Money with a dash of Funny: November 2017

Tuesday 28 November 2017

Bezo$

To market to market to buy a fat pig. On Friday night, while eating supper my phone had a notification pop up saying that Jeff Bezos's NAV had just crossed $100 billion, the first time since 1999 when Bill Gates crossed that mark. Bill Gates is currently second on the Bloomberg Billionaires Index, he would be worth well north of $100 billion if he hadn't given so much away already. Then the most famous investor of the last three generations, Warren Buffett is sitting in third. His NAV would also be higher than $100 billion if he hadn't given away so much.

Looking through the list, Jack Ma and Pony Ma (no relation) are in the global top-20 thanks to the 2017 performance of Alibaba and Tencent respectively. I was somewhat surprised to see Steve Ballmer, the ex-CEO of Microsoft sitting at number 23, with a NAV of $34 billion. Then someone I haven't noticed on the list before is Jorge Paulo Lemann, the founder of 3G Capital; the company behind AB InBev and Kraft Heinz. Lemann is number 27 with a NAV of $31 billion.

Having a look at the list I wondered where John D Rockefeller, the first dollar billionaire, would feature. Here is the first ever Forbes list from way back in 1918, where you can see their respective NAVs in 2017 Dollars. To get an idea of his wealth, have a look at the gap between Rockefeller and Frick, it is huge! On a side note, if you visit NYC, go visit Frick's house next to the park on E 70th Street. They have turned it into a museum and is well worth the money.

Just based on the inflation-adjusted number, he would land around number 40 on today's list. Seems a bit low considering that at his death, his NAV was around 1.5% of US GDP. His companies also controlled 90% of the oil and refining industry in the US. Most articles I read peg his wealth at around $300 billion, if he was around today. You probably know that Standard Oil was forced to break up into 34 companies, Visual Capitalist had a nice graph of where those companies ended up.

At his death, his NAV was around $1.4 billion. What I didn't know until today though was that he took tithing seriously and he looked to give away 10% of his earnings. His charitable giving totalled over $500 million while he was still alive; more than a third of his final NAV. Here is what encyclopedia.com had to say.

"Rockefeller, from his first employment as a clerk, sought to give away one-tenth of his earnings to charity. His donations grew with his fortune, and he also gave time and energy to philanthropic (charity-related) causes. At first he depended on the Baptist Church for advice. The Church wanted its own university, and in 1892, the University of Chicago opened. The university was Rockefeller's first major philanthropic creation, and he gave it over $80 million during his lifetime. Rockefeller chose New York City for his Rockefeller Institute of Medical Research (now Rockefeller University), chartered in 1901. In 1902 he established the General Education Board.

The total of Rockefeller's lifetime philanthropies has been estimated at about $550 million. Eventually the amounts involved became so huge (his fortune reached $900 million by 1913) that he developed a staff of specialists to help him."

Rockefeller made his money due to his tireless pursuit of efficiency and cost cutting, which in part resulted in the price of kerosene going from 58 cents to eight cents a gallon. A very good outcome for the consumer. Then through their giving, people like Rockefeller, Gates, Buffett, Bezos and Zuckerberg are a huge win for society. They create companies that make our lives better and then they use the wealth they have created to make society better.

Market Scorecard. Markets were very muted yesterday, when the day came to a close markets were mixed. The Dow was up 0.10%, the S&P 500 was down 0.04%, the Nasdaq was down 0.15% and the All-share was down 0.28%. Sitting at 12-month highs are Clicks and Dischem, interesting that the two major players in the pharmacy retail sectors are both soaring. In an environment where retail growth is muted, you would think for one company to do well it would be because they are stealing market share from the other. Another stock at 12-month highs was Standard Bank, which benefited from Moody's not downgrading us.

Linkfest, lap it up

One thing, from Paul

Amazon is a top holding in our Vestact US client portfolios. It has done incredibly well, hitting a new all time, intra-day high yesterday above $1,200 per share.

At that price level, founder and CEO Jeff Bezos is worth more than $100 billion, and is the richest person in the world, by quite a margin. Well done to him!

The reason for the surge appears to be that Amazon surpassed its expectations for sales on the Black Friday/Cyber Monday shopping weekend.

I was interested to see that the top selling items by value over the past weekend were the following: (1) Amazon Echo Dot, (2) Fire TV Stick with Alexa Voice Remote, (3) TP-Link Smart Plug, (4) Instant Pot DUO80 Pressure Cooker and (5) 23andMe DNA Test.

The top three are Amazon's own products. What's that last one? The 23andMe testers allows users to capture a saliva sample which gets sent in to a lab. After a few weeks the company issues a report showing the users' own ancestry, and their propensity to contract certain genetically indicated diseases.

More about those top sellers here.

Byron's Beats

Yesterday Mediclinic announced their designate CEO. Remember current CEO Danie Meintjies plans to step down next year after 8 years at the helm. Dr Ronnie van der Merwe will be the man in charge no later than August 2018 . He is an insider and currently the Chief Clinical Officer. I must say, his CV is impressive. See this from the announcement.

"Dr Van der Merwe obtained qualifications in Advanced Management (Harvard Business School, USA), a Fellowship in Anaesthesia (College of Anaesthesiologists, South Africa) where he was the recipient of the Jack Abelsohn Medal and a Bachelor of Medicine and Bachelor of Surgery (University of Stellenbosch, South Africa)."

He has been at Mediclinic since 1999 and has been Chief Clinical Officer since 2007. The business looks like it will be in good hands. Although those hands will certainly be very full.

Bright's Banter

Money laundering seems to be a big problem for Airbnb. The company has to navigate real-life versions of Walter White and Jesse Pinkman from Breaking Bad, as well as guys like Marty Byrde from Netflix's award winning series Ozark. If you have watched any of these series, you'll know that these guys are pretty bad ass.

People, just like the ones named above, are using Russian crime forums to scout, price, and share Airbnb listings made specifically for the purpose of cleaning cash from stolen/cloned credit cards. These scammers claim that this has been ongoing "since like foreverrrr". These scammers have managed to go around the authentication process in order to reach their goal.

These people are so good at scamming that they even work out the competitive rental for the area, manufacture fake reviews, online interactions etc. just to make it all look legit. Talk about going the extra mile! I'm sure you're gonna enjoy this read.

Inside Airbnb's Russian Money Laundering Problem

Vestact in the Media

Bright chats to Power FM about Sasol's BEE shares. If you own their BEE shares or are thinking of buying them, make sure you give it a listen - Bright from Vestact.

Business Day gives us a mention in the following article Tiger Brands eyes Africa expansion.

Home again, home again, jiggety-jog. Our market is off to a red start, probably in part due to the strong Rand. The only data out today of some note is the US consumer confidence number.

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Monday 27 November 2017

Moody Outlook

To market to market to buy a fat pig. There you have it folks, a downgrade from S&P and a 'we will probably downgrade you after the budget speech in February' from Moody's. Here is one of the reasons S&P gave for the downgrade, "reflects our opinion of further deterioration of South Africa's economic outlook and its public finances,". One of our readers sent me a document last Friday confirming that to be removed from the Citi Emerging Markets index, both Moody's and S&P have to downgrade us. So for now we are 'safe'.

Here is the graph that summarises our problems. The red line needs to get back to the black line, which can either be done by increasing GDP growth or by lowering government spending. Compounding our problems is the under collections by SARS, in part due to leadership issues. The one saving grace is that around 90% of our debt is Rand denominated and not Dollar based. Thanks to our strong financial market, there is enough capital in the system to support the debt needed. Strict adherence to the constitution was another reason given for keeping our debt above junk, knowing that at some level the government is not a law unto themselves is positive.

Moody's has given us 90-says to try to get the red line back to where it needs to be; well at least pointing in the right direction. The two key factors in changing things will be who wins the ANC leadership in the next few weeks. More importantly though, will the hard choices be made when government tables the next budget. Changing a country's trajectory is likened to trying to turn a super-tanker around, it is possible but takes time. Having three months is basically no time at all. Cutting expenditure is very difficult, I wonder if the VAT increase to 15% is back on the cards again?

Economic growth will solve all our problems; it will bring our unemployment rate down, increase our tax collections and increase the denominator in the 'Debt/GDP' ratio. Economic growth is driven by confidence, and as the economy grows so does confidence. It is a self-reinforcing cycle.

Market Scorecard. It was a half day for US markets, enough time though to get back to all-time highs. The Dow was up 0.14%, the S&P 500 was up 0.21%, the Nasdaq was up 0.32% and the All-share was up 0.04% Woolies was the standout stock for Friday, up over 4%. I'm not sure the reason for the rally, maybe because their webpage was one of the only sites that didn't crash during Black Friday mania?

Linkfest, lap it up

One thing, from Paul

This week: $500 million to take out the trash; odd drug names; Koos Bekker leaves R20 billion on the table; and an advent calendar promotion that's gone wrong - Blunders - Episode 80.

Byron's Beats

I know I have been going on about Nvidia but the news coming out relating to the business is just too exciting to ignore.

GE has a very large healthcare division which manufactures all sorts of devices, more specifically scanners. Anything that processes images will improve it's quality with a Nvidia GPU.

This Business Wire article explains how GE and Nvidia have formed a partnership which will push AI into healthcare. Especially relating to image processing - GE and NVIDIA Join Forces to Accelerate Artificial Intelligence Adoption in Healthcare

Bright's Banter

Michael Milken is an American investor, former fund manager, and philanthropist . He helped develop what we know today as high-yield bonds. He's the guy that saved Howard Marks' career after he got fired as the equities head of research when he worked at Citi Bank.

By the looks of things, Milken's influence and legacy has inspired many hedge fund managers and financiers in the Los Angeles area.

Junk bond king Michael Milken looms large in L.A. finance industry

Home again, home again, jiggety-jog. Asian markets are all red this morning; expect a red opening for our All-share. Tiger Brands released their Full-year numbers this morning which looked good on the surface, their margins are growing again. Not much to speak of today for economic data releases. Looking at the week ahead, Naspers releases their six month numbers on Wednesday.

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Friday 24 November 2017

D-Day

To market to market to buy a fat pig. It is D-day, 'Downgrade Day', or is it? Last night Fitch left our debt at one notch below investment grade on a stable outlook, making mention of our low growth and the likelyhood that we will need to borrow more going forward.

The way I understand it, we only need one of the ratings agencies to downgrade us today for our debt to be officially in junk status. Even with a one-notch downgrade today, our debt will still be considered of higher quality than Brazil's. Their 10-year yield is sitting at 10%, and ours is at 9.6%, which means we shouldn't see too much impact from here. Whatever the outcome this evening, expect the Rand and our yields to shift.

If you have email, your inbox over the last week has been spammed by all the retailers you have ever heard of and some that you haven't. It is amazing to see how quickly Black Friday has taken off here. Two years ago there was the odd special. Last year there were massive deals from many retailers, and South African's didn't know how to handle themselves. Remember the videos of people stampeding into Shoprite and Game? This year it looks like every retailer has jumped on the bandwagon, I even see that you can buy cricket tickets at 50% off.

At around 6:00 this morning, I was already seeing queues of people forming, and trying to buy something online is just impossible. Having said that, I tried Naspers owned takealot.com this morning and it was working smoothly, unfortunately nothing on my wish list was on special. Bright subsequently tried to do a little shopping and was greeted with the below, error. Speaking to an IT friend he says many of the smaller and more store-based retailers have just underestimated how much traffic can come through the internet on days like this. I'm sure armed with user number data from this year, shopping online next year will be much easier.

Market Scorecard. Yesterday was Thanksgiving in the US, so their market was closed and will only be a half day of trading today. The only index to report then is the All-share, which was down 0.75%. Naspers had another 4% drawdown yesterday, erasing all the gains made over the last trading week. Tencent is down another 1% this morning, so expect a red Naspers on market open.

Linkfest, lap it up

One thing, from Paul

I'm not really a fan of podcasts. Such a slow way to take in information, via the ears! Mind you, it can work if you are stuck in a car for a few hours?

Thank goodness there is also a transcript of this great conversation between former US Secretary of the Treasury Robert Rubin and legendary asset manager and Yale University Endowment Chief Investment Officer David Swensen.

It has many great parts, but I especially enjoyed his comments about quantitative investing. Clients of Vestact might have heard (usually from some loud mouth around the braai) that owning direct equities and engaging in stock picking is outdated, old fashioned and that you should rather invest in some computer driven, algorithmic, trend following, artificial intelligence, quantitative fund. Yes! With a proprietary black-box system and eye-watering fees. Even when the net returns to investors are bad, you can still feel clever!

Swensen counters with this telling comment:

"I have never been a big fan of quantitative approaches to investment. And the fundamental reason is that I can't understand what's in the black box. And if I don't know what's in the black box, and there's underperformance, I don't know if the black box is broken or if it's out of favor. And if it's broken, you want to stop. And if it's out of favor, you want to increase your exposure.

And so I'm an old-fashioned guy that wants to sit across the table from somebody who's done the analysis and understand why they own the position. And then if it goes against them, I can have another conversation and try and figure out whether the thesis was wrong and we should exit, or whether the thesis is intact and we should increase the position."

Check out the whole thing here (including the video podcast version): A Conversation with David Swensen

Byron's Beats

Amazon has officially landed in Australia. This comes a day before Black Friday with expectations of 30% cheaper products on offer. It's started! How Amazon will change Australian shopping forever - and consumers will be the BIG winners.

But what does this mean for a company like David Jones who is investing heavily in new physical stores in Australia?

Woolworths is all about the amazing retail experience. I still believe there is a place for that. I am a big fan of online retail but the feeling of walking into your favourite store (mine is Outdoor Warehouse) full of potential cannot be matched online.

If you are good at your niche, you will be ok. Having said that, Country Road, Witchery, David Jones and the rest of Woolworths brands can still be sold on the Amazon platform. I am sure Woolies will take advantage of this new avenue.

Michael's Musings

Even though global population is up 143% since 1960, most commodity prices have dropped. What makes that stat even more impressive is that over the same period per capita income is up 163%. Not only are there more people consuming resources but each person is consuming more resources. The massive demand increase has been met with a monster increase in supply thanks to innovation and efficiencies - The Enduring Wisdom of Julian Simon.

"Out of the 15 indexes measured by the World Bank, 10 fell below their 1960 levels. The indexes that experienced absolute decline included the entire non-energy commodity group (-20 percent), agricultural index (-26 percent), beverages (-32 percent), food (-22 percent), oils and minerals (-32 percent), grains or cereals (-32 percent), raw materials (-32 percent), "other" raw materials (-56 percent), metals and minerals (-4 percent) and base metals (-3 percent)."

I love the irony here, using the more eco friendly battery powered ship to transport dirty coal - China's first all-electric zero-emissions cargo ship is going to be used to transport coal. I am aware that the electricity for the ship will be produced by a coal fired power station but that won't always be the case.

Discovery have now launched a new product targeting funding for your children's education. More interesting in this following article though is the cost of education, they estimate at current prices it will cost parents around R2.2 million from crèche to a degree - Private education fees top R2 million per child.

Bright's Banter

The year of the Rooster 2017 should be cancelled and renamed the year of the Crypto. If you think Bitcoin has had a brilliant year, then this is gonna blow your mind! The price of Ether just hit a new all-time high, trading at $410.

This cryptocurrency used on the Ethereum Blockchain (don't ask) is now up 5000% year-to-date from $8. Yes that's 5000% in just under a year...its not a mistake!

The market capitalisation (number of tokens x price of the token) is now $39 billion, a small number compared to the market cap of Bitcoin which sits at a measly $137 billion. The aggregate value of all the cryptocurrencies in circulation is $250 billion according to data compiled by CoinMarketCap.

Ethereum Price Sets A New All Time High

The logical questions to ask is "why are these cryptocurrencies flying like this? What is behind this rally? Can they go higher? Are they a good investment at the current price? "

When you find some inspired, well thought out answers please email it to support@vestact.com.

I think there's a big element of "The Greater Fools Theory" at play here. I buy this thing because there's a greater fool out there who is willing to buy them from me at a higher price than what I purchased them for. Seems legit?

I will end with one of Howard Marks investment adages — "Trees don't grow to the sky, not everything goes to zero"

Happy Black Friday, only buy items you need. Keep in mind there's Cyber Monday on the 27th of November.

Home again, home again, jiggety-jog. Our market is off to a green start, since writing the 'market scorecard' section, Tencent is flat and the Rand has weakened resulting in Naspers opening green instead of red. There is no international data to speak of today. Enjoy your last weekend for November and good luck to the Bokke against Italy tomorrow.

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Thursday 23 November 2017

Thanksgiving, Black Friday, MPC and The Ashes

To market to market to buy a fat pig. Thursday has finally arrived; for some it means we find out what the MPC decides to do, for others Black Friday deals open at midnight and for me, the Ashes cricket summer has kicked off. As a South African, choosing between England and Australia is like having to choose between eating brussel sprouts and cabbage. For entertainment value, not much beats live sport. How many more years until e-sport gets the same global following as cricket, rugby, football, and basketball?

Our inflation number published by Stats SA was inline with expectations, a reading of 4.8%. Having a look at the basket, meat prices are up 15.5%, both wine and water are up 7.2%, fuel is up 10.8% and packaged holidays are up 12%. Surely in the age of discount airlines and the internet, people will find travel cheaper, not more expensive? Talking about prices going down, telecommunication equipment was down 14.6%, home appliances were down 3%, fruit was down 3.5%, and thanks to good rainfall bread and cereals were down by 3%.

Even though inflation came down, don't expect a rate cut this afternoon. Remember at the last MPC meeting, we were one vote away from a rate rise. This is also the last meeting of the year before we hear what happens to our debt and before we hear who the new leader of the ANC will be. I think they will leave rates as they are and then assess where South Africa is in the new year after those two big pieces of information have come out.

Market Scorecard. Wow, what an all over the place day yesterday was. We have gone from very little volatility to 2% stock price moves being the flavour of the day. Yesterday, Naspers was down 4.6%, back to its level from Friday and Richemont was down 1.5%. On the upside though there was Tiger Brands and Kumba up 3%, Steinhoff, Sasol and Aspen were up 2%. The Dow was down 0.27%, the S&P 500 was down 0.08%, the Nasdaq was up 0.07% and the All-share was down 0.75%. With Naspers having such a big weighting, if it is down 4%, the rest of the market has some very heavy lifting to do to get the All-share into the green.

Linkfest, lap it up

One thing, from Paul

We are all anxiously awaiting the forthcoming National Elective Conference of the African National Conference. Whether or not you like their policies, the fact is that they have won over 60% of the vote in recent national elections. So whoever they pick as their next leader will have a good chance of being our head-of state (President) after the general election in early 2019.

The constitution of our post-Apartheid state vests great power in our President. He or she really only answers to the majority party in Parliament. The President appoints all cabinet ministers, heads of state agencies, legal system leaders and heads of state enterprises, mostly without any process of approval or review. So it really matters what happens at this event at Nasrec in mid-December..

According to overnight reporting, the conference is going ahead, and delegates are almost all nominated. There are still some concerns that the whole thing may be delayed by legal challenges, but that seems to be receding - ANC Leadership Race: December conference likely togo ahead despite branch meeting worries

As investors and part of the pro-business lobby, we would be happier if Cyril Ramaphosa were to win, and less excited if Nkosazana Dlamini-Zuma were to come out on top. According to the SAIRR, Ramaphosa has his nose in front. However, they caution that this is based on leaks about how delegates will vote and may be "fake news". Also, note that in terms of the ANC's rules, delegates can change their minds and vote independently on the floor at the event. Keep tuned! (Ramaphosa Is Leading SouthAfrica's ANC Race for Presidency)

Byron's Beats

Jensen Huang may not be a household name like Elon Musk or Jeff Bezos but he is fast making a big impression on Wall Street. Jensen is the CEO of Graphics Chip maker Nvidia. This article goes through 4 quotes from Jensen that investors should know about Nvidia. This one about the automotive segment caught my eye, especially on the back of Uber's recent order of 24 000 self driving vehicles from Volvo.

"Automotive segment should hit the ground running in a few years. We're building this future of autonomous driving. We expect robotaxis, using our technology, to hit the road in just a couple of years." Huang

Here is the full article. 4 Things NVIDIA's CEO Wants Investors to Know.

Michael's Musings

If you are looking at raising funds to study or just feel you are poor at decision making, why not consider an IPO of yourself. Sell shares in yourself, raising money for yourself and giving complete strangers the power to make all the important decisions in your life - The man who sold shares of himself. Some of the decisions made for Mike was who to date, if he could propose and that he should become vegetarian.

Weird to think that it has been just over 10-years since the market high before the 2008 crash. Here is how an investment back then would look today - A Decade Later: What $1K Invested in These Stocks is Worth Today.

Bright's Banter

First things first, we are thankful to have you as a client here at Vestact. If you are not a client, we are thankful that you read our daily message and we hope that we will win your hard earned Rands one day. Happy Thanksgiving to you and your family!

Now back to the Turkey. America slaughtered an eye popping 244 million birds this year, a flabbergasting number I know! According to the US Department of Agriculture, the turkey industry has helped families plate 3.4 billion kilos of meat so far this year. How much meat can you eat though? Not enough it seems.

The cost of a live turkey is at it's lowest since 2013 thanks to a large number of birds in cold storage, this is almost twice last years numbers. This means a 7.3 kilo bird costs around $22.38 on average across the US.

What are you thankful for this year?

The Price Of Turkey This Thanksgiving Is Lower Than Usual Because We Slaughtered 244 Million This Year

Vestact in the Media

Byron chats to Fifi and Karabo on Closing Bell about healthcare stocks - SA's healthcare stocks are bleeding, here's why.

We get a mention in this Business Day article talking about Naspers - JSE within 100 points of record high as Naspers touches R4,000 per share

Home again, home again, jiggety-jog. The man with a moustache much better than mine, Lesetja Kganyago will let us know the interest rate decision around 15:00 this afternoon. Cerner was up 5% last night on rumours that they are partnering with Amazon. We will let you know when the partnership is officially announced and the exact details.

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Wednesday 22 November 2017

Superstar vs Cortez

To market to market to buy a fat pig. As part of Trump's drive to remove regulation and government involvement in the private sector, it was announced yesterday that Obama 'net neutrality' laws are on their way out. Net neutrality is where internet service providers are not allowed to favour some web-pages over others. Here is the Wikipedia page on Net neutrality, where they give a more detailed breakdown and examples.

As this article points out, F.C.C. Plans Net Neutrality Repeal in a Victory for Telecoms, removing net neutrality is a win for telecom companies because they can charge more for the infrastructure that they have built. They can go to the consumer and ask them to pay more so that Netflix viewing is smooth. The Telecom companies can then also go to Netflix and ask Netflix to pay up so that their data moves easier over the telecom's network instead of a Netflix competitor like Hulu.

There are good arguments for and against net neutrality, where telecom companies win on the one side, and internet companies win on the other side. Living in South Africa, this is a debate we have never had. It is commonplace when signing up for an internet line, for your option to be 'throttled' and the other more expensive options to run smoothly. That is normal right?

Market Scorecard. It was another great day out for global stock markets. The Dow was up 0.69%, the S&P 500 was up 0.65%, the Nasdaq 1.06% and the All-share was up 1.18%. It is amazing to think that Naspers is up 60% since July; this is not a small cap company that just landed a new contract, this is the biggest stock on our market! Just Wow.

Linkfest, lap it up

One thing, from Paul

I updated the 'About Us' page on the Vestact website yesterday afternoon, which required me to check in on the performance of our model portfolios in both the Johannesburg and the New York markets. We have been managing money locally in Rands for nearly 15 years, and offshore in US Dollars for just under 13 years.

Since 2003, the compound annual return of our model Johannesburg portfolio is 18.8 percent after fees. This is solidly above the return on the JSE Alsi 40 over the same period of 15.3 percent.

The compound annual return of our model New York portfolio since 2006 is 10.4 percent in dollars and after fees. This is well above the return of the S&P 500 over the same period of 6.1 percent.

Read the whole thing here, which also discusses our approach to stock picking and holding through the cycles. There is a nice picture of the team!

Byron's Beats

Nike has lost a fair amount of market share to Adidas over the last 2 years. Most of that has been within the teen age group, ironically with it's old school trends. This Bloomberg article titled How Adidas Beat Nike at the Old School Game explains the various trends of the Adidas Superstar, Adidas Stan Smith and the Nike Cortez.

To put this all into context, when Nike was just getting started in the 60's, Adidas was the market behemoth. However, Nike slowly became a cultural phenomena and overtook their larger rival. Nike is still twice the size of Adidas and comfortably the market leader. This recent trend is actually more Adidas coming off a low base after a torrid period.

As you can see, these trends come and go. The sector is growing and all these businesses will probably do well over the long run. We still feel the Nike brand is superior and will generally dominate the trends more than the rest.

Michael's Musings

Not only does Amazon make it cheaper and easier to shop but they employ an army of people - Amazon holiday hiring is reaching sky-high levels - this year's tally will be about 120,000. What is even more amazing is that between July and September this year, Amazon increased their staff count by 159 500 people; a chunk would have come from Whole Foods.

Not owning a car and not having a human behind the wheel is the future, Uber is making plans to get that future here sooner rather than later - Uber plans to purchase 24,000 self-driving cars from Volvo in a potential multi-billion dollar deal

Bright's Banter

Taylor Swift... a marketing genius or just a really good vocalist? I think both!

To promote her new album "Reputation" she had a one week streaming blackout and the album sold 1.29 million copies becoming an instant bestseller. "Reputation" joins an exclusive group of six albums to hit 1 million sales in a week in this decade. That is mind blowing.

Your boy likes Taylor Swift tunes, so don't be shocked when you hear bangers like "ready for it" and "look what you made me do" when I drive past you in traffic.

Taylor Swift Needed Only One Week And A Streaming Blackout To Make Reputation The Best Selling Album Of The Year

Home again, home again, jiggety-jog. Later today we will get a CPI read for Mzanzi, where the forecast is for CPI to drop to 4.8% from 5.1%. If inflation comes down I think it is safe to say that the MPC won't increase rates tomorrow. Tomorrow is Thanksgiving in the US, so they are releasing the initial jobless claims today.

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Tuesday 21 November 2017

Groans over David Jones

To market to market to buy a fat pig. Yesterday we spoke about Naspers, today we will move onto the first derivative of Naspers, Tencent. The stock is up 126% this year, which has propelled it to become the first Asian company to break the $500 billion market cap milestone.

I remember reading about Tencent last year in US research notes, where the author was talking about them as an insignificant participant on the US market. Since the Alibaba listing, Jack Ma's company have been the go-to stock to take advantage of China's growth. I would say that is no longer the case, Tencent is firmly on the map and in play.

Market Scorecard. Green, everywhere I look I see green. The Dow was up 0.31%, the S&P 500 was up 0.13%, the Nasdaq was up 0.12% and the All-share was up 0.62%. Even though our market is sitting at record highs, I was interested to see that the list of stocks at a 12-month low is much longer than the list of stocks at 12-month highs. Good to see Mr Price on the 12-month high list, they had a solid set of numbers out yesterday. Another stock that is on the list, sitting at 12-month high and an all-time high is Capitec who is about to cross the R1 000 a share mark.

Company corner

Michael's Musings

Last week Woolies released their 20-week trading statement, which as expected showed that they are under pressure. Their most important division from a profit margin perspective is what used to be called 'clothing and General Merchandise' and now is called 'Woolworths Fashion, Beauty and Home'. The division declined on a like for basis by 2.4% for the period.

Their food division, which I am a huge fan of, had a positive period with like for like sales increasing 5.3%. Unfortunately for the group, the operating profit margin in the food division is around 7%, and the operating margin for clothes is around 17%.

David Jones had a tough time as they transition to their new business model, like for like sales were down 5.3%. A key contributor to the drop in sales is the revamp of the David Jones flagship store. The pictures I have seen look amazing; the goal is to make shopping there an experience.

The second most profitable division, Country Road, had mixed results. They saw like for like sales down 0.4% but they gained market share and overall sales were up 8%. I will be interested to see if they have given up margin to gain market share. In their full-year results, Country Road had an operating margin of 10% with management pegging their medium-term target at 12%.

All in all, David Jones contributes 28% of Woolies profits, it's their biggest division. The newly named 'Woolworths Fashion, Beauty and Home' coming in second with around 24% of the profit. Because David Jones is struggling to turn around, the market is feeling down on Woolies, only giving it a P/E of 13. Compare that to Shoprite on a P/E of 21 and Pick'n Pay on a P/E of 25. There is no doubt that the Woolies share price going forward is very much tied to the fate of David Jones. If management gets the turnaround right you will see Woolies re-rate to a P/E around 20, which would mean the share price going up 50% without any increase in the underlying profit number. For now, the share price probably won't do much in the short term.

Linkfest, lap it up

One thing, from Paul

Vestact is an asset manager, so we don't actually offer advice about setting financial goals, taxes, retirement or estates. We just try to protect and grow the surplus capital that our clients bring to us.

Having said that, conversations about money often stray into those related topics. I enjoyed this Humble Dollar blog post by Jonathan Clements. He makes the point that the most important determinant of the quality of our financial lives is containing our fixed living costs (those are our regularly recurring expenses such as bond, rent or car payments, rates and taxes, insurance premiums and groceries). The lower those are, the easier it is to save. Living within one's means is the key to a stress free life.

Read the whole thing here: Number One Number

Byron's Beats

The theory of investing can get very complicated and philosophical. That is why Warren Buffett is so great to read, he manages to keep things simple in his explanations.

At the moment we are going through a very interesting period. Tech stocks are soaring, making everything else look bad. Many people feel it is necessary to sell out of other sectors and follow the momentum. The FOMO is real.

Others feel the opposite, they want to sell the high fliers and buy into shares that have done badly. These people have a more contrarian nature.

We feel it is important to stick with quality companies but diversify the sectors you have exposure to. Sectors go through cycles. Tech is doing well and justifiably so. We are heavily exposed here and are very pleased with the way things have gone. But we are maintaining exposure to other areas where we feel growth is imminent like healthcare and retail. Their time will come. Remember the Buffett quote which we repeat so often. "The stock market is a device for transferring money from the impatient to the patient."

Bright's Banter

Since Amazon bought Whole Foods, they have slashed most of their prices on 'cool kid' grocery staples such as apples, bananas, eggs, avos, kale, almond butter etc. The company is now offering up to 20% off on turkeys for Thanksgiving - but there's a catch! You see, if you're not an Amazon Prime member you'll have to sign up for the 12 month $99 membership to enjoy this Thanksgiving deal.

Current Amazon Prime members have a lot to be thankful for this Thanksgiving! However, we wonder how Amazon is going to integrate Prime successfully into Whole Foods without leaving non-Prime members feeling excluded in the process - Amazon is ruining the Thanksgiving spirit.

Vestact in the Media

Here is Michael talking about Naspers being A Whisker Away From R4000, on CNBC Power Lunch.

Bright gets a mention in this IOL piece on the Vodacom numbers last week - Vodacom pushes government for allocation of high demand spectrum.

Home again, home again, jiggety-jog. Tencent is up around 3% this morning, which means Naspers will probably open with a '4' at the front of its share price! Asian markets are well in the green which means our All-share will be aiming to break 61 000 points for the first time.

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Monday 20 November 2017

Naspers 4000

To market to market to buy a fat pig. Friday was Naspers day. Thanks in part to Tencent rising 3% on Friday, Naspers was up over 4% at a stage and closed up 3.6%. What is amazing is that we still have 6-weeks left of the year and the stock is up 90%; it only needs another two days like Friday and it will have doubled for the year. Stocks that double in a year are normally your smaller caps, it is wild to think that a one trillion Rand company can double. The current market cap is R 1.7 trillion.

After the market closed on Friday, Naspers released a trading statement for their last 6-months:

"We expect core headline earnings per share to be between 62% (132 US cents) and 67% (142 US cents) higher than the comparable period's 212 US cents."

Based on the above Naspers will sit on a P/E around 40, which is still high but with all the underlying growth it seems reasonable. We prefer to value Naspers as an internet investment holding company, where their NAV is a more important determinant of what the share price should be. We roll this number out regularly, it has been a while since we quoted it though. Naspers' shareholding in Tencent is currently worth R2.3 trillion, which means Naspers market cap of R1.7 trillion is R600 billion lower. That is before we take into account their other listed investments of Mail.Ru worth R14 billion, Make My trip also worth R14bn and Delivery Hero worth R25 billion. We will see their detailed 6-month numbers next week Wednesday.

Market Scorecard. It was a divergent day for markets globally on Friday, US markets opened in the red and stayed there for the day where our market opened well in the green and just pushed higher. The Dow was down 0.43%, the S&P 500 was down 0.26%, the Nasdaq was down 0.15% and the All-share was up 0.97%. Discovery had a good day out breaking R160 a share for the first time and Woolies was up 3% recovering some of their recent loses.

Company corner

Byron's Beats

Last week Thursday we received interim results from Mediclinic. It was a very busy 6 months for the business as they tried to turn around the Middle Eastern division whilst dealing with tough conditions in South Africa and Switzerland. Here are the financial highlights for the 6 month period.

As you can see, it certainly isn't easy but if you strip out a few once offs as well as the write down from the Spire asset, things are slowly improving.

Unfortunately the share price has taken more heat. The market had high expectations for Mediclinic following an incredible growth patch and then the London listing. What we have seen here is a rerating for the company as these expectations have not been met.

The underlying fundamentals are still strong and the company is reinvesting a lot of capital into their hospitals to keep them world class.

There is also the pending Spire transaction which, as of this morning has been taken off the table. Maybe this is not such a bad thing. Running hospitals is an expensive business. It seems Mediclinic already have their hands full. The share had popped 6% on the news but has since pulled back.

We are monitoring this one closely, we are still happy to be patient and see what they can achieve over the next 6 months. Stay tuned.

Linkfest, lap it up

One thing, from Paul

This week on Blunders: Da Vinci for $450m sure, but Twombly for $50m?; Wors outfit gets eaten; Japanese apologise profusely for train that leaves 20 seconds early; and tough times for cops on the American rust belt - Blunders - Episode 79.

Michael's Musings

Africa's rising population will either be a huge opportunity or a burden. People represent potential customers and are a production input, generally speaking more people means more GDP in that particular area - Visualizing a Rapidly Changing Global Diet.

Home again, home again, jiggety-jog. Asian markets are a mixed bag this morning, Tencent is up around 2% though, which means a green Naspers and probably a green All-share. It is a big week for interest rates locally, tomorrow the MPC sits down for three days to decide what they are going to do with Repo and then on Friday evening we will find out what happens to our debt rating globally. I suspect the MPC will leave things as they are, we are still well within our inflation band and they will want to monitor the movement of the Rand over the next few months.

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Friday 17 November 2017

What the Truck!

To market to market to buy a fat pig. WOW! Musk was right; he did blow everyone's mind at the truck launch last night in California. People are not talking about the new truck launched though, they are talking about the launch of the new Roadster. I am amazed that they managed to keep the development of the Roadster out of the media.

I was following the live blog post of the event on Wired (Elon Musk launches Tesla's electric truck: Live coverage) here is how the updates rolled in:

"Production begins 2019! Which means you'll get your truck in 2037 if you order tonight. . . . And Elon's off the stage!. . . . Well that's it! Alex, please tell me you're currently plotting a truck heist. . . . Doing the presidential thing, shaking hands with those in the crowd. . . . And, all the lights just went out. . . . Now's my moment! . . . HOLD ON FOLKS. . . . A SPORTS CAR JUST ROLLED OUT OF A SMOKING TRUCK. . . . What. Is. Happening. . . . Is this the Roadster 2?. . . It looks like a sexed up mix of the Roadster and Model S . . . . It was in the truck! This is the coolest product reveal of all time. . . ."

Here are some of the stats for the new car:

- 0 to 60 in 1.9 seconds
- The fastest production car ever made
- More than 1000km on a charge
- Top speed above 250 miles per hour

It is no secret that Tesla spends more money than comes in their front door through sales. As someone pointed out on Twitter, launching an expensive sports car and having people pay for it up front is a great way to raise short-term interest-free funding.

Moving onto the truck, which is why everyone attended the event. The trucking industry is all about efficiency and ease of use which can only be tested in real life operations. From the presentation, it looks like Tesla has reached a new level of battery efficiency, which will allow the trucks to go 400 miles on a 30-minute charge, and 500 miles on a full charge. Having such range off such a short charge, you could see trucking companies install charging stations at delivery points. The truck arrives, plugs into the charging station and then offloads. Once the offload is complete, the truck is ready to do another 400 miles - This is Tesla's big new all-electric truck - the Tesla Semi.

Market Scorecard. Stocks had a great day out yesterday, US stocks had their biggest gains in two months. The Dow was up 0.80%, the S&P 500 was up 0.82%, the Nasdaq was up 1.30% and the All-share was up 0.62%. Taste announced a monster rights issue yesterday, raising R398 million; their current market cap is around R350 million. The new Starbucks in Melrose Arch is amazing, it is a place that you want to spend time in.

Linkfest, lap it up

One thing, from Paul

Peter Lynch was born in 1944 and ran the Magellan Fund at Fidelity Investments between 1977 and 1990. During that time, the fund averaged a 29.2% annual return, more than double the S&P 500 market index. During his tenure, assets under management increased from $18 million to $14 billion.

I especially liked this Lynch quote, which I spotted this morning in an investment blog:

"I'm always fully invested. It's a great feeling to be caught with your pants up."

Byron's Beats

Phil Knight is the founder of Nike. He is turning 80 this year and Nike is hosting a three-day basketball tournament which celebrates Knight's drive to empower people through sport. This article through Nike News details the tournament.

If you have not yet read Phil Knight's memoir titled Shoe Dog, I strongly suggest you buy it right now for some December reading. Especially if you own the shares! It is a very honest and real account of the highs and lows of starting a successful, large-scale business. (Make sure you buy it from Amazon and support another share of yours!)

Bright's Banter

Steven Terner Mnuchin is an American banker who is the 77th United States Secretary of the Treasury, part of the Trump administration and real estate baller of note! In his previous life, Mnuchin was a film producer and hedge fund manager, with an estimated net worth north of $300m.

Steve has led one hell of a life. However, today's article is not about Secretary Mnuch it's about his ex-wife Ms. Heather Mnuchin who's still balling hard in new West Coast real estate - Heather Mnuchin Steamrolls Into A $13 Million Brentwood Circle Mansion

Home again, home again, jiggety-jog. Naspers is off to another flyer, breaking the R3 800 level. Unfortunately at the other end, Mediclinic and Brait are in the red again this morning after their numbers this week. No major numbers out today, which is weird for a Friday. Next week our MPC meets, don't expect a rate cute and brace yourself for a potential rate increase.

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