October is good/bad

"October itself holds a special place in the hearts of traders, perhaps for the wrong reasons. In the down section, the worst 20 sessions for the Dow Jones, 9 are in October and 3 in September. In the best of the moves, 6 are in October, only 2 in September. No wonder the market pundits approach the period after the Northern Hemisphere summer with some trepidation."

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To market to market to buy a fat pig. It was one of those rare days for the overall equity market in Jozi, Jozi, stocks as a collective closed down a single point. And as such we ended up where we started. So if you own the index then it was a snore. We don't own the index, we own companies. I saw that Richemont has had a few decent days after their half of Yoox (slash) Net-a-Porter now has a price, closing at an all time high Rand value. The stock in Switzerland is about 13.5 Swiss Francs off the all time highs reached in May of last year. Year to date in Swiss Francs the stock is down nearly 9 percent, that includes the Swiss Franc to the Euro peg unwind.

I am afraid that another one of the big industrials did not enjoy as much of a good day, or indeed two good session like Richemont, SABMiller is said to have rejected the AB InBev advances. It all amazes me, that people familiar with the situation just cannot help themselves and have to let everyone know, including media houses. And surely if they know, then that constitutes some sort of insider information, I suppose that as long as you do not act on it, i.e. if the talks have fallen apart or broken down, if you know ahead of the market, you cannot short the stock. So if this is the case, SABMiller wanted closer to 45 Pounds a share (the stock trades right now at 37.28) and AB InBev are at "40 is as high as we can go", then perhaps the deal will fall apart. SABMiller reckon that they can paddle their own boat in all of this. (Just before sending this to you AB InBev have raised their offer to 42.15 pounds a share, making it a 44% premium on the closing price before the takeover news surfaced)

Another 10 percent from here would see the world's largest brewer buying the second largest, SABMiller for a 30 multiple. I presume in deals like this, they reckon that they could get their money back far quicker than just 30 years, either way you look at it, it is expensive. Anyhow, there is little gained from speculating, other than gossip is deeply grained in our psyche, perhaps Mrs. Ples didn't fetch enough firewood, or was useless at skinning animals and the others spoke. Either way, someone is going to be disappointed, nothing ventured, nothing gained. The question then remains, if SABMiller is essentially a target, it could only really be a target for one.

Altria are the key here for me, at 26.99 percent, they must be thrilled that AB InBev are hunting their stake in SABMiller. Is it noncore? Who knows, they (Altria) own cigarette manufacturers, smokeless tobacco manufacturers, cigar producers and they own premium wines, the Ste. Michelle wines, which include 20 wine farms and 18 partnerships, ever tried any of these? -> Ste. Michelle estates. Let us wait for this time next week, OK?

Over the seas and far away, by session end in New York, New York, blue chips (the Dow Industrials) eked out a narrow gain, the broader market S&P 500 dropped 0.36 percent, whilst the nerds of NASDAQ lost over two-thirds of a percent by the time the session closed out. Holding stocks aloft was the energy sector, oil prices have rallied off their low base recently, healthcare stocks are still taking heat after that one little tweet from Hillary Clinton. Really? Perhaps the stocks as a collective, those in the biotech, biopharma space were looking a little stretched. General Electric jumped another 1.75 percent to end at 27.29. I read the Trian presentation yesterday, they do make some compelling points about the business. Whether or not Trian have the muscle with one percent of the shares to make a real go of it, convince the company to do more and work harder for their shareholders, that remains to be seen.

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I stumbled across the biggest percentage moves for the Dow Jones Industrial yesterday, those are both up and down. The list requires some analysis, if only for fun and not for trying to predict anything. Looking at a graph of past data is never going to tell you anything about the future, OK? The table, for reference point is available here: Largest percentage changes. Of the top 20 up or down days, all bar for one are over 7 percent, this is for the Dow Jones Industrial. The period of the Great Depression started in 1929 and ended in the late 1930's, sadly closing out the decade with another world war. Let us stick a finishing date on it of 1935, for the purposes of this exercise.

23 out of the 40 moves of 7 percent or more occurred in that period, including the biggest ever single day gain for the Dow Industrials, the ides of March 1933, the 15.34 percent move up (in a single day), where the Dow closed out at 62.10 points is still the biggest move ever. Those dark days of September 2008 through December 2008 has 6 dates of those moves larger than 7 percent, 4 down days and 2 up days. Days in which the Dow Jones moved up more than 10 percent, 10.88 percent on the 28th of October 2008 and 11.08 percent on the 13th of October 2008. October itself holds a special place in the hearts of traders, perhaps for the wrong reasons. In the down section, the worst 20 sessions for the Dow Jones, 9 are in October and 3 in September. In the best of the moves, 6 are in October, only 2 in September. No wonder the market pundits approach the period after the Northern Hemisphere summer with some trepidation.

The other thing that struck me about the table was that there were lengthy periods of none of these major moves. Not one move of that nature in the 1900's, only one in the 1910's, the only ones in the 1920's started with stocks melting down at the end of the decade. And then from 1939 to 1987, nothing features on this list. World War II, Cuban missile crisis, Vietnam War, oil embargo crisis, the Cold War, nothing triggered a worthy enough move to make this list of 7 percent plus or minus. There was a week (perhaps weak) period from October 19 1987 to 26 October 1987 in which three such events occurred, two down heavily (including the greatest one day loss, Black Monday, 22.68 percent down) and one up sharply. Causes include the early intervention of machines in trading "decisions". Wikipedia has an amazing piece that you might have to read twice and then LOL (that is laugh out loud to the folks who forgot to learn text language and can't spot emoticons):

Following the stock market crash, a group of 33 eminent economists from various nations met in Washington, D.C. in December 1987, and collectively predicted that "the next few years could be the most troubled since the 1930s". However, the economy was barely affected and growth actually increased throughout 1987 and 1988, with the DJIA regaining its pre-crash closing high of 2,722 points in early 1989.

Excuse me here for a second whilst I ROFL. Thanks for that group of 33 eminent economists. What that event did do was insert the circuit breakers, which halts trading for a bit in cases of extreme moves. And whilst everyone talks about that event, that single black Monday as their reference point for the 1980's stock market, they forget to note that the equities market went up a whopping 400 percent in the 80's. Yes, the era that forced us to accept mediocre clothing styles, bubblegum music (and some good ones), corny TV shows, at least brought us amazing returns on the equities market.

The last "thing" that I noticed about this list is that the tech bubble implosion had only one date attached to it, only one negative move of more than 7 percent. That is it. If you however isolate the dates from September 1998 to October 2002 for the NASDAQ specifically, you get a cross section of a mountain. From 1500 points to 5000 and then back to 1200 points. It was horrible, there were many victims and greed was good, mostly bad for many people.

Whilst this is all fun to look at and analyse, it does tell us very little or nothing about the future or about what your returns are likely to be. If you had a DeLorean DMC-12, a crazy old scientist who had access to plutonium and a willing and younger Michael J. Fox, perhaps you can go and find some stock prices, remembering that Marty McFly travelled forward in time to the 21st of October 2015, two weeks from now. Believe it or not, Pepsi is releasing 6500 special edition drinks, costing 20.15 Dollars each. And Nike plans to release the Nike Mag, with Power Laces, if you remember the movie you will know what I am talking about.

Perhaps for the sake of trying to predict what is going to happen in the future, what is likely to transpire, perhaps this research from the people at CNN is somewhat of a pointer. In keeping with new acronyms, FOMO and YOLO are real. Why some 13-year-olds check social media 100 times a day. Send me your views on how you see the world in 10 years time, and even harder, as the script writers for Back to the Future no doubt found out, in 30 years time. Driverless cars, speedier transport methods that are cheaper, more alternative energy, foldaway or implantable communication devices, all of that, let me know what you think.

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Linkfest, lap it up

Our phones are becoming more and more a gadget that our lives revolve around, here is an example of how our phones have moved to customising our cars around us - Apple CarPlay review. The long term trend that I think will happen is that your phone will be at the centre of your personal ecosystem. Where you will control your house with your phone, all the health information gathered by your smart watch will be sent to your phone, you will use your phone for more e-commerce (having credit card details, home address and shopping list preloaded) and maybe as far as only having a screen and docking station at work.

I think sometimes we discount what our ancestors knew and did, too much. What medicines and R&D could you possibly come up with before the computer was around? - How traditional Chinese medicine finally won its Nobel Prize. The part of the article that struck me the most was not that the traditional medicine worked but that the ancient scrolls had a method of extracting the required compound that worked better than we could come up with today.

This is a good problem to have, students using Amazon entrenches them as future customers but more importantly Amazon generally works out cheaper for them in terms of buying textbooks - Amazon Prime is wreaking havoc on college mailrooms

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Home again, home again, jiggety-jog. Something new to worry about, German factory production numbers two days in a row looking pretty weak, and I guess confirming the IMF and the World Bank fears of a slowing global economy. Earnings season kicked off yesterday, the good being a solid beat by Pepsico, the stock was up one and a third, more globally however Samsung Electronics (which includes the phone of course) closed this morning in Seoul up 8.9 percent, the biggest gain for the stock since 2009. Year to date however the stock is down 5.88 percent in Korean Won. A good day move, a little more heavy lifting to do in order to break even for the year.

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

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Blood, sweat, tears and a dash of Gore

"A pretty recent development and the announcement of the "Vitality Active Rewards with Apple Watch" will be launched across the Vitality network. Applications will be able to measure your patterns. Discovery is one of the very few companies that I think has used behavioural economics to monetise their business and morph their business model to be more consumer centric. As they point out, in a recent Forbes article they were ranked 17th out of 51 companies changing the world. I believe it is the case, this is a transformative business, progressing quickly with the times."

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To market to market to buy a fat pig. Wow, what changed? Suddenly stocks were up, perhaps on the one hand market participants thinking that this is not really the end of the world if the Fed does or doesn't raise interest rates, I see more talk about, it is going to happen, so what. It is perhaps akin to worrying about your pending exams, rather than actually studying for them. We had a word for that at university, it was WAB'ing. WAB translated to work avoidance behaviour, suddenly all your laundry was up to date, your room was sparkling clean, all your stationary was in the right place and your bookshelf looked extremely neat and tidy. Anything to not study, this applies for the economic releases. They come and go, whether you worry about them or not is another matter. They happen and there is nothing you can do to stop it.

I always try and get the point across that it is far more important and a better use of time if you are in the equities market to read company results. Ultimately the earnings of a specific company set the level of the stock price, surely that is more important than watching what the Bank of England said or voted. That is not going to help me or you when making investment decisions. Imagine how dumb this sounds, first the question: "Should we buy some Discovery shares" and then the answer was, "I don't know, what did the Bank of England do at their last policy meeting?" There is only one reason why you buy the stock of a specific business, you want to make money. And the time frame (and see below) is always important. Sometimes the stock of a company that really looks like a quality one can go sideways for a year, or even two before moving higher on the earnings you were anticipating. It takes a long, long time.

OK, let us move along quickly, loads to cover today. In Jozi, Jozi stocks as a collective, the ALSI, closed near the upper end of the day's trade. Still, we closed lower, down nearly 0.4 percent. And below that 50 thousand point mark again. Brait and Woolies found themselves near the top end of the pile of large caps, Amplats and Glencore at the bottom end. Perhaps the realisation of Mr. Market that Amplats (did you see the piece yesterday, if not then here it is -> Amplats sells Rustenburg operations to Sibanye) in the short term is basically shedding an asset at a lower price to focus elsewhere, and that comes at a price. Year to date Amplats has outperformed their peers, the stock is down 10.5 percent, Impala Platinum stock is down nearly 40 percent. Lonmin, year to date is down 84 percent. You read that right, the stock has basically been priced for destruction.

Over the seas and far away (from here) US markets rebounded, blue chips and the broader market added around half a percent, whilst tech stocks jumped over four-fifths of a percent. Apple bounced back, up 2.2 percent on the day. So much for being unimpressed. Lululemon was slammed, down 16.4 percent, meeting expectation. That was not enough for the yoga pants and other apparel maker. As a result of the Brazil ratings downgrade, Petrobras was sold off heavily. The iShares Brazilian ETF was down 1.45 percent, year to date that stock is down 36.7 percent, over the last 12 months that ETF is down an incredible 56.45 percent. By contrast the South African ETF, EZA is the ticker, is down 25.2 percent. Year to date that is down 16.17 percent. That has been the experience of US Dollar investors in a South African ETF. For the record, by contrast to the Brazilians, the iShares South Africa index was up 2.3 percent last evening.

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I came across this article titled Keep in Mind, Stocks Rose 1,100-fold During This Period. It basically takes all the years from the second world war and concludes that the S&P 500, the broadest measure of the US if not global market, rose by that amount, including the dividends. Dividends are a very important part of investing, the longer you stay invested in a good company, the more likely you are to extract more and more from these companies. Yet the article points to 20 moments in history, some of them conflict situations, some of them self inflicted, many of them related to economic matters.

There are 20 major events where the equity markets sold off (twenty, that's right!!), in three cases nearly 50 percent. April 1973 to October 1974, the S&P sank 48 percent from the highs, March 2000 to October 2002 the S&P was down 49.1 percent, more recently from October 2007 to March 2009 stocks hit the skids, down 56.8 percent. At least the S&P was down by that amount, the nerds of NASDAQ more. In fact, from March 2000 to present day, today, the NASDAQ is flat over that period. Of course there are some stocks that are unlikely to see their all time highs any time soon. Back then some technology companies had multiples in excess of 100, big companies, well known. Over exactly the same time period (March 24, 2000 to present day), Cisco is down 61.1 percent, Microsoft is "only" down 12.88 percent, Oracle stock is down nearly 53 percent, IBM has outperformed (not lately), yet over that period is up nearly 33 percent. Apple on the other hand is up 2421 percent. Back then of course there was no Facebook, no Google (not listed at least), no Netflix, no LinkedIn, no Twitter. Things we take for granted.

More recently however are three events since the financial crisis of 2008 that have passed us by, do you remember between April 2010 and July 2010 when the S&P 500 was sold off 16 percent, as a result of the European debt crisis and a stumbling US market? Do you really, or did you have to think about it? Equally, the next year was far worse, stocks sold off 19 percent in the period April 2011 to October 2011. Why? The US debt ceiling shenanigans. Surging oil prices, a weak Dollar, US credit rating was downgraded. Is this not ringing a bell? In the moment if you cast your mind back it was awful. Most recently, the S&P 500 sank nearly 12 percent on concerns of a slowdown in China and concerns about the Fed raising rates.

There will seemingly be around every three years of investing a "moment" when to be very, very anxious about being in the market. The very worst thing is to sell and retreat to the sidelines. In fact, try and find some spare cash under your great aunt's mattress and use that to invest in stocks. Of course, owning single companies is something that requires constant attention. And often, don't forget this, doing nothing is doing something. You are not reacting to the headlines. Just yesterday, as the share price of Apple sold off, I saw a headline that said "Rotten Apple", and then a day later the stock is above the level it was at the announcement. What now, change the headline to "Crisp Apple"? SMH.

The conclusion is actually the one we always try and bring across. Investing and staying the course requires big shock absorbers, we have to act like a reassuring Doctor when people visit the rooms to just check that everything is "ok". When I read headlines like "The Fed leaves traders, economists at odds", I sink back into my chair. The Fed does nothing, it does its job. It has a dual mandate to meet, controlling inflation and making sure that growth, employment is at acceptable levels. If economists and traders want to fixate around one event that will come and go like the seasons, then let them. Do not let the Fed, or any other "important" event or crisis lead you astray. Then again however, I am an optimist, it seems to however serve our clients well around here.

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Company corner

Discovery reported results yesterday morning, we did not attend the presentation, we did watch it on TV however. Adrian Gore is a polished presenter, he tries to crack one every now and again, he must work on his humour in the delivery. One of the things that he said that did elicit a laugh from the audience at the JSE auditorium was that the Dachshund used for advertising the Vitality product in the United Kingdom has seen the sales of that said breed of dog rise significantly. Gore queried with one of his management team whether or not one of the two dogs came from Cape Town. Go onto the Vitality UK website to see what I mean about the little dog, those avid cricket watchers would be familiar with the little dog displayed across the blimp in the recent Ashes series.

Jessica Ennis-Hill (Gold at the last Olympics for Heptathlon), Jonny Wilkinson (to England what Joel Stransky is to us) and Sebastian Coe (Gold for 1500m at 1980 and 1984 Olympics, as well as silver for 800m at both events) are the ambassadors for the health and wellness companies. Some pretty heavy hitters, Seb Coe was one of my heroes growing up, I was a bit surprised to see no gold for the 800m. In 1979, according to his Wiki profile, he broke three world records in 41 days, the 800, the 1500 and the mile. Yowsers, that is pretty impressive.

What sets Discovery apart from the other insurers, be it life, short term or medical insurance, is their focus on the customer. I know that their products are certainly not the cheapest, I know that their competitors are trying equally hard with their rewards programs. I know that you could get cheaper benefits elsewhere, I do however feel that sometimes in life you get what you pay for. I am both a shareholder and fully subscribe across these core products on the insurance. Nothing across the investment front, whilst the brand may be an excellent one, (Assets under Management crested 50 billion Rand for the first time), there are some complicated ones, upside protection sometimes screams fees to me. The brand is excellent, the company is attracting more and more from their competitors in a relatively short period of time.

New business grew like crazy, the award of the Bankmed medical Scheme (209 thousand strong) saw new business grow to 17.5 billion Rand, without that, new business as a total grew 15 percent. Normalised profits from operations was up a very impressive 17 percent, normalised profits were up 16 percent and embedded value grew 21 percent to 52 billion Rand. That is double what it was back in 2011, pretty impressive for a late entrant into the market. And Adrian Gore alluded to that in a CNBC Africa interview, he said that their job was to grow the business, regardless of the economy and competitors. They want to be the best, they want to be able to present the most compelling product to their members and consumers.

A pretty recent development and the announcement of the "Vitality Active Rewards with Apple Watch" will be launched across the Vitality network. Applications will be able to measure your patterns. Discovery is one of the very few companies that I think has used behavioural economics to monetise their business and morph their business model to be more consumer centric. As they point out, in a recent Forbes article they were ranked 17th out of 51 companies changing the world. I believe it is the case, this is a transformative business, progressing quickly with the times. Offering consumers in the UK with their whole owned business branded Vitality (the little short legged dog, remember), partnering with John Hancock in the US and Ping An in China (still making a loss), making progress.

There are some incredible slides in their presentation from yesterday, I shall capture just a few here to share, the first one is pretty self explanatory and quite simply suggests that if you are just a little active (20 minutes a few times a week), your chances of getting poor health related diseases diminish:

And then this one, which again is pretty self explanatory and related to the one above, quickly, go out and take the dog for a walk:

It really is in their interest to get you more healthy, more engaged and at the higher levels. Why? They then pay less out of the collective coffers for claims, check this one out:

So, the better your level on Vitality, the more chance is there that you are looking after yourself, the lower the chance of you dying younger than you should. Pretty easy concept to understand isn't it? I guess it really is, people talk about their levels and rewards as if it were an achievement and I guess it really is. Being healthier, having the tests, knowing your specific level of health relative to where you should be.

We think that as well as being innovative and as well as having a dynamic management team (they look really good for their age!), it is a great investment. It suddenly looks far cheaper at any point in time. We continue to buy the company, we think that the business has fabulous growth prospects.

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Linkfest, lap it up

This article gives a behind the scenes look at Apple, WOW is all I can say - How Apple Built 3D Touch.

One of Elon Musk's missions in life is to get people to live on Mars - Elon Musk proposed nuking Mars last night on Colbert. By nuking the poles of Mars, the theory is that it will speed up the process creating an inhabitable planet. Musk calls Mars a "fixer upper planet", which shows the size of his ambitions. For me renovating my apartment is daunting enough!

Stats have shown woman to be better investors than men, one of the reasons seems to be that men "sell first, ask questions later" - Why Woman handle market corrections better than men This line from the article highlights the problem, "although men trade 45% more often than women, their average annual risk-adjusted returns are 1.4% smaller."

Here is Josh Brown's view on gold miners compared to gold. Basically he is saying, if you think the gold price is going to go up then buy the commodity, don't buy the miners - Memo to David Einhorn re: Gold Miner Suckitude

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Home again, home again, jiggety-jog. Lest we not forget, today 14 years ago were the attacks on the Twin Towers in New York. I have been to the memorial, it is pretty mind blowing, you must go and see it. I got a first hand account from a man on Wall Street at the time of how he and others stared and fled down Broad Street, away from the collapsing Towers, I could see the tears welling up in his eyes, and this was something he told me last year. Lest we not forget and far closer to home, tomorrow is the 38th anniversary of the death of Steve Biko, struggle icon and founder of the Black Consciousness Movement. He was schooled in Alice, in the Eastern Cape, expelled for his political views. He finished school in KZN in Mariannhill, a place we associate with a toll gate nowadays. Perhaps his death at the hands of the police, exposed to the world by Donald Woods and Helen Zille was the start of the end for the apartheid regime. I am guessing South Africans will celebrate the life and legacy accordingly.

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

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