Your share portfolio is well in the money, having ploughed into SA’s PGM (platinum-group metals) miners when you did: the bottom in mid-2018. Your Tesla conviction call (you love Elon) has earned you a fortune, and your backing of Jeff Bezos because you’re a committed Amazon customer probably means you’ll be retiring before your parents. Throw in a share or two in Apple (you can’t live without your AirPods), a slice of Ferrari, Netflix — DSTV is so 2005 — and some LVMH (buy the stock, not the bag) and you can probably afford to take a little leap into the universe of alternative-asset classes. There are a few you may want to consider.
The caveat, says committed share investor and stockbroker David Shapiro, is that few so-called alternative investments are easily sold in a hurry. Shapiro, who has an extensive art collection, nonetheless says, “I only like things I can sell at the press of a button,” rather than to “some sneering buyer who takes a sniff at my assets”.
Spare a thought for your family, too. “The complication comes when you die and your poor family has to unwind a shitty estate full of bad art, carpets, Royal Doulton china, stamps, and Boer War memorabilia.”
But don’t let us put you off because the following may be worth a thought.
CATTLE, BY APP
That is correct. One of SA’s most enterprising entrepreneurs, Ntuthuko Shezi, launched Livestock Wealth a little over four years ago. The premise: get people to invest in what they understand — cattle have traditionally played a huge role in the wealth of rural communities.
You have two possibilities: the first is a 12-month option, where you invest R18,730 in a pregnant cow and you stand to earn up to R21,352. That’s a return of up to 14%, depending “on the average calf weight and calf price at time of sale”, says Livestock Wealth.
The second plan is a six-month punt on, well, dinner. You invest R11,529 in a 12-to-18-month-old calf that is raised to produce premium free-range beef. The company promises that you’ll earn between R12,105 and R12,336 — a return of 5% to 7% — “depending on the average weight and beef price at time of sale”.
You can track the progress of your cow or calf via an app that is brilliantly simple.
And it is bringing in the money. When Shezi launched Livestock Wealth, he says, “We had about 100 cows or so under management, so the value of the investment was probably about R200,000. Four years later, we’re managing close to R60-million.”
The complication comes when you die and your poor family has to unwind a shitty estate full of bad art, Royal Doulton china, stamps, and Boer War memorabilia
Livestock Wealth has drawn the backing of RMI and Woolworths, with the latter now stocking the free-range beef produced by the farmers who are part of the Livestock Wealth network.
Says Shezi, “We had to figure out what works and what could scale to be repeatable across different products and geographies, but I think we’ve found that formula. Farmers already have the product people want and they’ve got the skills to look after the product. Our job is to match the farmer over a fixed-term investment period.”
Livestock Wealth has now branched out into macadamia nuts (R2,000 for a tree with an initial investment period of six years), and the “Connected Garden” option: R8,200 into a fully-stocked organic-vegetable garden that is leased out to farmers and managed on your behalf.
What’s a juicy steak without a fantastic red to wash it down?
This one is tricky, admits negociant Wade Bales.
“You know that with investing in equities there are very clear indicators of what could be considered a blue-chip company — like profits, capital, the business case,” says Bales. Wine, on the other hand, is subjective. “There’s no such thing as absolute when it comes to matters of taste. It’s driven by fashion, by desirability.”
Bales says that there are really only a handful of wines worldwide — say 150 — that have investable pedigree, particularly for an outsider “who isn’t necessarily a wine fundi, who is just looking to tick a box for a portfolio”, he says. These are largely the French Bordeaux first growths, such as Château Latour and Margaux, and Burgundy Grands Crus — such as Montrachet and Chablis.
So what does that mean for local wines, as an investment?
“I think that SA’s top-tier wines are fundamentally underrated and underpriced, from an international perspective,” says Bales.
“Our wines have never offered better value for money and there’s a country discount when it comes to SA. But I’m still not convinced that you’d want to buy South African wines purely from an investment point of view, to get a financial return on,” he admits.
When asked to single out a local first-growth equivalent, Bales says Kanonkop is “undoubtedly” SA’s number one winery, because “it’s just got decades and decades of consistent quality, recognition, and history.”
That’s key: you need a long track record to be considered a first growth. The other important factor is that a wine has to be made in decent quantities. “There’s no point in making a barrel or two,” says Bales. “It might be unbelievable, but that’s not a first growth, that’s just a little cult wine.”
And yet, a great investable wine also has to have rarity value.
So, even with Kanonkop, says Bales, there’s a good chance you can get a bottle of its top-range Paul Sauer off the shelf.
“Why would you invest in that if next year it’s going to be available again? The demand doesn’t outstrip supply enough to justify pushing up prices,” he says.
The difference with a Château Margaux is that it is sold on allocation to well-established wine merchants — mainly in the UK. If you’re intent on building up a smashing cellar, you’ll want to get up to speed with these specialist wine dealers.
You may, by now, have prepared the Chateubriand and decanted the Pétrus. You might, too, be taking a little breather in your Barcelona chair while you gaze upon your newest Brett Murray sculpture: a pair of Twitter birdies.
Clever you, because the painter of The Spear has become a top-notch name in South Africa’s art circles.
Still, here too, a degree of luck may be as important as a nose for quality.
Mark Read is the director of the venerable Everard Read gallery — an art institution set up by his grandfather, which he joined in 1979.
He has clearly seen a cycle or two in his career.
When asked what makes a great investment, he says, “I can almost hear myself years ago answering these questions with a sense of imperiousness about exactly what’s a good buy and why [but] as I’ve got older, I’m much less sure about almost everything.”
And yet, he says, “I don’t think it’s arbitrary. I think finally — finally — the fashion gets sorted out and the best artists, who become extremely expensive, are there for completely and compellingly valid reasons.” It may take a while but, he says, “history sifts through”.
“So you can have a figurative, visionary landscape painter such as Caspar David Friedrich being worth tens of millions of dollars where you could have picked one up for very little money years ago. For good reason: a profound intellect, something to say.”
The same is true of SA artist Maggie Laubser.
Says Read, “I sold 50 Maggie Laubsers for R5,000 each in 1990, which would now be worth R250,000 to R300,000 at least. In my early years, a good Irma Stern was worth R30,000, now it’s worth R10- to R15-million. Why? Because she’s a fantastic painter. So those that really do rise through become extraordinarily good buys for those who bought early on.”
THE QUESTION, THEN, IS: WHAT ART?
“Mostly the artists who never become front rank, who don’t have anything really fundamental to say about the human condition, are essentially decorative,” says Read.
“People like living with them, but I wouldn’t say they’ve been fantastic investments. But there are artists who have gone up extraordinarily, for a variety of reasons.”
Still, here is a contradiction if you consider the case of Scottish painter Jack Vettriano, whose career was launched by Read and a fellow UK art dealer.
“You couldn’t call him a particularly profound painter of humankind, but he just painted something that people decided they desperately wanted to own, because they were slick and powerful and sexy,” he says. In his first exhibition in 1990, says Read, Vettriano featured 40 paintings which sold for about R5,000 each, “tops”.
Today, those paintings are sold for between £80,000 and £100,000. Each.
The difficulty, of course, is that art has no utilitarian value.
“People say: I’m a consumer of art. But you can’t really consume it. [So] what does it give you?” Pleasure, ultimately.
“If you sell it, you’d have to sell it to someone who would equally derive a lot of pleasure out of it. And if a lot of people want to derive a lot of pleasure out of it, then it goes up incredibly, because it has no value other than what other people are prepared to pay for it,” Read says.
It’s probably ludicrous to suggest that any alternative-investment menu is complete without a side order (or main dish) of cryptocurrency — be it Bitcoin or any of the roughly 2,000 versions now available.
Bitcoin, as the original cryptocurrency, remains the most well-known and established, with the greatest market value and user base.
As a reminder, it was the first “peer-to-peer currency”, a digital form of money without the oversight of a central authority, such as the SA Reserve Bank, intended initially as a means of exchange.
I would hesitate to highlight ‘alternative investments’ with no transparency where the promoter has the luxury of deciding what the ‘investment’ might be worth. This is a strong incentive for shenanigans and often leads to financial catastropheJean Pierre Verster, CEO of Protea Capital Management
There are other options such as Ethereum “a decentralised software platform that enables smart contracts and decentralised applications to be built”; Ripple, a “real-time global settlement network that offers instant, certain and low-cost international payments”, and Litecoin, which is, according to Investopedia, the “silver to bitcoin’s gold”.
As of the end of February, one Bitcoin was trading at around R140,000 — a heady recovery from last year’s low of R52,000. Viewed against its initial value, when it was created in 2008, its gains have been staggering.
In 2009, for example, the first Bitcoin deals were taking place on the then-Bitcoin forum with, as Wikipedia notes, “one notable transaction of 10,000 Bitcoin used to indirectly purchase two pizzas delivered by Papa John’s”.
Who knows what it may be trading at when this magazine goes to print. And that, there, is the Bitcoin problem in a nutshell: its frenzied volatility.
Bitcoin is anything but a sure, predictable bet.
Still, that hasn’t deterred its die-hard believers, or anyone who loves a good old-fashioned, white-knuckle ride with their money. In fact, the volume of Bitcoin futures traded on the Chicago Mercantile Exchange (a venerable market institution for the trade of commodities, such as soybean futures), hit $1-billion last month – for only the third time in its history.
Says Jean Pierre Verster, CEO of Protea Capital Management, “One can view many opportunities for parting with your money as being ‘investments’ — for example, cryptocurrencies, gold coins, property syndicates, section 12J companies, or fractional ownership of blueberry farms.”
But, he says, “I would hesitate to highlight ‘alternative investments’ with no transparency where the promoter has the luxury of deciding what the ‘investment’ might be worth. This, time and time again, is a strong incentive for shenanigans and often leads to financial catastrophe.”
Financial catastrophe, ironically, is a force for good in the hedge-fund industry in which Verster operates, which is also considered “alternative”.
“Hedge funds are often referred to as ‘alternative’ investments because they do not fit neatly into the traditional equity, fixed-income, cash or property-asset-class classifications,” he says.
For example, they can “short” shares: take a position against a share that means the investor profits if a stock should fall in value.
According to Investopedia, a hedge fund’s purpose is to “maximise investor returns and eliminate risk”. Its managers hope to make money whether the market moves up or down — and they’ll charge you accordingly.
In an uncertain, arbitrary world, perhaps that’s a fair trade.
• From the March issue of Wanted 2020.