In March 2020, the single best investment skill you could have had was courage. The market had collapsed. Everything was cheap. The only question was whether you could override the fear response long enough to buy. 2026 is different. The market isn’t in freefall. Most assets aren’t universally cheap. Nor are the opportunities obvious.
Right now, macro and micro fundamentals support risk assets. But the energy shock, the geopolitical uncertainty, and the current investor preference for simplicity and clarity have created a specific class of opportunity that rewards a particular kind of analytical thinking.
Understanding it starts with a distinction that sounds academic but has very practical consequences for your portfolio.
Two types of “discount”: Complexity and Panic – and why they require completely different skills
The market prices two fundamentally different kinds of opportunity and confusing them is one of the most common and costly mistakes you can make.
The first is the panic discount. This is what 2020 was built on – a market-wide collapse driven by fear, where indiscriminate selling pushed good businesses and bad ones to the same depressed prices.
Panic discounts are emotionally brutal but analytically simple.
The businesses haven’t changed. The fear has just temporarily overwhelmed the fundamentals. The skill required is psychological. You have to override the instinct to sell or stay out, buy into the falling market, and wait for the fear to pass. When it does, the returns can be extraordinary.
Many JSE stocks doubled, tripled or more within 24 months of the March 2020 lows.
The second is the complexity discount.
This is quieter, less dramatic and it doesn’t announce itself with collapsing markets or screaming headlines. It shows up in the gap between what a company’s underlying assets are worth and what the market is willing to pay for them.
The market looks at the complexity, decides the analysis isn’t worth doing, and applies a discount. That discount can sit there for years (sometimes decades) until something forces a reckoning.
The skill required to exploit a complexity discount is completely different from the skill required in a panic. Courage won’t close it. What closes it is homework – doing the sum-of-parts (SOTP) analysis the market has refused to do, understanding each underlying asset on its own terms, and identifying the specific catalyst that will eventually force the gap to close.
How to identify a genuine complexity discount VS a value trap
Remember, not every discount is an opportunity.
Some holding companies trade at a discount because the underlying assets are poor, management is destroying value, or the structure can never practically be realised at close to book value. The skill is distinguishing between complexity hiding value and complexity masking problems.
Five questions separate the genuine opportunity from the trap.
1) What does the sum-of-parts analysis actually show? Value each underlying asset independently, subtract net debt and corporate overhead costs, and compare to the current market cap. If the discount is 20% or more, understand why.
2) Is the discount wider than its own history? A holding company trading at a significantly wider discount than its five- or ten-year average – without a corresponding deterioration in underlying assets – is the entry signal.
3) What is the catalyst? Complexity discounts don’t resolve on their own schedule. They resolve when something forces the market to acknowledge the value – a buyback programme, a spin-off, activist pressure, or compounding earnings growth that makes the discount too large to ignore. Know which catalyst you’re waiting for.
4) Is management attacking the discount? Active buybacks, asset disposals and improved disclosure signal a management that understands the problem and is working to close it. One that has accepted the discount as permanent is a different proposition entirely.
5) Are the underlying assets genuinely worth owning? A bad business in a complex structure is still a bad business. Strip away the structural noise and ask honestly: would I want to own each of these assets directly at current prices?
The complexity discount is only an opportunity if the assets underneath it, are worth owning at full value. A bad business in a complex structure is still a bad business. The discount should be hiding quality, not obscuring deterioration.
Strip away the structural noise and ask honestly: would I want to own each of these underlying assets directly at current prices?
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