"Just for background knowledge, the overall South African business last year at June generated 7.4 billion Rand worth of revenue, an increase of only one percent on the prior year. The margins decreased. It is a good thing that they are selling businesses and paying down debt where needs be. Good work. We continue to recommend Aspen as a buy, this hardly moves the needle and of course strengthens their cash position."
To market, to market to buy a fat pig. Same old. Except different. AOL is being acquired. Again, as Bill Murray's character would say in Groundhog Day, one of my all time favourites. You can apparently say America Online, which sounded way cooler in 1999 or Aol, which was hipster back then. Netscape was the true defining moment in Aol's history, they bought it back in 1999 for 4.2 billion Dollars of stock. I remember using that browser, Netscape, in many ways it was superior to Internet Explorer. Since then it has been Firefox, Safari, Chrome, Opera. For me at least.
Three and a half years after buying Netscape, Aol disbanded the workforce associated with the browser. In-between the rise and fall of Netscape however, something far bigger happened. Something enormous. Aol and Time Warner merged, Aol effectively in a scrip deal (Aol owned 55 percent of the entity) worth 164 billion Dollars. Some call it the worst deal in corporate history. Why? The combined entity reported an accounting loss of 99 billion Dollars, a massive goodwill write off mere two years later. Oops, we got it wrong.
Time Warner spun Aol off at the end of 2009, the stock price was 23 Dollars, 78 million shares in issue, you do the math. Aol and Time Warner having merged was everything that was wrong with the go-go days of the late 90's and early 2000's. Yesterday Verizon decided that Aol was worth 4.4 billion Dollars, they would pay a massive premium on the prior day closing price. Of course the business would be so much smaller than before, Aol had lost an enormous amount of customers over time, they were supposed to be world beaters. After the Aol Time Warner deal, the number of subscribers at Aol went from 27 odd million in the middle of 2002 to around 5 million in the middle of 2009. Wow. A fall from grace.
Next question, why is somebody (Verizon) buying Aol? Apparently Verizon are going to utilise the small screens that we carry with ourselves all day long to push content. Paid for, adverts and free content on your smartphone screen, you would be paying a data charge too I guess to the network. And of course Aol owns the Huffington Post and TechCrunch, I know you like that content! Shorter inserts on your mobile phone, something to watch whilst you are in downtime mode, waiting somewhere. Entertainment, streaming content and video, that is why they are buying Aol. We are seemingly all in agreement, we are going to watch more videos on our computers, tablets and smartphones, via platforms that we know well already, YouTube and Facebook, as well as those that we are still discovering, like Periscope in my case. That could be a massive disruptor, it is tailor-made for individuals.
There are two things that I think are worth explaining over and over. Trading is not investing and investing is not trading. When trading, the only aim is that the P&L column heads in the right direction. How you get there, what strategy you apply is either tried and tested or unique. It is hard. There are very few people that can consistently do this and have a knack for it. Yet I see people with a few bob attend Forex training classes and away they go, trying to be George Soros after three or four hour long classes.
It is exactly the same as trying to be Tiger Woods Rory McIlroy after four golf lessons. Really. You can do your ten thousand "Malcolm Gladwell" hours and master something, in the world of finance there are some of the smartest brains on the planet all with a single goal. That is not to say that you should not try if you think that you have some sort of knack for it. Some people do, some people do not have an aptitude for trading, they posses a skill of feel and know, in the same way that any other professional, be that politician, upper management or sportsperson has.
It is however far easier to be a longer term investor in businesses that you think are going to be around for a long time, in their current and future formats. Easier said than done. Not having to worry about the share price of X or Y, and knowing that it is going against you for reasons beyond your control, comes with a level of comfort. When you buy the shares of a specific company you should treat it as such. Ownership is the most powerful thing. That company that you now own has management that is accountable to you, obviously in your share. Your vote may feel small, that does not mean it is unimportant. When you get comfortable and save for the future it is harder than the gratifying short term returns that you may derive from trading. After all, we all need to be told that we are doing a good job, nothing like a green or red number to tell us exactly that! That is the one thing explained.
Next, the secret sauce. Nobody possesses the secret sauce. Least the finance industry, it is not a bottle of ketchup shared around the industry to squirt on returns at the expense of labour or the little investor. No. For each and every seller there must be a buyer, otherwise the trade would not match and "happen". At that exact point right there, there are two conflicting ideas. One party decides the stock is worth buying, the other worth selling. Sometimes for completely different reasons.
Trying to predict the future further than half a decade out is hard, yet businesses need to plan and adapt according to their market, their product, their service. Needing to keep it relevant, more people using it, higher margins, rewarding their shareholders. If you can pick those specific trends in humanity and spend, that is not exactly an art, it does however require paying attention and attention to detail. We continue to think that technology, consumer spend and healthcare present many opportunities in the coming years. The parting shot on the secret sauce is that if you ever feel like you may be missing out, read the annual report of any business, study their website. There is more information there that you could ever process properly. Check this FP piece on how hard it is to predict the future, based on past events: What Will 2050 Look Like?
That is where the real secret sauce is, and it ain't even secret, it only requires a certain amount of time and effort. And in this age of 140 characters and 7 second Vie clips, it turns out in the words of Kimberly "Sweet Brown" Wilkins "Ain't nobody got time for that". If you forgot, then here is your refresher -> Sweet Brown - Original Report. Sweet got great airtime and became an estate agent, fame and hopefully some fortune. She even had a movie part. There is no secret sauce.
Company corner
What happened with Aspen and Litha? You may have seen in the news that there was a deal of some sort, for 1.6 billion Rand. This was Aspen selling their injectables and established brands business unit to Endo, who own Litha. It looks like a decent price, this business that Apsen are selling for that 1.6 billion Rand price had revenues of 362 million Rand and pre-tax profits of 136 million Rand, as of June 30, 2014. At the same stage, group revenue was 29.5 billion Rand. As you can see, this was a little over one percent of group revenue, and an even smaller part of profits.
Byron sent an article through yesterday, Endo Pharmaceuticals Shells Out $130 Million for Nearly 70 Pipeline Programs From Aspen Pharmacare Holdings. I guess this is a chance now for Aspen to continue to focus on their newer therapies. The ones that Aspen are getting out of are pain and cardiovascular therapies, I am thinking the Mybulen and Pharmapress, perhaps Stilpane too.
Just for background knowledge, the overall South African business last year at June generated 7.4 billion Rand worth of revenue, an increase of only one percent on the prior year. The margins decreased. It is a good thing that they are selling businesses and paying down debt where needs be. Good work. We continue to recommend Aspen as a buy, this hardly moves the needle and of course strengthens their cash position.
Things that we are reading
It's great to see guys using the money they don't "need" to give it to areas of society that can benefit from it - Bill Gross: The Amount of Money I'll Give Away 'Is Staggering, Even to Me'. Arguably a more efficient distribution of capital than governments through taxes?
Here is another reason why it may be hard for active 'Investors' to beat the market - The Shrinkage Effect in the Stock Market. The bigger take away for me was how the number of IPO's and public companies has been dropping. Over the longer run as the premium grows for being a public company (high P/E ratios), it will entice more private companies to go public.
Have a look at a small 3D printed jet engine from GE - Aviation Engineers 3D Printed a Model Jet Engine, Then Took it to 33,000 RPM. The long term goal for GE is to have the majority of their engines 3D printed, which will allow them to be made out of ceramics (which you use water to lubricate and instead of oil).
People are mostly happy to work part time (36 hours a week) and their country is still considered rich, this might be a work model for the future as technology makes us more productive - Why so many Dutch people work part time.
We do not often get a chance to see these ships. They move stuff around cheaply. The Maersk Triple-E can carry 1.44 million washing machines or 18 thousand containers, or 35,870 elephants. The vessel has the same horsepower as 88 formula 1 motor cars. Astonishing.
Home again, home again, jiggety-jog. Mediclinic has released a trading update that has seen the stock take a knock, we will deal with that in detail tomorrow. It smells like a buying opportunity to me, same business, better prospects, cheaper price! European data flooding in, the German GDP number was a miss, everything else looks better or a meet. Chinese data sloppy again, that is a recurring theme I am afraid, fixed asset investment increasing "only" 12 percent, expectation was for 13.5 percent. European GDP number imminent. So far, our market is trading half a percent higher.
Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.
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