Becoming an Intelligent Investor with Makhosonke Madi
Makhosonke Madi, a seasoned Portfolio Manager, shares his unique journey into the world of investment and the philosophies that have shaped his approach. From a young child inspired by his father’s newspaper business to a professional, deeply committed to thoughtful, long-term investing, Madi’s experience reveals a wealth of insights for aspiring investors.
The Spark of Curiosity and Economics
Madi’s path to becoming an investor began with a foundational interest in economics, fueled by his childhood readings of the Financial Mail. “Growing up, I read the Financial Mail — my father ran a newspaper delivery business, and I would read any extras left over,” he recalls. These early readings piqued his interest in the economy and shaped his understanding of investment as a “slick vocation that is complicated and arcane.”
Although Madi initially aspired to study law, his passion for economics took precedence after he was captivated by the impact economists have on society. His brother’s assertion that “economists make our world because they control the allocation of society’s resources” resonated deeply with him. Inspired by the influence that economists wield over social policies and outcomes, he found himself drawn to investment management, especially after a university course on the subject.
Madi’s fascination with investing has grown into an intellectual pursuit, one rooted in using “money to make more money through judgment and analysis.” He also came to see investing as something that affects everyone, including “mom and dad’s money” in pension funds, which also needs to grow over time.
The Role of Multi-Management and Long-Term Commitment
In his role as a portfolio manager, Madi specializes in multi-management, a practice focused on diversifying investment strategies to provide a smoother and more stable return. “Multi-management is the process of combining various investment strategies to achieve a smoother and more stable investment outcome,” he explains, emphasizing that diversification is at the heart of this approach. This practice has reinforced his belief in long-term investing.
Through his multi-management work, Madi has learned that “no investment will always outperform.” This realization underscores his commitment to diversification and patience, qualities that have proven invaluable in navigating volatile markets. For Madi, the value of an investment often unfolds over years, rather than months. “It is important to be decisive and to have conviction when it comes to investment decisions,” he advises, noting that these skills are refined through experience and the careful documentation of each investment’s rationale.
Personal Investment Strategy and Lessons Learned
While Madi’s professional expertise spans numerous asset classes, his personal investments remain deeply rooted in passive strategies. “Several years ago, I started investing in the local equity index through an ETF (exchange-traded fund) as part of my personal investments,” he shares. By utilizing ETFs, Madi gains exposure to broad market returns, a method he recommends for investors who may lack deep expertise in a specific asset class. ETFs also offer cost-efficient access to market growth over time, which aligns with Madi’s long-term investment outlook.
Madi has since expanded his portfolio to include international exposure, notably through the MSCI China and S&P 500 indices. This move allowed him access to globally renowned companies like Tesla, Apple, and Amazon. “Investing in these indices provides exposure to different risk and return drivers not available in South Africa,” he explains. This global approach to diversification not only minimizes risk but also captures the potential of high-growth sectors and markets.
However, not all of his investments have been successful. Madi’s experience with a palladium, platinum, and rhodium ETF taught him valuable lessons. “When their prices were near all-time highs, I invested… on the belief that these commodities would continue to be in high demand as automotive companies sought technology to reduce carbon emissions.” Yet, the rise of electric vehicles disrupted this thesis, as manufacturers pivoted toward battery power over emissions reduction technology. “A lesson I have learned from this is to always ask ‘what could go wrong?’” Madi reflects. He advises investors to have “humility in accepting that you are wrong” and to pivot their strategy as needed, as holding onto a losing position can destroy value.
The Importance of Diversification and Research
For Madi, diversification is essential in creating a resilient portfolio. “The best investment portfolio has a wide array of risk and return drivers,” he explains. This diversification strategy underpins his consistent use of cost-averaging, where he invests a portion of his monthly income into various investments. By sticking to this disciplined approach, Madi avoids the pitfalls of market timing, which he cautions can lead to unnecessary risk.
Despite his success with passive investments, Madi has added select stocks that align with his long-term themes, like artificial intelligence and healthcare. “Among the factors that influenced these changes were better diversification and access to long-term investment themes which I have researched and considered,” he says.
Madi emphasizes the importance of research as a foundation for sound investing. “Investing correctly requires research,” he insists, adding that an investor must understand both “what he/she is investing in as well as why.” By reading widely, studying history, and following out-of-the-box thinkers like Nassim Taleb and Howard Marks, Madi gains unique insights into human behavior patterns and market trends. “The fixation with the ‘short-term’ can be misleading and value destructive,” he warns, underscoring the need to build and commit to a long-term investment strategy.
Professional Portfolio Management vs. Personal Investments
Madi’s work as a portfolio manager and his personal investments share many similarities but are guided by different constraints. His work portfolio must adhere to the investment ethos and restrictions of his employer, while his personal portfolio offers more freedom. Despite these differences, Madi finds that both roles require a deep understanding of objectives, investment restrictions, and a commitment to long-term thinking.
Final Advice: Start Now and Stay Curious
Reflecting on his journey, Madi encourages young investors to begin their journey right away. “Read about the economy. Study history. Read interesting thinkers,” he says. For Madi, curiosity is at the heart of intelligent investing, as it allows individuals to generate unique ideas and insights. He advocates for delaying gratification, practicing frugality, and channeling savings into investments. “The future is more valuable than the present,” he reminds, urging readers to think beyond the short term.
About Makhosonke Madi
Makhosonke Madi is a Portfolio Manager with a BCom (Honours) in Monetary and Financial Economics and a Chartered Financial Analyst (CFA) designation. His journey into the world of finance began as a young reader of the Financial Mail, sparked by a fascination with how economics shapes society. Over his career, Madi has specialized in multi-management, developing expertise in diversified portfolio management. He remains an advocate of disciplined, long-term investing, drawing inspiration from both modern investment theories and timeless economic principles. Madi’s commitment to financial insight and his belief in the power of patience make him a thoughtful and principled investor.
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