Letter to Partners - October 2024
18 October 2024 - Chapter 1
Dear Valued Clients
I am proud to announce Celestial is partnering with IBEX Capital and we launched the IBEX Celestial Investment partnership or Celestial for short, effective 1 October 2024.
Grant Oosthuizen and I are the joint portfolio managers. The focus is global quality companies, consistent with Celestial’s strategy the last 14 years: Finding companies with enduring business models, run by owner orientated management, employing capital allocation strategies aligned with long term shareholder wealth creation, all at reasonable prices.
We like to think of it as a search for the best companies in the world, available at prices from which we can make a decent return in the future. Our investable universe has been fine-tuned over the last decade and is continuously monitored and updated. When pricing or other opportunities arise, we can act decisively.
The factsheet can be found, here, by scrolling down on the page.
Our focus is on what we can control, not trying to predict what the market, or specific industries will do in the future. We will therefore not comment on macro economics, trends or fads, but rather focus on finding those enduring businesses with a high probability of future success.
Warren Buffet famously said for investing that Rule #1 is “Don’t lose money” and Rule #2 is “Refer to rule #1”! Diversification is a way to reduce risk, provided it is done in a sensible manner. We prefer a concentrated portfolio 15 to 20 shares, whose businesses we understand and have allocated a high probability to their success.
The future is uncertain, and we focus our risk management by assessing:
· The certainty with which the long-term economics characteristics of the business can be evaluated. As an example, how certain are we that Visa will remain a global force in payment processing over the next 10 years?
· The certainty with which management can be evaluated, both to its ability to realise the full potential of the business and to wisely employ its cash flow? Management’s actions over preceding years, specifically the ability to generate high returns on capital and the ability to grow for at least a decade out.
· The certainty that with which management can be counted on to channel the rewards of the business to the shareholders rather than itself. Owner managed and owner orientated businesses have a far greater tendency to do this. Management’s actions over the preceding years also points what could be expected in the future.
· The purchase price of the business. Don’t overpay! A good example today is Nvidia. Given its current share price of $140, to earn an annual return of 10% over the next 10 years, it needs to grow its free cash flow by 38% pa over this same 10-year period. Even though it is a great company with great prospects, at these prices, we will pass on the opportunity.
Celestial is managed with the intention of providing good absolute returns, regardless of how the market performs. The strategy is implemented with a bottom up, quality investment strategy where we only own companies that can be acquired at reasonable prices and hold cash or US T-bills when we cannot find suitable other investments. We identify companies in our investable universe, where either a short-term event had a negative impact on share prices or where there is a catalyst for realising underlying value. This should reduce the volatility in our results and de-emphasise market movements.
At present, the leading market indices are priced to perfection with new all-time highs being recorded by the S&P 500, Dow Jones, Nasdaq, DAX and FTSE 100. China seems to be the exception, even after their recent run following the announced stimulus. The portfolio is currently cautiously positioned with approximately 45% invested in quality companies acquired at reasonable prices and 55% in US T-bills. We continue to find pockets of value in specifically the European market and certain smaller cap US companies. We aim to invest the bulk of the cash over the next 6 months as opportunities present themselves and will remain fully invested over the long term.
Housekeeping
All existing Celestial clients will be migrated to the new partnership, for those that I have not been in contact with, expect communication soon, the admin is negligible.
Even though we call it a partnership, all USD accounts will still be held in each investor’s individual, joint account, offshore trust or offshore company’s name. As we are investors in the same portfolio, with the same proportions, we like to think of it as a partnership!
In addition to Celestial’s undivided attention to seeking the best companies in the world to invest in, investors can expect from us an annual and interim letter for periods ending 30 June and 31 December each year. These letters will be made public on our website 3 months after distribution to investors. In addition, we will publish reviews of a quality companies, detailing our investment thoughts, why we believe it to be a quality business and our considered opinion on its current valuation. These companies may be in the portfolio and if not, and are part of our investable universe, trading at a price higher than what we feel comfortable with. Celestial’s orientation is genuinely long term, and more regular reports are likely to be of little value to you and may even be counterproductive for us.
Investors will get a monthly statement detailing all investments and NAV from Celestial’s administrator (IBEX Capital, contact +27 21 007 1525 or invest@ibexcapital.co.za ). Please contact them at any time with queries or for account openings and tax reports, I like to think of the competent team there as Grant’s Angels!
Irrespective of where you, or your investment entity is based, if you are seeking a global investment portfolio of quality listed companies, with USD as the base currency, understand that successful investing can only be done over the long term and want to do it in a cost-efficient manner, we will welcome you onboard.
For interested parties, detailed presentation of our investment philosophy, investment process and current holdings are available. Send me an e-mail of call to arrange an in-person or virtual presentation. If you are ready to join our journey into quality investing for the long term, please let myself or the team at IBEX know.
Yours sincerely
Chris Mostert
Click on Image to view the factsheet