Money with a dash of Funny: April 2015

Thursday 30 April 2015

Fed not fleet of foot

"Surely that time spent researching what business you can buy and own is far more useful that getting anxious over something that you have absolutely no control over, like what the Fed does next?"

To market, to market to buy a fat pig. Have you ever seen the clip of the German coast guard chap who asks the British ship sending an SOS what he is sinking about? No? It is actually an advert for the Berlitz language courses, if you are looking for a little pre weekend fun, check it out: German Coastguard Sinking - Learn English Commercial. That fellow coincidently is far more superior in the command of the English language (with his accent) than I have any degree of proficiency in the German language, before you think that I am being rude.

What are you sinking about, markets? Unfortunately the first look at GDP for the first quarter in the US was weak, much weaker than anticipated, sending equity markets lower. There was a similar number in the UK the other day, that must have delivered David Cameron, the leader of the Conservative Party (Tories) a blow ahead of the elections next Thursday. Mike Bloomberg, whom I follow on Instagram had some pretty kind words to say about Cameron however, in this Instagram post ->

Prime Minister David Cameron's gutsy decisions and strong leadership should earn him 5 more years at 10 Downing Street. For why he's got my support - follow the link in my profile.

A photo posted by Mike Bloomberg (@mikebloomberg) on Apr 29, 2015 at 3:06pm PDT

Nice support, of course Mike Bloomberg is pro business, as are the Tories. The word Tories is derived from the Middle Irish word that means outlaw or robber, a pursued man. Robber. That is strange that the word is associated with robber, Margaret Thatcher implied that the Labour party were the ones who took away, this famous quote that capitalists LOVE so much: The problem with socialism is that you eventually run out of other people's money. Meaning that you can extend as many benefits as you want, you do however need someone to pay for it, and somehow soaking the rich has never quite worked. Neither has neglecting the poor, the French have tried both, neither has worked. You can neither prevent people from baking cakes, nor can you deny them their daily bread. Balance. The trick of course for all governments is to be re-elected without breaking the bank.

Away from politics, one of my least favourite subjects and the self importance associated with many politicians, the very word public service means you are accountable to the public and not the other way around. Something that you do have control over is what companies you own, for how long you want to own it and your investment portfolio. You have no control over what the Fed says or does, if you are basing your investment strategy around that, then I guess you are doing it all wrong. Last evening the Federal Reserve open market committee (the FOMC) released a statement, they do so at regular intervals, you can see it here -> Press release, April 29, 2015.

There are blogs and reporters who try and pick apart each and every word, searching for clues as to when the Fed are going to "act" next, when are they going to raise rates. Or give clues. They pick apart each and every sentence, interpreting "Fedspeak". The language of economists and central bankers. Too much time is wasted on what the members are saying, in my opinion. That valuable time could be spent (in my case) reading annual reports, reading company websites and brochures, finding out who has the best service and the best product. Who is buying them, what are the margins that the company is selling that product, relative to their competitors. Surely that time spent researching what business you can buy and own is far more useful that getting anxious over something that you have absolutely no control over, like what the Fed does next? It certainly is in my case, those in fixed income markets would of course disagree with me, they need to be on the money as to what the next possible move is in government issued securities and company debt. Anyhow, everyone is interpreting the "transitory factors" of the first quarter slow economic growth in the US as temporary, at least that is what Janet Yellen the Fed chair is saying.

For the record, the US markets ended the session down 0.37 percent, in the case of the broader market S&P 500, the nerds of NASDAQ lost nearly two-thirds of a percent, telecommunication and tech stocks were sold off a little more than the rest of the market. Energy rebounded, the oil price has been on a tear, along with the rest of the commodities market. Locally when the read of US GDP hit the screen around two thirty in the afternoon, there was a swoon lower, a trend that was intact until the session ended, at the lows of the day. The equities market, the JSE ALSI closed down 0.9 percent on the day. The Dollar of course took some punishment, that is why the Rand was stronger. Amazing how I have not seen any of the chattering classes saying that the Rand has improved significantly as a result of a better performance from Eskom, have you seen anything to suggest that?

Company corner

Telkom released a trading statement that was difficult at face value to make head or tails of, here is the Trading statement and operational update. Too many moving parts there for my liking:

In the trading statement the company says that you should look at normalised headline earnings per share. The company has been a huge benefactor of benefits from lower interconnect rates, remember as that trends lower there are no more benefits for anyone, other than the consumer. The company should return to dividend paying ways, that should please the government, who own 40 percent of the business, seeing as the last dividend paid by Telkom was four years ago. Results are expected in the second week of June. The trend is still mobile, I came across this article from Duncan McLeod (you should also follow him on Instagram/Twitter and so on) on TechCentral: Africa smartphone sales up 83%. Stay long MTN rather.

Remember when we compared BAT and Unilever yesterday and suggested that one was more compelling than the other, over the longer term? See the Interim Management Statement for the three months ended 31 March 2015. I was reminded why we do not like the sector, regardless of how wrong we have been on the stock, Chairman Richard Burrows had these prepared statements: Whilst group cigarette volume was down by 1.4 per cent - against a backdrop of an estimated industry decline of 2.5per cent - we continued to grow overall market share. This is a mark of good management of the business. I do not care what you sell, when the whole market for your product is shrinking over time, that sounds like an industry in decline and unlikely to grow, we continue to avoid!

Things that we are reading

Fun today, seeing as we are in a shortened week: Things People Say During a Bull Market. My two favourites on "Fair Value": The Bulls argument: "We think the market is fairly valued at current levels. (Translation: I have no idea what the fair value of the market is and neither does anyone else.)" Value Investors: "The market is overvalued but our stocks are trading at a 30-40% discount to fair value."

Goodbye testing on animals, or so it seems. We dislike the fact that animals are injected with stuff they did not ask for. This Bloomberg story tells you how it will happen: Drug Testing, Now Without the Chimp

The father of our nation, Nelson Mandela, was quoted as saying: "Education is the most powerful weapon which you can use to change the world." He is right. Unfortunately it seems like it is going to take a looooong time to get there. Global '100-year gap' in education standards

Samsung have been having a decent time of it, their latest smartphone is pretty awesome. They managed to claim back number one spot last year, they did however not experience as quick growth as Apple, see the BusinessInsider chart of the day: Samsung was the only big smartphone maker whose sales dropped from last year

The headline says it all: One Dozen Reasons Why the Average Person Underperforms In Investing, Part 2. The first two are really important, arriving and leaving at the wrong time. Never try and time it, spend time in and on it rather.

Would you let someone sleep in your bed? For money? I am talking about Airbnb, get your mind out the gutter!! The evolution of the sharing economy means that mainstream "old" businesses may have to get proactive, and quickly: How Airbnb could spawn an M&A frenzy in the hotel industry

I was pretty surprised to see this number: Facebook Hits 40 Million Page Milestone, Launches Live Chat for Businesses. Why was I surprised? In the Facebook numbers last week, the company said that they only had 2 million advertisers. The other 38 million companies obviously don't advertise. I could have it wrong, that is the math that I do.

Howard Lindzon took a huge sideswipe at the company management of Twitter (and apologised to his audience) in a fairly simple post, I agree with him on periscope, I think that user adoption is going to take a while: Twitter - Great Platform ... Sh1tty Stock - a Mea Culpa. Dear Google, please buy the company, you can do amazing things with it. Regards. Me.

I find it really hard to believe that a single person, living at their parents home at the age of 36 (now) was repressible for a 1000 point decline on the Dow Jones in a matter of minutes, a few years ago. Dubbed the flash crash, Navinder Singh Sarao is currently on trial, having been charged 5 years after the event. Read a little more from the NYT: British Trader Charged in 'Flash Crash' Fails to Post Bail. If found guilty, the question must then be asked of the exchange, how is it possible that someone can sit in a study at their parents house and with a simple internet connection and not much capital, "break the market"?

Home again, home again, jiggety-jog. Most Asian markets are lower, they did not have the benefit of the US data, the US numbers. We are still in the middle of earnings season, markets at the beginning of trade this morning are flat. I got it wrong, non farm payrolls are next week, too early on the first of May. There is a European inflation read today, the fixed income market has been abuzz with the Bill Gross called German Bunds a short of a lifetime. Jeff Gundlach called it too. We shall see who gets it right.

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

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Tuesday 28 April 2015

Apple aces aplenty

"58 billion Dollars worth of sales in 90 odd days is amazing, net profits of 13.6 billion for the quarter is even more amazing. That translates to 2.33 Dollars per share. Gross margin improved to 40.8 percent from the comparable quarter (Q2 2014) last year, where it clocked 39.3 percent. Forget the strong Dollar, which has been the flavour for the reporting season thus far, 69 percent of Apple's sales are beyond the US borders. Meaning that only 31 percent of their sales are mainland US. In fact, for the first time iPhone sales in China were bigger than that of the US"

To market, to market to buy a fat pig. Although I do not like holidays encroaching on work time, I do believe that yesterday, Freedom Day is a special day for our country. I think that every year I tell you my boring story of how there was no queue when I voted in the 1994 elections, I voted a day early at the embassy in Maputo. On the 26th. There were three or four people ahead of my parents and my sister, that was it. No excitement, singing or dancing. I must admit that I felt empowered in some strange way, I was a little nervous doing something that 19,533,498 other people did that day. That is according to the Wikipedia entry South African general election, 1994.

It is pretty amazing what can happen in that time, from one election to the other, the African National Congress ended up with 62.65 percent of the vote in 1994, the National Party (now defunct, dissolved in 1997) got 20.39 percent of the vote, whilst the Inkatha Freedom Party got 10.54 percent of the vote. Fast forward to May last year, the African National Congress got 62.15 percent of the vote, the DA got 22.23 percent of the vote, whilst the EFF came in third with 6.35 percent of the vote. The Inkatha Freedom Party is still around, although 2.4 percent of the vote now tells you that the support base has waned. According to the Wiki entry that sources the information from the IEC, 18,654,457 people voted (out of a possible 25,381,293) at the last elections.

I wonder why 26.5 percent of registered people do not vote? Why do they feel that their vote carries no weight? It is a question worth asking. You should take the time and effort to vote, it is something of a leveller and the right to vote was hard fought for. And more importantly won. If one of the minorities could win over 6 million odd people, it would make a HUGE difference to the political landscape here in South Africa. For all the parties concerned, even in the incumbent. In the case of the political landscape, it moves very slowly when there is economic stability. See the recent changes in Europe? Those have been as a result of ordinary citizens lives getting worse. Nobody changes the status quo when there is economic stability. Next year we have the government elections, we can see if anything changes, I suspect as usual, not too much.

Back to markets, away from the most important of South African days. What is happening out there? For one, the Greek negotiating team has been changed, or tweaked: Euro gains as Greece revamps bailout negotiating team. When the money runs out, the situation gets real. This boosted the Euro, the Dollar rally is seemingly running into a few headwinds with weaker than anticipated economic data giving the Fed more wriggle room. In other words, expect interest rates to stay lower for longer. Whilst we have seen a serious recovery in equity markets, many middle income households in the richer parts of the world have not felt it. And whilst the recovery has been good for asset prices and I suppose that most middle income people have savings, they perhaps do not have the same savings power as richer people.

The imbalance debate between the haves and the have nots, and what is the best way to address this is never going to be solved. I want everyone to be rich, it ultimately depends on a few things, first and foremost being born into a middle, upper middle class and rich family gives a you tremendous starting point. Better nutrition leads to better brain development. If your parents are hungry, the chances are that it will impact on your early brain development, giving you less of a chance later in life. If you have richer parents, the chances are that you will go to better schools, better tertiary education, and have a more stable environment in which to develop and nurture skills. The gap closes as soon as society as a whole gets richer. Enjoy the freedoms you have, be they earned or inherited, or both. The chances are that your life is much better than your grandparents and the chances are excellent that your grandchildren will have a much better life than yours.

US markets closed the session lower, down four-tenths of a percent for the Dow Jones, the nerds of NASDAQ, notwithstanding a strong result from Apple ahead of their earnings (see below), were lower on the session. Courtesy mostly of the biotechnology companies, there were some big names that were sold off heavily. Cast your mind back to Friday here locally, we reached another set of records for the overall market, up nearly a percent to close above 55 thousand points. Resource companies were driven higher by increasing iron ore prices, BHP Billiton indicating that they would perhaps defer some production. That is the first of the majors to give guidance on that. The stock, BHP Billiton is trading close to a monthly high in Aussie and in London, off a little for starters today.

Company corner

Apple. Just wow. Their last quarter once again blew estimates away. In truth there is only one risk to their business and that quite simply is a superior product. A superior product to theirs that is adopted with the same uptake of their flagship product, the iPhone. Out there, there could and might be a better product. What it lacks is the adoption and more importantly, the ecosystem. What I mean by that is pretty simple, the ecosystem of Apple draws you in. It is evident in the company numbers, away from the iPhone itself. Mac Sales, a device on which I am writing this message, are set to grow 10 percent this year and continue to take market share away from their peers. Sales in China of Mac units grew 31 percent in the last quarter, when the rest of the PC market went backwards! In total, the company sold 4.56 million Macs, their old flagship product.

You don't really want to know about that. You want to know about the iPhone, the new 6 and 6 Plus. I have one, I have recently upgraded to a 6. And whilst I read articles that bemoan the fever pitch excitement as unnecessary, in terms of getting a new phone every two years, the design features and improvement on my last phone, the iPhone 5, is something to behold. The speed, the clarity, the size, the response times, just when you think it cannot get MUCH better, the design team at Apple, led by Jony Ive (sorry, Sir Jonathan Ive), releases another incredible product. I guess they are always under incredible pressure to trump the last version. The leap from 3 to 4 was huge, from 4 to 5, not so much other than screen size, the leap from 5 to 6 feels the same as 3 to 4. Those of you who have the phone know what I am talking about.

Let us have a look at sales units and numbers. 58 billion Dollars worth of sales in 90 odd days is amazing, net profits of 13.6 billion for the quarter is even more amazing. That translates to 2.33 Dollars per share of earnings. Gross margin improved to 40.8 percent from the comparable quarter (Q2 2014) last year, where it clocked 39.3 percent. Forget the strong Dollar, which has been the flavour for the reporting season thus far, 69 percent of Apple's sales are beyond the US borders. Meaning that only 31 percent of their sales are mainland US. In fact, for the first time iPhone sales in China were bigger than that of the US, unit sales grew 72 percent, revenues grew 71 percent to 16.8 billion Dollars of the group total of 58 billion. Tim Cook, the Apple CEO had indicated a few quarters ago that China was going to be huge. And now it is.

Total product sales are as follows, including revenues generated from those:

Services. Check that out, nearly 5 billion Dollars worth of sales, for the quarter alone. As they point out, services is as follows: Includes revenue from the iTunes Store, App Store, Mac App Store, iBooks Store, AppleCare, Apple Pay, licensing and other services. And then other products, which includes sales of iPod, Apple TV, Beats Electronics and Apple-branded and third-party accessories. I wonder where the watch is? Or where it will be in the future, a separate line?

If you were wondering about the take up of the watch with watered down and muted response, you are wrong. The watch take up was the most successful first day sales of any product ever for Apple. So there. Perhaps pre order data might have been in there (the "other products") segment, I suspect if so it is negligible. What you can see is that for the first time since the release of the iPad, Mac revenues have surpassed tablets. Which means that the bigger screen phones have definitely started to cannibalise iPad sales. The clearer and crisper screen enable users to ditch the tablet. Equally the greater adoption of the Mac means that Apple closes the loop, in terms of the ecosystem.

The company has also announced that they are boosting their buyback program by 50 billion Dollars, from 90 to 140 billion and have also boosted the quarterly dividend by 11 percent, from 47 to 52 cents per quarter. That amounts to 208 cents a year, on an after market share price of 134.42 Dollars, that is 1.54 percent yield. Better than the 2 year government debt, which is 0.53 percent. I have seen some analyst reports that suggest that the company by 2017 can register sales of 270 billion Dollars plus. That is a long way away, projected sales for this year is expected to be somewhere around 225 to 230 billion Dollars. With earnings expected to be around 9 Dollars, the stock hardly looks expensive at current levels, less than 15 times current year earnings. Earnings are expected to grow somewhere in the region of 17-18 percent, meaning that the multiple forward to 2016 is around 12.5 times.

By that measure I think that there is still huge upside. Not as before where the base was lower, the fact that there is however new markets, the Chinese specifically. 6 new stores were opened in mainland China last quarter, there are expected to be another 40 by this time next year. Guidance is around the middle of most folks estimates for the current quarter, a foreign exchange "element" is expected to impact margins. There is something amazing in these Apple numbers. See if you can spot it:

190 billion Dollars worth of cash. No wonder Apple can expand their capital return program from 2012 to 200 billion Dollars through to 2017.

As a shareholder, what do you do? What is there to do? Nothing. If you own the shares, then enjoy the performance of the stock price now, in the past, and expectations based on future earnings. We continue to recommend that you accumulate the shares at current levels, buy. Be mindful that there are other products out there, Apple has only 20 percent of the smartphone market. Meaning that there is plenty of room to grow, plenty of people to convince that this is the best product, the best all around hardware and software combined.

Things that we are reading

I cannot believe it. The Fast and Furious 7 is on fire, past Avatar to take fastest $1billion box office gross world record. It proves that whilst it is never going to win any Oscars for best picture, or best actor(s), actress, it is what people want to see. Don't poo-poo what passes for entertainment. For the record (the other less important one), I have not see a single one in the franchise.

This story boggles the mind, safety in the work place is only as good as execution. I could not believe this when I saw it, very sad: Bumble Bee Foods, 2 others charged after employee died in pressure cooker. Astonishing.

Wow. It is clear that these answers should be easy, unfortunately they are not for most people, including kids in the US: Kids in the US don't know much about money - and teaching them doesn't work. Can your kids answer these questions correctly?

Home again, home again, jiggety-jog. Michael got married this weekend, I only posted a single pic to Twitter, here goes: Congrats @mwtreherne Sealed the deal!. Here goes Paul's Tweet: Team Vestact at @mwtreherne's wedding! Congrats, he is away this week, as is Byron.

The Rand is firmer, the Dollar trade taking a large pause here. GDP data later this week and non-farm payrolls no doubt are set to take centre stage. More important to us however are the earnings, those have not slowed. If anything, we need to review Amazon and Starbucks, hopefully tomorrow we will have had a full look!

If you wanted to know how you can help with the disastrous Nepal earthquake, you can. Thanks to Facebook matching donations made via their portal: Support Nepal Earthquake Survivors: An Easy Way to Donate, Facebook to Match up to $2 Million. If you can, lend more than a hand. Send funds to the International Medical Corps.

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

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Friday 24 April 2015

The nerds of NASDAQ. This time it actually is different.

"Of the top ten, there are only three that are still in the red, one that barely breaks even, one company that did not exist and was therefore not listed, one other company that was not listed. It might be difficult for many to stomach, this time and at this juncture with newer technology that is really profitable (whisper - they even pay dividends) it really is different."

To market, to market to buy a fat pig. The big story last evening was the nerds of NASDAQ hitting a 15 year high. 15 years ago there was no Facebook. 15 years ago Google was in its infancy and not even there to invest in. Tencent, Alibaba, forget it! LinkedIn and Twitter, no ways. 15 years ago it was Microsoft, Intel and Cisco, Oracle, heck Nortel had a market cap of one quarter of a billion Dollars, it is now bankrupt. Lucent imploded. AOL was huge, remember that little line in which they told you that you have mail? I can see that you are getting all starry eyed thinking of your Pentium 386, your dial up modem noises and Netscape 4.1 browser.

Let me remind you, those were not the days, these are the days now. WorldCom, there is another bad reminder of what it was back then. Technology as a whole only represents around 20 percent of the overall US market, back then it was nearly 30 percent, from 6.3 percent in the early 90's. And back in the 80's it (technology stocks) was completely dominated by IBM. A business called International Business Machines, now there is something! There is something of a misconception that the NASDAQ is entirely technology, that is definitely not the case. The makeup has changed significantly, if you check this WSJ article out, you will see that it is 42 percent last evening, when compared to 65 percent on the 10th of March 2000 -> Nasdaq Composite Closes at Record High.

Consumer services and healthcare have become more and more important, more importantly however is the bottom right hand quarter of the graph, where you can see the average earnings multiple of the NASDAQ went from 70 to 20, where it is now. The order, by market cap and company of the NASDAQ is worth pointing out, via the NASDAQ website -> NASDAQ Companies. Making up the top ten companies by market capitalisation, Apple ($755B), Google ($379B), Microsoft ($355B), Facebook ($230B), Gilead ($156B), Intel ($153B), Comcast ($150B), Cisco ($146B), Amgen ($128B) and lastly Qualcomm ($112B).

How have those companies done since 10 March 2000, their share prices that is, as this is all we are talking about. I bet from a sales and profitability and technological advancements point of view, they have done markedly better, that is however not what we are talking about. I used Google Finance's (which was not available back then) trusty graphing tool to give me the answers. So this is since the index was basically flat, from 10 March 2000 to present the nerds of NASDAQ returned 0.15 percent. That is it. That is all.

In that exact same time, Apple returned 2787 percent. Nearly a 30 bagger, unprecedented at this sort of size and scale. Google of course only lists in the second half of 2004, since then the stock is up 911 percent. Microsoft, this is where it starts to get a little ugly, the stock is down just over 14 percent since then. Facebook only listed in May of 2012, the stock is up 115 percent since listing. Gilead is the star performer, up a whopping 4596 percent. The mind boggles. This is where it starts to hit home, since March of 2000, the Intel stock price is down 46 percent. Comcast is up 133 percent. The ugliest of them all is Cisco, down 58 percent since the highs. Amgen is up 184 percent. Lastly, Qualcomm is up a mere 0.4 percent over the 15 year and one month and a week. Most of these are taken from 17 March 2000, Google finance does not compare properly on an exact day basis, from way back then.

The conclusion I guess is simple, the NASDAQ constituents as a collective are far cheaper now than they were then, more importantly there is a new breed of companies and specifically Apple which reengineered itself, equally Gilead, which is not a tech company, I suppose being biopharma there is a huge element of technology. Of the top ten, there are only three that are still in the red, one that barely breaks even, one company that did not exist and was therefore not listed, one other company that was not listed. It might be difficult for many to stomach, this time and at this juncture with newer technology that is really profitable (whisper - they even pay dividends) it really is different.

On the local front the JSE all share closed at an all time high. 54687 points. Our market over the same time (March 2000) has managed to go from under 10 thousand points to the current level. 5 years prior to that, it was half the level. I guess if you had simply hugged the index for the better part of 20 years, you would have seen an 11 fold return in that same time, of course the constituents of the index would have changed dramatically. I remember that back then in March of 2000, Dimension Data would dominate trade, accounting for over one-third of all trade on any specific day. The lowest point of the All share index over the last twenty years, according to the data from TradingEconomics is 4319.95 points. Which looks around about when the 1998 Asian currency crisis was in full swing. Here is a graph, courtesy of TradingEconomics.

source: tradingeconomics.com

In that time, according to the same data from TradingEconomics, we have had to pay 20 percent for our debt. True story, current government bonds attract a yield of 8 percent, which is pretty lofty by international standards. And the thing that people get more anxious about? The Rand. That seems to grip people MORE than anything else. The level of the Rand and where it is going to next. I remember when the naysayers back in 2001 said that the Rand was going to 20 to the Dollar. The next move was back to 5.65 to the Dollar. Currently we are much weaker, the fundamentals look a little ropey.

source: tradingeconomics.com

I suppose that if you choose a longer dated graph it always looks a little worse. The long and the short of it all is simple, if you wish to invest offshore, you should and you should act. It is far easier than at any time in the past. And you must never invest offshore just for the simple purpose of looking to run away from the currency, rather invest for the right reasons. The right reasons being owning quality global businesses with reach beyond their own borders.

Company corner

MTN was on a bit of a tear yesterday. Here it is: MTN Group records 227,5 million subscribers. That is quarter on quarter growth of 4.1 million subscribers. MTN is only 21 years old, as a listed business. The company always measures these updates on a quarter on quarter basis, in other words measures the number of subscribers that they had in the reporting quarter versus the prior one, rather than measuring it year on year.

For instance, if you read the headline number and see that in South Africa the Postpaid segment saw a fall of 0.3 percent subscribers, there is cause for concern. When measured against the prior year however, there are still 200 thousand more. In total, the company has 17 and a half million more subscribers today than they had last year. To put that number into perspective, there are only 63 countries with more than 17 million people, by population that is. The Vatican has only around 850 folks living there, the Cocos islands has 550 and the Pitcairn islands has only 50 odd folks living there. That is the bottom of the list.

We don't live there, MTN does not and never will operate there, the Pitcairn islands. They will operate across the continent, where the average age is very low when compared to the rest of the world, the average wealth (which is evident in the Average Revenue per User numbers) is very low and most importantly the GDP growth rates of Sub Saharan Africa are expected to be higher for longer across most of the region. In other words, to generalise (to paraphrase Morgan Freeman's character in the Shawshank Redemption), and generalising is a dangerous thing, the future of our continent looks bright. Notwithstanding the terrible events of the weeks gone past here in South Africa, notwithstanding the horrible and dreadful attacks on humanity in Kenya and Nigeria. The business may appear mature, and that it may be from a voice point of view, data is growing strong, everyone wants a better handset that uses more data than NASA did in the whole of 1966 (I am making that up), communication is at our core.

We certainly have been patient and long term holders with this company, as private investors we tend to get too itchy, wanting to move too quickly. MTN have paid 21 dividends as a listed company, I remember when they paid nothing for a few years whilst they were in growth mode and then only an annual one, a small one at that. The first interim dividend in this current cycle was declared in August of 2010. Last year the company paid 12.45 Rand in dividends, pre tax of course. Expectations are for a modest 8 percent per annum increase. Ironically, the yield forward looks greater than that of Vodacom, there is a turn up for the books! We continue to hold the MTN positions that we have, they are a superb dividend payer with growth prospects that still require deep investment to keep pace, equally they have good growth prospects.

YouTube turned 10 unofficially yesterday. On the 23rd of April 2005, the first ever post titled "Me at the Zoo" was uploaded by Jawed Karim, the co-founder of YouTube. The clip itself is terrible. It is shocking actually. I guess the company has been a success beyond their wildest dreams. Check this out, the first and only ever video, as per below the link.

The other two folks involved with YouTube at the beginning were Chad Hurley and Steve Chen. Chen was born in Taipei and Karim in Germany, (East Germany actually, his family crossed the border). Salar Kamangar is the current CEO, he was born in Tehran, the capital of Iran. Three out of four of the people closely associated with YouTube are foreigners initially to a country they now call home. Sergey Brin, the Google co-founder is born in the USSR. Immigrants founding American companies, there is a massive lesson in that for everyone, most especially here at home.

Why I spoke and am speaking about YouTube is their parent company, Google also released numbers last evening. They were decent, currency headwinds as expected, as much as 795 million Dollars impact on revenue. Google is still a "one trick pony" as many businesses are, that does not concern me. As long as you can display the best trick over and over. Cash on hand, that swelled to 65.4 billion Dollars. Which as a percentage of their market capitalisation is 17.6 percent. The company recorded revenues of 17.2 billion Dollars for the quarter past, which was a 12 percent increase on the comparable quarter in 2015, without the currency headwinds the increase would have been an impressive 17 percent.

Most of their revenues (like Facebook) were derived from their Advertising business, the Google website or the Network member sites. That of course includes YouTube, the Google websites, they have never quite broken it down. Most of the growth in their "other category" revenues were from the Google App store. Those big Android users will know what I am talking about. Top paid Android app in South Africa? Minecraft. Wow.

Now you may view that as sad, in my mind there is no difference between watching the telly and fiddling on your phone or tablet. They are both entertainment, the difference is that when fiddling on your device, it is two way entertainment. You have no control over the content on the TV apart from what to watch, nowadays you are given the freedom of when to watch it. Minecraft? You can partake whenever you want to. What amazes me about that is the lack of the quality of the Minecraft graphics, it is almost "retro". If you needed to know how many potential customers there were for the Google app store, there are more than 1 billion Android devices globally. The most popular apps? You guessed it, Google app (the search), YouTube, Gmail and Maps. Stuff you use every day.

How does Google stack up? Is it expensive? Cheap? Should you buy some shares now? Yes. You should own this company. The company has multiple businesses and when I try and use a comparison of businesses of yesteryear I sometimes suggest that this is the General Electric of the 21st century. They have a strong Robotics business (have you seen those crazy packhorse robots?), they are starting to branch out into medical technological research and partnerships. Lots of their businesses don't or did not work, if it does not, they close it down. Google Labs. Their Ten things we know to be true segment is quite entertaining, their business is still highly connected amongst all your lives. The Nest purchase (for 3.2 billion Dollars) indicates that the company is always on the hunt, for something unexpected. Also, their recent artificial intelligence purchases, DeepMind, which learns from experience is pretty interesting.

Something struck a chord with me, on the earnings conference call the chief business officer, Omid Kordestani said the following, seeing as we (the royal we) take so much for granted: We are also working very hard to make our products more accessible to the next billion people who are coming online. The first computing experience for these users won't see on a desktop machine or a laptop. They will be on a mobile phone from day on one. In fact, many of them will use a mobile device as their only computer.

I suspect that there has not been a time to buy Google on the cheap, since they listed, apart from a period of a year during the great washout of 2008 and 2009. Currently the investment community has the stock on a forward multiple of 19.25 times current year earnings and 16.7 times next years earnings. Cheaper than the index. Market participants have decided that the company has lost its mojo, I guess there are serious competitors in search, Facebook is one of them. Apple phones are awesome, the iPhone 6 is incredible, the Samsung S6 runs Android software, that belongs to Google. Of the high end smartphones, it seems to me that these are the two that get consumers excited. I digress, in summary the stock has never been cheaper, with 55 thousand employees the company may be perceived to have lost their entrepreneurial edge, their core business may be under pressure a little, in that lies an opportunity. Buy, you will have to be very patient, as much as two years patient. Mr. Market agrees, in after-hours trade the stock is up over three percent.

Things we are reading

The headline is self explanatory, the numbers are mind boggling - A quick reminder of how gigantic Facebook is

I always find the stories of people who start businesses interesting, given that Famous Brands is one of our core shares makes the story even more interesting - Natasha Sideris: Inspirational creator of Tasha's, SA's hottest restaurant chain

Home again, home again, jiggety-jog. Another record high for stocks here. 55 thousand points. Greece, the clock is ticking. All the other EU finance ministers seem to think that time is running out. Is there anything that you, in your personal capacity, can do about the finances of Greece? The answer is actually no, there is nothing that you or I can do. What we can choose are the quality of the companies that we can hold, and seeing that we are at the end of the busiest week for earnings in the US (147 S&P 500 companies have reported thus far), we can be perfectly sure that with markets globally near or at all time highs, that is what the collective thinks of it all. More importantly, Michael gets married tomorrow, we wish him all the very best! He is away for a couple of weeks, honeymooning.

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Thursday 23 April 2015

The Face of the Zuck

"The company of course incorporates more than just the original desktop blue, 1.44 billion monthly users across mobile and desktop now use the network/service, 1.25 billion on their mobile phones. On mobile that represents a monster jump of 240 million. Daily that number is 936 million (not quite at 1 billion yet), 798 million on mobile phones."

To market, to market to buy a fat pig. Seeing as it is earnings season and there is a whole host of company data flying in, today will focus mostly on these businesses that we hold for our clients. Not all company earnings will be dealt with immediately, there are of course some releases that might be a day or two late. For instance there is a MTN announcement that is very important this morning, in terms of subscriber numbers for the first quarter, and an update. We'll have to deal with that one tomorrow. As I write this the share is down 0.4% so the news has not been a market mover.

Company corner

Stryker reported operating results for the first quarter of 2015, follow the link for all the numbers. The company is a global leader in medical equipment, better known for their selling of knee and hip replacements, as well as a whole host of other devices. Everything from a surgical drill, a saw, smart meters and high tech surgical equipment (screens and the like), to innovations like eliminating surgical smoke (important) to fluid disposal. The Neptune 2 is a fluid disposal product.

The business was founded post the war, by a orthopaedic surgeon of the same name, Dr. Homer Stryker. Stryker was 47 when he founded the company, one of his earliest inventions is still used, the vibrating saw to remove casts. Those of you who have ever broken a limb will know what I am talking about. Homer Stryker specialised after practicing for eight years as a GP, returning back to where the company still has their headquarters, his home town of Kalamazoo, a city that Wiki tells me is equidistant from Detroit and Chicago. Hipsters love the place, it is an important town with regards to craft beer. The other famous thing about the town is that it is the home of Gibson guitars.

In his final years he got to see the company list on the NYSE, Stryker died in 1980, the company listed on the NASDAQ (early days back then no doubt) in 1979, May the 2nd. Sadly his son had died 3 years earlier in 1976, in an airplane crash, along with his wife and two companions, leaving three kids sadly without parents. There are three siblings, Jon, Pat and Ronda Stryker, the grandchildren of Homer, they share a board seat.

Orthopaedics is the most profitable of the three divisions, it also represents 43 percent of group sales. Hips, knees and ankles, foot, and other reconstructive equipment, including a recent purchase of MAKO, robotic arm assisted surgery. MedSurg represents 39 percent of sales, the balance is the Neurotechnology and Spine, 18 percent. MedSurg includes all the instruments (drills etc.), medical equipment (including the biggest part of the business 50 years ago, beds and stretchers), as well as all the endoscopy business. Neurotechnology and Spine includes stroke therapies and spinal implants.

Revisit some of the other numbers quickly. Gross margins are a whopping 65.6 percent. Obviously the company spends heavily on research and development, 6.4 percent of total revenue. On the conference call, guidance for the quarter was given as 1.15 to 1.20 Dollars for the current quarter and 4.95 to 5.10 Dollars for the full year, currency headwinds trimming off 0.25 to 0.30 Dollars, 5 to 6 percent. Of course that is not insubstantial, what is important to remember in owning global businesses (remembering that US sales are 68 percent of total sales), you cannot get away from currency fluctuations. What we have seen here is pretty unprecedented, the massive moves in the developed world in a very short period of time. Normally currencies move 20-25 percent over years and not months.

We maintain our buy on Stryker. This is both a consistent business, since they have been listed, they have only once reported lower revenue than the prior year, and that was in 2009. Hospitals pulled back their spend sharply. The innovation and cutting edge surgical technology is evident from the company. In a world where more and more treatments and therapies are being administered on a population that is living longer and longer, their target market has more time and deeper pockets, and there are more of them. People I mean. With a price to earnings multiple of 19.3 times forward, a yield of 1.4 percent it hardly seems like a steal. I am more than happy to pay that price for a company growing profits at ten percent per annum however, a solid business.

Facebook reported numbers post the market last evening. Facebook, contrary to the chattering classes and naysayers, has turned out to be a solid business run by a fellow that has some serious skills. I think that Mark Zuckerberg is in a league with the business greats, obviously there is a lot of work to do. I get that he wants everyone to have access to the internet, I sometimes think that if I could give the Nobel peace prize to a thing, it would be the internet. Who would get the money, Al Gore? Ha ha, kidding, perhaps it can be donated to Wikipedia. Did you know that Zuckerberg's middle name is Elliot?

The company of course incorporates more than just the original desktop blue, 1.44 billion monthly users across mobile and desktop now use the network/service, 1.25 billion on their mobile phones. On mobile that represents a monster jump of 240 million. Daily that number is 936 million (not quite at 1 billion yet), 798 million on mobile phones. That is just the main service, the other businesses which we chatted about a few days ago, have massive numbers too. WhatsApp has 800 million proper and engaged users, 600 million people use Messenger, 700 million people use groups (the only one I don't use), 300 million active members use Instagram. Across all the networks, 45 billion messages are sent a day. That is around 6 per person on the planet per day.

Of all the services, I think that Instagram is the most beautiful, pictures are gorgeous and I would urge you, if you have a smartphone and like seeing and taking pictures for Facebook, to use that platform. Video of course is growing like gangbusters, there are 4 billion views a day. You can of course also post 15 second clips of video on Instagram, which is about the normal persons attention span. I am sure that it is more than that. Average time spent on Instagram is 21 minutes a day. I have never heard of the movie "Age of Adaline" which premiers this Friday, I may watch it on BoxOffice, or some other platform. Lionsgate has, via Instagram been targeting younger woman in the lead up to this movie, said Sheryl Sandberg on the conference call. The company has retargeted their efforts to Facebook, she said and they are expected to bear fruits, come the movie release this weekend.

You can have all the users that you want in the world, the fact of the matter is that the service is for free. You pay for the inter webs with your service provider, so I guess strictly speaking it is not for free. For advertisers however, it is the most pointed platform in the world. You can set your parameters as close as you need. I have used it, with mixed success I must say. Having said that, there are a mere 2 million advertisers on Facebook. That is all. They are responsible for quarterly revenue of 3.32 billion of the groups 3.543 billion in the last quarter. Revenue on a comparable quarter last year grew by 42 percent. If you excluded the strong Dollar, revenues would have increased by 49 percent. Around half of revenues are in the the US and Canada, one quarter in Europe, one sixth in Asia Pacific and the balance the Rest of the world. People like you and I. Mobile ad revenue is now 73 percent of total advertising revenue, if you recall there was a lot of anxiety around how the company would monetize mobile. Well, that is how.

ARPU's are still low however. Across the group, global ARPU's are 2.5 Dollars. That is the measure of revenue generated by the company per user. What the company are doing however is that they are spending a lot more on marketing than ever before, as a percentage of revenue, 17 percent this last quarter when compared to even the biggest revenue quarter (traditional the holidays quarter, Q4) where the company spent 16 percent. Research and Development expenses as a percentage of revenue topped 30 percent in the last quarter, we knew that the company was going to invest heavily, we were told that in the last quarter. Non GAAP operational income grew 28 percent when compared against Q1 2014, non GAAP diluted EPS clocked 42 cents for the last quarter.

The stronger Dollar and the increased spend (up heavily) means that earnings are going to be slim pickings for a while, I suspect that whilst revenues grow like crazy, expectations are for this year is 17 billion Dollars, over 23 next year and nearly 29 the year thereafter. EPS is however only expected to be around 1 Dollar this year, there is no prospect of a dividend as of yet. With a share price of 85 Dollars it is easy enough to figure that one out from a simple fundamentals point of view. This investment is not for everyone, the company has not put a foot wrong so far. They have a strong team, there is plenty of growth ahead.

Indeed last evening another new initiative was released: Introducing Hello. It is pretty darn cool, you can see more info. How does it work? Like this: You can also search for people and businesses on Facebook and call them with just one tap. So if a friend tells you about a new restaurant in your neighbourhood, you can use Hello to find their hours, make a reservation and get directions, all without leaving the app. Many different applications and bolt ons are coming, you must own a percentage of this company in your portfolio. We maintain our buy rating on Facebook, you are going to have to continue to be patient in order to see the big unwind from a valuations point of view, as in the case of growing businesses like Amazon, you can wait a decade.

Michael's musings

There have been two big announcements from GE in the preceding weeks;They are disposing most of GE Capital in the next 24 months and then they had their 2015 Q1 figures. The GE of late has always been a tale of two segments, industrials (for which they are known) and then GE Capital (which makes up the largest part of earnings). The share price jumped around 10% when they announced the sale of a large chunk of GE capitall, so the market likes the idea of moving to a more pure industrial play.

The theory is that the financial arms' earnings are too volatile for an industrial player like GE. The industrial assets don't get the same valuation in the market because they are diluted by the banking part of GE. (You can see it is not an ideal mix of assets).

The bulk of GE Capitals real estate assets will be bought by private equity company Blackstone and some of the loans business will be bought by Wells Fargo. The goal is to have GE Capital contribute only 10% of the earnings in 2018, from the current 42%.

There are many moving parts to GE, here is the easiest way to see what is going on:

You will note that the industrial segments revenue went backwards by 1% but if we exclude the impact of the stronger dollar, revenue would have grown by 3%. Both Healthcare and Oil & Gas have positive organic growth but due to currency impact they also went backwards. In total the stronger dollar impacted revenues by $950 million.

Looking forward our focus needs to be on the Industrial segment as it is going to be the business post 2018. The industrial segment looks strong with earnings growth of 9% and operating margin expansion of 120 basis points. The company has nice diversification across many sectors, with one of them being the high growth healthcare sector. Add to all of this, GE plans to return to investors $90 billion in the form of dividends and share buy backs up until 2018. The conclusion drawn by all these numbers is that GE is a solid blue chip company that will probably be one of your most boring investments, they will chug along giving you a nice dividend yield (currently 3.2%) and grow earnings regularly.

Things we are reading

Owning sports teams is definitely a vanity project. Heck, Steve Balmer bought the Clippers for 2 billion Dollars! Manchester United has a market cap of 2.6 billion Dollars, annual turnover of around 650 million, profits of 35 million. The players however collectively earn 215 million pounds, or 323 million Dollars: United overtake Man City with Premier League's highest wage bill

This battle is over but the war between publishers and Amazon is not, and probably won't be over until one of the sides no longer exists - Amazon, HarperCollins deal opens door for smaller e-book battles

Another shift away from analog - In 2017, Norway will be first country to shut down FM radio and this is the technology that will be replacing it, Digital Audio Broadcasting(DAB)

Depending on when you invest has long lasting impact on your future returns - The Impact of the Tech Bubble on Future Returns. The basic moral of the numbers (story) is to be constantly adding, which gives you the advantage of average pricing. Remember that if you are constantly adding, which means buy when the market is "expensive" and "cheap", you will be buying more shares with the same money during down turns. Which results in your average entry prices being biased to the "cheaper" side. "Patience can be a great equalizer in the financial markets, but it usually has to be measured in decades, not just years."

Home again, home again, jiggety-jog. Earnings, earnings, earnings. Exciting times in the office! The local bourse is at an all time high, stemmed partially by a weaker a Rand.

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Wednesday 22 April 2015

JNJ, you and I

"Last week we received first quarter results for 2015 from JNJ which slightly beat expectations. Remember that this multinational business has serious currency headwinds because it reports in dollars but sells products all over the world. Sales came in at $17.37bn which is down 4.1% from last year but if you exclude those currency movements it represents organic growth of 5.7%. In dollars, US sales increased 5.9% whilst international sales decreased 12.4%."

To market, to market to buy a fat pig. Markets in New York drifted lower over the session, so far earnings which are flying in thick and fast look OK. And by OK, I mean that expectations had possibly gotten a little bearish, so expectations being beaten must be contextualised. Obviously the stronger Dollar and overseas operations, and by that I mean non Dollar areas. Locally the market topped 54 thousand again, it felt like another record, it was not however, there was a better close last Thursday. Naspers powered ahead, up nearly four percent, early signs are that the stock will have another good day, up one and a half percent at the start. Steinhoff offered the minorities in JD Group 34 Rand a share, for the 10 percent that they do not own. It looks like Regarding Capital Management might have been a smaller minority there. Perhaps a bunch of others too, maybe some shareholders asleep at the wheel, Steinhoff is marginally higher at the start here.

Richemont with a complicated announcement this morning, Significant movement in net profit for the year ended 31 March 2015. Remember that this company has the majority of their manufacturing costs in Swiss Francs, they report in Euros and most (if not all) of their raw materials (diamonds, expensive and rare gems, precious metals) are denominated in Dollars. Net profits are going to decrease by 36 percent. Sales are however expected to increase 5 percent, strip out the currency moves and it is a more muted 2 percent. The operating profits however, excluding the once offs of course, are expected to be 10 percent higher. The stock at the get go this morning is down 1.7 percent, wait for the 22nd of May to see the full results.

Company corner

L'Oreal released a trading update for their first quarter a couple of days ago, and by couple I mean it in the classic sense, i.e. two. Talking of two's, today is the 22nd and the AGM of the company is today. Remember that the company has a pretty interesting set of shareholders, there is the history between the Bettencourt family and Nestle, which came about as a result of the French government wanting to nationalise everything in the 70's. The founder's (Eugene Schueller) daughter, Liliane Bettencourt was active in the business for years. According to Wiki, Liliane worked in the business from the age of 15, as an apprentice she would label shampoo bottles and mix cosmetics.

Indeed the roots of the business, excuse the pun, were in hair dyes. The very name Societe Francaise de Teintures Inoffensives pour Cheveux translates to the Safe Hair Dye Company of France. Bettencourt's daughter, Françoise Bettencourt Meyers and son-in-law, Jean-Pierre Meyers are both directors. The old man, Eugene Schueller was of German descent, he was of course French though. Wait, there is more. The next generation, the soon to be 29 year old Jean-Victor Meyers (the great grandson of the founder) is also a director in the business. Fourth generation ownership. I guess what you need to know as a shareholder is that there is a professional manager in the form of Jean-Paul Agon, a lifer at the company. He is 58 years old and has worked at the company since 1981. He knows the business as well as anyone else.

Who are the shareholders? On the front page of the digital annual report is the stunning Lupita Nyong'o, the Kenyan woman born in Mexico who starred in the equally stunning movie "12 years a slave". That movie was so sad that my wife could not watch it, have a read through to find all the information that you need, starting with brands. As per the website, the Bettencourt family owns 33.09 percent of the shares, Nestle own 23.14 percent, International Institutions own 28.06 percent, French institutional investors own 8.43 percent, Individual shareholders own a mere 5.22 percent. Staffers own 0.81 percent and the balance, 1.25 percent is Treasury stock. The family is still large and in charge, the last move by Nestle was to reduce their stake. We often thought that Nestle would be tempted to own the rest of it, perhaps the French government would never let it happen and the Swiss company knows this.

Background info finished, back to the FIRST QUARTER 2015 SALES. I took the table of the sales update so that you can see which areas are strongest, compared to the others. You can see that the currency had a marked impact on the Euro reported sales, on a constant basis (i.e. all currency moves are ignored, local sales only) growth was a reasonable 5.2 percent. That is OK, their two biggest areas of sales are still North America and Europe. Eastern Europe was the only territory to go backwards, notwithstanding the fact that L'Oreal are winning market share there. Here goes, see for yourself:

What to do about your shares? Nothing. Doing nothing means that you are not tempted to sell, the Dollar returns for L'Oreal have not actually been as good as the Euro returns, understandably of course. What do I mean by that? Over the last 12 months the ADR in New York has returned 13.65 percent (not too shabby Nige), whilst the French listed business is up a whopping 46.8 percent, the market cap is about to crest exactly 100 billion Euros. We continue to hold the company through the wild currency gyrations, knowing that a weaker Euro has an impact on the Dollar share price (negatively), at the same time a weaker Euro is positive for reported sales. Take the currency fluctuations out and know that you have a quality business that is beating their peers globally, taking market share in the mature markets and growing fast in the developing world, which now represents more than 35 percent of the business. We maintain our accumulate stance.

Byron beats the streets

Johnson & Johnson was established in 1886 when the Johnson brothers created a line of ready to use surgical dressings. It listed in 1944 and within that period until now, managed a run of 52 consecutive years of dividend increases. Today it operates over 275 companies around the world, 144 manufacturing plants occupying 21.7 million square feet of floor space and has a market cap of $277bn. The company is broken up into 3 business segments, namely Consumer, Pharma and Medical Devices and Diagnostics.

Last week we received first quarter results for 2015 from JNJ which slightly beat expectations. Remember that this multinational business has serious currency headwinds because it reports in dollars but sells products all over the world. Sales came in at $17.37bn which is down 4.1% from last year but if you exclude those currency movements it represents organic growth of 5.7%. In dollars, US sales increased 5.9% whilst international sales decreased 12.4%. Earnings per share came in at $1.56 which was 2c above consensus. EPS growth ex currency movements came in at 3.7%.

To get a good feel of their sales mix I have hacked a table from the presentation which shows you sales by divisions as well as splitting each division between U.S sales and international.

As you can see, the US is doing well while the international business is suffering from currency movements. Because of the growth in the US and the slow down internationally the split in sales is now almost exactly 50-50. As I have said before, currency swings happen, long term investment decisions should not be based on these swings. Sometimes they work for you, sometimes against. The US dollar is strengthening because the US economy is strong. If you gave companies a choice they would certainly take a strong US economy and strong dollar over a weak economy with a weak dollar.

Amongst the divisions, pharma is clearly the dominant sales and growth driver. That is a trend we have seen throughout the whole healthcare sector for a while now. If you had invested in a pure pharma business it would have outperformed JNJ. But these businesses go through cycles and we like the diversification. I read an analyst report which has a price target of $108 ( currently $100) for JNJ. They value the pharma business at $59 a share, the devices business at $36 and the consumer business at $12 a share. It's like investing in an index. The slower growing divisions have less influence over time.

Within the Pharma business there are lots of moving parts. Products coming off patent, others awaiting FDA approval. This is strategically and very well managed by management. Of the $17.374bn in sales for the quarter, they invested $1.9bn in research and development. You can be assured that they are on top of things. If you would like to take a closer look at their brands within the divisions go to the report here and scroll to the bottom, the last 6 pages give you all the details. JNJ Q1 2015

Fundamentally the stock trades in line with the market. Earnings for the year are expected to come in at $6.14. Trading at $99.58 it attracts a forward PE rating of 16.2 and a solid yield of 3%. It has about $5bn more in cash than debt and is sitting pretty financially. Earnings growth for 2015 is expected to come in at 5%.

Our thesis is that the healthcare sector globally will grow even faster than market expectations, JNJ is a solid entry into the sector. It won't blow the lights out, that is why we also like Cerner and Stryker, but you will get solid growth amongst all the divisions they operate in. And don't forget the room for innovation in the sector. It's the big players like this, with massive balance sheets who can change the face of healthcare. For example JNJ are partnering with Google to improve robot surgery. We continue to add JNJ as a core holding in our US portfolio's.

Things we are reading

What happens to sectors where government helps and intervenes? Prices generally go up - What economic lessons about health care can we learn from the market for cosmetic procedures?. The main reason is probably because people are not price sensitive to a service when they are not personally paying for it. The other reason is that more people can now have access to these services, so increased demand leading to increased prices.

Efficient transportation is important, the less time spent traveling the more time can be spent doing productive things or relaxing thus creating value for all involved - A new Japanese train has broken the world speed record twice this week. Interesting to see that they have already planned as far ahead as 2045. Given that there hasn't been a major change in how get from A to B for a number of decades, I wonder if by the time 2045 comes around, there will be a whole new way to replace rail?

Here is a thought experiment from the WSJ, I doubt that it will get to a point of a second currency but interesting to think about - Could Greece End Up With Two Currencies?. As a shop owner would you accept an IOU signed by the Greek government? I doubt many would and if it did catch on, I would see the IOU currency devaluing very quickly.

Home again, home again, jiggety-jog. Stocks have started lower here, following selling on Wall Street late in the session. We are down one third of a percent at the get go here. Gold stocks have turned to their "winning ways" again.

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

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