The Most Harmful Investment on the JSE

A little over two decades ago, in December 2003, investors had the chance to buy shares of a leading blue-chip stock listed on the JSE. At that time, Saddam Hussein had just been captured, and CSI: Miami made its debut on M-Net earlier that same year. Rudolf Straeuli resigned as the Springbok coach in disgrace following the Kamp Staaldraad incident and a disappointing exit in the Rugby World Cup. An original Spur burger was available for only around R25.

Those shares were priced at approximately R90. Now, twenty years later, we find ourselves back at that price point (having briefly dropped to R30 during the Covid-19 pandemic before making a strong recovery).

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For additional insights:
The ‘high dividend’ stocks that may disappoint [Oct 2023]
The stock that has returned 60% of its value in dividends since 2012 [Mar 2024]

This suggests that if you followed the common investment advice of buying and holding, your capital appreciation would be precisely zero. Nevertheless, you would have received considerable dividends over those 21 years, likely surpassing the present share price. Unfortunately, these dividends have been inconsistent, reflecting the company’s struggles through various crises.

Frequent Errors

The company has committed a multitude of classic blunders familiar to numerous South African corporations, where management teams and boards often overestimate their status as exceptional, world-class leaders. Spoiler alert: they typically aren’t. The South African market is notably small, providing limited real competition, accompanied by several protective measures (historical, structural, or recent).

Throughout much of the first decade of this century (2005 to 2011), the firm was overseen by a stable South African CEO, during which it thrived alongside the broader market.

Even the global financial crisis couldn’t hinder the company or its share price.

Following his departure, a foreign CEO with an impressive background was appointed. Like many decisions made in our corporate landscape, this did not lead to positive outcomes. He was succeeded by co-CEOs, another choice that generally does not benefit shareholders.

The company wasted billions—actually, hundreds of billions—on vast international endeavors in countries where it had little to no presence.

Like many giants listed on the JSE, it set out with ambitions to dominate globally.

Subsequent investigations unveiled anti-competitive practices in various markets, resulting in millions in fines and settlements.

It shouldn’t be hard to identify this company: Sasol.

Poor investments in a gas-to-liquids plant, an ethane cracker facility, and a chemical plant in Lake Charles, Louisiana, have drained hundreds of billions of rand.

Read: Sasol reports R55.1bn writedowns as US operations stumble

These choices were made under David Constable’s leadership, and the ongoing delays with the projects, soaring construction costs, and massive writedowns ultimately led to his ousting in June 2016.

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Fortunes Fluctuated

Over the last two decades, shareholders and traders have seen gains from this stock. For instance, under Pat Davies, who managed the company from 2005 to 2011, the share price increased more than threefold.

However, significant losses have also been associated with this stock. If you bought shares at the R400 mark (not even reaching its peak of more than R600) between 2015 and 2019, you would currently be feeling the pinch.

If you had the courage to invest at the lowest points during the Covid-19 pandemic, when uncertainty loomed, you could have enjoyed a tenfold increase had you sold at above R310 per share (which was possible at nearly any time in 2022).

Further reading:
Sasol: Value, or value trap?
Is Sasol undervalued yet?

This complexity is what renders Sasol both enigmatic and attractive to retail investors.

Private investors hold directly 4% of the company, which is a significant figure. It has yielded remarkable returns, provided one exercises discipline in selling.

Had you merely bought and retained shares since those past years, you would face a return of zero, further eroded by inflationary impacts.

That R90 from December 2003 would equate to R270 today. In other terms, R90 today corresponds to R30 back in 2003.

Even some consistently underperforming local unit trusts have managed to outpace inflation in the past twenty years. For example, Old Mutual’s Investors’ Fund would have averaged annual returns of 13% … R100 invested in it in 2003 would now be valued at over R1,200.

Read: These two flagship unit trusts underperform CPI for a decade

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