How did Markus Jooste fool Steinhoff investors so easily?
What happened to all the “science” and the “experts” that helped inform their decision to invest in Steinhoff?
So asked RE:CM’s Piet Viljoen in an article on Monday.
Jooste, said Viljoen, has been described as “the ultimate con artist”, and the best conmen understand full well that the trick is to sell what their targets want.
Greed. And fear. It blinds.
The more debt and equity Steinhoff issued, the more the market applauded and asked for more, says Viljoen.
Instead of the increased levels of due diligence that should normally accompany such frenetic activity, it seems the “excitement of the deal”, coupled with an incessant promotion of Steinhoff’s "excellence" by the protagonists, caused the market to suspend its disbelief and relax its underwriting standards.
Viljoen points to research which proves that South Africans are consistently too negative about South Africa’s investment prospects.
In the Ipsos Perils of Perception 2017 survey, South Africa ranked as the most needlessly pessimistic nation out of 38 countries surveyed.
This unrealistic pessimism may explain why local investors may systematically relax their underwriting standards when it comes to offshore investments, empowering unscrupulous salespeople.
When Steinhoff’s listing was moved to Europe, Jooste effectively took full advantage of this inherent bias, with investors cheering him on, says Viljoen.
Markus Jooste sold what the market wanted, and fooled even the smartest investors.
Viljoen shares the lessons he has learned:
Steinhoff didn’t implode due to a poor regulatory environment. Instead, it happened due to a strong appeal to incentives which caused otherwise smart people to suspend their disbelief.
It pays to understand not only the numbers that represent the activities of a business, but also the human beings behind the companies. Who are they, what are their reputations, and what are their incentives? These soft issues are as important – if not more important – than the hard numbers.
- Never ignore the outside view. Our tendency as humans is to favour the inside view.
Listen to the interview in the audio below.
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