Tuesday 8 March 2016

Perspective matters



Did you miss the blunders Friday? fear not, watch it here: Blunders - Episode 4. Don't forget to subscribe to the blunder alert, so that you can get these before anyone else.




"It took until the middle of 2015 (last year) to return to the levels seen on the technology index, 15 years earlier. You have however seen a three and one third increase (nearly) in the last twenty years in the tech index, obviously some of the big caps have had a tough time. Believe this or not, IBM has outperformed the NASDAQ over the last 20 years. IBM of course does not form part of the NASDAQ, it is listed in the S&P 500."




To market to market to buy a fat pig The recent rally was threatened around midday, fear not, the commodity stocks again roared ahead. Some of the recent moves are amazing. Longer dated graphs put the moves into perspective and unfortunately most of the moves have come off a lower base, particularly since the beginning of the year. I checked the Sasol ADR (the dollar price in New York) price yesterday, the stock is down over ten years, a decent enough time measurement. Anglo American in London is down 73 percent over ten years, BHP Billiton in London is down nearly 7 percent over the course of a decade. In Rand terms the returns have been protected by the weakening Rand, I guess in the end people always measure themselves in Dollars. So until that changes, it won't i.e. until we measure ourselves in Chinese Yuan, we won't.

Stocks locally in Jozi, Jozi ended the session up 0.91 percent, at the best levels overall for equity markets since the beginning of November last year. Which in the bigger picture is not too long ago. Over ten years in Rand terms, the Jozi all share index has delivered returns, through the financial crisis, of 180 percent without the benefit of dividends, equally without costs. MTN, which has been under an enormous amount of pressure lately, has still managed to deliver returns of 160 percent. The recent more than above the index dividend payments have possibly meant that the total return, relative to the index, is closer than you think. It always matters where you draw your line in the sand when determining whether or not that is a "good one or a bad one".

Bright and I are thinking about starting a short series of online content, perhaps Vine is the perfect platform. Or perhaps Instagram, that has a 15 second time allowance. It will be called "good one or igundane", which is rat in isiZulu. And obviously a rat is not really a "good one". Perhaps it is just a thought that we should park. Perhaps even Periscope will become the right platform for all of this, although I have been saying Periscope will be huge and thus far, I am pretty wrong on that score.

Over the seas and far away, stocks in New York, New York, strung together another session of gains, the nerds of NASDAQ did however fall flat on another day of gains elsewhere. It was a case of the little talk engine saying "I think I can, I think I can" from around an hour and a half out from the close, eventually the broader market squeaked into the green, up a smidgen to 2001 points. Good year that, other than for tech stocks, which had done some heavy selling through 2000. It took until the middle of 2015 (last year) to return to the levels seen on the technology index, 15 years earlier. You have however seen a three and one third increase (nearly) in the last twenty years in the tech index, obviously some of the big caps have had a tough time. Believe this or not, IBM has outperformed the NASDAQ over the last 20 years. IBM of course does not form part of the NASDAQ, it is listed in the S&P 500.




Company corner

Apple stock has comfortably underperformed the market for some time now, the divergence comes in the last 7 or so months. The Nasdaq has returned minus 4.46 percent over the last 12 months, whilst Apple has delivered a nearly negative twenty percent return. Again, this is without dividends, Apple is marginally ahead of the rest of the pack when it comes to the ability to pay increased dividends over the coming years. Byron wrote a piece to a client the other day who expressed concerns around the stock, here it is, worth sharing:

    "At the moment there is not much excitement, hence the lack of share performance. The market craves excitement.

    It is far from ex growth though. Apple phones are growing like mad in China and they still managed to grow profits over 5% this last year (some companies would dream of such growth in these conditions plus a stronger $)

    Check this article out which looks at the fundamentals. Apple Stock Is So Cheap, It's Ridiculous

    Look at it like this. You own a business that is in the best shape financially of its life. No company in the world makes more money than Apple. You get a solid dividend flow/share buy backs with their current business (which I reiterate is in great shape).

    If they do mange to create something great, we should see another period of out performance.

    It is a safe steady bet with big upside potential. Even now, slowly they are further diversifying with their software and content businesses. In last years results they stated that they had over 1 bn device log ins. That is huge subscriber base which they can tap."


The comparison in the article above, written well over a month ago compares old school businesses like Procter and Gamble, as well as Kimberly Clark with Apple. Perhaps this article is only for the purposes of determining valuations. I suspect that a better comparison would have been between IBM and Microsoft and Apple, perhaps software and hardware businesses of certain size, scale and of course longevity should be compared, rather than folks that make paper towel and nappies, and folks that make shampoo and shaving "stuff" (and nappies). Apple trades on better fundamentals than both IBM and Microsoft. Microsoft has a pretty good dividend underpin. Either way, Apple is cheap. We continue to accumulate the stock on weakness and remain overweight.




Linkfest, lap it up

March 2009 was the bottom for the stock market and arguably the opportunity of a lifetime - Seven Years Ago. How many people remember how bad things got? Here is what the US economic picture looked like when the market reached it's bottom.

    "That morning, the government reported that the economy had lost an astounding 651,000 jobs in February. The number for January was revised to a loss of 655,000, and December to minus 681,000. The unemployment rate rose to 8.1%, which was a 25-year high."


Now that gold stocks have doubled this year and other resource stocks have lead our market higher, people have started playing the "what if" game and saying that it was obvious that these stocks were going to rebound. We can forget the bigger picture and forget the height of fear that many market participants had coming into this year - Bottom Fishing & New Bull Markets

The price of oil dropping has meant that fuel costs for ships has also dropped. The result is that it is cheaper to now to go around the Cape of Good Hope and spend 11 extra days on the water than going through the Suez Canal - Cheap oil is taking shipping routes back to the 1800s.




Home again, home again, jiggety-jog. Stocks in Asia are mixed to lower, a Japanese GDP read fell much lower than most had anticipated. i.e. Not good. The steam is coming out of the commodities market a little, the oil price crested 40 Dollars a barrel yesterday, whilst the iron ore price was on fire too! Yowsers. Perhaps there is a good opportunity to sell those stocks at this juncture.


Sent to you by Sasha and Michael on behalf of team Vestact.

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