To market to market to buy a fat pig. Markets are all over the place at the moment; volatility is on the up. There are not many days when you see so many companies in the Top 40 moving higher by more than 3%. Some of the big movers yesterday were, NEPI Rockcastle up 16.8%, STAR up 10.9%, Investec PLC up 7.5%, MTN up 4.5%, Tiger Brands up 4.2%, and Discovery up 3.5%. In total, 16 companies in the top 40 were up over 3%!
Our large dual-listed companies haven't been fairing as well, partly due to their primary listing coming under pressure but also our strong Rand. Over the last three months, Richemont is down 16% on the JSE and only down 5% in Switzerland. Looking at Naspers, the gap between its value and Tencent continues to grow. I suspect the reason has to do with Naspers's complex holdings structure, coupled with the Multichoice saga and a stench hanging over South African business because of Steinhoff.
Market Scorecard. On US markets, the bulls and bears were in a constant fight for supremacy. On the open, the bears were winning. The bulls then banded together to push the market into the green by 1%. From lunch until around 40 minutes before the market close, things bumbled along. Then just before the market close, the bears staged their counter-attack. The Dow was down 0.08%, the S&P 500 was down 0.50%, the Nasdaq was down 0.90%, and the All-share was higher by 0.90%.
One thing, from Paul
If your investing strategy involves funds with strange names or letters of the Greek alphabet, there is a strong chance that you don't know what you are doing. Or that you are playing with firecrackers!
We saw an amusing example of this on Monday, where a Frankenstein financial product called the Velocity Shares Daily Inverse VIX Short-Term ETN (code: XIV) literally exploded. XIV is an exchange-traded note underwritten by Credit Suisse that gives "investors", roughly speaking, negative 1 times the return on the CBOE Volatility Index (the VIX) each day.
Wait what? Ok, slowly. The CBOE Volatility Index is a measure of the stock market's expectation of near-term volatility implied by S&P 500 index options, calculated and published by the Chicago Board Options Exchange (CBOE). It is sometimes referred to as the fear index or the fear gauge. Volatility has the greek symbol σ. That's the lower case of Sigma. You still with me?
All you need to know is that recently, the VIX has been low and declining. Markets had been very calm. So people made lots of money owning the XIV, because it delivered the opposite of the VIX, and went up almost every day. Plus, people owning it got to say cool sounding things like "I'm killing it right now, 'cos I'm short vol". The fund had almost $2.0 billion in units in issue at the start of the week.
See the chart of what happened next:
Company Corner
Bright's Banter
Facebook had a stellar 2017 year when it comes to earnings as they have managed to beat expectations relentlessly without fail. Here's is what the Zuck had to say about the year:
"2017 was a strong year for Facebook, but it was also a hard one," He went on to say: "In 2018, we're focused on making sure Facebook isn't just fun to use, but also good for people's well-being and for society. We're doing this by encouraging meaningful connections between people rather than passive consumption of content. Already last quarter, we made changes to show fewer viral videos to make sure people's time is well spent. In total, we made changes that reduced time spent on Facebook by roughly 50 million hours every day. By focusing on meaningful connections, our community and business will be stronger over the long term."
We saw the shares go down around 5% when the news above was made public, but the shares then recovered sharply to be up around 2% during the earnings call when management gave more information on how they are going to make the platform more meaningful to the users.
Now lets take a look at their final quarter and full year numbers:
- Revenues: grew by 47% for the quarter to $12.97 billion bringing the total revenue for the year to $40.65 billion.
- Net Income: grew by 20% for the quarter to $4.27 billion bringing total net income for the year to $15.9 billion.
- Monthly Active Users: 2.13 Billion, up from 2.07 Billion last quarter.
- Daily Active Users: 1.40 Billion, up from 1.37 Billion last quarter.
However, the reduction in Facebook's net income fell $3.19 billion from Q3 to Q4 due to a once off charge tied to changes in the US tax system. This comes as no surprise at all as we have seen other companies reporting similar tax charges.
You will find more infographics at Statista
We like the fact that Facebook is going back to first principles by revamping the News Feed and prioritising posts from friends and family over advertised viral videos/content from publishers with an agenda. This will help avoid hurtful content that goes viral from time to time and dilutes the user experience. Most importantly, it'll help curb the invisible hands that have been swaying election results all over the world by perpetuating fake news on the platform. This move could see Facebook's advertising revenues grow slower in the interim, but it'll boost the company's growth long-term, as advertisers/brands will trust the platform more, and engagement will be more meaningful for users.
We are not really worried about the slowing user growth on Facebook itself. Instagram is becoming more relevant; since it introduced Stories, which was the feature Snapchat was created around (RIP Snap). Engagement keeps increasing and advertisers are recognising this, joining in on the action. Corporate accounts are growing by high double digits per month, especially those which trade directly to consumers. They do product deals with influencers to promote their product, a strategy that has helped the likes of Adidas flourish in recent times.
For the first time, Facebook admits to dragging its feet in response to the Russian hacking reports. This is wonderful news as it is what ultimately led the company to revamp its news feed to prioritise friends and family. This is reassuring to the people of the U.S.A and the rest of the world; that this will never happen again as they're finally regulating themselves as the media company that they are! We think this will help ease the regulatory scrutiny and management can focus more of their time exploring other growth avenues.
Let's not forget the fact that this machine still has more relationships than Islam, Capitalism, and Communism. These relationships are proving to be more and more meaningful as they're not going to be spammed with viral videos and unnecessary content that's targeted to change the way they perceive certain political candidates for example. With WhatsApp now being Facebook's second-biggest property followed by Messenger and Instagram, we think the company is finally doing the right thing in society and as a result we hold and buy more!
Linkfest, lap it up
Michael's Musings
Imagine going to the supermarket and then freshly picking the herbs that you want? With urban/vertical farming, you can now do just that - Balderton Capital leads $25M Series A in 'urbanfarming' platform Infarm
When Jobs made his comeback to Apple, the company was weeks away from going bust. I stumbled across this article which reminded me that it was Microsoft who threw them a lifeline. I wonder if Microsoft regrets helping Apple? - Aug 6 1997: Apple Rescued - By Microsoft
Home again, home again, jiggety-jog. Our market is slightly down on the open, rather boring compared to how the rest of the week has gone. Tesla's numbers last night showed that they burnt through $675 million during their last quarter, not much of a reaction from the stock though. We will have a more detailed breakdown of the numbers in the next couple of days. Then later today, it is the weekly initial jobless claims read from the US. Considering how the market was spooked last week by a strong labour market, the data this afternoon might have a bigger impact than normal.
Sent to you by Team Vestact.
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