Money with a dash of Funny: March 2017

Friday 31 March 2017

Every day I am shufflin'

"Confidence in purchasing new capital equipment, hiring new people, expanding your business. A lot of people, instead of looking for local opportunities, have been investing offshore or sitting on cash, both of which do not boost the local economy."

To market to market to buy a fat pig In the middle of the night .... I go walking in my sleep. Remember the Billy Joel lyrics from the song "The River of Dreams"? When politics dominates my Twitter stream, then I guess you know what is on the go! I cannot comment on politics. Every single time you try and put forward a view, you paint yourself in a certain colour. Many different people have different views. We at Vestact project capitalism and market friendly policies. Capitalism is not perfect, it is far better than Napoleon and Snowball the pigs. You know, from Animal Farm, that book written by George Orwell around the end of WW2 in response to him being extremely uncomfortable with the relationship that Britain had with the USSR.

What I can tell you is that businesses and individuals make real life decisions based on what and where they invest. Confidence in purchasing new capital equipment, hiring new people, expanding your business. A lot of people, instead of looking for local opportunities, have been investing offshore or sitting on cash, both of which do not boost the local economy. That lack of demand has kept a cap on inflation, even as the Rand was weak and imported inflation would have been higher. These events have real life repercussions, business confidence this morning is possibly rattled. Inside of that, there are always opportunities of course. For the record, from Business Day - Fired, moved and retained - Who's who in Zuma's cabinet.

OK, so what is likely to transpire for the markets here this morning? I am guessing that it is a case of push and pull. Pulling from the SA inc stocks, the "pure" businesses that have Rand earnings. The companies that have primary listings offshore, or that derive most of their revenues from offshore, those will benefit. Although it is important to contextualise this "plunge" in the Rand. The Rand to the US Dollar is trading at the same level as (drumroll) ..... late January. Two months ago. I guess not all global markets have "woken up" yet. So ..... financials, banks, SA inc. stocks, retail and industrial local businesses will no doubt experience a bout of selling.

Rating downgrades and all of that? Selling of local bonds, higher interest bills and inflation starting to get out of the comfort zone? All those things, do not jump to conclusions at all. Wait. Don't shoot first and then ask questions later. No. Think. Gwede Mantashe has basically said on the wireless this morning that this list was made elsewhere, and that the party was not consulted. That is pretty big ..... don't you think? In Paul's letter at the beginning of the year, this was one of his points: "This year could bring more changes in SA politics. Things are more fluid now than before. This is good." Well .... you can view this in many different ways. For the time being, think with a clear head. Those who rush for the exits do themselves few favours.

What about the market yesterday? There was an interest rate decision. It seems so insignificant now, doesn't it? You can read it: Statement of the Monetary Policy Committee. Inflation outlook has improved. Domestic growth is muted. A line in there: "However, the rand is likely to react further to unfolding developments until a greater degree of certainty and confidence is restored." And: "Overall, the MPC assesses the risk to the inflation outlook to be moderately on the upside, mainly due to the high degree of exchange rate uncertainty." So ..... they are standing by.

Session end, the All Share index fell just over one-third of a percent, financials added over half a percent. Industrials dropped over a percent. Anglo American was at the top of the winners board, up over two percent, AngloGold Ashanti was at the bottom of the boards, down nearly four percent. Ouch. Brexit uncertainty, hard walls and the like (hard Brexit, which is worse than hard boiled eggs) meant that Mediclinic and Bidcorp (businesses in the UK) were impacted. Today .... it is going to be all over the show.

Over the oceans and deep blue seas, stocks in New York, New York ended the session modestly better than where they started. The Dow added one-third of a percent by the close, the broader market S&P 500 and the nerds of NASDAQ trailed the Dow by just a smidgen. Industrials and financials leading the charge, up ahead of the rest of the market. Healthcare stocks were marginally lower whilst utilities were the hardest hit. Trump and Xi, they are meeting next week, how is that going to go? The FT has a pretty *nice* article (subscription only, sorry), check how the pictures look the same - Donald Trump warns of 'very difficult' Xi Jinping summit.

Questions are starting to be asked about the "Trump trade". Well, I suspect that having had a setback of sorts, and perhaps not being able to do what he said he would (why is anyone shocked by that), there is a strong chance that not all the regulations and rewinds can take place. I suspect that even if not everything can happen as stated, confidence and the like is rising. Stay the course, do not be invested for politics and the like. There were results from Lululemon at the end of the session prior, the stock was trashed. I shall have a look at the results soon, and we will get back to you. Our initial thoughts are that the share price has really come back to what looks like better value.

Linkfest, lap it up

This is very interesting. How Morale Changes as a Startup Grows. "Founders can cherish the culture that they have in the honeymoon period, but must also understand that the culture will have to adapt as the firm grows - and so will the "early-adopter" employees as the next set of employees are added. "

Google is still the winner in search. Via Statista, here is a chart of global search market share.

Another cracking graph of Amazon and the expectations of the market in the coming years. The market cap is now beyond 400 billion Dollars. Question is ..... is Amazon a retailer?

Home again, home again, jiggety-jog. Worse than a cabinet reshuffle is that Eddy Elfenbein is "on the road" and that there is no Friday message. What? I cannot believe that. A divergent market to begin with, the likes of Woolies and Discovery down 4 odd percent, Naspers and Richemont and the like up over two percent. Wait for the end of the weekend to see what transpires next, some people think that this is strength, others think that it is weakness. Stocks are up initially around three-quarters of a percent.

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

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Thursday 30 March 2017

The Bad Old Days

"Did you know that Jan Smuts had been Finance Minister of South Africa around the First World War? Smuts was a lawyer by training. It is important to know recent history, and to contextualise current events against those. Whilst it feels bad now, it is certainly better in many respects since then. We have free speech, we can watch and consume anything we want, we can talk and gather without fear, we can all vote and have a say. The courts act without favour. These are important things."

To market to market to buy a fat pig Politics continues to dominate local and global markets, with a "will he stay?" or "will he go?", with "he" being the minister of finance. The truth is that we don't know anything more than what we read, and perhaps the gathering of the sources process is fraught with cloaks and daggers. Politics, what fun! In terms of how one goes about the investing process, it is a long term consideration, unless you see a Russia 1917 or China 1949 type situation, i.e. the total destruction of capital markets. Heck, Venezuela still has a "functioning" Stock Exchange.

Paul said yesterday (or the day before), that he is old enough to remember the appointment of Barend du Plessis as finance minister in the mid eighties .... and as Forrest Gump says, and that is all that I have to say about that. du Plessis was a math teacher and former SABC administrative officer, before a brief corporate career, returning to politics (having been involved in student politics). Sound familiar? And du Plessis was Finance Minister for 8 whole years. Did you know that Jan Smuts had been Finance Minister of South Africa around the First World War? Smuts was a lawyer by training. It is important to know recent history, and to contextualise current events against those. Whilst it feels bad now, it is certainly better in many respects since then. We have free speech, we can watch and consume anything we want, we can talk and gather without fear, we can all vote and have a say. The courts act without favour. These are important things.

Session end, a slightly weaker Rand boiled the exchange, and in particular the resource complex, which added over a percent collectively. The Jozi all share index added just around one-quarter of a percent on the day. Losers were financials and banks again, FirstRand down three and three-quarters of a percent, RMB holdings sank over three percent, Standard Bank was down nearly three. At the opposite end of the market, in the winners column were the likes of South32 and BHP Billiton. Naspers also rallied strongly, a lot of Rand hedges caught a bid.

The other "big news" was that the UK have delivered papers to the EU, Brexit has officially begun. You can download the document from this page - Statement by the European Council (Art. 50) on the UK notification. A 44 year relationship is expected to come to an end inside of the next two years. The document is all of six pages. May still wants a relationship with Europe, I suppose you cannot move geography. Check out what the European Council president tweeted:

He (Tusk), then gave a press statement - Remarks by President Donald Tusk following the UK notification. He said: " ... paradoxically there is also something positive in Brexit. Brexit has made us, the community of 27, more determined and more united than before. I am fully confident of this, especially after the Rome declaration, and today I can say that we will remain determined and united also in the future, also during the difficult negotiations ahead."

And then a telling part, which leaves the door open. I guess, that is the way that I read it:

"There is nothing to win in this process, and I am talking about both sides. In essence, this is about damage control. Our goal is clear: to minimise the costs for the EU citizens, businesses and Member States. We will do everything in our power - and we have all the tools - to achieve this goal. And what we should stress today is that, as for now, nothing has changed: until the United Kingdom leaves the European Union, EU law will continue to apply to - and within - the UK."

And to end it all off, the last line: "What can I add to this? We already miss you." Exactly. Bremain my bro, bremain.

Across the oceans and wide seas, stocks in New York, New York were mixed. The Dow closed down one-fifth of a percent, the broader market S&P 500 added just over one-tenth of a percent by the close. The nerds of NASDAQ was where the action was for the bulls, up nearly four-tenths by the close (which is two-fifths, right?). Amazon rallied over two percent on the day, to an all time high, the Souq acquisition (although small), is a great stepping stone to a more meaningful offering in the Middle East.

The population of that region is roughly 220 million, which is concentrated to the core. It is bigger if you include Turkey and Egypt. Far bigger, over 400 million people. It is a good step for Amazon to test their technologies in an area that is definitely very different from some of their other older more established areas. Unless of course you talk about streaming, you do not need a territory for that. The upshot of the higher Amazon share price meant that Bezos is now on paper the second richest man, according to the The Bloomberg Billionaires Index:

Elon Musk is in 96th place. He does rockets, energy and motor vehicles. Charlene de Carvalho-Heineken is the biggest shareholder of Heineken. Rob, Jim and Alice Walton are in places 16-18. They made their money the good old fashioned way. You know .... inheritance. Hey, it depends what you do with it, that is what is important. The top 13 people are all self made. The Waltons have been slipping in recent years, perhaps as a result of the rise of ..... Amazon.

Linkfest, lap it up

New York has started fining AirBnB hosts for renting out their apartments - An Airbnb host was fined $1,000 for renting out an apartment in Trump Tower. I had a look this morning and there are still places to rent on AirBnB in New York, I guess hosts are going with the logic that it is still very hard to find them and fine them?

Instead of fighting change, you can embrace it and become a leader in the industry - Big Oil Replaces Rigs With Wind Turbines. Oil will be with us for many many decades but producing clean energy is a sector that will continue to grow for the same time period. It makes sense to use your expertise in building offshore oil rigs to now build wind farms.

We love patterns. This is why this one, from the VisualCapitalist is so awesome - The Population of Every Country is Represented on this Bubble Chart.

Home again, home again, jiggety-jog. Stocks across Asia are mostly lower, Shanghai is off around a percent. US Futures are marginally higher.

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

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Wednesday 29 March 2017

Tencent and Tesla Dream Team

"Tencent are now officially a five percent shareholder of Tesla, which is cool from our perspective down here in South Africa. Why? As a Naspers shareholder, who owns around 34 percent of Tencent, you now indirectly own a stake in Tesla."

To market to market to buy a fat pig A much weaker local currency over a period of two days equalled a much stronger market, the Rand hedge stocks caught a bid, resources added nearly two and a half percent. The Rand is back at levels ...... seen two weeks ago. It is hardly a "plunge" or a "crash". Equally, the president can make up his mind on any matter at any stage. If it suits investors or not, then so be it.

There is no use wringing your hands and feeling anxious, all good investors should find themselves diversified at all times, to reduce political risks and the like. Remembering that currencies, economic policies, governments, you have no control over those factors. Be it that you find yourself in Turkey, the UK, China, Japan, the USA or South Africa. Politics and economic policies have a bearing on wealth creation. And if the government of the time are not friendly to capital creation, there are many choices that investors have.

What a sunrise this morning in Jozi, or should I say, pre-sunrise. It was one of the most beautiful that I have ever seen in my time here (18th year now), where sunlight rays meets blue (very blue) skies. It is another reminder that the sun rises in the morning, and a new day and new opportunities are always formed for all to grasp. Thank your lucky stars that you live in a democracy, where capital markets are deep and liquid, where choices can be easily made on what you can and cannot do. Sometimes I think people are very insular in their thinking (Brexit, Le Pen, Grillo and the like), thinking that the investment world ends at their borders. This is 2017. That is not the case. You have access to the world.

OK, back to the local scoreboard here quickly. Stocks as a collective ended 1.13 percent better on the session, the biggest winners were Kumba Iron Ore, Sasol, Amplats, Naspers and BHP Billiton, no guesses why! In the "down" column were the likes of Woolies, Barclays Africa, Remgro, AngloGold Ashanti and FirstRand, as well as Tiger Brands and FirstRand. What could be termed as SA inc. stocks. Some of the gold stocks gave back the session prior gains. Capitec reported numbers that continue to impress all and sundry, the stock still attracts a market rating that is more than double that of their peer grouping, FirstRand and the like. The truth is, they are a newer age bank without the legacy systems. Although the stock didn't close in amongst those making new 12 months highs, it has been a regular in there for a while.

Over the oceans in New York, New York, stocks came back from a lower open to end in the green. There was talk of another Dow Jones red day, that would equal a streak not seen since 1978, which would be quite something. It truth, whilst there has been a sell off, the Dow at the close last night is 460 points off the highs seen March 1, around 2.3 percent. That hardly sounds like a vicious sell off, now does it? Up 150 points, which is around three-quarters of a percent, by the close. The broader market S&P 500 added roughly the same amount, the nerds of NASDAQ closed the session up six-tenths of a percent.

It was a case of a consumer confidence release reaching levels not seen since pre-iPod. A fed official toned down the rate hiking trajectory. An amped consumer bodes well for a country that has an economy that is well geared towards consumption, whether a whole host of laws are implemented or repealed may be of little consequence. It may well be that rising consumer confidence equals rising US onshore revenues, which may translate to higher profitability during the period in which costs were contained. Which may well equal margin expansion and multiple (share price) expansion. We remain fully invested.

Company corner

A 13-G announcement from Tesla seemed innocuous at first glance - SCHEDULE 13G. However, if you dug a little deeper, you suddenly discovered that the investor was none other than Tencent, the Chinese business that we know very well, through our investments in Naspers. So how much is this exactly? We worked it out, they paid for the full stake (8,167,544 shares divided by 1,777,842,836 Dollars) 217.67 Dollars a share. At the closing value last evening, the stake is worth 2.266 billion Dollars. Tencent are now officially a five percent shareholder of Tesla, which is cool from our perspective down here in South Africa. Why? As a Naspers shareholder, who owns around 34 percent of Tencent, you now indirectly own a stake in Tesla.

So how much? Well ..... Tencent has an ADR listed on the US exchanges. It has a primary listing in Hong Kong, there are 9.477 billion shares outstanding, at 227.6 Hong Kong Dollars a share, the market cap is 2.156 trillion HKD. Which in turn, translates to 277.55 billion US Dollars. The Tesla stake, at the close last evening, relative to the Tencent share price currently, is 0.81 percent of their entire value. So whilst this is a "big thing", and probably indicates for both businesses a commitment of intent, it is from a monetary standpoint, not huge for Tencent. What the tie up may mean is that Tencent (who have a massive presence in the most populous country in the world) could become just the partner that Tesla needs to expand further in China. We hold all three businesses, directly and indirectly, and there is no plan to sell any of them.

Another announcement that has to do with the shares that we own is that Souq finally sold to Amazon, even though the founder could have extracted more for his efforts. See the announcement on the Souq website - Joining the Amazon family. Ronaldo Mouchawar is an interesting guy, for one he is born in Aleppo, a city that has heartbreaking before and after pictures. He is tall, a former basketball player in his earlier days. He could have accepted a higher offer from another suitor, feeling however that the Amazon offer would do good by the customers.

Is that what they call pure capitalism, or naivety? I am not sure, as shareholders of Amazon, we are glad they have a presence (and a good one) in the Middle East, as shareholders of Naspers (who have a stake in Souq) we are not that pleased that they hadn't managed to squeeze out more. I suppose for Mouchawar, getting a great partner in the form of Amazon may actually reach his goal of improving the lives of all the people in the region, access and speed and quality.

The suggestion is that Amazon paid 650 million Dollars, the other suitor may have paid as much as 800 million Dollars (See this Barron's piece - Amazon Clinches Souk.com (sic?), Snubbing Dubai Bidder). I suppose that all will be revealed in time, Naspers will let the market know what they managed to get out of the ownership of Souq. It is one of the cases when all you "wanted" was a fair price, for the company you own that is the seller and for the company that you own that is the buyer.

Linkfest, lap it up

This is more than a little cool and futuristic, it may actually be the start of something new for air travel - Why Airport Runways Should Actually Be Circular. What the .... ? Imagine taking off at an angle (I know some basic physics), pilots out there, how would this work?

We have spoken about eSports many times, it is an entertainment category that many people don't understand - Competitive video gaming will be a $1.5 billion industry by 2020, researchers say. As Naspers shareholders we directly benefit from this rapidly growing industry.

Based on this graph Starbucks still has huge growth potential - Europe and North America's Top Coffee-Drinking Nations. Google tells me that 1kg of beans makes around 120 cups of coffee!

You will find more statistics at Statista

I'm surprised that Twitter hasn't explored this earlier. The company is in serious need of revenue growth now that the subscriber numbers have flat lined - Twitter exploring premium subscription service

Home again, home again, jiggety-jog. Big data today out of the US, they show their oil inventory levels giving us a better idea of supply and demand dynamics in the industry. The Rand is slightly weaker this morning, trading above that $/R 13.00 phycological level, the MPC announcement on interest rates tomorrow might also have an impact on our currency. Looking to the East, their markets are a mix between slightly up and slightly down. The main stock there though for us is Tencent, currently up around 0.7% which points to Naspers having a stronger day today.

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

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Tuesday 28 March 2017

Pravin or Out?

"There is very little sensiblity about the "recall" of the finance minister and the deputy finance minister yesterday, most especially from a road trip to sell the country. Surely it could have been done later in the week?"

To market to market to buy a fat pig Hmmmm ..... There is very little sensiblity about the "recall" of the finance minister and the deputy finance minister yesterday, most especially from a road trip to sell the country. Surely it could have been done later in the week? Mr. Market reacted in the way that it knows best, sell first and then ask questions later. The Rand had, to the US Dollar, reached the best level since the middle of 2015 before the news filtered through that el Presidente issued a statement just before midday.

By then the news was already in the market, the Rand weakened from around 12.31 to the US Dollar to around 13.00 this morning, that is nearly six percent weaker over 24 hours. The upshot of it all was a firmer Rand hedge complex. How badly timed was the message yesterday? Ha-ha. Although, it depends where you draw the line in the sand. Over a couple of months the Rand is still around 7 percent stronger to the US Dollar. Five years ago, the Rand was at 7.70 to the US Dollar. 10 years ago, the Rand was at 7.30 to the US Dollar.

Bloomberg is reporting this morning that President Zuma has told the communist party that he is going to fire Minister Gordhan. The Rand is falling hard. This ironically may support the top end of the market, the Rand hedge element. Banks and financials. Expect those to sell off heavily. Until we actually see something concrete, which may well emerge today, fasten your seat belts sports lovers.

Suddenly with the prospects of instability (perceived and real) in Treasury, call it what ever you want, means that the prospects of downgrades are real again. And that is bad for banks and financials, banks as a collective down 3 percent. FirstRand gave up three and a half percent, RMB Holdings about the same, Barclays down three and one-fifth, Standard Bank down over three percent. Those were the stocks that were deep in the red, Kumba at the top of that list (down over 4 percent) as Iron Ore prices sunk in the Chinese session earlier in the day Monday.

At the opposite end of that list were the Rand hedges, Mediclinic added over three and a half percent, AngloGold Ashanti and Amplats right at the top, benefitting from stronger precious metal prices. Which in turn were benefitting from the "uncertainty" of what next with Trump policy implementation, the healthcare misstep has somewhat rattled Mr. Market. Dollar down, precious metal prices up, industrial metals down (what infrastructure build?), the Rand had external factors at work. By the time all was said and down, stocks in Jozi were down only one-fifth of a percent. SA inc. stocks bearing the brunt of policy fumbling. What instrument did Nero play whilst Rome burnt? Not the fiddle, it hadn't been invented yet.

What can you as an individual investor do about these policy issues and political meddling? First and foremost, politicians and policies come and go with the waxing and waning of democracy. It is also worth noting that South Africa has only had democracy for 23 years. And only one ruling party. With only one economic policy that is still trying to find the middle road. Many still live in abject poverty and it is a tragedy. Until something gives, expect more of the same. We have democracy, which is better than most other places, the institutions work.

The other thing you can do as an investor is externalise funds in hard currency. We follow offshore and invest in offshore stocks just as much as we do in SA. If you are interested, email us. Investing offshore for the sake of externalising money is not a good enough reason to "do it". When externalising money, you have to be VERY sure that you are owning the very best investment opportunities, and not just sending money offshore.

The US market is the best place to start, the uninterrupted 250 year model of capital creation and wealth creation is unparalleled and as of yet to be replicated anywhere in the world. Whilst many other emerging markets may be interesting (India, Vietnam and of course China), there is a lot to be said for owning stocks in an environment that is well regulated and that respects the role that capital plays in society. Plus most of these businesses operate within those developing growth frontiers. Capitalism is still the single best method for upliftment of society. If in doubt, think North and South Korea.

Stocks across in New York, New York, finished the session in a far better place than where they started, the "Trump unwind" did not last too long. That said, the Dow Jones Industrial Average has had eight losing sessions, the worst in around half a decade. That said, the one month return for blue chips is only minus 1.37 percent, hardly a sorry state of affairs. At the end of the trading session the Dow Jones had given up just over one-fifth of a percent. The broader market S&P 500 lost one-tenth of a percent, whilst the nerds of NASDAQ rallied over one-fifth of a percent to close up shop nearly a percent and a half stronger from the worst point in the day.

Linkfest, lap it up

Cyborgs? Chips in your brain? Science fiction? Not really, check out this new venture - Elon Musk launches Neuralink, a venture to merge the human brain with AI

On the bucket list for sure, seeing the Aurora! How about a plane ride there? It exists, and costs a lot. Around 1400 US Dollars each person (you have to be in pairs) gets you to see the lights on a seven and a half hour flight from Dunedin, New Zealand, towards the South Pole . Business class? 3000 Dollars apiece. Amazing - Flying Through Auroras: Airline Carries Passengers into Southern Lights

It seems the power of pizza is real in the stock market too - Forget Tech Stocks! You Should Have Invested in Pizza. Looking at the returns on the graph, I wouldn't complain with any of those returns.

You will find more statistics at Statista

Paul found this great article over the weekend. The Nike share price has underperformed as of late but I would say that the market is undervaluing the huge potential that is coming out of the Chinese market's move to fitness - Here's what happens to the athletic wear industry when China starts going to the gym

Home again, home again, jiggety-jog. Goodbye Ahmed Kathrada. Goodbye Pravin Gordhan? We shall see, there will be segments of the market that are sold off heavily and that are bought heavily.

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

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Monday 27 March 2017

The Grand Rand

"The Rand currently is being supported by a number of factors, including an improving inflationary environment. Lower oil prices will help. Retailers and financials should benefit from a consumer that has improved their circumstances. Better looking fundamentals, all against the backdrop of what appears to be iffy politics. So how does that stack up? "

To market to market to buy a fat pig So what now? The repeal of the healthcare act created by the prior administration failed to materialise, not enough votes to shunt this through, despite the president and his team's best efforts. And his promises, which most importantly said "we will get this done". What is most interesting about his style is that he hardly skipped a beat and suggested that they would be moving on to tax reform. They should have started with this first, that is my dumbed down opinion from someone who has very little insight into politics, other than in 2061 years (since Caesar was murdered), the back stabbing still takes place.

There are two ways of viewing this. One, it weakens Trump's ability to shunt through further reforms. Two, healthcare is hard and now that it is out of the way, Trump and his administration can deal with the tax reforms. Mr. Market reacted negatively, obviously, stocks across Asia are much lower (mostly), Japan down one and a half percent, Hong Kong down around four-tenths of a percent. And US futures are down around half a percent, indicating a much lower open to start with there. This may, or may not mean that US markets sell off for a week or two. Maybe. European markets are all set to sell off around two-thirds of a percent.

Following up from our Friday conversation (Incorrect about Corrections), another piece from Ben Carlson, before we look at the Friday scoreboard - All-Time Highs Are Usually Followed By All-Time Highs. What Ben means is that every all time high is two out of three times inside of all time highs in five years at another all time high. Ultimately it just depends on whether or not the stocks you are buying at going rates are expensive or not. You can buy a great business at a fair price (to borrow a phrase from Buffett), which is far better than buying a fair business at a great price. i.e. just as a stock may seem cheap, it may be "cheap for a reason". The opposite is often always true too.

Stocks were trading up in the Friday session, at one stage the nerds of NASDAQ were up nearly three quarters of a percent, ending the session up nearly one-fifth of a percent by the end. The Dow Jones Industrial Average closed the session out down nearly 60 points, which these days is around three-tenths of a percent. The broader market S&P 500 gave up nearly 2 points, which is around one-tenth of a percent at these levels.

Some of the recent moves in the equities market has been "interesting", there have been some big moves by some "big stocks". Facebook is up over 20 percent year-to-date and we only close out the first quarter by the end of the week. Yet, by some metrics (valuation relative to their growth rate - PEG ratio), the stock looks close to the best value amongst some of the majors. Apple, that stock is up around the same as Facebook, year-to-date, if you subtract the cash pile, the stock trades on a multiple close to 11 times historical. With the cash, the historical multiple is 16.8 times. Cheaper than the index, which in itself is not the most expensive and hardly near wildly overvalued territory.

The S&P traded at 22 times in November 2007, near the last peaks of the stock market (before the period now known as the Great Financial Crisis), and whilst Dr. Ed Yardeni (who does a lot of research on this) has the forward earnings of the collective at nearly 147 Dollars (in 2018), the forward multiple of the index is currently estimated at less than 16 times earnings. This year? Analysts estimates (from the Yardeni data) to see earnings of around 131 Dollars, meaning that the index trades on 2017 earnings at 17.88 times. Hardly in vicious "bubble" territory, you would think, right? We continue to stay long quality stocks, through noise of politics (Greece sovereign debt crisis looming, French elections, setbacks in Washington DC, etc.) and Central Bank interventions, knowing that ultimately earnings are all that matter.

The Rand currently is being supported by a number of factors, including an improving inflationary environment. Lower oil prices will help. Retailers and financials should benefit from a consumer that has improved their circumstances. Better looking fundamentals, all against the backdrop of what appears to be iffy politics. So how does that stack up? Whenever the Rand experiences a bout of selling which coincides with political noise, the chattering classes bleat about that, I have seen crickets from the same sources. Friday, stocks as a collective here in Jozi fell around four-tenths of a percent. The resources complex was down around 0.8 percent on the day. Another set of 12 months highs for Adcock and Astral, as well as Pioneer Foods. Meanwhile, some 12 month lows for the JSE (the company itself) and Hammerson and Intu (UK property).

This morning stocks across the board are weaker, resource stocks are weaker as a result of iron ore prices getting weaker (worries around steel demand). With a stronger Rand comes 12 months lows (new ones again) for AB InBev (Rand hedge, listed in Belgium), Steinhoff (Rand hedge, listed in Frankfurt), Sasol (Rand Hedge, geared to oil price), Hammerson, Intu and Capco (Rand hedge, UK property). So there you go. A year ago, the outlook for the Rand was far weaker than now, nobody would have thought we would have arrived at levels not seen since 2015.

Linkfest, lap it up

Why didn't I think of that and then patent it? Sometimes the easiest solutions for solving a problem are right in front of us all of the time - People won't stop staring at their phones, so a Dutch town put traffic lights on the ground.

The first glimpse of "it", and by "it", I mean the Model 3 Tesla. Want to know why it is called Model 3? Model E was already taken by Ford. Check it out - Elon Musk shows off first 'release candidate' Model 3.

Something always needs to be made somewhere, and the trust associated with the label "made in ... " is real. Check out this, Germany tops the list, followed closely by Switzerland - The World's Most Respected 'Made in' Labels.

If you are planning on traveling consider maybe avoiding these cities? - The Most Expensive Cities in the World

You will find more statistics at Statista

Home again, home again, jiggety-jog. Happy birthday to the EU over the weekend, the precursor to the common currency and no borders. Happy birthday. About that Brexit? The market is acting like "Brexit" today, sell first and ask questions later.

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

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Friday 24 March 2017

Incorrect about Corrections

"He (Peter Lynch) also said: "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves". It seems that if you look back from a distance and zoom out, ten percent down and the subsequent recovery is hardly a blip of any sort. The S&P 500 is up, without dividends, over the last 40 years 2268 percent."

To market to market to buy a fat pig Markets were a mixed bag here in Jozi, Jozi. Stocks started down (as a collective), sneaking into the green around lunchtime and then ended the session around where they started, a little lower. Around ten percent lower on the day, resources were a little lower, financials a smidgen off. AngloGold Ashanti and Amplats were the two biggest losers, down over three percent apiece, whilst Bidvest was the biggest winner, up three percent on the day.

Ahhh, I see an announcement from Woolworths this morning about their Aussie business, Country Road and David Jones, John Dixon will assume this role:

"Consistent with the desire to create a single entity benefitting from economies of scale and an aligned culture, the company is now creating a single regional corporate structure. The region will be headed by a Chief Executive Officer with a team of regional executives covering the core operational functions plus the Chief Executive Officer of Country Road Group, and Managing Directors of David Jones Food and David Jones Clothing and General Merchandise."

Woolworths of course has been a great and a terrible investment, depending on where you draw the lines in the sand. Over five years the stock is up 60 percent and it is also an excellent dividend payer. Over three years it is only up three percent. Over ten it is up 251 percent. Over three months it is up nearly six percent. Over one year the stock is down 15 percent. See what I mean? It always (always) depends on where you draw your line in the sand. I suspect that you have to have a serious view on organic and premium offering and whether or not the consumer is going to be receptive to it or not. I suspect that the more affluent consumers will be happy to continue to "pay up" for quality. We continue to hang tough on what has been an average stock price for a wonderful company.

Across multiple time zones and the oceans, in New York, New York, stocks were reacting to Washington DC events and "negotiating" on healthcare repeal. The thinking is pretty simple, if Trump does not have the majority of Republicans on his side, what is the chance of more being pushed through. As Paul said, why did they start with the hardest thing first? Why not go for tax reforms first, I am sure that more people agree that more needs to be done there. Session end all the major indices were marginally lower, the S&P 500 down by nearly one-tenth of a percent, the nerds of NASDAQ off by 0.07 percent, whilst the Dow Jones fell 0.02 percent by the close.

Snap rallied nearly six percent, it seems perhaps all the early "stagging" may be gone. To stag, the definition (as per Investopedia): "A stag specifically refers to a speculator who buys and sells stocks in short time frame's to make quick profits. A stag investor assumes that the price of a stock will rapidly increase over the short-term, within the first few hours or days, and adopts an investment strategy that is the opposite of a long-term buy and hold strategy."

Nike (Nigh-Key) rallied over two and two-thirds of a percent, recovering some of the losses after poorly received results. Alphabet, the parent company of Google, and by extension YouTube, is experiencing some serious bad media over adverts being pulled from YouTube. By some pretty high profile advertisers. Why? How? See a Google apology a number of days back - Improving our brand safety controls:

"We've heard from our advertisers and agencies loud and clear that we can provide simpler, more robust ways to stop their ads from showing against controversial content. While we have a wide variety of tools to give advertisers and agencies control over where their ads appear, such as topic exclusions and site category exclusions, we can do a better job of addressing the small number of inappropriately monetized videos and content. We've begun a thorough review of our ads policies and brand controls, and we will be making changes in the coming weeks to give brands more control over where their ads appear across YouTube and the Google Display Network."

I suspect that the advertisers will definitely return. You know what they say about once bitten, right? This may be an opportunity to grab a few more. Last year YouTube removed 2 billion bad adverts from the system and 100 thousand publishers. With 400 hours of video uploaded every minute to YouTube, there is unfortunately going to be a whole lot of content that is not generally accepted by the community. Enough said, I think. YouTube are doing something.

We always hear about doom and gloom in our profession, how the next market crash is coming. Historically, and I uncovered this from an ancient Peter Lynch piece, there is a draw down in markets of around ten percent every two years or so, that is on the S&P 500. From 1970 to 2008, there were 21 such events, a "bear" market by technical definition. He (Peter Lynch) also said: "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves". It seems that if you look back from a distance and zoom out, ten percent down and the subsequent recovery is hardly a blip of any sort. The S&P 500 is up, without dividends, over the last 40 years 2268 percent.

Why do we spend ALL of our time worrying about infrequent events? To illustrate this point, I have taken what should be a normal investing period for investors and circled that horrible no good day. 19 October 1987, the machines went berserk and the Dow Jones was down 22.61 percent in a single day. It happened. The next worst single percentage down day was 15 October 2008, down 7.87 percent. December the first 2008 was the third worst day, down 7.7 percent. And then October 9th 2008 was the fourth worst, down 7.33 percent. We can see all of these up close and personal, we remember some of these. Here goes, 40 year graph of the S&P 500 (not the Dow Jones), courtesy of Google finance.

You are going to say to me, "yeah sure Sasha, you picking such a long period, what happened in the moment isn't easy to 'forget'". And you would be right. However, the S&P 500 closed 0.06 percent up in 1987, from the beginning to end. From the beginning of 1987 to the end of 1989 the S&P 500 was up 43 percent. Stretch that out, five years on, the S&P 500 was up nearly 65 percent. Yet ..... people will talk about 1987 as if it was the bubonic plague or the 100 year war, or the dark ages or some other such thing. A fellow by the name of Charles Lieberman (chief investment officer at Advisors Capital Management) writes for Bloomberg View in an article titled: There's Always a Bull Market in Fearmongering. This paragraph is pretty telling:

I would care little about these Chicken Littles and their desire to instill fear in the hearts of investors for their purposes, except that they inflict enormous harm on individual investors. How often do retail investors read such warnings and decide that to be safe, they should reduce their exposure to the market? Some pull out entirely. It happens far too frequently. I know of one individual, a close friend of a client, who converted his entire portfolio into cash late in 2008 and has been unable to bring himself to buy back in to this very day! For years now, he thinks he's missed the recovery, because he's read warnings that stock prices are high and vulnerable.

Oh dear. To bring that closer to home, the 2008 nightmare on Elm street market version, Michael Batnick had this piece on his blog "The Irrelevant Investor": Gradual Improvements Go Unnoticed. He points out all the reasons why NOT to have invested in the market, some of them fresher in our memories than before. I have taken calls on all of them. I have had long conversations with people on why not to sell, that is part of our job. I am sure for the same purpose (of continued education of ourselves), he won't mind if I borrow his graph:

I can think of multiple other reasons, as he lists there below. I wondered smugly if I should tweet (like a real troll) at "The Nouriel" and ask when he expects the double dip recession to arrive? The market will humble you. Never ..... like never, ever be smug about your investment decisions and outlook, and how the market looks now. Keep it real, stay humble. You will be humbled. Anyhow, the slow advances that humanity makes are not celebrated. The collective chooses to be anxious and nervous. As long term investors we should embrace this.

Peter Lynch said this in an interview once:

"A lot of people think long-term investing is three weeks from next Wednesday, but when I talk about long-term investing I mean 5, 10, 20 years. During that length of time the market can experience ups and downs due to what I call "background noise." Events occur - hurricanes, wars, political instability, currency and bank crises - that makes investors nervous and cause market volatility. It does get nasty at times, but it shouldn't cloud investors' judgments about thinking long-term. The key organ here is your stomach. Everyone has the brainpower, but not everyone has the stomach for it."

If everyone, like I told a client yesterday, was a pure investor and not a consumer, there would be nothing to buy, right? Choices mean you can get a new vehicle, finance it and end up with an asset one fifth of the original price five years later, or ..... you could invest that in the equities market. You would eventually end up with enough to buy the car cash. That is another story entirely about what is risky and what is NOT. Keep saving. If stocks go sideways or down, and you have money to add, you should. As is the famous line from that excellent movie, the Best Marigold Hotel in the World (It is actually a John Lennon quote): Everything will be okay in the end. If it's not okay, it's not the end.

Or, as we say around these parts: Keep on keeping on.

Linkfest, lap it up

Facebook has a 'secret lab' where they are trying to design the hardware of tomorrow. The ability to do these moonshot projects is thanks to having a cash pile of around $30 billion, if they come off it is good for humanity and shareholders - Facebook's secretive and ambitious hardware group is preparing for its debut next month

What is the right amount to tax? From a government perspective, you don't want to over tax, decreasing the incentive to work and invest and essentially crowding out the more efficient private sector. As Barry points out many of our tax models are designed for homo economicus instead of homo sapiens - How Much Can You Cut Taxes? Don't Ask Kansas

A big factor in differentiating yourself from competitors in the e-tail space is trust. Given that you can't touch the product before you buy it and that you are giving the suppler your credit card details, trust is important. Here is another step that Amazon is taking to build trust - Amazon Has a New Tactic to Fight Counterfeits

This is awesome, Bright loves this guy so much that his WhatsApp avatar is Howard Marks. Do you have half an hour this weekend to watch this, Howard Marks is in India - Howard Marks: ET Now -- "The Global View with Howard Marks".

Home again, home again, jiggety-jog. Stocks across Asia are higher, the US futures are around one-third of a percent higher. This is the best level for the Rand since the middle of 2015!

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

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Thursday 23 March 2017

Tencent is in a League of Legends

"Tencent is an entertainment, communication, news services/online videos, payment systems and advertising platform, with newer businesses such as streaming and content origination. They also offer cloud based solutions, music and of course the original social media platform, QQ and Weixin/WeChat."

To market to market to buy a fat pig It was not pretty out there yesterday, mostly as a result of the resource complex (down two percent), not that the other sectors performed better. A broad based sell off catching up to the US markets having sold off heavily the session prior is what we were faced with. Stocks as a collective ended the day better than the midday print. By the time the gates closed shut for trade, the Jozi all share had slipped one and one-quarter of a percent. Kumba and BHP were down around five percent apiece, the iron ore price sliding from 90 odd Dollars a ton. MTN was down over three percent, the stock was trading ex the dividend, which is payable Monday. Three working days for settlement nowadays folks, that is the good news.

Only the gold stocks were on fire, as a collective they were up over three percent. For all the volatility, you have been poorly rewarded over a longer dated period, down over 50 percent in the last ten years. For the last five years, the gold stocks as a collective have returned a negative 45 percent. So it pays to be diversified, right? Wrong. The resources ten is down 38 percent over five years and down 36.5 percent over the last ten. Industrial stocks might have "gone nowhere" for over two years, the return over five is 115 percent to the good, and over ten, a whopping 264 percent.

Despite the poor day as a collective, Discovery clocked a new 12 month high, it certainly has been on the radar for the buyers post what were good results, for the recap, remember our write up - Discovery 6 month numbers - Investing in technology. The all time high for the stock is around ten percent away from here, over 150 Rand a share was reached in November of 2015. Since the results, just over a month ago, the stock is up 15 percent, year to date the stock is up a whopping 20 percent. It is true that the stock is down 9 odd percent since November 2015, it always depends on where you draw your line in the sand.

At the other end of the spectrum, reporting at around the same time, was the JSE (the business itself), that stock is down 15 odd percent in a month. And like Michael and I discussed earlier, they didn't actually look "that bad". At these sort of levels the stock is almost in a territory that one might consider good value. They do face some headwinds, and they are definitely a fixed cost business. I retract my comments about the business not needing to be hugely profitable (which was met with disgust by Byron), the higher the costs for the brokerage houses and broader financial services sector, the greater the competition. And if viable competition does actually emerge (which I think is highly unlikely, I may well be proven wrong), then the smaller and more nimble operator would be best placed to attract new business. Somehow I just do not see it happening.

Results that certainly sparkled yesterday were from the education group ADvTECH, I am not too sure what is up with the small v, perhaps someone can shed some light on that. See the results here - Results FY 2016. I like the segment as an investment theme, the more affordable private education offered in a South African context, the better for all of us as a collective. The pricing point is critical. The company is probably a little bigger than you think, the market cap is nearly 11 billion Rand, the stock has been on a tear over the last year, remember that Curro was once lurking in the wings whilst the group was having serious management issues, perhaps that is a "floor" of sorts now. With a mid twenties multiple, the group is going to have to keep up the rate of growth for investors to feel comfortable.

Over the oceans and seas, across the hemisphere (and around 12800 km away) stocks were mixed to better by the end of the session. For the record, according to timeanddate.com, the furthest place from Jozi is Wailuku, Hawaii at 19,265km away. For reference sake, the two cities furthest apart on earth are Chincha Alta in Peru to Siem Reap in Cambodia, around 20 thousand and ten kilometres apart. Followed closely by Cordoba in Spain to Hamilton in New Zealand, almost exactly 20 thousand km apart from one another. I do not feel so far from New York, suddenly.

Session end the Dow jones Industrial Average had lost a handful of points, Nike down over seven percent dragging the rest of the index with it. Nike had a tough trading session yesterday, we like the company's stock price more at the lower levels, of course, see the write up from yesterday - Nike 3Q numbers - beat on bottom line, miss on top. China is where the growth will emerge.

The nerds of NASDAQ enjoyed a great session, spurred by gains in the largest listed company in the world, Apple, which added over a percent. The nerds of NASDAQ closed nearly half a percent better off, the broader market S&P 500 added nearly one-fifth of a percent. For the record, Apple is a constituent of the NASDAQ, the S&P 500 (obviously) and the Dow Jones.

Apple was out the session prior with a whole set of new products, depending on who or what you read, it was either awesome or underwhelming. A red iPhone 7, a new iPad and several new watch straps. Or, you could buy this Vintage Apple-1 Computer Could Fetch $300,000 at Auction. No thanks, I would rather have the amazing new Mac for a whole lot less, collector item or not.

Company corner

Tencent released numbers after the Hong Kong market had closed yesterday and before the US market had opened. As such, there was only a single platform where to see the reaction, and that was here in Jozi. Naspers own a little over one-third of Tencent, in one of the best initial investments known. The results for the full year to end 31 December 2016.

Revenues for the full year grew 48 percent to 151.9 billion Renminbi (22 billion Dollars), profits grew 42 percent to 41.4 billion Renminbi (just over 6 billion Dollars). The stock is listed in Hong Kong, so the basic earnings per share number of 4.383 Renminbi translates to 64 US cents per share or 4.94 Hong Kong Dollars per share. At 220.80 Hong Kong Dollars (where the stock trades now), the historic multiple is 44 times. Which is expensive, it is certainly not dirt cheap. And this has always been the case. However, if you take a PEG ratio, it is closer to one than you think, earnings growing at over 40 percent over a multiple of 44 times is just a smidgen over one. In this case, you would have to say that the Tencent share price is "about fair". The stock did clock an all time high in the Tuesday trading session, anticipating results of this nature.

Tencent is an entertainment, communication, news services/online videos, payment systems and advertising platform, with newer businesses such as streaming and content origination. They also offer cloud based solutions, music and of course the original social media platform, QQ and Weixin/WeChat. In terms of entertainment, it is gaming, PC/Mobile, online or offline. It sounds like a whole host of businesses that we know exist independently of one another, from Facebook Messenger, Google to Netflix. Their streaming equivalent businesses grew three fold to have over twenty million users now, and the company generated some content that was well received.

There is also an element of machine learning that will bring all of the platforms closer together, more cloud storage options for the users, expanding the popularity of mobile games, offering more bolt on services. The company is still essentially a gaming and social network one (entertainment) with Value Added Services contributing 71 percent of group revenues, advertising 18 percent of the business with the balance 11 percent. Gaming is around 46.6 percent of all group revenues. That phone and those games sure are addictive. The company is spending a lot of money on their newer businesses, those are basically in "ramp up" mode.

The company continues to evolve into a more recognisable and more diverse business that is becoming more dominant and easier to understand. We should be so lucky that through Naspers we can own such a business. Good business, great growth rates (around 30 percent expected), priced at about the right level. We still accumulate Naspers on the basis that it trades at a pretty significant discount to the sum of the parts.

Linkfest, lap it up

It is just a tool for checking and liking your friends photos. Wrong. Visuals are far better than text. Instagram had an announcement yesterday: Welcoming one million advertisers. Suddenly the 1 billion Dollar price tag in 2012 (in cash and stock) for 600 million users currently (and the platform turns 7 in October) does not seem like a high price. One million active monthly advertisers, reaching potentially 600 million users. Advertising platform, not "social media". We continue to stay long Facebook, the owner of Instagram, great timing of the purchase friends!

Here is how different asset classes have performed over time, in Dollars. Very interesting reading how each sector has its day in the sun. Note how commodity stocks were doing well going into 2008 and since then they have suffered badly - Updating My Favourite Performance Chart for 2016

Having less fake news is a good thing for society. Less people peddling snake oil - This is now what happens when you try to post fake news on Facebook. You need to trust the independent news verification companies now.

Home again, home again, jiggety-jog. Stocks across Asia are mixed to slightly higher, the US futures are marginally higher. We should start better here, the Rand is certainly catching a bid!

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

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Wednesday 22 March 2017

Max on innovation

"The company is focusing their efforts to double the speed at which they deliver their products to the consumer on a direct basis (more through the online platforms) and double their innovation patterns. Air Max launches some new models in a few days time (to celebrate 30 years, retro designs) and Air VaporMax is the newer shoe, launched this Saturday."

To market to market to buy a fat pig The truck backed up .... you could hear the beep-beep-beep ringing out. The inevitable headlines came through, Trump reforms may not happen, etc. It was not even a heavy decline, by the smooth sailing market standards, a percent and some more down was the first for US equity markets since October last year. Wow. I guess when your pattern recognition recency bias becomes used to a certain "structure", the inevitable stock market sell off comes as a little shock. Pattern recognition is why people love looking at charts, it helps them either validate a sale or purchase.

There was a little more than that, political again, with the Trump administration unable to take apart "Obamacare", and push forward the republican agenda. Politics impacts on markets. How? Well ..... if the Trump administration does not have the necessary support from the rest of the politicians, that does not exactly bode well for further policy pushes, if you know what I mean. Should it worry you? Nope. Can the market fall further from here? Of course, equities markets can always fall fiercely and at speeds you don't expect, humans and money make a funny concoction. Fear, greed and all the other emotions that go into market.

Session end the Dow jones industrial Average had given up over a percent, down 1.14 percent, the nerds of NASDAQ had been slammed, down 1.83 percent and the broader market S&P 500 had lost around one and one-quarter of a percent. Financials and basic materials had been sold off particularly hard, Alphabet lost over two percent, Wells Fargo and Bank of America lost around three apiece. No ability to push through big plans and implement huge sweeping reforms equals market sell off. If you can imagine that the healthcare reforms (on the reforms from before) would be pushed through with the Republican agenda intact, then you would no doubt see the reverse. Investing based on politics and political agendas is dangerous.

Stocks in Jozi skipped the trading session day yesterday, in celebration/memoriam of an important day in our history, a sad day in which 57 years ago, 69 souls lost their lives at a police station in what is modern Southern Gauteng, right on the border of the Free State. The South African constitution was signed at Sharpeville on the 10th of December 1996 by Nelson Mandela, it is an important place and event in our history, and some would argue that international opposition heightened at this point, ultimately leading to a free and open society for all the people who live in this land. I just wish that these celebrations would fall on Mondays or Fridays.

On Monday stocks enjoyed an up day, nearly four-tenths of a percent to the good. Industrials were the real drivers, Naspers was at the top of the leaderboard, around three and one-third of a percent to the good. Amplats, South32 and Kumba were all at the opposite end, down with sliding commodity prices and a strengthening Rand, not an event that happens too often in conjunction with one another. There were multiple twelve month highs for the likes of Discovery and Capitec, Adcock and Exxaro, as well as Santam and Astral. Chickens, insurance, banking/loans and coal, as well as pills. A lot of those businesses are firmly SA inc. in nature, leading one to believe that the economy may be in better shape, as far as those in the stock market are concerned. i.e. Share prices move ahead of the event, predicting better earnings. Today we may look a little worse for wear, being in catchup mode from the red US market last night.

Company corner

Nike, the footwear and sports apparel company, perhaps the best known of all of them, alongside competitors like Puma, Adidas (experiencing a renaissance) and more recently Under Armour, reported results last evening that beat on the bottom line handsomely. Unfortunately the top line was not within expectations, once again fuelling the naysayers who are predicting a slow down globally in their brand. This investment theme is a firm favourite here at Vestact, the thesis being that more and more people are active and are taking their exercising more seriously. The rise of awareness and linkage of dread diseases to sedentary behaviour has prompted many to take up exercise. i.e. My body is my temple, that whole theme, right!

I recall that when I ran my first major ultra marathon (Two Oceans), over a decade and a half back, there were three odd thousand people at the start line. "Serious athletes". What was more telling however, wasn't the field size of the "major" event, it was that the lesser half marathon started after the ultra. Nowadays, getting entry into the half marathon is not guaranteed, there are arduous processes and lotteries and heartache for those that missed out on an entry. That tells you, that even in South Africa, people want to set goals and compete in higher endurance events. With that, and the theme is a global one, there are a growing number of entries into Iron Man/Woman (and the half), multiple cycle races and the rise of non-traditional sporting codes, anything from dancing to cross training.

All those new participants will need newer and better kit and footwear to keep up to speed with their mates and fellow participants. Wearing athletic gear is no longer something that is reserved for gym time or your running session, it now passes for casual wear. You can wear your favourite football, basketball or gridiron top without being ridiculed by your mates for when you are getting on the team. Or simply, wear what makes you feel comfortable, that is what has happened. When I look back on 1970s footage of athletic wear, I cringe at the "bad" clothes. That has all changed, and continues to rapidly evolve. There, you get why we like the investment theme, there are more participants than at any other time in history, owning and buying what are pretty expensive and evolving technology. Richer populations with more spare time to keep healthy and fit need the best quality.

Nike reported their 2017 third quarter results last evening, after the market close. Revenues grew 7 percent on a currency neutral basis, 5 percent in Dollar terms. 8.4 billion Dollars is the current quarterly run-rate, the group had targeted 50 billion Dollars by 2020 as a target. Diluted earnings grew 24 percent, to 68 cents per share, a lower share count and lower tax rate as some of the factors helping. Gross margins compressed 140 basis points as a result of sales, higher production costs and forex headwinds.

Outside of the US, the company experienced double digit growth across Western Europe excluding currencies, was up 10%; Greater China excluding currencies, up 15 %; most of their emerging markets excluding currencies, up 13 %. North America saw 3 percent growth, both across apparel and footwear. The company has roughly 44.5 percent of sales from North America, with nearly 30 percent of that being shoes alone. 3 out of every 10 Dollars in sales is a pair of sneakers in North America. Chinese sales of footwear is 9.2 percent of toatl group sales and Western Europe footwear sales is 11.8 percent for the total group sales. Roughly, those three territories, China, North America and Western Europe, represent 75 percent of all of their business. Makes you think that there is plenty of scope for them to grow globally.

The company is focusing their efforts to double the speed at which they deliver their products to the consumer on a direct basis (more through the online platforms) and double their innovation patterns. Air Max launches some new models in a few days time (to celebrate 30 years, retro designs) and Air VaporMax is the newer shoe, launched this Saturday. There are also plans afoot (excuse the pun) to cut through the two hour marathon mark with selected athletes wearing a Nike ZoomX midsole. And focus in the right areas. Inside of the unofficial transcript, the President of the Nike brand, Trevor Edwards had this to say:

Now, in China, the opportunity is massive. Just over the past five years, the number of marathons there has grown 500%, and China's government predicts a sports economy valued at $850 billion by 2025 - by far the world's biggest. Our leading brand position in China gives us confidence we will continue to see real growth from this expanding market.

That is pretty telling. Recent events in China have suggested the company had misleading advertising practices. The state broadcaster alleged that the company didn't have the right sole, as per the advertising. Not good. That said, who to trust in China, a market that is notoriously misleading to many a consumer. What this tells you is that the consumer is definitely becoming more and more aware of their products and have higher expectations. As Nike has a higher selling point, relative to some of their peers, a more affluent and aware consumer is "good news". And a more fit one too.

Whilst the rest are worried about a lack of top line growth, I suspect that we are in a lull. The brand is increasingly up against a resurgent Adidas (I like their CEO, I like their brand) and recently Under Armour (the share price has fallen hard). This is good news for all of these producers, it will force them to all work a lot harder in getting the consumer their optimum product, be it apparel or footwear. The best is yet to come, the company is now trading on the least expensive multiple in half a decade, on a relative basis (to the rest of the market), double that time period. The market has not been receptive to these results, if you are in gathering mode, this is a wonderful opportunity to gather what is a multi decade growth investment theme. We continue to recommend the stock as a buy.

Linkfest, lap it up

I can see this move causing much debate, what is the best way to show a globe on a flat surface? - Boston public schools map switch aims to amend 500 years of distortion

It is amazing what technology allows us to do. I wonder how long the well took to drill and how often they have to stop drilling due to mechanical issues? - Visualising The World's Deepest Oil Well. The infographic hints at the world running out of oil, that is not the case. Over the last decade, proven reserves have been on the up.

Home again, home again, jiggety-jog. Catch-up for the local market may well mean we have to sell off to begin with today, that is just the way it goes sports lovers.

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

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