BNC#6: Sean Peche Q&A – Passive investing is about to implode

During his Q&A session at BNC#6 in Hermanus, Sean Peche emphasised the importance of investing in growing businesses without overpaying, focusing on quality rather than deep value alone. He discussed European banks like ABN Amro and Barclays as attractive investments due to low valuations and dividends. Peche also mentioned his preference for Hong Kong-listed Chinese stocks like Alibaba and Baidu over US-listed ones due to regulatory risks. Despite political uncertainties, he remains focused on fundamentals rather than making investment decisions based on election outcomes.

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Summary of the Q&A session with Sean Peche at BNC#6 in Hermanus

Sean Peche, a prominent deep value investor, recently shared his insights on global markets and investment strategies. Peche, known for his keen eye for undervalued assets and contrarian approach, provided valuable perspectives on navigating the complexities of today’s investment landscape.

In his analysis, Peche emphasized the importance of thorough research and analysis in identifying investment opportunities. He highlighted the significance of understanding market fundamentals, company financials, and industry dynamics to uncover potential gems overlooked by the broader market.

One key aspect of Peche’s investment philosophy is his focus on intrinsic value. He believes that markets often misprice assets in the short term, presenting opportunities for patient investors to capitalize on undervalued stocks. By conducting in-depth fundamental analysis, Peche seeks to determine the true worth of a company relative to its current market price.

Moreover, Peche discussed the role of contrarianism in his investment approach. He explained that being contrarian requires the courage to go against the crowd and have conviction in one’s analysis, even when it diverges from prevailing market sentiment. By taking a contrarian stance, investors can uncover opportunities in sectors or companies that are temporarily out of favor but have strong long-term potential.

In terms of global markets, Peche offered insights into regions and industries that he finds particularly compelling. He highlighted emerging markets as an area of interest, noting their growth potential and attractive valuations compared to developed markets. Additionally, Peche expressed optimism about certain sectors such as technology and healthcare, which he views as drivers of future economic growth.

Overall, Sean Peche’s insights underscore the importance of disciplined research, patience, and contrarian thinking in achieving investment success in today’s dynamic markets. By adhering to these principles and maintaining a long-term perspective, investors can position themselves to capitalize on opportunities and navigate market fluctuations effectively.

Edited transcript of the Q&A session with Sean Peche at BNC#6 in Hermanus ___STEADY_PAYWALL___

Bronwyn Nielson [00:00:07]:

Which stocks do you play to take advantage of? You’ve mentioned coffee?

Sean Peche [00:00:16]:

Yeah.

Bronwyn Nielson [00:00:18]:

Other companies to take advantage of AI trends?

Sean Peche [00:00:41]:

Banks. Cutting costs, growing revenue. Avoid where too much capital flows. Tesla’s example with overwhelming competition.

Bronwyn Nielson [00:01:41]:

Herd mentality play?

Sean Peche [00:01:47]:

We can’t open banks easily. Banks are interesting due to regulations.

Bronwyn Nielson [00:02:12]:

Specifics on banks?

Sean Peche [00:02:15]:

European banks. Avoiding US due to potential disasters.

Bronwyn Nielson [00:02:58]:

European banks discussion.

Sean Peche [00:03:00]:

We’re in ABN Amro, conservative Dutch bank, good dividend yield.

Bronwyn Nielson [00:03:51]:

Discussion on Japan’s market.

Sean Peche [00:04:05]:

Active management focus on small and mid-cap opportunities.

Bronwyn Nielson [00:05:24]:

How do you manage vast investment universes?

Sean Peche [00:06:28]:

Analogies to sports coaching and medical diagnosis. Use filters to narrow down investment options.

Bronwyn Nielson [00:06:33]:

Specifics on Japanese investments?

Sean Peche [00:06:45]:

Largest position in Nippon TV, focus on structural elements rather than current business model.

Bronwyn Nielson [00:08:25]:

Discussion on Nippon TV’s value unlock.

Sean Peche [00:08:49]:

Focus on discounted value rather than excitement about Japanese broadcasting.

Bronwyn Nielson [00:10:48]:

Share buybacks discussion.

Sean Peche [00:11:48]:

Share buybacks depend on price and management’s intentions.

Bronwyn Nielson [00:13:20]:

Audience question on investment strategy.

Sean Peche [00:13:36]:

Discussion on Tencent’s value and investment strategies, including Hong Kong stocks and China’s market potential. Political risk discussion.

Bronwyn Nielson [00:15:38]:

Sixty countries worldwide are heading to the polls this year, with three billion people set to vote.

Sean Peche [00:15:47]:

One thing we focus on is return on assets rather than return on equity, as equity can be managed through debt. Return on assets reflects the business’s performance more accurately. Many consumer brands buy back shares each year, reducing equity and skewing the return on equity figure. We prefer return on assets paired with price-to-earnings ratios to find good businesses at reasonable prices.

Bronwyn Nielson [00:17:20]: Nick?

Community Member [00:17:22]:

Sean, I mentioned it was an easy question.

Sean Peche [00:17:26]:

Describing oneself as a “deep value” or growth investor often oversimplifies. Quality is subjective, but essential. It’s not about avoiding rust-bucket cars but finding value without overpaying. Quality evolves; what was once a robust business may lose its edge due to changing markets or technology.

Bronwyn Nielson [00:19:38]:

Let’s shift gears to Bitcoin…

Sean Peche [00:19:59]:

I don’t understand it, and I don’t need to. If I can invest in solid companies with growth and earnings, why complicate matters?

Bronwyn Nielson [00:20:57]:

As a deep value investor, what’s your take on South African equities amid election uncertainties?

Sean Peche [00:21:15]:

Inflationary environments demand growing businesses to sustain profitability. Currently, we don’t hold South African equities, but we continually reassess opportunities.

Bronwyn Nielson [00:22:38]:

Does the China question interest you?

Sean Peche [00:22:38]:

We favor Hong Kong-listed shares over U.S. ADRs due to regulatory uncertainties.

Bronwyn Nielson [00:24:57]:

How might the U.S. election affect your investment strategy?

Sean Peche [00:25:23]:

My personal views aside, I focus on companies’ fundamentals rather than political outcomes.

Bronwyn Nielson [00:26:06]:

What’s your view on gold?

Sean Peche [00:26:15]:

We don’t invest in gold companies.