#40 Liam Dawson – Transcript

Louis van der Merwe
Welcome to another episode of Financial planners in South Africa. Today I have in the studio with me, Liam Dawson. Liam is an Investment Analyst at Portfolio matrix. I’m really excited to have him here today as portfolio matrix has also been one of the key sponsors. And there’s a lot of changes in the South African investment environment. And we look forward to unpacking that today. Liam, thanks so much for joining me.

Liam Dawson
Thanks very appreciate it.

Louis van der Merwe
This, there’s a lot going on, you know, we have a war that we’re trying to navigate around, we have investment portfolios, a lot of them losing quite a bit of value, we have the RAND strengthening, but I want us to talk a little bit about items that probably doesn’t change that much. You know, and and one part that often comes to mind is this kind of home bias. Now we’ve seen this change that investors in South Africa can increase their offshore exposure in retirement vehicles. And so I’m curious, as, as an investment house, how do you approach home buyers and determining what is the optimal offshore exposure? It’s often something that advisors or even clients struggle with? So I’m curious to hear what your views on how that’s worked out?

Liam Dawson
Yeah, look, I mean, there are lots of ways to handle handle that. I guess you could try and tailor it to each individual and identify what they already have offshore, and then try and put that together as what you can move back or what you need to move offshore as well. But, I mean, sort of more from an asset allocation perspective, I suppose as I guess it’s your question is to look at it from that perspective, what we’re seeing within the reg 28, or regulation 28 environment, is that that’s constraining enough. So it’s not a case of you needing to force this equities in there or impose a home bias in the portfolio. So just from an asset allocation perspective, you don’t need to force it, but then you need to be a little bit more discretionary or considered to that when you’re building a discretionary portfolio on unconstrained portfolio because you don’t have this regulatory environment, which is forcing South African assets into the portfolio squeezing global assets at and they need to have some consideration. And I suppose there are a lot of different ways to think about it, when you are unconstrained. So we could perhaps look at it that way and then come back to more constrained environment. When you’re unconstrained it’s it’s, it’s a little bit easier in the sense that you’re doing trade offs on asset classes. I mean, what would you rather own in your portfolio? Would you rather own Naspers or NASDAQ and sort of valuations aside, it’s a case of would you rather that 10% of your portfolio spread across five global leaders or one single company I’m not saying that this is a bad business at all and just saying that kind of concentration risk, taking money offshore helps you a lot. And I think that’s what I suppose a lot of investors look at to advisors advise in line with is that South Africa carries a fair amount of risk with its regulatory risk or very concentrated small market versus the rest of the world. And take your money offshore really helps with that. But you can’t do it blindly and just say, I’m gonna have all my money offshore, because you’re going to one sort of mismatch. Your assets and liabilities if that’s your objective. But secondly, South Africa has some very attractive asset classes. And coming back to part of your question a moment ago about the relaxation on these constraints in Reg 28 products or retirement products, the thing about that is that it’s been relaxed, you cannot take more money offshore. But suddenly, South African bonds are looking extremely attractive, very distant from the war in Ukraine, or at least on the face of it, benefiting from the macro sort of tailwinds that are driving the, our economy. I mean, what were exposed to. And then, I mean, with without getting too technical, just things like interest rate differentials, or interest, or, or other inflation in the US, in developed markets being quite a bit higher than South Africa is, is almost an anomaly. It shouldn’t be that way. But it makes us stand out for global investors and do that that’s there’s tattoo rewritings, where you can make a lot of money as an investor. They’re unnecessarily predictable. But maintaining a diversified exposure means that you actually catch some of that. So there’s, it’s an interesting space you send you can take more money offshore. But the question is, do you really want to right now, it’s not the easiest?

Louis van der Merwe
Yeah, I hear you laminate. And it’s valuable to think of it as something completely unconstrained. And then moving backwards to say, Okay, well, if we overlay this kind of 45% limit now, where should we sit relative to something being unconstrained, and it might also not be the right time, we see a lot of drive from financial journalists and publications, you know, jumping on the bandwagon, and there’s quite a while there’s one in particular that often pants, you know, move all your assets overseas. What is the downside of, of an a, an all or nothing approach?

Liam Dawson
Look, I know, if you take all your money offshore, it’s not exactly concentrated, but it is a single, not a single bit. But it’s a concentrated decision in the sense that you’re betting against the end, okay. And I guess my concern with that is that if you take these concentrated positions that can either make you a lot of money, or perhaps lose you a lot of money, in dollar terms, you may be sort of pegged in or become mafia. But the challenge is, and Rand terms, which is where a lot of people’s sort of retirement is going to be spent at South Africa. The real question is like, are you actually covering that base, and not being a financial adviser myself, but being an investor for retirement? It’s something that I’m, I’m aware of, I mean, you need to consider, yes, maybe there’s a small probability that you’d end up overseas, or you’d want to have a few holidays overseas, because maybe your kids have moved there or something like that. And, but the base case for my retirement is that I’m going to be in South Africa. And if that’s the case, I need to make sure that my assets are going to grow and provide for me in that type of environment. And if I take all my money offshore, I’m running a risk that they won’t set their end could get significantly stronger. I mean, it’s not, it’s not such a crazy idea. I know that we have this recency bias in South Africa about it’s been tough. I mean, I can probably just put it there. But it’s been very, very tough from all sorts of perspectives. But when things are bad, and the trajectory is upwards, as it’s improving, it doesn’t matter that it’s very bad going to bed, that improvement is what gets recognized in the markets. And I think that why sets on an outside idea that South Africa could actually be in a good spot, all South African asset classes could be in a good spot, is because if you see that type of improvement, you’re coming from a very bad environment into into not so bad environment and market participants like that. Just to maybe come back to one little thing that you mentioned South African home bias, I think South Africans will have to take the money offshore. Personally, I know it’s given me a slap behavioral hedge to have just a little bit of money offshore. But that’s because I’ve got a Korea In South African capital markets. I’ve got my savings in South African capital markets, you need to diversify a little bit, I suppose. And for me, it is it’s a behavioral hedge. If I take that out, then I can very happily put money into my retirement annuity. Because should should sort of everything fall down, I know that I have something at least. So I think a lot of people take their kind of approach and say, we said the US you’d have a very strong home bias. I think like something like 60 or 70% of the portfolio would focus on the US. Or maybe even more, I mean, it depends on what sources you’re looking at. But then of course, the UK we know in our optimizations and portfolios that we built, we built in a UK Home bias. In South Africa, it’s almost the opposite. Everyone desperately wants to get money out of South Africa, and don’t want it to be in South Africa certain like NT or x sort of home base in South Africa. You can understand I mean, we’ve got a bit of a rocky path. But or history, but I think we are in a better spot, and that you don’t need to need to have that recency bias. You don’t need to look at the last 10 years and say, well, the JC OSHA wasn’t the best equity market in the world. Because if you look at the years before that, it really was, and for some good reason, and a lot of those reasons aren’t necessarily just gone in the sort of newer world that we’re living

Louis van der Merwe
in the bigger scheme of things. 10 years is a blip. You know, we’re not investing for a couple of months or even a single decade, you know, these are lifetime investments. And you raise a very important point for financial planners for analysts, saying, if you’re deriving your income predominantly linked in capital markets in South Africa, how do you diversify your portfolio? You know, do you do you move all of your assets in cash? Do you buy digital assets? Do you buy gold? How do you approach diversification of that risk around your income stream, but also your savings and your capital that you want to deploy for investments? So I mean,

Liam Dawson
there’s a lot of discussion around traditional versus alternative asset classes. And I think especially because traditional, that being just sort of your stocks and bonds, whether it’s local or global, but the reason I think for it is because valuations are so high, everyone’s concerned that if I’m exposed to these traditional asset classes, when they turn because almost certain that they’re going to turn, I’m going to follow the market down, and it’s going to be a painful ride. And perhaps it’s something we can discuss in a moment, but around sort of volatility and things like that. But there was a nice piece that came out from from art marks, not too not so long ago, when he started, I listened to it not too long ago. And basically what he says there is that when you decide to Tamar market and administer traditional market, traditional portfolio scenes, when you try to time a market, you make a decision about when to sell, which is never really that obvious. And you make your decision again, about when to buy in, which is supposed to be when it’s sort of darkest, darkest before dawn kind of situation. And then what you’re going to buy then so because in theory, everything’s changed. And if we go back to March 2020, the corona crash that happened, I mean, yes, one or two asset classes behaved as you’d expect. But there were a number of asset classes that didn’t, there really didn’t behave, and they didn’t recover in the way that you’d expect, either. I mean, leading into that you say US equities are sitting at extreme valuations? Is this finally, the thing that’s going to roll them over? And let’s see, let other parts of the market do quite well. So I mean, markets are not predictable. I think that’s the one thing that you can rely on and not predictable to diversify. So coming back to your question, diversify your assets, exposure, your portfolio, you just need to, I suppose, make sure that it is diversified, both locally and globally. And something that’s not carry through in those types of discussions is just how powerful that around the South African rand, that translation actually is, and how lucky we are in South Africa in two respects. So we’ve got a global business, we manage portfolios on a global basis. And and in the UK, or other developed markets, you’re struggling with cash rates, well, well, well below inflation. And so just keeping up with inflation is very difficult in the low risk portfolios, now, you providing certainty, but the certainty is that you’re probably going to underperform inflation for a short period of time. In South Africa, we’ve got wonderful short term rates, even though they’ve been as low as they have been. And almost historically, we’ve got very, very good short term rates. So again, South African asset classes versus around liability are extremely powerful. And you have this wonderful diversify, that when markets sell off, the RAND dollar also weakens. And so these asset classes translate into a greater proportion of your portfolio. So you might have, you might have, say, global bonds, falling off a little bit or equities falling down 30% In dollar terms, but they’re probably only down about 10% in rent terms at the time. So So you, you need to look at the tools available in Portfolio matrix, we often talk about looking at looking at asset classes through a currency lens, because asset classes look different depending on what currency you’re purchasing them in. And they behave differently, exactly the same asset class, just different currencies that you’re looking at them through. And I think as a South African investor, we’re very, very fortunate to have the RAND as volatile as it is, for other reasons. It’s sometimes not not a privilege, but we’re very lucky to have that inside multi asset portfolios, because it gives you great diversification. You really should use both sides of it. Not just all dollar all round.

Louis van der Merwe
Liam with that as a background. I’m wondering if most retired investors on 10 invested too aggressively. You know, we’re saying that the Conservative assets do reward you with a real income stream. Yet, oftentimes we try and push clients to take kind of what’s the maximum required equity exposure to get that growth? Do we need to revisit that and say, Okay, Mr. Client, maybe it’s not just about having as much growth assets as possible. It’s about securing your income stream using reliable, low volatility assets.

Liam Dawson
So for me, the two things that are probably worth discussing here, and obviously, the one is your term of investment, which is obviously very difficult to predict you, it’s one hard to have a discussion about how long do you think you’re going to live? And secondly, it’s also very difficult to predict how long somebody is going to live. So I guess you need to work with estimates on that. And you can look at all sorts of tables from activities and things and say, Okay, well, this is the time period that we’re going to plan for your, for your retirement savings to to support you. What’s difficult with that, I think, not in setting the timeline or investment horizon, but it’s almost people draw a line in the sand and say, Okay, I’m going to retire in 2025. At that point, I need to be 100%, and stable cash like assets. It’s almost like you’re looking at this point, 2025, but you’re not looking at the next 40 years after that. And if you have a 40 year investment horizon, should you not have more risk assets in the or more equities. And so obviously, it’s dependent on each individual situation and the ability or appetite for risk, because of course, you don’t want to put someone in their own portfolio or higher risk portfolio than they should be in. But at the end of the day, you need to plan for quite a long retirement, I mean, people are living longer and longer, even in South Africa as an emerging market with with short term expected or life expectancy. You do need to plan for that. And so it sort of melts into that second point that I was trying to try to raise about this, I think it’s often referred to as like the, the flat path or whatever it is. And as you near retirement, you should start shifting your SD allocation. And I do think it’s true to a certain extent, particularly if you’re going to convert your, your investment into sort of like a sort of Lockton type of annuity type type product. But I mean, that’s all part of the financial advice process, I think, if you’re going to remain basically carry market risk as an individual through retirement, you shouldn’t be going for that certainty of of income or fixed income in your portfolio, I think you missed out on a lot of potential and fixed income as a potential sell off. So I mean, if you look at global level bonds over the last last couple of months, there certainly felt a bit of pain. So it does happen. And then again, if you look at the example I gave about developed markets, you can take on the fixed income, or the lower risk portfolio with more certainty around it. But sometimes it’s certainty is that you’re going to end up underperform inflation for a certain period of time.

Louis van der Merwe
Thanks, Liam, I think that makes a lot of sense. You know, like you’re saying the role of the advisor is balancing the short term view and the longer term view, to say, let’s let’s not lose sight of what we want to achieve over 35 or 40 years for the rest of your investment lifetime, by looking at short term in a rage, because you can still miss out on equity, like returns for investors, oftentimes, doing nothing doesn’t feel like an option. You know, I think as humans, we have a bias to wanting to do something. How do you tackle that within managing portfolios, where a lot of times, the best thing is to do nothing? So I’m curious, how do you how do you tackle that? And what type of information do you then look at, to back up your decision to either do nothing or to take action?

Liam Dawson
So I’m glad you put it in the context of a portfolio because I was going to try and squeeze the discussion into the context. Because it’s a prime example. I mean, like maybe an advisor client and you you’re managing your own portfolio, or perhaps you your your full time job is to manage a portfolio. If we, let’s let’s put it this way, so not exactly that’s right. But every day you have a chance to go make a change to a portrait, you could sell everything, turn it to cash or obviously within a certain mandate, but in theory, you could make decisions on their portfolio every day or intraday, if you wish. And I guess making that decision is a case of you almost dropped like any like anchor that you have as to why you made that decision or other portfolio looks like it does today. And you say forward looking what are the prospects and almost assess probabilities and payoffs of different trades that you could make? So it’s looking at your positioning and saying that I can find them overweight, interest rate risk in this portfolio and what does that look like in an uncertain world going forward? Because it is all uncertain. I mean, that’s why you’re getting paid a risk. Premium. That’s why asset classes reward you, the more uncertain they are. Okay, so it’s not a linear relationship. But in general, the more uncertain asset class is, the greater the demand from an investor to invest in it. And typically the greater return that you receive from that asset class, but over time, of course, and so you need to sit and make that decision about how are you positioned at the moment? What’s your neutral? Do you have like your own benchmark that you’ve constructed? Or do you measure yourself against peers? Or do you measure yourself against a specific index? So taking their portfolio as an example, let’s imagine we’re managing a fixed income portfolio, and you’re overweight interest rates risk, you need to try and think about how these different points on the yield curve are going to behave. So different bonds that have been issued by the government, how they’re going to behave with the Reserve Bank, increasing rates, like we’ve seen recently, were dropping rates, like received recently as well, not not so long ago. And it’s just about this forward looking, having a sense of like different parts of the portfolio would take depending on what actually happens, and reassessing those over and over again, and operating in a world of uncertainty, I think, I think that’s probably been one of the biggest areas of growth for, for me in the industry. It’s been a case of operating this world of uncertainty making decisions in, in this uncertain world, because it is, it’s why you get rewarded for investing. And it certainly makes life a lot more comfortable, happier if you start to understand how to make decisions in an uncertain world. Yeah, and being painfully aware of your own behavioral biases. So coming back to your question about doing nothing. And it really is one of the hardest things because I think sometimes you feel like, well, if you manage your portfolio, and you feel like I’m doing something, or how would I? How would I explain this to the client, I met them a month ago, meeting them again now, and I’ve done nothing on the portfolio. But it again comes back to your philosophy, your guiding style, your process, and saying, Am I managing this portfolio within next because that’s what a client or an investor should be buying into, not just returns over the last year to your process. And if that resonates with them, then they shouldn’t be unhappy that you’ve done nothing, so long as it’s so long as it goes with your investment philosophy. I think that’s probably the the main thing, but it is it’s, it’s very difficult to do and I think, just as as an investor, you’re seeking now but just as an investor, you invest in your retirement money, very concerned about it, it’s performing quite well, but it hasn’t done as well as somebody else’s portfolio. You don’t consider why they’ve done there. Maybe they had some Bitcoin or Ark, or something else in there that really drove returns or a single bit. Meanwhile, you’ve probably taken the on a probability basis, the best path, but you feel like you’ve underperformed? Do I make a change? And it’s just that uncertainty, I guess you need to come back and say, What am I trying to achieve? Why am I doing this? What’s the probability of success with my current path? With alternative paws if I make changes and things like that, I like

Louis van der Merwe
how you phrase that reflection on your decisions relative to someone else, saying that you don’t, you don’t see the risk that that person has taken on you only seeing one sliver and also the piece that they want to share with you. Right? So how do you look at past decisions? You know, do you as an portfolio matrix as a team? Do you spend quite a bit of time looking at what went well? Or what went wrong? Or where does reflection on past decisions fit into your process

Liam Dawson
as actually up quite late last night doing exactly that. And it’s not like it is keeping me up at night, just just sort of as enjoying the work as getting through it as putting together some slides. So I could actually discuss it with the team. But it’s, it’s, it’s a critical part, at least for me, personally, it’s a critical part of what we do. Because there’s so much information that you can mine out of that. If you want to improve a process, you need to reflect on it. And you need to try and identify where you made good decisions that we made bad decisions. And it’s not about good outcomes or bad outcomes. It’s the correct decision versus the wrong decision with the information you had at the time. And reflect on it and say like, is this something that we need to change fundamentally? Or is our process good enough to guide us through the next round of uncertainty? And I think that it’s very, very important. I mean, from from the work that we do here, portfolio matrix, we can go and do. It’s all a numbers, I guess that was one of the big appeals, sort of appealing factors of the industry. For me, when I moved into the industry, it’s just like the world is quantified. They just there’s actually too many numbers. And you do yourself a big favor by understanding which numbers to really look at, understand when a statistic or distribution or just when a set of data is skewed. It’s not reflective of the full picture. So you do well to do that. But coming back to that idea of when you make Good decisions versus bad decisions, you have to reflect on it, you absolutely have to, and you need to do it, do it as a team. Because there a lot of I mean, if I’ve got a certain reference in how I make decisions or way of making decisions, there’s a chance that I’m going to continue that blind spot, even when I reflect on decisions. And so you’re not going to fully or critically evaluate sort of the full decision that you’ve made. So doing it as a team, you see it from different angles, at talks, that idea of diversity in thought in in an investment team, which I think is critical. And yeah, it’s just, it’s actually part of the process that I enjoyed the most, because it almost sets a firmer foundation, each time you making your next decision, you’re building this, this knowledge over time you understanding where you’ve gone wrong in the past, why you went wrong, and how to guard against it. And also, sometimes it’s about taking on a little bit more risk than you have in the past. Again, if I reflect on my own life, like I was quite conservative, I mean, if I saw a new sport to a new activity or something, but my approach to it was to actually watch it, see it, see how it sort of played out. And then when I felt confident enough to get involved, I’m a little bit different now. Sort of I’ve sort of dialed that risk appetite just a little bit more. And yeah, it’s inside is, but reflection is critical. self reflection, but then also within a team, I think it’s very, very important.

Louis van der Merwe
It makes so much sense having a framework, you know, framework for investors, a framework for fund managers, a framework for analysts, to say we’ve got something to hold on. And you mentioned they that sometimes we spend a lot of time looking at numbers that are irrelevant. What are the types of statistics that you think might be sidetracking investors, things that they fixate on, even though it has very little to do with future expected returns or even decision making?

Liam Dawson
Well, it has to be performance. I mean, you see it across the industry, you so performance is very important. But understanding what drove that at that performance is far more important. And so looking at these industry reports are useful to a certain extent, but they’re also a little misleading looking at performance over time. I mean, I know was probably like two months ago, I was watching a fund manager presentation. And the fund managers good and well established in the industry stood up and showed the great inflation beating returns in a low risk portfolio are sort of like one year, three years, five years, seven years. And it looked good and sort of to an untrained eye, you’d look at it and say, Wow, okay, this, this portfolio performs, and it performs consistently. But if you looked a little harder, you would have seen that the one year return was like 20% versus inflation of like 5%, or 4%. And so you had this performance that wasn’t across the seven year period attachment all sort of in one year. And then in fact, that funded underperformed inflation for probably about six years before that. So the performance is very, very misleading. It’s a good guide to interrogate and dig in a little deeper. It’s also very useful to contrast against other things. So if a fan does particularly well, over the last month, and you also know that resources did particularly well over the last month, you could probably say that, that was resources that drove the performance. And if that managers consistent in, in how they allocate and sort of almost, if you wish, your style that they manage the funding, and then you know what you’re buying and you know, when it will perform and when it will underperform. And then you can decide is that’s the time is that the type of return profile that you personally want or the type of return profile that you want to plug into sort of a greater bigger system more portfolio, because you have complementary managers in the it’s, it’s, yeah, back to your question performance, I think definitely, it’s so easy to say, look, I could have been and you actually did it all in one month. And that’s not the fund manager I personally want. I want a nice, consistent, smooth return profile, someone who manages risk very tightly, but emphasizes things that they can control. So not big macro things, I don’t want to see your portfolio do exceptionally well, because Russia quickly invaded Ukraine. I’d like to know how they managed to I could predict that was going to happen and position themselves explicitly for that. If all of those pieces can be put together then then perhaps it’s a strategy to invest in. But when you try to forecast this macro environment, it’s just so difficult. You want to emphasize the parts of the process you do well, so fund manager, you won’t see them picking the best companies emphasizing the idiosyncratic risk specific to the company and trying to manage the the macro factor risk and quite tightly to their reference point.

Louis van der Merwe
So these high returns or extremely low returns might be a symptom of what went wrong, you know, either taking on too much risk or concentrating in one area. And I like how you bring that back to your framework to say we where does this fit in? I’m curious. You And this might be a little bit controversial, but a lot of fund managers package their marketing around always being in the top quartile. And I think we have to identify that some of it is just marketing to attract assets as an Investment Analyst that does due diligence on other fund managers, how do you kick the tires? You know, can? Can individual financial planners even do that, you know, understand that there is a very big place for discretionary fund managers for specific reason. But where do you start when you when you kick the tires to say, Hey, this is a fund manager that I might include, or that I’m actively going to exclude from my portfolios.

Liam Dawson
So just before I come into that, the fun thing that I sort of have a laugh about in the industry is, you know, finds done particularly well, when you hear from someone in a distribution team who’s not contacted you for two or three years, because they’re suddenly knocking on your door sending you an email, because the fund has these performance standards. So take a look at how we performed versus peers and all that and

Louis van der Merwe
over the one month and seven day, period.

Liam Dawson
Exactly, exactly. And they didn’t make that sale quickly. Look, I mean, everyone has a role in the industry. And and you need a question, what is the role so? So in, in business distribution, typically, their role is sales. Now you ask what kind of sales philosophy you have? Are you looking to partner with somebody? Are you looking to make a quick sale, you don’t mind if the money’s only there for a short while, or is it really just like acid gathering, which can also be an issue, sort of parking that aside for a minute, it’s very difficult to select funds properly, and not just select them. So select and monitor funds, it’s an ongoing process that takes a lot of time, I don’t quite, it’s very difficult to find the resources to do that. And I’m not saying that we can’t do it, we have dedicated resources to do that. And that’s the point that we do that. And, and we also are very specific in how we do it, we don’t choose to cover the entire universe or cover all of the SEC funds, because that would spread you very thin, and you’re going to miss out on important ones I suppose. So for us, or at least in my personal experience. And what I’ve seen, it’s about digging very, very deep into the process and the philosophy trying to sit with a manager. And we’re fortunate that we get face to face managers, sorry, meetings with the managers during COVID. That was a little bit different. But of course, now, we bet to face to face meetings, we do calls as well. But you can actually sit there and ask about specific points in their performance, the time series, you can look at when there’s been a sudden dislocation versus the benchmark. So they’re tracking your their returns versus the benchmarks. And they look very different or atypical. So you can work through things like that you can also see periods of underperformance and ask them why why is that happen? So that’s where performance is useful. But you need to train these things over time, you can’t just look at cutoff date and say that’s a performance and they’re done. Well. The reason that I said very difficult and resource intensive is because once you find you’ve gotten through all of this, you cut through all the marketing noise, you’ve identified this, that this manager has a really good process that should pay off over the long run, because that’s sort of what you should be make your decisions over. And once you’ve identified that you then need to keep monitoring and say, What are boards on day one? Is it still the same thing? Has the manager changed the portfolio manager? Or has the investment team changed? Or is there some other thing going on in the organization that changes it has the operations team fallen away, and now that full burden is sitting on the investment team, and you need to stay on the ball. And so back to that example of why we don’t cover the entire Sisa category. And that’s forgetting that we have global investments. While we wouldn’t do that as because you need to now minute, sort of monitor all of that and have an opinion on all of that. I’m not sure how you can do that without having basically an army to to monitor all of those funds, contact them every so often understand what’s going on, have a personal relationship with him to certain extent. So not necessarily getting together on weekends. But just that when something does change, they think to let you know about it. And I think that that’s quite an important thing when it comes to fund selection, and and I guess reflecting back to the context of this discussion in the podcast, if you think about financial advice, and they certainly are all sorts of different types of financial advisors out there, and many, many good ones in different shapes and forms. But for me that the ideal is that you have a financial advisor who really cares and focuses on that relationship with the end investor spends most of their time on that. And it doesn’t mean that they don’t need to know what’s going on with investments at all. In fact, it’s better if they do but to take your time away from a client and spend it on investments when you could potentially get that in a different way. You at least need to consider it you need to consider outsourcing certain parts of the business. I think Even if you reflect back on all the studies that have been done over time surveys and things, that value of advice, so often it comes through that relationship. It’s managing the behavior of the investor, and putting them into the right portfolio, creating the correct plan and all of that. But managing the behavior, the investor, as you go through this ride, it’s almost like coaching or guiding someone through this process. tour guide, I suppose through through the capital markets is up and down. But

I think that that’s really when advisor offers the most value, and quantitatively has been shown to offer the most value. But of course, you need to make sure the investment product delivers per the financial plan, I think is a difficult one for a financial advisor who wants to do everything. Because there are only so many hours in the day, I look at how busy just the investment side of things keeps me and my colleagues keeps us very busy a lot of the time, and we’re continually looking to improve and to to identify things and monitor just for the maintain what we have as well, to say that you can do that, and then I’d be able to advise clients on the side, I think I’d certainly struggle with that. But that’s my own personal take. I think some other advisors probably do have a good balance.

Louis van der Merwe
I love that visual of the tour guide of the capital markets. Liam for for someone listening to this that might be moving from advice into the Investment Analyst world or portfolio or want to become a portfolio manager. What would your advice be for younger analyst joining? You know, because from the outside, it looks like almost the amount of analysts are reducing in South Africa, it’s becoming quite difficult. Is that the truth? Or is it just my version of what might be going on?

Liam Dawson
I must be honest, and say that I don’t know the full breadth of the industry and demand. But a few things that I at least have an opinion on is that you mentioned young advisors or people involved in advice side of the aisle part of the industry, I think that’s important, you should do it when you’re young, because you do get typecast quite easily in the industry, I think when you move into an operational type role, hoping that this will be your step into the investment team. I’m not sure how many success stories there have actually been that Sophie, there have been, but that the number versus the number of people trying to follow that route, I think it’s quite difficult. The second thing that I put to that is again, being typecast in the advice part of the market can be quite difficult to move across into the actual investment side. And, and it requires different skill sets. So investments, perhaps you can make a distinction this trend, and it’s not, it’s not all in good investment analysts are going to be this way. But for me, if you enjoy open up a blank Excel document with a plan of what you’re going to do with it, and that sort of thing gets your heart skipping a beat a little bit, I would personally say that that would suggest that you’re going to enjoy being an analyst, I won’t say you’ll be a good one, but you’ll really enjoy being an analyst. If on the other hand, you’d much rather sit with a client with a person and engage with him, understand him, talk to them, sort of again, help them navigate this world of uncertainty, then perhaps you you would make a much better advisor. So I know personally, I guess and no two knows maybe the future has it has an advice role for me. But at this stage, I don’t think I would personally be a good financial adviser. And it’s not that I don’t connect with people like interpersonally and things. It’s that I would much rather open up an Excel document with some noise cancelling headphones on and build out the document that I needed, like Excel document that I needed to be. I’d much rather do that. So it’s I guess, finding passionate it’s finding where your skill set and your passionate sort of aligns. If you can find that and I think you’re going to be happy. If being an Investment Analyst is it, then you need to just work hard and push for it. Be prepared to make sacrifices. I think that’s the biggest one. So my own personal sort of journey cut very, very short in explanation now but it was an essence I studied engineering. I went into mining, I enjoy that I was doing mining, consulting hours traveling, sort of globally. So not just in South Africa to Rustenburg and lax but I was traveling and enjoy it was a very interesting job. But the pace was just too slow. So in mining, they’ve got the saying Hurry, hurry up and wait. And it really is like you got a rush and you’re going to wait two or three hours for something. So bringing that idea across, kind of looking at this world of investments where everything’s in numbers, it’s quantified it’s it’s something that you can study something that you can put into an Excel document and by the way that people around you’re gonna understand what you’re talking about when you showing these charts and graphs and things. That was very appealing to me. And so I started studying CFA, and there are different ways to get into the industry but CFS widely recognized for the for the sacrifices you have to make Make, and the challenge that it actually is, and that it gives you a good grounding, it gives you a very good foundation to get into the industry. So I would say that, personally, that’s probably the best part, you need to show the industry that you prepared to sacrifice that you really have a passion for it. And you’ll sacrifice nights and mornings for good sort of six or seven months to write a single exam that you may or may not pass comes down to that I think and just keep pushing. I mean, that’s ultimately what it is. When I was applying to join the industry, or one of the big insurers, HR departments responded to me, which by the way, was a step up on some of the other companies I applied to. But they responded to me saying, Sorry, we don’t employ engineers, despite my cover letter explaining what my actual intentions were. But yeah, it’s just an instinct, you just need to keep knocking on doors and keep sort of building, I guess, investing in your human capital. If you can invest in that ends, the investment, endless roles sort of just never comes to fruition, you’ll still be better off, you’ll still have a broader perspective, a bit inspector perspective, maybe even overqualified for a certain job that you have, but it never hurts to, to have knowledge to have understanding and sort of a thirst and interest for it as well.

Louis van der Merwe
It makes so much sense just backing your passion. But it’s quite difficult when you know, you might be leaving school, and you have to decide what’s the steady path to get where you ultimately want to be, without knowing what that looks like. And it’s wonderful to hear how you enjoy, you know, building out the models, looking at the analytical side, but also then the team interaction, the interaction with the fund managers, part of that you mentioned the speed, you know, the speed of seeing what’s happening in the market. And last week, it dawned on me that, you know, with a lot of digital assets, those markets never sleep, you don’t get a time to there’s no market close, the pricing continues consistently, do we need to spend a bit of time understanding those assets. And I take that this would be your personal view, not necessarily portfolio matrix view. But I’m curious where this fits in. We seeing a lot of us thought leaders that speak to financial advisors say you have to spend time understanding blockchain, understanding NF T’s and these future asset classes. But I’m not 100% convinced. So I’m curious what Liam’s take is on all of this,

Liam Dawson
I don’t know how much diversity we’ll have in this this discussion, because I’m also not 100% convinced. If we just for a second, jump back to your very first question, where you’re essentially talking about news headlines, and what it means I think the loudest voice in the room is not always necessarily the clearest or the most thoughtful. And so I’m not, I’m not saying that, that these voices particularly coming out of sort of global markets, or the US just because of our deepest capital markets, while they come in, I’m not saying that they’re wrong. I’m not saying that digital assets won’t be there. And I think you’ll certainly do yourself a favor to understand a little bit of it. Even if it’s just the blockchain, it’s not understanding, like going and studying how many different cryptocurrencies there are and the different the differences between like a Bitcoin or Aetherium, and a stable coin and stuff like that, you don’t need to know that unless you want to know that. Why I said, I don’t think there’ll be that much diversity in opinion yours, because I kind of feel the same. I’ve tried to find more information about why it would make sense to have it and own it, and why it makes sense to own it now, and personally, I don’t have any, at least not any direct exposure, maybe that I have this tiny look through in my portfolio, which eventually bought Tesla, which bought some bitcoin, and kind of thing, but I’ve not personally gone out to buy digital currencies or cryptocurrencies or anything like that. There are lots of ways to look at it, I think at this point, you could probably price it with almost like a fair value based on on its adoption, plus, like a layer of speculative, almost like a premium on top of it. And, and that’s a lot of utility. I mean, a lot of people have been able to borrow at very cheap rates or receive a stimulus check, go and buy some digital currency, and look how well it’s performed. And therefore you absolutely should have some, but we all know that there’s prices that come down. So that’s the reality of a volatile asset class. If an asset class is volatile, and you can predict some sort of form of long term return out of it or utility out of it, then I think that’s a different story. So that’s what I’m getting at is that it’s very difficult to say I’m being rewarded for the volatility in the asset class, because that speculation is sentiment, it’s behavioral aspects in the market, which to a certain extent, you can have a solid predictable asset classes, but you can’t do say easily do that so easily through through different cryptocurrencies, they just are very volatile. Their characteristics change, you can’t say that they’ve got a stable or and reliable correlation versus other asset classes. And it’s difficult to pass them on any fundamental basis. So for me, it’s very difficult to say that I should have even any proportion of my personal assets in net. And then I was reading a piece, not so long ago, I think it was probably about a week or so ago of by Research Affiliates talking about digital currencies, and cryptocurrencies and the like. And, and those are good points that I actually hadn’t thought about before. And they said, a lot of the case behind these cryptocurrencies they’re going to distract, and that they’re going to become the main form of transactions are at least a considerable form of transactions. And the point that I’m making Iran, rightly or wrongly, but it resonated with me was that if it does get adopted as a sort of why widely accepted currency, whichever one Bitcoin or Aetherium, whichever it is adopted, in essence,

they do idea is that your transaction fees should come down a huge amount or at so it should be cheaper on that basis to be buying the currency in the future, rather than your speculative premium that I speak about earlier, should shrink, and should actually probably bring the price down. And so again, you should be converting from rands, or dollars into these cryptocurrencies at a more favorable exchange rate in the future. And it just, in essence, meant that you don’t need to buy it. Now, even if you believe that it’s going to take over the world, I suppose. You don’t need to. And I mean, the few things that I have is not going to suddenly sway the market enough that they’re going to believe that this is the way forward and I’m lucky I got in ahead of everyone. And that was another thought that I had about, it’s not like a stock that you’re trying to buy as a penny stock, because you know, it’s going to be the future. And you have to buy it now, because the price is only going to appreciate, if the price isn’t going to appreciate into the future, the utility might, but if the price itself isn’t going to appreciate, you don’t have to buy it now you can wait for the rest of the world to decide that this is what we want to do. And then you can buy it. And there’s no reason why you can’t at that point. So for me, it’s there’s no fear of missing out. You don’t you don’t need to fear that, because it’ll be the I mean, especially if it’s broadly accepted, it’ll be there and you can buy them. That’s kind of my take on it. I mean, even if you look at the main proponents of it, you have like a Salvador except sort of like moving across to that Tesla at one point in order to hold licenses or sell cars, through Bitcoin. And I don’t know, it’s just a tricky one, you don’t have to be first. And maybe I can, I can reflect again, on some of my experience in the mining industry where everybody wants to be first to be second. You don’t need to be the first first person to get in on net. That’s my personal opinion. But again, it comes back to utility. So do I feel better having 1% of my portfolio in Bitcoin? Personally, no, but maybe other people do. So maybe they want it? And then that’s great. But at least try and frame the discussion or sort of do like a simple pros and cons list considering like, should I buy now? Like, what’s the difference between buying now later? Do I want to participate in in switches? Ironically, your traditional asset classes events is just valuations look expensive? I don’t want to buy it now. Because it could crash could have in price. But go look at the volatility, that type of rollercoaster ride that you’ve had in Bitcoin, or digital currencies? Yeah, it’s a tricky one in in a much broader context, digital assets, I wouldn’t, I wouldn’t say I’d want to personally own an NF T, especially when they stopped burning them. I don’t know if you’ve seen any of that. But basically, anyway, I don’t, I don’t personally see utility in owning owning an NF T. But if you look at if you look at like blockchain and things like that there is I suppose potential for innovation, broad spread disruption possible, maybe it makes transfer of properties, ownership and transfer of properties easier, because that in itself is already a very, very slow process. So it’s not like you need to, you can just beat it up a little bit. But if there’s trust in that system, that could very well be a good application. But personally, I mean, again, it’s not something that you need to get ahead of maybe if you’re a venture capitalist looking for, for sort of a new company or startup that you’re looking to set up. And this is the channel that you’re going into the next grade. But as an individual investor, I can wait until it’s listed in bite at that point, if I really want I can, in the meantime, in fairly healthy returns other more traditional asset classes. That’s That’s my personal view.

Louis van der Merwe
Liam, you kept on mentioning that you were operating in uncertainty. And it’s so wonderful to hear how you tackle building this framework in something that there isn’t a known outcome. And I think that gives us an insight in terms of the value that analysts and DFM is and the work that you do at Portfolio Matrixx brings to the table, you know, because it takes a certain person to do that with a certain amount of passion. And it’s been wonderful having you here today, as we come to the close of this, would people be able to reach out to you and make connections? And if so, what would be the best route for them to do so?

Liam Dawson
Yeah, of course. Look, I think we’ve got a number of contact points. So firstly, the website, but I wouldn’t say go that way. It’s a nice website. And we put effort into it. But it’s always nice to speak to a person. So on our website, where contact details I think perhaps we could put a link into into this podcast as well. And we’ve got a very, very, very friendly and kind business development team, who would be quite keen to chatty. And if you specifically want to speak to me, that’s great. I’m on LinkedIn as well. If you specifically don’t want to speak to me, that’s also great. And we’ve got lots of other people around here that that’ll be quite happy to feel the call or an email. We are responsive, I think you need to be as a business just in general. But we are very responsive and open to any type of engagement.

Louis van der Merwe
Thank you very much for your time today. And good luck with building your models and spending time in Excel. I thank you for for building client portfolios so that we don’t have to spend too much time there. Yeah, I really enjoyed it.

Liam Dawson
Great. Thanks so much. I appreciate it.