Money with a dash of Funny: Amazon

Showing posts with label Amazon. Show all posts

Wednesday, 7 February 2018

Clouds Raining Cash at Amazon

To market to market to buy a fat pig. Whoa, we are going to need a neck brace after that market whiplash. Yesterday was carnage for global markets, Asian stocks were down over 2%, our All-share opened down over 3%, and the US markets opened down 1.5%. By the time I went to bed though US markets were handsomely in the green!?

Market Scorecard. Thanks to the indecisive market, the VIX, a measure of volatility, was at its highest level since the middle of 2015. The Dow closed up 2.33%, the S&P 500 closed up 1.74%, the Nasdaq closed up 2.13%, and the All-share closed down 1.29%. The best reason I have seen for the market recovery is, "buy the dip" rhetoric from many brokerage firms. Even with this bounce, many stocks can still be thought of as being on sale. We can't control or even predict the short-term movements of the market. We can control what companies our money is invested in, and make sure that we are regularly saving.

I had a good chuckle this morning, reading a few articles on yesterdays market movements. You can see many of the articles were written before the market opened, while futures were still pointing toward a very red open. The bulk of the article is about why the market will continue to drop, they then do an abrupt turn, talk about a bottom being formed and then say the market is bouncing. The truth is that most reasons given for market movements are thought up after the fact. It will be something that can explain movements in one sentence, and fits into our mental need to create easy to imagine stories.

Company Corner

Byron's Beats

I remember a time when Amazon used to stumble on to a profit every once in a while. These days, with Amazon Web Services (AWS) printing cash, profits are becoming the norm. Amazon reported 4th quarter and full year numbers last week Thursday which pleased the market and smashed expectations.

The image below paints a decent picture of what happened in the quarter. It also indicates how the more mature North American online retail business is now starting to make money. After all those years of growing scale and reinvesting profits, Amazon is finally reaping the rewards.

For the full year, the group recorded a whopping $178bn in sales. This showed an increase of 31% from 2016. Net income came in at $3bn which equated to $6.15 a share. It is still not about earnings just yet for Jeff Bezos. Amazon dominates 40% of the US online retail market, but they won't stop there. India, Australia, Europe and South-Eastern Asia are in their sights. Please come to South Africa?

Operating cash flow is probably a better number to look at. It came in at a healthy $18.4bn. The AWS division has been incredible for this business. It has a 40% market share of the global cloud business and is extremely profitable. It has allowed Amazon to expand the rest of its businesses even quicker than even they ever expected.

The results report included some 2017 highlights. Below are a few that stood out to me.

- In 2017, more than five billion items shipped with Prime worldwide.
- Fire TV Stick and Echo Dot were the best-selling products in 2017 across all of Amazon. Customers purchased tens of millions of Echo devices last year.
- Amazon hired nearly 130,000 employees globally in 2017, excluding acquisitions.
- Amazon announced that the Prime Video app is now available on Apple TV in over 100 countries. Prime members now have more ways to stream award-winning and critically-acclaimed titles, including Amazon Original Movies and Prime Originals.
- NFL Thursday Night Football on Amazon Prime Video saw a total of 18.4 million views in 11 games. Prime members in more than 200 countries and territories streamed games on living room devices, including smart TVs and Fire TVs, as well as the Prime Video mobile app and the web.
- Amazon acquired the global television rights to The Lord of the Rings, based on the novels by J.R.R. Tolkien, with a multi-season commitment.
- Amazon launched two furniture brands: Rivet, offering affordable and versatile mid-century modern furniture ideal for smaller spaces; and Stone & Beam, offering durable and stylish furniture for the modern household.
- Amazon Go, a new kind of store with no checkout required, is now open to the public in Seattle. The checkout-free shopping experience is made possible by the same types of technologies used in self-driving cars: computer vision, machine learning, and sensor fusion.
- Amazon launched its retail and third-party marketplace offering in Australia with fast delivery on millions of products, including items from thousands of small and medium-sized businesses.
- Prime selection in India now offers members more than 25 million local products from third-party sellers.
- Amazon Web Services (AWS) announced several enterprise customers during the quarter: Expedia, Ellucian, and DigitalGlobe are going all-in on AWS; The Walt Disney Company and Turner named AWS their preferred public cloud provider; Symantec will leverage AWS as its strategic infrastructure provider for the vast majority of its cloud workloads; Expedia, Intuit, the National Football League (NFL), Capital One, DigitalGlobe, and Cerner announced they've chosen AWS for machine learning and artificial intelligence; and Bristol-Myers Squibb, Honeywell, Experian, FICO, Insitu, LexisNexis, Sysco, Discovery Communications, Dow Jones, and Ubisoft kicked off major new moves to AWS.

It is a lot to take in but you get why there is so much excitement and hype around this business. They are growing in the right areas. Still targeting markets in sectors that are coming off a low base. Their scale and expertise allow them to dominate within these sectors. We continue to hold and buy Amazon as a core holding in our portfolios.

Linkfest, lap it up

One thing, from Paul

So, after a shocking sell-off on Wall Street on Monday, we had a brilliant bounce last night. After a session full of wild movements, the Dow Jones Industrial Average ended up 567 points (or a move up of 2.33%). What a mug's game! Who is driving this bus?

Well, exactly. Everyone is clueless. As I said yesterday, the best thing to do is to watch from the sidelines. Or buy the dips, if you are brave.

I saw a fun analogy of the randomness of all this in a tweet by Morgan Housel. It's about a man walking a dog across the southern part of Central Park in New York City. I liked it because I know that area very well, having run around those roads many, many times.

Michael's Musings

I wasn't around during the space race, but watching Musk's rocket launch this morning, I got a small taste of the excitement. The goal now is to get to Mars! - SpaceX's Falcon Heavy Rocket Launch. Maybe the reason for the market recovery was due to the excitement around humanity going deeper into space?

This is a big for Tesla. Homeowners love making home improvements, so having a presence in stores where there is large foot traffic is a good thing - Tesla will sell its solar power products at 800 HomeDepot stores.

Bright's Banter

The lesson from that last few trading days is that markets don't go up in a straight line, there will always be gyrations in the process. Howard Marks is known for his famous mantra that "Trees don't grow to the sky, and not everything goes to zero. And if you take care of the losers, the winners take care of themselves".

This chart below shows how some of our model portfolio favourites performed on this said "Flash Crash".

You will find more infographics at Statista

Home again, home again, jiggety-jog. As expected our market is off on the front foot this morning. The business confidence read yesterday was the highest it has been for two and a half years; confidence leads to growth! Company data out today, Tesla releases their FY numbers. All eyes will be on their cash burn and projected figures - or just the roadster cruising through space!

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Thursday, 1 February 2018

These Big Names need Vitality

To market to market to buy a fat pig. As expected Janet Yellen announced no change to the US interest rate last night. Inflation over the next 12-months is expected to get to the target of 2%, which signals we are still on for three small rate raises this year.

During the Fed's 105-year history, Yellen is the first woman to lead the organisation. She was at the Fed for 14-years, four of which was as the Chair, where under her watch the US unemployment rate dropped from 6.7% to the current 4.1%. Many factors are at play when unemployment drops; business friendly interest rates are a key cog. Running the economy 'hot', which prolonged a low-interest rate environment has not been everyone's preferred path. It is the path Yellen and Bernanke chose, time will tell if it was the correct one.

Market Scorecard. US markets bounced back from three days of losses, with some very modest gains. The Dow was up 0.28%, the S&P 500 was up 0.05%, the Nasdaq was up 0.12%, and the All-share was down 0.07%. Capitec had another tough day out, dropping 13%, now trading at R800. It is now down 27% since the start of the year. Regardless if the allegations are true or not, the problem for shareholders is that the company was trading at comparative values of two or three times that of other South African banks. The more stretched your metrics, small hiccups can have a big impact on the share price. A problem for the company itself is that depositors are worried to use them now. Their amazing record of opening around 100 000 new accounts a month has probably come to an end, impacting future growth potential.

The only stock currently sitting at a 12-month high, is former JSE star, Mr Price. Since the start of November last year, the stock has surged 67%! South African's are feeling positive about South Africa again. A market commentator pointed out that yesterday Amazon became the most valuable listed company in the world. In this case he is not talking about the market cap but enterprise value (EV). To calculate EV, you subtract cash on hand from the market cap and then add on the debt. The logic is that if you bought 100% of the company, cash sitting in the company's bank account would be yours, effectively reducing what you paid for the company. In other words, the market is valuing Amazon's actual business excluding cash more than Apple's actual business excluding cash.

Linkfest, lap it up

One thing, from Paul

US equity markets have had a terrific year. In the last 12 months, the S&P500 is up 23%. That is not normal. You have to be fully invested to benefit from such moves. That's one of the most important things that we do here at Vestact – keep our clients optimistic and in the market. Don't get distracted by the naysayers and all the noise!

Of course, not every single stock has delivered equal performance. A few tanked, most advanced, and then some did exceptionally well. Take a look at this graphical representation from Finviz. The size of the block is correlated to market capitalisation, and the deeper the green the better the increase. Amazon stands out, with a 76.19% rise since February 2017. The biggest loser is General Electric, with a decline of 45.56% over the last calendar year.

Follow this link to check it all out for yourself: Finviz - Financial Visualizations

Byron's Beats

Jeff Bezos, Warren Buffett and Jamie Dimon. What a powerhouse team! On Tuesday they came out saying that they were exploring a joint venture which would try and fix the US healthcare system. Warren Buffett, in particular, has been very vocal about how expensive healthcare is in the US and how that expense creates a lag on the economy. When these guys speak, people listen. Healthcare stocks as a collective have dropped two days in a row since the announcement.

Preventative healthcare is all the rage these days. It makes sense. It is far cheaper to prevent a disease than to cure it. I may be biased here as a proud South African and Discovery shareholder but these guys should seriously contact Vitality and implement the incentive-based, preventative health insurance model.

Berkshire Hathaway, Amazon and JP Morgan have a million employees combined, who can immediately be put onto the Vitality system. It get's people exercising, eating correctly and constantly screened. That is how you bring down the cost of healthcare. They already have the data to prove it.

Someone please tell Adrian Gore that these guys need him!

Bright's Banter

I'm a not here to discuss how amazing an investor Warren Buffett is. I think we all agree on that and his track record tells a story. All I wanted to do is share these amazing timelines by the Visual Capitalist on how he processes information; maybe we can learn a thing or two. Buffett is still one of the most studied individuals because people are genuinely interested in what sets him apart from all the other investors.

Inside Warren Buffett Brain Part 2

Courtesy of: Visual Capitalist

Home again, home again, jiggety-jog. Capitec is up this morning, along with the broader market. It is 'Big Tech Thursday' this evening, where amongst others, Amazon, Alphabet, Apple, Alibaba (To have a successful tech company does the name need to start with an 'A'?) and Visa all report earnings. Stay tuned, we will give all the updates in the coming days.

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Friday, 3 November 2017

The Only Jungle That is Still Growing

To market to market to buy a fat pig. It was a rather busy day on the international news front yesterday. Out first was the Bank of England's decision to raise rates for the first time in a decade, from 0.25% to 0.5%. Going forward though the bank only expects interest rates to reach 1% by the end of 2020. Lower for longer. As long as interest rates sit below historical averages, equity valuations will sit above historical averages.

Next on the list, was the widely expected nomination of Jerome Powell by Trump as the next Fed Chair. He is an ex-investment banker and private equity guy who has spent time working in the US Treasury and has been on the Fed's board of governors since 2012. He is seen as a more 'dovish' candidate for the job, meaning the chances of lower interest rates for longer is on the cards. Even though Powell is a registered Republican, he has worked on bi-partisan projects and was initially nominated to the Fed board by Obama in 2011. The first time since 1988 that a president nominated a member of the opposition party for the role. Having both public and private sector experience is a definite advantage. The only criticism I have been able to find of him is his NAV; the argument is that having over $50 million in the stock market could influence his decisions and that he won't be sensitive to the 'average Joe' on the street.

Then the last significant piece of news is the GOP's proposed changes to the US tax system, Analysis: Winners and losers in the GOP tax plan. For us, there are two main changes to consider. The first is that corporate tax is being cut from 35% to 20%. Then more importantly for most of our tech holdings, the tax for bringing offshore cash back to the US will be taxed at a reduced 12% instead of the current 35%.

Market scorecard. With all the big news out of the US yesterday, the markets spent time in the red as well as the green, as they digested the implications for companies. At the end of the day though the Dow managed to finish at a record high. The Dow was up 0.35%, the S&P 500 was up 0.02%, the Nasdaq was down 0.02% and the All-share was down 0.31%. Apple had their full-year numbers out last night, beating expectations for top and bottom lines. The stock is up over 3% in after-hours trading, taking their market cap to just shy of $900 billion. We did the maths this morning, their profits for the last 3-months is enough to buy Shoprite in its entirety and still have around R20 billion in change!. Sticking with Apple, their iPhone X (ten) goes on sale today; news outlets are showing queues outside stores.

Company corner

Bright's Banter

Amazon's 3Q Numbers

In his new book, The Four, Prof. Scott Galloway says that Amazon appeals to our consumptive gut, taking in stuff we need to survive and sending it to our bodies. The notion of "more" is hardwired into us. Even when things are too much, there is still a desire for more. When it comes to consumption; throughout history the penalty for too little has been starvation and malnutrition which is a terrible death. The penalty for too much is lethargy, gluttony, diabetes but has a pretty long lag. Open your cupboards, open your closets you have ten to a hundred times more than you really need. It's really crazy when you think about how much stuff we have, but its so hardwired in our DNA! The ultimate business strategy is more for less. It has been the business strategy of China, Walmart, and now Amazon.

Here are some astonishing statistics: 44% of U.S. households have a gun and about half of U.S. households have a landline. However, about 64% of these same households have Amazon Prime and spend about $1400 per month on Amazon. This now means more households have a relationship with Amazon Prime than have a landline phone. If this trend continues, more people are going to have a pipeline of stuff to their house from Prime vis-a-vis than have cable television.

Amazon is about selection, convenience and value to the consumer.

Amazon the everything store reported better than expected third-quarter numbers on the 26th of October 2017 sending the shares surging 8% higher in the after-hours trade.

How did the company do compared to Wall Street's expectations?

- Made $43.7 Billion in Sales, up 34%, beat by $1.6 Billion
- Made $256 Million in Profit
- Earning Per Share of $0.52, beat by $0.49

The cloud business Amazon Web Services (AWS) is still a big growth area for Amazon which netted Sales of $4.6 Billion, growing 42% year-on-year which was the same rate as last quarter (Q2).

All eyes were on the $13.7 Billion acquisition of Whole Foods which was completed in August. We were ahead of the results when we wrote about the increased traffic in the the month of October here . Foot traffic to Whole Foods has increased tremendously, up 17% year-on-year following the acquisition. The biggest losers were Sprouts, Trader Joe's, Sam's Club, Target, CostCo, Kroger and Walmart in that order. Whole Foods had Sales of $1.3 Billion for the quarter and we expect these to accelerate with store optimisation as they move more into digital.

Another big winner for the company has been Prime Video, the original content streaming services competitor to Netflix. In the past three years Prime Video has gone from nothing to being the third biggest video streaming platform today. Prime Video now on the Microsoft's Xbox One!

The fourth quarter is going to be a big one for Amazon as it includes the December holidays. Amazon expects to make between $56 Billion and $60.5 Billion in Sales including Whole Foods and favourable exchange rates. That translates to 28% to 38% growth compared to last year.

The Amazon story has been the most fascinating. This is the only 800 pound gorilla we know that's still investing 100 cents to the dollar back into consumer experience. No company can compete with that kind of re-investment pace at the moment as it is a very rare occurrence in business. It truly defines Jeff Bezos ethos of "your margin is my opportunity."

Linkfest, lap it up

Michael's Musings

Ever wondered who the richest person on each continent is? Well now you can know - The Richest Person on Each Continent. Lehmann (misspelt on the image) is the main person behind 3G Capital, the company who put together the titan that is AB InBev.

Home again, home again, jiggety-jog. Our market is off to a green start this morning, following the direction of Asian markets. It is jobs day again in the US; we will get the initial read on unemployment and the number of jobs created in October. The data will also show us how much September's numbers were impacted by the hurricanes moving through the East Coast.

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Friday, 20 October 2017

Amazon Is Coming For You

To market to market to buy a fat pig. Business Insider has a daily blog, called Closing Bell, which gives a quick summary of the day's events and links to top stories. Here is how they described yesterday:

"Thursday didn't get off to a good start. On Thursday morning, Apple was down as much as 2.8% on reports of the company cutting production orders linked to the new iPhone 8. Apple led the S&P 500 down as much as 0.5% in early trading. But, the markets weren't going to let a single stock drag them down, so at about 10:15 AM, the S&P reversed course and started a long march upward to end the day above its break-even point."

Market Scorecard. Locally most of the market was red yesterday, the only 'bright' spot were the gold miners, up 1.45% as a whole. The Dow was up 0.02%, the S&P 500 was up 0.03%, the Nasdaq was down 0.29% and the All-share was down 0.44%.

Company corner

Michael's Musings

On Friday last week, before the US market opened, Wells Fargo reported their 3Q numbers. Whenever I read their results, I am amazed at their size and the size of the US economy as a whole. Here are some of the massive numbers, for reference bear in mind that South Africa's GDP last year was $295 billion. Over the previous quarter, they had applications for $73 billion in home loans, $59 billion were approved. Over the period, the average deposits in the bank were $1.3 trillion and the average outstanding loans were $952 billion. Shifting to the Wealth and Investment Management division, it had $1.9 trillion in assets! When people talk about the most prominent asset managers, Wells Fargo is never mentioned, even though there are only a handful of firms with over $1 trillion in assets.

A sign that the US economy is back on track, is the number of nonperforming loans is decreasing. Half of the improvement comes from their commercial and industrial customers, and the other half comes from what they call 'Real estate 1-4 family first mortgage' segment. Even though they have $9 billion in nonperforming assets, it is less than 1% of their loan book.

Unfortunately, the number overshadowing the results was their $1 billion they had to spend in legal costs. To make matters worse, it is not a tax-deductible expense. Thanks to that $1 billion expense, Net Income was down 18% to $4.6 billion. When you type, Wells Fargo and scandal into Google, there are a few that pop up from the last year. Wells Fargo employs just short of 300 000 people, the hope is that there were a few bad eggs that have now been removed and that it is not a company-wide culture problem. It seems that the strategy from management is to comb through the company, find the practices that are questionable, stop them and then refund customers any potential damages. By doing this, it may be costly upfront, but they then get to start with a clean slate.

The reason to own Wells Fargo is that their performance is closely tied to that of the US economy, which should continue to grow for generations. Added to the growth of the US economy is the ability of Wells Fargo to cut costs by encouraging customers to go electronic. Over the last year, they have consolidated 145 branches into existing branches; they still have around 6 000 retail branches in their network. Americans love using cash though, less than 1 in 2 customers have a credit card. There has also been a big push to move customers online; you can now apply for a home loan through their webpage, and they have made doing an EFT easier. Management is starting to see behaviour shifts in clients, who are beginning to embrace electronic channels.

Wells Fargo is a juggernaut that keeps rolling forward, despite all the scandals swirling around them. If they can cut out the cancer of putting profits above the customer, they will survive and probably be stronger down the road for it.

Linkfest, lap it up

Byron's Beats

I love seeing modern, extravagant, large buildings popping up around Johannesburg. It just smells like progress! The new Discovery head office in Sandton is the largest single-phase commercial office development in Africa. It also has a 5 Star green rating for its environmentally friendly design and infrastructure.

As you can imagine, it features a fully equipped gym, a running track, yoga decks and multipurpose courts which encourage health and well-being. You have to practice what you preach.

This cool article explains all the features and green credentials - New Discovery Head Office is Certified Green.

Bright's Banter

A few days ago, I was watching a Bloomberg interview of one of my favourite Professor Entrepreneurs, Prof. Scott Galloway. They asked him about his new book The Four, Or How To Build A Trillion Dollar Company and his thoughts on Amazon. Below is what he had to say about the company, and here at Vestact we kinda liked what he had to say because Amazon is one of our biggest holding for our offshore portfolios.

Supermarkets in the U.S. are declining fast at the hands of the Amazon and Whole Foods tie up. Foot traffic to Whole Foods has increased tremendously, up 17% year-on-year following the acquisition. Here is the split of where they're stealing the customers from.

However, if you control for the size of the competitor, Trader Joe's and Sprouts were clearly the losers.

Amazon is not just stealing foot traffic they are disrupting the grocery market. The past few months have shown that they're masters at storytelling and have found different ways to rise to the top in markets they play in. When Nike announced it was going to start distributing on the Seattle Giants website, its shares were up 2% on the day, compared to shares of traditional sports retailers like Footlocker, Finish Line, Dicks Sporting Goods tumbled.

On the 6th of this month when Amazon announced they might be entering the prescription drugs market; shares of CVS and Walgreens dropped by 4% and 5% respectively, while Express Scripts is now trading at its lowest point since 2013.

Even Swatch shares flattened when negotiations between the watchmaker and Amazon stalled. As Prof. Scott Galloway observes, we may be on the precipice of a Singularity but not the good kind. . . The Amazon Singularity!!!

Prof. Galloway said that one of the key components of the free market is that no one individual or firm controls the market. However, concerning the consumer market or specifically the market capitalisation of consumer companies, it's not interest rates, consumer trends, not even the underlying performance of the company that matters. The one factor driving shareholder declines right now is whether or not Amazon is planning to come into your category or distributor your products.

Home again, home again, jiggety-jog. Our market has bounced back from yesterday, currently up 0.8%. US data out today includes existing home sales and Baker Hughes oil rig count. Get your rest this weekend, next week is going to be busy; most of our US holdings report and we have the South African mid-term budget.

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Tuesday, 29 August 2017

Avos are Cheaper in the Amazon

To market to market to buy a fat pig. Ladies and gentlemen, the date has finally arrived. I'm talking about Apple's new product launch conference, which has been scheduled for two weeks from today on the 12 September. As an Apple shareholder, it will be a rather big day, part of the reason the stock is up 40% this year is due to the expectations around the iPhone 8. As a consumer, it is exciting to see what new features and products their engineers have come up with. The rumour mill has it that Apple will unveil the third generation of Apple Watch, which will have space for a sim card so that the phone and watch are not as dependent on each other. There will probably also be operating system upgrades, making your current Apple products feel like new products again.

New York, New York was very quiet yesterday which was unexpected given that large parts of Texas are under water due to hurricane Harvey. At last count 10 oil refineries have stopped refining and around a quarter of the oil production in the Gulf of Mexico has been suspended. Your first instinct is that oil prices would climb on these developments, not so, WTI crude was down 2.4% yesterday. It seems that due to refinancers not producing, there is a lower demand for oil but at the other end of the production process, "gas"/petrol prices in the US are at two-year highs due to the lower petrol production. Then there are all the insurance claims and insurers needing to raise the money to cover those claims. One of the ways insurers raise funds is through sales of equity holdings Here is the scorecard, the Dow was down 0.02%, the S&P 500 was up 0.05% and the Nasdaq was up 0.28%.

Locally our market mostly bobbed between red and green yesterday, at closing bell we were down 0.18%. Woolies had another red day, down another 3%, bringing the total drop since results to a loss of slightly more than 8%. On the positive front though, Aspen has strung a couple green days together to be up 7% over the last 5 trading days, eyeing that R300 a share mark.

How much is a CEO worth? Well Uber look set to pay around $200 million to their new CEO, Dara Khosrowshahi, just to compensate him for the stock options he will lose at Expedia when he leaves, Uber's New CEO May Get at Least $200 Million to Exit Expedia. That amount is before they have even spoken about salary. Remember that Uber is a private company, so the current shareholders are very involved in who the next CEO is and what to pay him. I suppose, if the right CEO gets the company from burning $600 million every three months to cash flow break even quicker than expected, $200 million is well worth it?

Expedia stock was down 4.5% yesterday on the news, showing how highly rated Dara Khosrowshahi is. Quickly picture things from Expedia's point of view. Dara was the main driving force in creating Expedia, so the board and shareholders wanted to keep him around for the foreseeable future. To do that they gave him long dated stock options worth $190 million (a cool R2.5 billion). I wonder if the board is now thinking they should have given him even more options, to make Dara unaffordable for Uber? The mind boggles that R2.5 billion golden handcuffs weren't 'golden enough'.

Linkfest, lap it up

One thing, from Paul

Here at Vestact we like to remind clients that the stockmarket is a very efficient form of investing compared to fixed property (like houses and small commercial buildings). Trades on major bourses like the Johannesburg Stock Exchange (JSE) and New York Stock Exchange (NYSE) are effected immediately, guaranteed and settle after a few days.

Compare that to the ludicrous run around when doing a property sale. After estate agents' fees, bank homeloan dramas, deeds office mess ups, conveyancing attorneys mistakes and the massive transfer duties payable, property transactions take months! A significant number of sales simply fall through.

So I was pleased to see that the New York market settlement time (from trade to cash payout on a sale) will shortly move from three days down to two - SEC Adopts T+2 Settlement Cycle for Securities Transactions

That's referred to as T+2 in settlement terminology. Here in Johannesburg we are on T+3.

Michael's Musings

Amazon haven't wasted any time stamping their style onto Whole Foods, not even a day passed from purchase to changes! - Amazon just made shopping at Whole Foods cheaper - here's exactly how much you'll save on each item. Some of these price cuts are significant.

Barry Ritholz has some good advice for the new lottery winner. Even though you didn't just win over $700 million, his advice is applicable to wealth management in general - How to Deal With a $759 Million Lottery Jackpot. "The odds of winning were long; so are the odds of keeping those winnings."

If bribery is a 'normal' part of daily life, is it still wrong? Imagine doing business where you need to bribe someone to get your electricity connected on time and then bribe someone else to get a drivers license - Nigeria's first ever corruption survey is as bad as most people imagined

Byron's Beats

Many businesses are worried about Amazon eating their lunch. They even have a word for it, the Amazonification of things. As a brick and mortar retailer you are right in the firing line but now it seems even the banks are under threat. As this article titled Amazon is a threat to banks suggests, it's not just the obvious avenues such as credit card processing and trade financing. It is the fact that youngsters identify with brands such as Amazon a lot more than they do the banks. I am very interested to see how Discovery roll out their banking operations in light of all the new technologies available.

Home again, home again, jiggety-jog. Asian markets are all in the red this morning, thanks to North Korea firing a missile over Japan. For Gold bugs, this increased risk of war means that gold broke the $1300 mark for the first time this year. Thanks to a higher gold price, gold miners are flying this morning. Key data out later today is a consumer confidence read out of the US.

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Friday, 28 July 2017

The River Keeps on Flowing

"There are many, many lines in the water here at Amazon. If you are competing against them, then you had better beat them on price. The demise of the department store model has in some senses been as a result of more competition from niche brands (who like Nike, now have their own store on Amazon) and the changing perceptions about shopping online."

To market to market to buy a fat pig Stocks in Jozi slipped off their best levels of the day, almost closing in the red, the ALSI kept their head (collective bobbing heads) above water, up one-tenth by the close of business. We were trading above 55 thousand points and flirting with closing highs, industrials weighed on the overall market and in particular MTN. That stock (MTN) was sold off over six and three-quarters of a percent, conversely the beer giant AB InBev rallied about the same amount on cost cutting initiatives that have boosted profitability. There is only so much you can do about your customers consuming more beer, there is a lot that you can do about costs. To a point. More on MTN when they have their results next week, they could be throwing the kitchen sink at "it" (us) and scrubbing the decks clean for a new era.

Other stocks enjoying a good time of it was the likes of Anglo American and Mediclinic, there was a new all time high print during the day for Naspers (although they slipped by the close). Standard Bank was another standout stock that had rallied to a new 12 month high, perhaps lower rates are set to stand them (and many other banks) in good favour. At the opposite end of the spectrum was the likes of Famous Brands, isn't that supposed to be linked to the consumer too? Perhaps Standard Bank, who have had many years of stock price mulling around (like much of the SA inc. non mining landscape), is looking cheap enough to buy some. It does all depend on the ratings downgrade, and whether or not they (all the banks) will have to raise more capital, and at what price?

Another noticeable 12 month low was from technology business EOH, I suspect that investors could be looking at the current share price and if the allegations are unfounded, then the stock certainly does look cheap at a little above 100 Rand. The company CEO put out a pretty strongly worded email, as Byron noted, if there was someone thinking about doing a deal with the company, they are certainly scrambling and something is definitely afoot here. What it is ..... is not completely clear, the market is definitely taking a wait and see approach and selling first and then asking questions later.

New York, New York! Stocks on Wall Street slipped in the second half of the session, politics still continues to grind away in the background, technology stocks came off the boil through the session, at least some of them. Apple, Alphabet and Microsoft all slipped off some recently lofty levels, Facebook post their results bucked the trend and added nearly three percent on the day to close at all time highs, after what were sparkling results from the session prior. Briefly both Facebook and Amazon were above 500 billion Dollars each, collectively one trillion Dollars.

Session end the Dow Jones added nearly four-tenths of a percent, the broader market S&P 500 sank around one-tenth, with losses across broader technology and healthcare pulling the overall market down. The nerds of NASDAQ lost nearly two-thirds of a percent, after having started the day in record territory. There was a magnificent Howard Marks piece titled: There They Go Again...Again, which offered some wonderful insight into all things, as he usually does. Marks sounds some warning shots across the bow of the market, indicating that he thinks there could be some trouble coming, he may be very early. He does have some compelling arguments for things such as cryptocurrencies and credit in particular, which is his area of expertise. Oaktree Capital themselves had results yesterday, which were well received.

Last evening saw a slew of results, equally yesterday in Europe, it was super-sized day. Starbucks, Stryker, Cerner, Nestle, L'Oreal and the list goes on, to include Columbia, Twitter, the aforementioned Oaktree and then some more. It really was a day of reading and trying to let it all sink in. Much of this will be written about in the coming days and weeks.

Company Corner

Amazon is an equally exciting and amazing business, every little bit as intriguing as the new technology titans of our time. What Jeff Bezos has been able to build over a period of two and bit decades is a testament to his vision and belief that anything is possible. In fact, the anything store from A-Z is what Bezos wants Amazon to be. Whether you are a part time user of the service to buy infrequently, or whether you are a Prime user who likes to order everything at all points online, and live for the convenience, then you pay more and Amazon is happy to deliver. I guess Bezos and Amazon work with the philosophy that if the customer adopts the product/service, then we will give it everything, if not, cut it and can it.

The company reported last evening, Second Quarter Sales up 25% to $38.0 Billion, missing earnings per share consensus by a wide margin (this is not new for this business), beating revenue expectations equally by quite some margin. It is equally true that it is not your average business to try and value, which is why, like many growing businesses, there is too much to try and "work out". It is just too tough with the likes of Amazon to value this relative to a peer, in reality they are a disruptor of what we found to be normal. Shopping online is no longer something new.

The company also has a massive web services business (AWS - Amazon Web Services), where you can host your infrastructure offsite, at both a convenience and cost benefit. Gone are the days of knowing where your "box" or server was. The company continues to invest heavily there, looking to open five new sites in France, Sweden, Hong Kong, China and another (a second government cloud region in the East) "shortly". Investments like these suck a lot of capital, as does their plans to add large amounts of space to their floor space in their fulfilment centre (where your goods come from). Equally, with Amazon becoming more aggressive in the content space, that investment sucks a lot of capital too.

This is still very much a North American business. 22.3 billion of the 37.955 billion Dollars generated in revenues coms from that region, the home market. There is scope to grow their business a lot in many ways, through content, through Amazon Fresh (and Prime Go), through continued roll out of their existing services in many destinations. India has become an interesting market for Amazon too, I am sure that they are finding it VERY different to their home base. Guidance was a little mixed, relative to expectations, not by too much.

The long and short of these results is that the company is investing in the key areas we have spoken about (the most in any other previous quarter in their history), as well as on engineers to build out their AI Alexa service. There is the small matter of the Whole Foods deal closing and seeing how the two models are going to combine, on the earnings call, Brian Olsavsky (CFO at Amazon) had this to say about the organic food store: "We think they are very customer-centric, just like us. They've built a great business, focus around quality and customer. So we're really glad to join up with them." It is that simple.

There are many, many lines in the water here at Amazon. If you are competing against them, then you had better beat them on price. The demise of the department store model has in some senses been as a result of more competition from niche brands (who like Nike, now have their own store on Amazon) and the changing perceptions about shopping online. Did you know that briefly yesterday, Jeff Bezos was the richest guy in the world on paper? And that was after having sold a lot of shares recently to fund his spaceship program. For Bezos, it isn't about meeting the numbers that the analyst community sets for the company, in fact he has never been on a single earnings call to explain his vision, that was set out in the founding statement and letter.

In my opinion, Bezos writes just as compelling letters as Buffett, or Gates, or any of the other business giants. He talks about, in the recent annual report of True Customer Obsession and one must Embrace External Trends, as well as High-Velocity Decision Making. He then always attaches a 1997 letter to shareholders, now 20 years in and just as relevant. Some interesting points to pull out from there: "We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions." That is exactly where we are now, and if you can't take the heat of heavy investing, then this business is not for you. If you are looking for visionary thinking, a future-is-now business and something that will continue to define our lives. We remain conviction buy on Amazon.

Linkfest, lap it up!

E-sports takes another step toward becoming mainstream - This E-Sports League Will Pay Pro Gamers $50,000 Plus Benefits. This is good news for the likes of Tencent (Naspers) who make a large part of their income from gaming.

Thanks to the internet the need for libraries has diminished. Here are some amazing pictures of libraries around the globe, once the centre of knowledge - The world's most architecturally stunning national libraries, in photos.

It is very hard to sit on the sidelines because you think something is a poor investment but then watch it go up and up and up - Bitcoin, Stocks & The Fear of Missing Out. Remember that the FED called the tech bubble 3 years before it popped. I'm not sure I would have been able to sit out of those stocks for 3 years while watching people around me make wild amounts of money on paper.

Home again, home again, jiggety-jog. As you all know, a new chapter has opened in my life, I will be leaving a place that has become a second home today. I thank Paul for all the years of slogging, starting in an office without windows with a desktop, a lap top and a tiny box TV so that we could watch the 2003 Proteas heartache. Paul is still the only guy I know who got 8 As and a B (for Ad Math) in the 80s, a time when you only had to do 6 subjects! I shall miss his incredible recall (try him), his wonderful foresight and his optimism about all things futuristic and present. I shall miss the mentoring and the steady hand when the world seems/seemed finished (it always does, doesn't it), the keep calm and carry on. As well as another one that can't get mentioned, it was on the side of my cap. A deep and wholehearted thank you to Paul from me.

And my colleagues have taught me more than any learning course could ever, and as it is with many things in life, there is a beginning and an ending. I shall equally miss Byron, Michael, Bright, Howard and Mavis, a business is made of these fine individuals who represent the face and DNA of Vestact. They keep learning and progressing in a way that is not really possible at other places of work. Mavis is responsible for some of the greatest sayings ever .... really. "Mavisims" include a steady favourite in this office, which can be interpreted in many different ways, it is as simple as "Stay Young". And with that, I wish you all (and I shall miss you all) a wonderful investing journey. Stay young and keep on keeping on.

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

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Wednesday, 12 July 2017

Prime Time

"There was a great deal of focus on Amazon, it was after all Prime Day. Prime Day applies to "Prime members", you pay a once off annual fee (annuity income for the company) in order to get access to same day delivery in urban areas, as well as other perks."

To market to market to buy a fat pig Another quiet day here in Jozi, at least it appears so at face value. There has been selling of emerging market assets. That includes us. Financials were under a bit of pressure, down around four-fifths. There were new 12 month lows for Woolies, Famous Brands, Pioneer Foods, Life Healthcare ..... that is a broad based sector diversity, food and clothing sellers, restaurants, hospitals and food processors. In the up column were the Rand sensitive stocks and most especially the miners, bouncing back after a few days of commodity prices selling off.

There was very little corporate news on the day, Sygnia, the index tracker business announced a rights issue. They have managed to grow assets under management in a tricky environment. In fact, their business may well be directly related to the JSE "doing worse" or finding themselves in a shifting environment. I suspect that for private clients interested in the market, they should definitely engage with service providers like ourselves, those who are passive savers should look to the cheaper options like index trackers. Expensive models offered by the savings industry are looking more and more like dinosaurs to me, way too expensive and opaque on that score too. Plus, when you try and extract your funds, it is too complicated.

Stocks in New York, New York closed mixed after a pretty wild ride involving the US president's son who was implicated in email scandals. Sounds familiar, right? Other than the outrage from the chattering classes and some shrugs of shoulders, it seems that this is what Mohamed El-Erian meant about the new normal. The new normal is that nothing shocks you anymore and you are not amazed that there are few or no repercussions.

By the close of the session, where the broader market had been down half a percent and up during large parts of the day, the S&P 500 closed shop down nearly one-tenth of a percent. Strange, but true, bearing in mind that the Dow closed half a point (which translates to 0.00 percent) higher and the nerds of NASDAQ rallied just over one quarter of a percent. Stocks in the winners segment included Facebook and Apple, as well as GE and Alibaba.

There was a great deal of focus on Amazon, it was after all Prime Day. Prime Day applies to "Prime members", you pay a once off annual fee (annuity income for the company) in order to get access to same day delivery in urban areas, as well as other perks. I did a quick search on my Amazon profile and I got the following "Prime members enjoy" benefits. Cardmembers earn 5% Back at Amazon.com with a Prime Credit Card. Earn 2% rewards on your debit spending with Prime Reload. Get FREE Two-Day Shipping on over 50 million items. Enjoy unlimited instant streaming of thousands of popular movies and TV episodes. Over a million songs. Unlimited. Ad-free. Now FREE with Amazon Prime.

And the list goes on a little, including a free book (with a "return") every month. It may well be worth it, provided you live in the right places to benefit from all of the specials. 11 Dollars a month. That almost sounds like being on the good old fashioned library subscription (books and magazines) and having Netflix, and being inside of the special group of DHL, and having a huge song library, and storage space as well as having a reward program. Seems like a steal, right? Once you are "in", their moat is dug. They (Amazon) then sell you everything. Like forever, and like Apple music, once you are "out" of the circle, you lose access to all these "great" services. The next question arrises, do you need an Amazon Echo that is 50 percent off currently? Yes, for Amazon Prime members, they get a price of 90 Dollars. By the time you read this, the Amazon prime deals will be over.

I am pretty sure that Amazon will once again be in a position to quickly announce what and how the day was received by all of the customers on Prime. Whilst it is NOT clear the exact numbers of Prime members, according to this article from yesterday - Amazon Prime Members Now Outnumber Non-Prime Customers - there are roughly 63 million Prime Members. That is according to the Consumer Intelligence Research Partners (CIRP). In a twist of irony, the CIRP website is devoid of any free content, you can find that via the Huff post - Michael R. Levin. Give him a follow.

I like Amazon. It is a disruptor and forces us to focus on things that are new. And things that we don't yet know about. And Bezos is 53 years old. You get the sense that he is just getting started on part of a huge plan to disrupt retail and consumption. We continue to hold what is a wonderful business, they are going to continue to spend like crazy in expanding their offerings.

Linkfest, lap it up!

The absolute size of this building is impressive, it is around 5km of building - Hitler's 3-mile-long abandoned Nazi resort is transforming into a luxury getaway.

We posted a link to a minimum wage study in Seattle a few weeks ago, here is Barry Ritholz take on it - The Overhyped Seattle Minimum-Wage Disaster.

What could go wrong - In China, Shoppers Buy Bad Loans Online With Their Groceries.

Ouch! Car sales of Hyundai dropped 64% in China due to rising tensions between China and South Korea.

Home again, home again, jiggety-jog. Stocks have started mixed here, early days for now! Tencent was up, that counts for a lot. We still think Naspers looks quite cheap, relatively.

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

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Wednesday, 31 May 2017

Abundance in the Jungle

"Equally, another business that reached an all time high last evening was Amazon. The stock price crested 1000 Dollars a share for the first time, having listed just over 20 years at 2 Dollars. Dividends you have been paid along the way? Zip."

To market to market to buy a fat pig Stocks were lower in the Wall Street session, open again after a long weekend. Most of the losses were as a result of the energy sector slipping over a percent on the session. The irony was that the Tesla share price reached an all time high, Elon Musk suggested recently that he thought the stock was overvalued (a week or two ago), that does not seem to bother those buying recently.

If anything, it is becoming incredibly difficult to dispute that the future of transportation and energy storage will be involving this business more and more. And their competitors of course, which is why Musk opened the book to all his competitors, that shows at some level that he genuinely cares about the environment and the future of the planet. In fact, he cares deeply about it so much (humanity), that he is exploring (like Amazon chief Bezos) about interplanetary living. And nobody thinks he is nuts, they rather think ..... when Elon, when? To own Tesla, you must be painfully aware that building an empire of this sort requires an enormous amount of capital and will suck cash in getting there. There will be moments that it looks like a failure, and it is not working.

Remember the fellow Austen Allred, who said that he was "all in" (his life savings) in Tesla in the high 180's, the stock is now 335 Dollars as of last night. And this is all in mid November last year. Astonishing, right? Musk simply answered (in-between all the haters telling Austen how dumb he was) "Wow, thanks. We won't let you down." There was another interaction on the same tweet sequence in which people were reminded that in the darkest hours when Tesla and SolarCity were on their knees (those of you who have read the book will recall this), late 2008, a day before Christmas, that Musk was all in on these investments too. And had run out of cash. He knows what it is like to "burn" and almost crash. In fact, he wrote off his dream car. He knows what it is like to write off dreams too.

All I can add to Tesla is that this is a company that you do not want to be against succeeding. The actual valuations, losses for the foreseeable future and question marks around the ramp up in Model 3 vehicles and deliveries will no doubt motivate Tesla more and more. People who work there want to change the future. The share price could halve from here. It could double. It may go nowhere for five years. Unlike old Austen (who may be in his twenties, judging from his pictures), I would advocate owning a "slice" in your portfolio, enough to take ownership and be a difference. Whilst I don't think that the outcome could be binary (it is not going to zero), the share price will definitely take heat if they do not meet lofty expectations.

Equally, another business that reached an all time high last evening was Amazon. The stock price crested 1000 Dollars a share for the first time, having listed just over 20 years at 2 Dollars. Dividends you have been paid along the way? Zip. I recall an older letter from founder Bezos that suggested that if you wanted short term returns, quarter to quarter, you were owning the wrong company in Amazon. In fact, so much so, that Bezos has not been on a single conference earnings call since the company listed. Four a year for twenty years, that is around 80, right? Not one. Nor does he partake in ringing the bell at celebrations at any exchange of any sort! He is too busy trying to help and empower consumers.

When Bezos asks himself questions in the latest annual report, there is something very simple about his questions and answers:

"There are many advantages to a customer-centric approach, but here's the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don't yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples."

Rather than obsessing about what shareholders/analysts want to hear on the conference call (in fact, Musk does his best to sideswipe these folks on these calls), Bezos keeps on trying to continue to commit to the original letter. The part that I was/am referring to is in the 1997 letter to shareholders, when he truly talks about the long term:

"We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions."

AND

"We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case."

In 1997 Amazon employed 614 people. At the end of 2016, there were 341,400 full and part time employees at Amazon. And as Michael said, how many robots? Lots. As Bright said, think about this for a second, Bezos is only 53 years old. He has plenty of road ahead. As does Musk. As does Zuckerberg. All these businesses were worth zero one quarter of a century ago. I get the sense that we are somehow in the middle of the next industrial revolution and instead of names like Cornelius Vanderbilt, Henry Frick, James Fisk, Charles Schwab, J. P. Morgan (John Pierpont), Andrew Carnegie, Andrew Mellon, John D. Rockefeller, Jay Gould and others, we have these titans of the internet and technology era. Page, Brin, the aforementioned Zuckerberg, Musk and Bezos, alongside the many others. Think Gates, Jobs, Ellison as earlier than these guys, in the same way Vanderbilt was ahead of those others.

Investors struggle to see how these businesses can be worth what they are (most noticeably the ones who don't own any shares in these businesses), the valuations will normalise in time and of course the businesses profitability after the grand plan has been implemented. In the case of some of these individuals, Musk, Bezos, Zuckerberg, they would suggest that they are only just beginning. A share price reaching 1000 Dollars is just an event, is my sense. I could not possibly know what is likely to happen next. Recognising that you are in a multiyear shift and in the midst of a disruptive business environment (and the investment opportunities that arise as a result of that) is another. Always hold the line when in doubt.

Linkfest, lap it up

You have seen this piece of plastic thousands of times. The Kwik Lok is the piece of plastic on top of the bread bag. A fellow by the name of Floyd Paxton hand carved (with a pen knife) out of a credit card whilst on a flight home from a business trip. Yes, pen knife, airplane and an expired credit card in his wallet. Kwik Lok makes tons of these things - Most of the World's Bread Clips Are Made by a Single Company. Simple ideas friends are all around us!

This is a debate that I think will intensify in the coming years, "Will automation lead to mass poverty?" - Visualizing the Jobs Lost to Automation. I came across a stat on Monday that said if you have over $2 200 in NAV you are in the top 50% of the globe. So if you have around R29 000 in assets you are better off than 3.8 billion people! Below is how the job mix has changed in the US, more skilled people are needed.

I'm not sure if I could start a business knowing it will be loss making for years. Tech companies need scale to make money and scale only comes by being around for a long time and allowing users to find you - Inside the GIF factory: How Giphy plans to build a real business by animating the internet.

"One thing Giphy hasn't figured out yet is how to make money. But after raising $72 million in additional venture capital funding last fall, monetisation is being talked about more seriously internally."

Surprisingly index investors tend to be less jumpy than expected. I think it comes down to being mentally prepared. Knowing that when investing in stocks, down turns will come around and being prepared for the "pain" of watching your stock portfolio go down is important. Being prepared means that you don't sell at bad times and if possible add during the down times - How Many Will Stay the Course During the Next Bear Market?

Home again, home again, jiggety-jog. Stocks have started lower on balance here in Jozi, The Spar group (with moving parts) reported numbers that were "ok". Amazon at 1000, Alphabet there nearly again (they did a stock split remember).

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

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