"Visa is neither a bank, nor the lender. They process the payments. In other words, if you believe that there are going to be more electronic payments over time, more people using cashless payments systems, then Visa is directly in the sweet spot. I have seen adverts that suggest that one in seven people globally do not read, adults that is. How can it be possible? If you believe that the future for humanity is one with more prosperity, more people will use payment systems more frequently."
To market, to market to buy a fat pig. Thursday was so long ago. Too many holidays. I can say that I took advantage of this one, I went down to the 'Berg to see the mountains, big ones by South African standards I guess. Mafadi is the highest peak in the Drakensberg at 3450 metres above sea level, 32 metres lower than the highest point in Lesotho, Thabana Ntlenyana. One other mountain is in-between the two, Makheka, also in the Maluti mountains of Lesotho. Where exactly is Mafadi? Well, the name itself is under dispute according to the Wikipedia entry, Ntheledi is the original Sotho name. You can attempt a climb of the highest peak in the country from the Injisuthi park, in the middle of the Drakensberg, 60 odd kilometres from Estcourt/uMtshezi, the birthplace of Mark Bristow and Henry Honiball. Any takers? For the climb I mean, not for mine visits to Mali (Mark Bristow's choice) or a crunching tackle from Honiball?
For the markets Thursday evening in New York it was a case of all fall down, there were earnings from the oil majors that disappointed, weekly jobless claims fell to a 15 year low. Those two I guess are not really related, in response to lower energy prices the rig counts (a now closely watched number) which has been falling steadily, 21 straight weeks I read, these giant companies in the US (oil ones) have been cutting jobs steadily. Elsewhere however, the labour market seems to indicate, employment is "happening". Employment for boxing matches (of the century), and all sorts of other entertainment. As we pointed out around four months ago, spend at restaurants and bars in the US has overtaken grocery stores. True story, people spend more money out in the US than at grocery stores. Both those numbers register 50 billion Dollars plus a year, see this piece: Retail sales at grocery stores vs. restaurants.
With regards to where we left off here Thursday, I suspect that we will see a catch up this morning, on Friday the US markets closed strongly. In Asia it is a mixed bag, there was a poor Chinese PMI read this morning which Mr. Market translated that the Chinese authorities are going to continue to do more. And then the other story that was and still hogs headlines, the Greek negotiations. The Greeks are pressing hard for more debt write-offs. The Greek people want to stay in the Euro zone, they don't want austerity. The rest of Europe wants them to do the hard yards. Why should the Greek people not leave? Simple, the headline says it all: Grexit could cause a recession 'of unprecedented magnitude' and a 50% currency devaluation. Even if the Greeks struggle and fight for every concession, it is possibly worth it. The problem is, time is running out.
Forget all that, the most important event over the weekend was not the boxing, which impacted the Avengers movies sales in the US (yes, it did), rather the 2015 Berkshire Hathaway Annual Shareholders Meeting, Saturday, May 2nd. That is also brilliant, this one was the 50th version with a chap named Warren involved. The annual newspaper toss, who won that? Check it out: Warren Buffett and the Annual Newspaper Toss Challenge. Bill Gates, Warren Buffett and Kathy Ireland all tossed the paper at the same time. Why does this happen? Firstly, Berkshire bought a whole set of newspapers (why?) a short while ago. Secondly Buffett reckons as a child that he delivered 500 thousand newspapers on his rounds. I am always amazed at how people come with grand ideas to be billionaires and then forget that the starting point is consistency and hard work. Buffett delivered newspapers in order to start an empire, he did not major in mathematics and then start a hedge fund charging ridiculous fees.
For other pithy quotes from both Charlie Munger and Warren Buffett, the BusinessInsider have put them all together: The most important things Warren Buffett and Charlie Munger said at Berkshire's annual meeting. There are some absolute crackers in there, including the internet and how cheap it is, for what you get. And then perhaps the best of them all, from Charlie Munger: "If people weren't wrong so often, we wouldn't be so rich." I guess what he is saying is that there are plenty of investment strategies out there.
The BusinessInsider had someone attend and take tens of pictures in their quest to try and explain how it all works: This is what it's like to be a shareholder at Berkshire Hathaway's annual meeting. Follow the pictures, you get to see the newspaper toss, more importantly you get to see woman wearing a shirt that suggests that she has been a Berkshire shareholder since 1967. We discussed in the office that it is likely that she bought 100 shares, somewhere around there. Even if she sold half off along the way, she still has in excess of ten million Dollars of value left in the company.
It is quite difficult to think of other AGM's of that size, it is quite difficult to conceptualise that this is an AGM, the board gets elected here. This looks more like a trade fair, like a Star Trek convention. I suppose that he is the main attraction. Their views on the world and the allure of how to get rich like him. Start small and humble, be smarter, be patient, learn when to say that you were wrong (we all make mistakes) and keep it simple. In other words, you cannot own everything. Invest in what you know. Buffet continues to make sense and Dollars in his fairly simple strategy. I often wonder about dividends and Berkshire and how much better at allocating capital insiders are. And whether or not that would work for most other companies. The other thing that I notice is that when comparisons are made between Berkshire and the S&P 500, the blue chip index is never given the benefit of dividends and those reinvested. Have you ever seen any mention of that?
Company corner
Visa. What a business! Along with MasterCard, the company is trying to send cash into the afterworld, one swipe at a time. The reason why Visa remains extremely attractive as an investment is clear, whilst politicians may think that the company charges too much for their services, the fact is that they have engineered global payment networks that work like clockwork and is easily accepted at most global pay points. There is no need to get travellers cheques, there is no need to get cash and get ripped off on the exchange rate. You can draw money out of any ATM anywhere in the world, in the local currency if you need cash when you have arrived at your destination.
So here are the numbers: Visa Inc. Reports Fiscal Second Quarter 2015 Net Income of $1.6 billion or $0.63 per Diluted Share. The important metrics inside there, volumes, i.e. payment numbers. That was up 11 percent year over year. The stock actually suffered as a result of folks worried about guidance for the current quarter. I think that is a massive opportunity to buy what is an amazing company, at a cheaper price.
Why is what the young child asks, why? Why own Visa? Visa is neither a bank, nor the lender. They process the payments. In other words, if you believe that there are going to be more electronic payments over time, more people using cashless payments systems, then Visa is directly in the sweet spot. I have seen adverts that suggest that one in seven people globally do not read, adults that is. How can it be possible? If you believe that the future for humanity is one with more prosperity, more people will use payment systems more frequently.
And it will become second nature, as it is to you and I now. We just pull the card out, not thinking twice that 20-25 years ago, a credit card required a flatbed looking machine that required a certain amount of power to get the print spot on. It felt like you were part of a loom type process, in an industrial fabric manufacturing facility. Checks are dead here in South Africa, yet they exist everywhere in the US, people still use that payment type. I have not used a check (cheque) in years. I have a book stashed in a box that I should probably mark "history". Check what the company is up to: Visa Expands Global Technology Research; Hires Senior Scientist to Lead Visa Research Labs. The evolutionary phase of the business in underway, check:
"Digital commerce is rapidly evolving due to the introduction of new technologies. As the world becomes more connected, every device, car, or appliance becomes a place where secure digital commerce can take place," said Rajat Taneja, Executive Vice President, Technology, Visa Inc. "I am excited to expand our technology research efforts and have Min lead Visa Research Labs. This effort has the potential to shape the way we pay and get paid in the future, and transform the lives of millions of unbanked consumers by finally providing them with access to secure digital commerce."
And that is exactly it. It is evolving and keeping pace. Buffett reckons that in 50 years time the Dollar will still be the reserve currency of the world, he is possibly right, you know. And the payment systems pioneered by the networks will be the ones that the likes of Apple Pay uses. Apple does not want to reinvent the wheel, they want to use the existing infrastructure. And if that means not having a wallet, then I am all for just having a phone with fingerprint technology. Obviously there are going to be regulatory issues from time to time, and this is linked heavily to the consumer cycle, we continue to think that governments WANT more electronic payments and consumers in the developed world look better than before. At around 24 times forward earnings, you might think that looks stretched, it is the cheapest that the company has looked in nearly three years. Buy.
Things that we are reading
Do not worry about the stock market run in China. We are still around 25 percent below the highs of 2007. Yes. Whilst each and every other market is making new highs, the Chinese are not. China's Long Bull Run. The most important paragraph in there for me: Valuations also don't yet inspire vertigo. Shanghai stocks fetch 22 times trailing earnings, versus 49 times in 2007. And Hong Kong's Hang Seng Index fetches 12 times earnings, versus 20 times in 2007.
The Tesla announcement last week, which you can watch the launch of the battery, Tesla energy is what Elon Musk calls it. THE MISSING PIECE. Peak trough usage differs by as much as a factor of 2, meaning that the sun is there, Musk calls it a "handy fusion reactor".
Here is something equally cool: A solar future isn't just likely - it's inevitable.
You keep your sandwiches in them. Yet they are more than just a humble bag, here goes: The Surprisingly Complex Design of the Ziploc Bag.
Oh no, that is terrible news. Sheryl Sandberg, the Facebook exec, has tragically lost her husband: Dave Goldberg, Head of Web Survey Company and Half of a Silicon Valley Power Couple, Dies at 47. Life is fragile, enjoy all of it.
Home again, home again, jiggety-jog. Greece, should we care? Yes, in a Manny and Floyd sort of way. There is nothing that you can do to change the outcome of the talks between Greece and their creditors. Brussels expect to have this wrapped up by May the 11th, hopefully. I am wondering what the locals in Greece are wondering, this is possibly not going how they had envisaged. The market started like a house on fire, it fell away a little during the course of the morning. Sigh.
Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.
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