Well another month has passed, and for me the stock market has not been a good place. I am invested in mostly small and medium cap shares in South Africa, and to be quite frank, the market has been terrible.
The reasons: Political instability, recession, lack of liquidity in these shares, and people just giving up on some of them.
Now you might think this has depressed me no end, and you would be partly right. Nobody likes to see their net worth decreasing on a sometimes daily basis. You may detect though that I am not totally downhearted about this, and in fact to some degree I take a certain pleasure out of it.
The reason for my pleasure can be traced back to the father of value investing, the man who Warren Buffett says he looked up to the most in investing, Benjamin Graham. He spoke of a Mr Market, who was a manic fellow at the best of times, sometimes happy and sometimes downright depressed. The only weapon we have as investors he said was to ignore Mr Market and to control our own emotions. He also said that the best time to buy was generally when Mr Market was depressed and throwing away good businesses at knock down prices. In my market, I believe that time is now.
I have been doing a fair amount of buying, and selling a long term holding which I have lost some faith in, in order to fund my purchases. I will not go into all my activity, but will touch on one stock I have been buying. The reason I will do this is because, like the title of this article alludes, we are buying businesses, and the key is not to just think of stocks as pieces of paper.
Buying a boring old packaging business
I have been accumulating shares in a company called Bowler Metcalf (stock code BCF on the JSE). This stock has been listed for 30 years on the stock exchange, has been consistently profitable, has no debt, has cash on the Balance Sheet, and most importantly of course, pays dividends! They make things like the plastic containers that are used for your bathroom cleaning materials and tubes/containers that hold cosmetics etc. They generally make the more specialized ones with advanced nozzles, but lets leave it there, I did say boring.
The share price though has been terrible, it is probably down over the last 5 years. Part of the reason for this is that a number of years ago the company bought into one of their clients, a beverage company which makes soft drinks. Subsequently they have merged their stake into a larger entity called Softbev, which is now a national beverage company which sell various soft drinks and energy drinks, as well as being the Pepsi bottler in South Africa. Unfortunately Softbev has had various teething problems, and Bowler Metcalf has had to write down the value of their 42% stake in Softbev.
The thing is that even if Softbev was worth nothing, which it certainly is not, then the core business of Bowler Metcalf, which is plastic packaging, is worth far more than the value the market is currently valuing it at.
I have recently bought some shares at R5.65, and a recent trading statement said that core earnings would be 65-82c, placing this business at an earnings multiple of 6 to 8. This for a well run business, that is conservatively managed. You effectively have a free option on Softbev, which may be listed as a separate business.
This is why I say stocks can be depressing, but businesses less so. This business is situated in my home town of Cape Town, so I go off to the AGM every year to hear the directors discuss prospects for the year. I see their soft drinks, including Pepsi, in the supermarket. I see this as my business, albeit as a minority shareholder. I enjoy reading their annual reports, which are easy to understand, being a fairly simple business.
I find a lot of comfort in a business like this. I have a few shares, such as Choppies, which is a supermarket group which has the whole of Africa into which it can grow, which could shoot to the moon over time, but equally fall flat on it’s face. Bowler Metcalf though is like a trusty old friend, somewhat boring, which keeps churning out profit and dividends. Unlikely to make me wealthy, but like anybody owning a business, I would like it to keep feeding my family and providing for my needs, and the stock price does not bother me, because I have no plans to sell something so important, especially to that horrible Mr Market guy!
Disclaimer: I have been discussing a small company I like, it is not a recommendation though, as all shares carry risk. Do your own research.