"Jack Bogle, the founder of Vanguard advocates investing in Exchange traded funds that will replicate the index over a long period of time. That is probably the smart thing to do for retail investors with no interest in the equities market, your chance of finding that one business is small. But by selecting a group of quality companies who operate in sectors that are guaranteed to be around in the next 30 years and holding them for a long, long time. Those opportunities exist. The better those businesses do as a constituents, the better you would do as a very passive investor. But you won't get all them right all of the time"
To market, to market to buy a fat pig. 2100. Pencil that in as your new high on the S&P 500, February 17, 2015. The 1000 point mark was passed for the first time in early February of 1998, that seems like a long time ago, and I guess it is. The levels of 2000 were only breached for the first time in August of last year. What's in a level though? Remembering that market constituents change all of the time, the index however is the enduring part. The bigger the companies become and the more relevant they become, the more of an influence they have on the overall index. The opposite is also true, companies go out of business or become less popular and fade away, becoming shadows of their former selves. Eastman Kodak used to be a Dow constituent, one of the most important companies in representing industrial America, right up until April 8, 2004, a little over a decade ago. At the same time as Kodak was ejected, so was international paper. Since then we have devices to both read and take photos, the same one fits into your pocket.
As digital photography and online content replaced physical film and paper, new businesses became more relevant and other businesses less relevant. So much so that Kodak filed for bankruptcy in 2013, International Paper is alive and kicking, paper is just as relevant in all sorts of other forms. The shape of the Dow Jones is shaped on how the pickers see the future to some extent. Of the original 12, only GE has managed to survive, which gives the company some enduring qualities as an investment I guess. And just as important, shows how the company has been able to evolve through the ages. There are not too many businesses like that around the world. The oldest businesses as a collective mostly reside in Japan, the oldest being a construction firm by the name of KongÅ Gumi, in operation since 578. Or should we say, was, until 2006 when it was bought. You can stay in the Nishiyama Onsen Keiunkan, a hotel in Hayakawa, Japan. The oldest hotel and oldest company still around, founded in 705 AD. 1310 years old. Yowsers. I wonder what the guest book looks like? I am more interested in this place, this hotel and construction company in Japan and their history (and staying power) than I am with the levels of indices.
So should you. Although Jack Bogle, the founder of Vanguard advocates investing in Exchange traded funds that will replicate the index over a long period of time. That is probably the smart thing to do for retail investors with no interest in the equities market, your chance of finding that one business is small. But by selecting a group of quality companies who operate in sectors that are guaranteed to be around in the next 30 years and holding them for a long, long time. Those opportunities exist. The better those businesses do as a constituents, the better you would do as a very passive investor. But you won't get all them right all of the time. The index and the associated constituents give you all exposure, good and bad. Stock pickers get to choose. So whilst the levels of the equities market and specifically the setting of new highs is fun to see and pleasing at one level, we do not own indices for clients, we own equities, single companies with different businesses. I think that I have covered that as best as I can, I do hope that it makes sense.
Talking of markets and market levels, the reason why the indices touched fresh all time highs is that the hopes of a Greek deal have risen, it seems that money talks and you know what walks. It is OK to go cold turkey. Well, it turns out that, and we have said this all along, it is better to be inside of the Eurozone than outside of the Eurozone. You can read both the WSJ story on the matter titled: Greece to Seek Extension on Loan Agreement, Officials Say or the FT piece: Greece to request bailout extension.
Michael and Byron are skeptics and share more of the German sentiment on the matter, at least the hardline that we see openly. If you read the NYT piece, Greek Bureaucracy, Not Just Austerity, Is an Economic Drag, you will see that the Greek government has introduced 2200 new tax regulations in the last 2 years. That in itself is very taxing. If you read lower in the article, the opinion is that the new Greek government suggest more labour flexibility would "perpetuate hardship". Tell that to the 25 percent unemployed folks. Anyhow, each and every country has their problems "challenges", we certainly have our fair share here. There were sideswipes galore last evening in parliament yesterday afternoon. The president responds on Thursday, that is what I understand. This is not an episode of survivor, this is more real than it gets.
Things that we are reading, you should too
Drone legislation is changing, not to a level that Amazon wants it though - Five things you need to know about the FAA's new rules for flying drones. At least there is progress in drone laws and some clarity on what is allowed.
Stats are relative and can paint funny pictures sometimes - Retail Spending Stumbled Again In January. The main sentence from the article is "Stripping out gasoline reveals that retail spending jumped 6.6% last month vs. the year-earlier level. That's the strongest annual increase in four years."
Another look at how stats are relative, not all jobs are created equal - Why the Jobs Report Means Diddly. The piece highlights the gap growing between skilled and unskilled workers, it is only going to get worse from here. "with the most recent numbers showing those with a bachelor's degree having an unemployment rate of 2.8 percent, high-school grads at 5.4 percent,and those without a high-school degree (about 11 million people) at 9.9 percent"
Apple continues to keep their patent filing numbers up - Apple wins patent for a virtual reality headset that works with the iPhone. Apart from all of the other things that your iPhone currently does, it could now be used as the screen for virtual reality.
Home again, home again, jiggety-jog. The market is up 0.5% this morning following a record close in the US last night. Gold miners are having another red day, down 1.1% and the Rand is a bit weaker back to the R11.70 level to the US dollar. CPI news from Stats SA this morning is that CPI is at its lowest level since 2011, sitting at 4.4% for January 2015. A couple months ago the forecast for this year was sitting at above 6%; it will be interesting to see what wage demands will look like this year given the low inflation number. The low inflation number also means that the SARB is less likely to raise interest rates anytime soon which is a good thing for all of our pockets.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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