Wednesday 23 November 2016

Stay Rich

"Lastly, when asked What is the most important skill in finance?, he had this to say: "The most important quality to do well is temperament which would permit the control of fear and greed which have ruined many. Anyone who has become rich twice is dumb. Why would you risk what you need and have for what you don't need? If you are already rich, there is no upside to taking on a lot more risk, but there is disgrace on the downside." "




To market to market to buy a fat pig Dow 19000. New improved model, comes standard with the usual anxiety and a whole lot of hot aired commentators. Doesn't do bears, likes bulls. Unless the bears are ready to short and know something that the rest of the market does not. Dow 19000 for the first time last night sports lovers, it took over thirty years for the index to increase from 1900 to 19000. It took less than three weeks for the index to rise from below 18000 to the present level.

The moves north have been breathtaking, the whole idea that the Donald could re-ignite infrastructure spend have been grabbed with two hands by Mr. Market. What is also quite interesting (hat tip to the Daily Shot) is that USD emerging market bond funds are seeing significant outflows. Commodity prices meanwhile have been going bananas, materials stocks last evening in New York closed nearly 2 percent higher, energy stocks also getting a small lift from higher prices (and then lower prices) as OPEC tries to reach some sort of cut and freeze on production with Russia. Will it happen, won't it happen? Gosh ..... I don't know and nor do I have any useful insight. All we know is that with budgets under pressure, the volumes have kept their expanding pace, the world is awash with oil.

The only sector not feeling any love was healthcare, Medtronic tumbled nearly 9 percent as their last quarter sales disappointed the investor community (potential investors in a company would like a lower share price, not so?), the outlook was patchy too. As a result of the market uncertainty around the Trump administration and the direction that healthcare is likely to take (less or more intervention). Caution was the watchword and that segment of the market sold off over one a half percent.

That didn't stop the markets as a collective, the closing new high water mark for the Dow Jones is 19023, the new and fresh all time closing high for the S&P 500 and the nerds of NASDAQ is 2202 and 5386 respectively. All these indices were up between 0.22 and 0.35 percent, a decent enough day for all the major indices. This is of course a slow week for volumes, folks will have one eye on the Turkey, how to baste it and stuff it. Oh, and for the record, the market expects rates to rise at the next Fed meeting in December. Like 100 percent chance. Rates have continued to move higher, a two year auction yielding the highest rate in years, above one percent comfortably. We wish around these parts.

On another note separately, I saw a couple of people on the Twittersphere make reference to an incredible piece titled Warren Buffett's Meeting with University of Maryland MBA/MS Students - November 18, 2016. Why this is great is this fellow Buffett, who is now 86, has an incredible way of explaining complex "things" and making them very understandable. Twenty students, twenty questions. This is the summarised thing, I particularly enjoyed the part when he said that he was now getting hard of hearing and a specific interaction with Charlie Munger.

Equally I enjoyed the first point: "You should take a job that you would take if you didn't need a job." Easier said than done when you have a mortgage and bills to pay, right? And then on being too clever for the market as a whole - "Successful investors need to have the right temperament. Those with high IQ's frequently panic." Related in a question further down the page was "Anyone with an IQ above 130 should sell off the excess above that level." Ha ha. In other words, do not try and overthink the investment with complicated and complex models, read everything you can and then make a real investment decision and stick to it.

The question around regulation that I enjoyed the most (perhaps you would be surprised by the answer) which was put to Buffett, and why this is relevant is that the next administration in the US is looking at repealing elements of this: What is your opinion of Dodd-Frank?. Buffett answered: "We are less well equipped to handle a financial crisis today than we were in 2008. Dodd-Frank has taken away the Federal Reserve's ability to act in a crisis." And then the part that struck it home in a big way: "Dodd-Frank took this option away from the Fed. Fear is contagious. It paralyses. Confidence comes back one at a time, not by a stampede. Both General Electric and Goldman Sachs were "in the domino line". We were lucky we had the right people."

Lastly, when asked What is the most important skill in finance?, he had this to say: "The most important quality to do well is temperament which would permit the control of fear and greed which have ruined many. Anyone who has become rich twice is dumb. Why would you risk what you need and have for what you don't need? If you are already rich, there is no upside to taking on a lot more risk, but there is disgrace on the downside."

Lovely. Thanks once again for the insight of one of the best investors out there. Many enjoyable snippets in there and probably moments in the life of those students that they are unlikely to forget.




Local was lekker for the most part, other than gold stocks, most indices ended the day on a much firmer footing. The ALSI tacked on a percent to close the day out above 51 thousand points. Ratings agency people are watching as the three majors (in terms of ratings agencies) are set to deliver their verdict before the year is out. Junk is just a term that people who don't have time to do their homework hold onto with both hands, you are always going to need guidance from outsiders on what is investment grade and what is not.

The worst part of it all is that there is nothing you can do about it, perhaps that is why there is heightened anxiety around these things. It is real, certain investors have a specific mandate on what they may invest in, and if your bonds are not "investment grade" then they cannot own them. That is the simple long and short of it all. No investment grade = sell. There is of course an argument to be made that if our finances get back on an even keel, with more accountability comes a larger bang for your buck and an improved outlook. A creditworthy rating is exactly that, investment grade and non investment grade. The fact that we find ourselves here in this position, this is not necessarily something that jumps out at you, it happens in slow motion.

Unemployment figures from South Africa suggested that whilst we had actually been creating jobs, there are many more in the workforce who need to get sucked in. I have no idea what to think about the minimum wage argument, all I know is that 246 Dollars at the current exchange rate is hardly a liveable wage. We need skills and plenty of them. We all need to do our bit to up-skill and get people back on track and involved in the economy. Most of all, people need to know that they can do anything and need to be helped in that regard. Confidence is pretty huge too.




Linkfest, lap it up

I would order a pizza just to see this technology in action. To think that drones were almost unheard of 2 years ago - The future is here: Drones are delivering Domino's pizzas to customers. Note also that New Zealand doesn't have restrictive drone laws, hence the technology being implemented there.

Americans becoming millionaires the old fashioned way, inheriting the wealth - 1,700 People in America Are Becoming Millionaires Every Day. As wealth is transferred to the next generation spending patterns are changing, good news for companies geared towards a younger consumer.

Here is a quick look at historic tax rates in the US. Imagine having to pay 94% tax when in the top tax bracket - Hoover, FDR and Clinton Tax Increases: A Brief Historical Lesson. The conclusions drawn by the blogger are still up for debate in the economic community, all actions always have unintended consequences.

Whether it is religion and personal beliefs, exercise from running to yoga, eating habits (or lack thereof), being a vegan, meditating or listening to music, this is an awesome WSJ piece on How Surgeons Stay Focused for Hours. The article focuses on the different methodologies of the organ transplant surgeons and how they manage the mammoth procedures. It could teach us all about focus in the moment and then the subsequent wind down.

As online sales start to dominate a large part of the US landscape, there are bound to be many casualties - These 14 major retailers are each closing at least 100 stores. It is an important reminder of staying relevant and looking for alternative avenues, before it is too late.




Home again, home again, jiggety-jog. There are results from Tiger Brands this morning, they have a new chairman too. Stocks are mixed to higher here, Tiger is marginally higher at the get go. More on that tomorrow!




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