any applicable legal requirements and anyapplicable taxation and exchange control regulations in the countries of their citizenship, residence or domicile which mightbe relevant to the subscription, purchase, holding, exchange, redemption or disposal of any investments.Opinions expressed are current opinions as of the date appearing in this material only. The information is confidential andintended solely for the use of Truffle’s client’s and prospective clients, and other specific addressee’s. It is not to bereproduced or distributed to any other person except to the clients professional advisers. This document is not fordistribution in the United States.While information obtained is from sources we believe to be up to date and reliable, Truffle does not guarantee the accuracyor completeness thereof. Truffle does not accept any liability for inaccurate or incomplete information contained, or for thecorrectness of any opinions expressed.Past performance is not an indication of future performanceValues Value

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