The spectrum of investment opportunities on the JSE ranges from steady performers to speculative wild-child stocks that bounce around like a Jack Russell on heat. Many investors participate across the spectrum, using the steady names as a portfolio underpin and the speculative ones as a potential source of alpha.
Alpha is the return in excess of the broader market. Beta is the market return itself. So if you’re generating alpha, you’re doing better than the market benchmark.
Professional fund managers live and die based on alpha. Just a couple of hundred basis points of outperformance over a lengthy period can transform fund managers into rock stars. Well, rock stars in Claremont and Sandton, at least.
This doesn’t mean that the only route to generating alpha is through speculative stocks; many funds beat the market without touching risky names.
Fund managers who successfully tilt their exposure towards winners and away from losers can unlock alpha. This tilt uses factors ranging from geography and sector through to momentum and fundamental indicators. But institutions will rarely touch speculative stocks, leaving them firmly in the purview of retail investors and boutique fund managers.
Liquidity is too thin in many of these names for institutional investors to participate. Being able to take nimble positions in small and mid-caps that are still meaningful to the overall portfolio can be lucrative — provided the smaller stocks perform!
I generally avoid speculative positions, mainly because I struggle to time my exits properly. Knowing when to get out of a dicey name is just as important as knowing when to get in. By accepting that I’m not a natural seller of stocks, I’ve tilted my portfolio towards buy-and-hold names that I believe can do well over many years. At the age of 38, I like to think that I have decades of wealth creation opportunities ahead of me!
In a broken sector like clothing, this makes me a natural buyer of Pepkor rather than TFG and Truworths. In this example, the broader selling pressure in the sector was the catalyst for my interest, but Pepkor is my choice based on the optionality in the fintech business that I believe the market isn’t paying enough attention to.
In property, I have extensive exposure to real estate investment trusts in my tax-free savings account. I’m a big fan of how this approach can generate solid returns over time, often beating traditional equity names despite being seen as lower risk. Naturally, the risk is only lower if you avoid overpaying, so you always need to be careful.
But the property sector is where you’ll also find an exception I made to my rule around speculative stocks. Accelerate Property Fund was just too juicy to ignore, trading at a fat discount to NAV thanks to numerous underlying issues.
When I buy into these names, I wait for a solid sign that things are improving. In the case of Accelerate, it was the disposal of Portside. I built a position at an average price of 41c and watched it go all the way up to a 52-week high of 76c.
Of course, because I believed there was more to come, I didn’t exit at that stage. It’s now back down at 51c — still up from my in-price, but obviously well off the 52-week high. To give you more context to these numbers, the reported NAV per share in September 2025 was 186c!
The question now is whether to add more, as Accelerate has successfully sold the BMW Fourways dealership for R174m vs the book value of R180m. That’s a much smaller discount to NAV than the current share price implies.
The NAV will need more careful assessment, as the company is derecognising the obligation of R371m linked to the rebuilt claim by Azrapart (the entity linked to ex-CEO Michael Georgiou). If that’s a fair approach, then the discount to NAV just got even juicier. I’m always nervous of legal disputes though, so I’ll probably apply a suitable risk weighting to this liability and subtract it from the reported NAV.
The next critical release will be results for the year ended March 2026, due by end-July. I’m still deciding whether to add to my position before then. Therein lies another critical element of a strategy in speculative stocks: sizing a position in such a way that there’s flexibility to add more!