Destruction on a grand scale

There’s a certain irony to the fact that the best-performing investment of the year has been something that looks to the disinterested observer like it’s so flimsy a breeze could dispatch it, while the biggest catastrophe has been something that should have been as rock-solid as you could imagine.

Flogging furniture in Europe, mattresses in the US and low-cost products into Africa sounds like the sort of enterprise into which you could happily stick your pension. But clearly this is not the case with Steinhoff.

The normally festive streets of Stellenbosch may well be a spot to avoid in the aftermath of the debacle, with a town that has recently been known as an investor’s darling suddenly coming to terms with the reality that there has been value destruction of truly monumental proportions.

It’s far too early to suggest what exactly has caused the collapse, and there will be much learned analysis to come. But for the average investor it’s an unhappy situation, given Steinhoff’s former position as a major slice of the JSE, and has flattened the performance of many a tracker.

The truly bold investor might think the company has so many solid assets, acquired in its recent buying spree, that there has to be some value there, and arguing that at current levels the price is reflecting far too much nervousness. However, there is still limited clarity as to quite how bad the accounting issues and the restatement of accounts might be. It’s a total and utter crapshoot, and probably worth avoiding until the full extent of the manipulation of accounting becomes apparent.