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15 March 2016

Kanaan Funds Compared to Berkshire of Buffet!

15 March 2016

Dear Client

Certain extracts from the yearly newsletter of the famous Warren Buffett of Berkshire are interesting.

Berkshire is seen as one of the most successful investment managers over the past 50 years. According to the attached spreadsheet (view here) his funds grew average nett of fees, since 1965, with 20.8% per annum, but as you can see it was not always plain sailing. In 1974 you will see that he did -48.7%. It was during the big crash of October 1987 in South Africa that I saw that one can see and identify the big crashes timeously. That was before I had a Category I licence, when I went to see my ± 10 clients, one by one, to switch them to cash timeously, which made me thought that I do agree that it’s almost impossible to time share market corrections — but not share market crashes.

South Africa experienced the Far East Pacific Crash during 1998 and dropped with more than 40% when I switched both our Balanced and our Flexi funds, two weeks before that crash to cash and in that year made more than 50%. See the attached table of performance of Kanaan Balanced Wrap Fund compared to Berkshire of Buffet. Warren Buffett crashed the year thereafter during 1999 with -19.9%.

He crashed again during 2002 with -3.8%, but Kanaan Balanced did 11.6%.

With the Credit Crunch Crash, as mentioned previously, we were ring fenced by some of the smaller companies because of the 5% rule, because of which we couldn’t switch out timeously and Kanaan Balanced FoF crashed that year with -9% and our Kanaan Flexi FoF crashed that year with -16%, but Warren Buffet’s fund crashed with -31.8% !

We thought that our Kanaan Flexi FoF would end 2015 with 17% and Balanced with 15%, but after president Jacob Zuma appointed novice Mr David van Rooyen as minister of finance, the JSE dropped to -6% and our Kanaan Flexi FoF dropped to +8.8% and Kanaan Balanced FoF to +9.33%, but Warren Buffet crashed with -12.5%.

However Buffet averaged 20.8% over the past 50 years, which is much better than the predecessor funds of Kanaan Balanced FoF and Kanaan Flexi FoF, namely, Kanaan Balanced Wrap and Kanaan Flexi Wrap, which did respectively nett of fees 14.25% and 12.74% over the past 21 years, up to date.

We should therefore have grown better during the growth phases, but we have prevented huge losses and pain for pensioners who couldn’t “buy & hold” during the big crashes of 1987, 1998 and 2008.

We don’t think at all that we are better than Warren Buffet. We think he is brilliant, but we can do something he and the other brand name funds can’t do namely, to switch 100% of our portfolios quickly to cash before or during a crash. You can’t switch to cash if you have billions or even hundreds of billions in stock.

Andre Delport

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