Money with a dash of Funny

Monday, 11 May 2015

Schengen Visa

"The price is important, this is by no means small fry for Visa, they would probably have to stop buying back that many shares, they need the cash to pay these banks. A good outcome I think for all concerned. The only sticking point? The price it seems could vary from 14 to 21 billion Dollars, that is a huge difference for both parties. Visa has a market capitalisation of 170 billion Dollars, the difference is significant. This does represent many opportunities for Visa, I saw an analyst report that estimated that as much as 80 percent of all spend in Western Europe takes place in cold hard cash."

To market, to market to buy a fat pig. Welcome back Michael. He is back from Honeymoon, he went to Asia to do some market research, visiting Starbucks, the Apple store (he fiddled with an Apple Watch) and testing global consumer retail in general. Travel makes us wiser and opens our eyes to the rest of the world. It makes us better at seeing "things" from a global perspective. We see the world through new eyes. I encourage travel! Nice to have you back with that shiny new ring on your finger. Why is the wedding ring put on that finger? The Romans believed that there was a vein directly to your heart, from that finger, the "Vena Amoris". The ring completes the loop. Plus it is also pretty hard to fit anything else comfortably onto that finger if it isn't round, or ring shaped.

Markets. No fat pigs being bought by me, for one I do not eat bacon (my daughters have waved bacon in my face to tell me it is delicious) and secondly I have not been out to an informal market for a while, I do not see hipsters sampling craft beer and organic coffee. The closest I get to organic is Woolies. Snob. I do try and price everything and anything, just to get a sense of where it is, what it used to be and by global standards (for the quality of produce) whether it is cheap or not. Talking organic and cheap, the disruptors of the organic produce market, Whole Foods in the US, has been having another tough time of it lately. The company have announced a chain of smaller and cheaper chain stores, that will carry the same organic goodness as the flagship stores. No new name. Sales are however slowing, the stock has been volatile, the company still demands a premium at 26 times earnings. The price we pay for health? No price really, which is why I think this company has legs into the future, I welcome the Whole Foods announcement. Tell me, personally, does it make a difference to you whether or not your food is organic or not?

US markets opened strongly and closed strongly, thanks to a fairly strong US labour market. The monthly Employment Situation, the most watched, highly anticipated and quickly forgotten report, referred to as "the jobs report" beat expectations. The headline number is all that counts in my experience, nobody else cares about the deeper stuff at the beginning, i.e. the number of jobs created. The unemployment rate, the hourly earnings, the participation rate (number of people actively employed), marginally attached workers and so on. It is all there, including the teenage unemployment rate (i.e. those not busy with X-Box), different ethnic groups, those with and without post graduate degrees and diplomas. I think that this should be something that all students look at globally, just to give them a reason to not be in all of the bottom categories.

Locally we snapped a losing streak, stocks ending the session off a percent better, financials were the main winners. It was pretty broad based, the rally. This morning over in Asia there is a broad based rally, the People's Bank of China being the central bank in China lowered interest rates over the weekend. Stock markets are on fire in China, the suggestion is that this is the first round of cuts, there is plenty of fat on the bone. Our only direct interest in this is TenCent, which forms the rump of Naspers' valuation. Even though, as we know, Naspers has multiple businesses across the globe. Including the amazing satellite television offering here, DSTV is a great product and whilst you may argue that it is expensive, I always say, relative to what? What can you get for that amount of entertainment for that price? Ten visits to the movies a month, and that is without the popcorn and sweeties. Add that in, and it is just two or three visits. I can watch countless movies and series (and more importantly sport) in HD from the comfort of my couch for 60 odd Dollars a month. Less than a ticket to a Rugby test. Makes you think, not so?

Thanks! Another set of observations from "the good doctor" about how life has improved significantly over his time. This is from a medical doctor who knows that we think that healthcare in general will be a very profitable investment over the coming years. I have had this discussion with him many times, thanks for sharing.

"There are so many tech advancements that have an incredible effect in our daily lives. A litmus test is to remove it from our lives and check if we are still functional without it. The Internet, motor cars (or other forms of transport), electricity, the Apple products, water borne sewerage. However, still billions live without these utilities and continue to live relatively happily.

My vote is on chemical substances that we ingest on a daily basis: food and medicine. Technology has allowed food to be produced in massive relatively cheap quantities that today is the equivalent of 2900 calories per capita; however, the average person requires about 2500 calories. So in fact there is a surplus of about four hundreds calorie per capita. Unfortunately, there are still 850 million who starve, and 1 billion are obese; 2 billion with micronutrient deficiency.

Forty per cent of all food produced is wasted. Get the economics and politics right, there is enough food for all. Thanks to technology from seed to table. Technology that will improve yield across the planet include mobile phones, GPS, cameras to pick up disease very quickly before the human eye, and robotics. Controversially, of course, it is the Monsanto's and Syngenta's of the world making a major dent with their seeds and pesticides.

Secondly, the other kind of "food" is pharmaceuticals. Billions are kept alive and in relative good health by technological advancements by pharmaceutical r&d, and manufacture: ARVs for aids, anti hypertensives, insulin for diabetes, and thousands more, and of course anaesthetics for life saving operations. Witness the massive m&a activity in the biotech/pharma arena. Locally, Aspen, Adcock Ingram, Clicks, Dischem, Cipla, .... Manufacturing, distributing, wholesaling, retailing medicines.

Of course, the best metric is improved longevity, which is on the rise across the planet. ARVs have now made HIV/AIDS a chronic illness. Due to Meds, primarily; lifestyle choices still a poor second. Technology has developed chemical substances to work its stuff intricately with complex biochemical pathways.

Alzheimer's is the next frontier. Maybe Biogen will advance the cause with ADU.

The next challenge is to improve the quality of food, better distribution, get us to move more naturally, ...

Not only add years to our lives, but adding life to our years."

Your observations are spot on, and once again food, medicine and technology come to the fore, as far as investments and technology is concerned. We remain heavily invested in these themes, consumer based investments too.

Company corner

Visa Europe could now belong to Visa as a whole, that is the news doing the rounds. Just to remind you, when Visa listed, the banks in Europe did not take the Visa shares straight away, they basically gave themselves time to think about it and they could at any point exercise a put. When we say European banks, Bloomberg reminds us in the article (Visa Said in Talks to Buy Visa Europe for Up to $20 Billion), that as many as 3000 upwards have a stake. If the companies are collectively looking to cash in, this sounds like a good time. European banks no doubt need the money to remain well capitalised in what is still a tough environment, Visa would love to own all of Visa Europe.

The price is important, this is by no means small fry for Visa, they would probably have to stop buying back that many shares, they need the cash to pay these banks. A good outcome I think for all concerned. The only sticking point? The price it seems could vary from 14 to 21 billion Dollars, that is a huge difference for both parties. Visa has a market capitalisation of 170 billion Dollars, the difference is significant. This does represent many opportunities for Visa, I saw an analyst report that estimated that as much as 80 percent of all spend in Western Europe takes place in cold hard cash. Why? It is astonishing to think that this still happens, as a rule I carry as little, or no cash whatsoever. All of the time. It seems that I am really in the minority. If Visa could get all of the European market, and the price was right, this certainly represents a huge opportunity, a growth one in Europe. How about that? Growth in Europe and opportunities, how often do we think that those two do not belong in the same sentence. At the same time the ability for online retail expansion across the continent continues to grow. We maintain our buy rating on Visa.

Things that we are reading

Echoing what we have said all along, the fact that people a) do not like the current recovery (they have been too defensive) and b) are constantly bringing us articles on how the world is ending. Cullen Roche in this post nails it: The Economic Recovery that Can't Get Any Respect. These two lines say it all: "If I wanted to be the most popular kid in the financial blogosphere I'd write dramatic articles every day about how the world is ending and what the next crisis is going to be. That's 10X more exciting (and useless) than a post like this."

Here is an example of the stock market not being efficient in the short term - During One Hour Every Day, China's Stock Rally Falls Apart. Now that the trend has been discovered you can be fairly sure that it wont continue.

This article highlights how stats can often be wrong/manipulated. The article also points to where eating habits may move - Why what we think about eating is so often wrong.

The internet was a big change in the models of retailers, drones may be the next big shift in retail - Amazon wants an army of drones to chase you down to get you your package.

Home again, home again, jiggety-jog. Mixed here at the start, resources are heading in the right direction, as a collective they are nearly above the rest of the market gains for the year. The overall market is back above 54 thousand again for the week. Ahead we have European GDP and CPI, the Greeks have an obligation to meet the IMF tomorrow. I am guessing everyone will look at that as the main point and place to pay attention seemingly. Keep buying and holding quality, that is our mantra.

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

Email us

Follow Sasha, Byron and Michael on Twitter

087 985 0939

Friday, 8 May 2015

Cerner, saving lives

"What of course has helped their business a lot has been continued technological innovations in the hardware space, i.e. in the same way that many technologies are only as good as the supporting hardware and software around them. Following up from the mesofacts above, healthcare and technology still have not collided in the ways that many patients and healthcare professionals would have liked"

To market, to market to buy a fat pig. Whoa. Janet Yellen's market predictions seem to have spooked the market, as Eddy Elfenbein points out in his Friday weekly piece, the Federal Reserve chair in the past and present have made bad predictions. Eddy points out that whilst Yellen suggested that the Biotechnology sector looked a little worse for wear last year, it has rallied 33 percent since then. That does not mean that her observations are incorrect, she is probably right. However, like many strategists before and in the future, the chances of perfectly picking a moment in equity markets and suggesting it is either cheap or expensive is always going to be hard. So do not beat up on Yellen, she is making the same observation that many people make from time to time. If she knew exactly what is going to happen, she possibly would be advising PIMCO, like Ben Bernanke is now. Oh, sorry, that only happens AFTER she is finished her stint as Fed chair.

The UK markets are on an absolute tear this morning. Why? The polls got it completely wrong. The conservatives have absolutely crushed it at the expensive of the Liberal Democrats, their coalition partners and more importantly at the expense of Labour. The pound is also on a tear. I guess market participants LIKE continuity, more importantly they like the idea of government being friendly to business. Capitalism might not be the ideal situation for all people, it is however one that rewards hard work. Of course those in favour of a more equitable share will favour labour, those with nothing in the first place tend to side with extreme socialism, again I understand the background of an individual will determine many times which political party they will vote for. I do however remember in one particular election, in my family, my wife, myself, her parents and my parents all voted for a different political party. True story. Anyhow, the market is cheering the win by the folks who are market friendly, that is all that you need to know.

Thanks for the feedback yesterday about the biggest changes in your life and what you think is going to happen. Mesofacts is what they are called, it is an idea introduced by a fellow called Samuel Arbesman, who styles himself as "a complex systems scientist and writer." Mesofacts are things that change slowly over time, that you need context to understand them. Bandwidth speeds improving over time, that is a Mesofact. You only notice when you have an Edge connection how rubbish your internet speed is, and used to be. Five years old, this is still relevant: Warning: Your reality is out of date.

Here are the observations of one of the newsletter’s community, Blue Steel:

"Man was subsistent for many years. He would collect his own fire wood (energy), make his own tools and possessions, plant his own crops. Only in the last 100 years or a bit more have we become utterly reliable on everyone else and globalisation to survive. The next step will probably be towards being semi-subsistent again, making/collecting our own energy with solar panels or bio reactors, 3D printing our own tools and possessions and will probably have to go back to planting a portion of our own food as the population on earth get closer to 10 billion people.

Man only needs three things to survive, water, shelter and food. Everything else is a bonus.

I think the biggest challenge humans will have in the next 10 years will be supplying water for drinking and irrigation. California is already experiencing this problem.

Thanks Blue Steel, I think that he makes some good points there. Obviously food is going to be important. I have a fledgling vegetable patch and herb garden, there are modest harvests from time to time. I do have herbs for days and days, no wonder they are so cheap, they are so incredibly easy to grow! Urban gardens are going to become important in meeting the demand side equation, Blue Steel is right there too. Water needs to get hellishly expensive, before anyone takes note.

And then this one from GT, I think all the way from Canada:

"I'm not sure that the technological changes I've experienced have made me a better person but in terms of productivity. Yes. Washing machines and tumble dryers, oh yes! Add a vacuum cleaner and blender to that too. More recently I'd say a smartphone and GPS and affordable, frequent flights and spellcheck. And vitamins. Something that has enriched and deepened me is the amazing photographic advances that can 'transport' me into the world of a bumble bee or the depths of the ocean, or take me into the mind and life of a fellow human. Recycling is making our world a better place too.

The next five years? The most amazing technological advances will have no place to be enjoyed if we don't take care of the planet we live on, if there's no clean air to breath and pure water to drink and nutritious food to sustain us, what will it matter if we can teleport across the globe."

A wide range of subjects covered there, not too dissimilar however to Blue Steel on humans becoming more conscious of their surroundings, being more aware. Which is why I think that solar technology, cleaner technologies, like those offered by the likes of Tesla will become increasingly important. People won't "do it" (become more aware of their surrounds and adapt to green technology) because it makes economic sense, that is not the important factor in the longer term. The cost of not doing it has greater economic repercussions. Thanks for the answers and predictions, the next question, what specific investments are likely to capture themes in the coming years. We mentioned Tesla, possibly Monsanto, can you think of any others?

Company corner

Cerner, the biggest standalone IT Healthcare services business in the world, reported their Q1 numbers last evening. The company is exposed in that they are susceptible to a downturn in healthcare spend on high technological products during an economic malaise. That is what happened to them in 2008/2009, like many other service related businesses. Headquartered in Kansas City and having been around since 1979, the company has seen cycles come and go. What is evident however is that all the money that they have spent on research and development, since the business was founded (36 years), is going to be replicated in the next half a decade. This is truly an exciting time for the company.

What of course has helped their business a lot has been continued technological innovations in the hardware space, i.e. in the same way that many technologies are only as good as the supporting hardware and software around them. Following up from the mesofacts above, healthcare and technology still have not collided in the ways that many patients and healthcare professionals would have liked. Indeed, procedures are met with multiple sets of forms, sometimes the same set of forms. And yet sometimes it still goes wrong, many bracelets and clipboards later. That is where Cerner seeks to eliminate the mistakes, which are all human. Another great example, an investment in technology, which is making us safer and healthier.

What exactly does Cerner do, before we take a peek at their numbers? Lucky for us, there is an about us page on their website, nobody can explain your business quite like yourself, not so? Here goes: Strategic innovation in health care, for today and tomorrow. They have multiple solutions, again you can check out their Solutions and Services, to get a view of what it is that they offer. From digital charts (no more clipboards and paper), tracking medical equipment to ensure maximum usage (ain't nobody got time for a missing ventilator), through to the complete solution, the Cerner Smart Room, the products are designed to bring technology to healthcare. In a nutshell the company manufactures products and software that save time, which in hospitals is quite simply, lives. Cerner saves human lives.

A few pie charts and pictures, thrown in for explaining a little more about this business, first things first, where the company makes their money. As you can see, and refer to the table underneath these two pie charts, whilst from a revenue point of view the recurring businesses are less than 50 percent, in terms of profits they are far higher. Which bodes really well for their business. As you can imagine, there is going to be higher levels of annuity business, as they grow.

Nice. OK, onto the recent results, which were last evening: Cerner Reports First Quarter 2015 Results. revenue was a slight miss and EPS was a meet. The market did not react negatively, bookings are at an all time high, that is why. New clients across the globe. The second quarter is estimated by the company to see revenues of 1.175 to 1.225 billion Dollars (versus 996 million in Q1) and EPS of 51 to 52 cents (versus 45 cents in Q1, which was a 22 percent increase on the corresponding quarter). At 71.25 Dollars you can see that even on FY estimates of 2.11 the stock trades on a 34 multiple, forward. That is NOT cheap. Earnings are however growing at 20 percent plus per annum, the current share price can justify the valuation. We continue to accumulate the shares of what is a very exciting company with equally exciting prospects.

Things that we are reading

It is that time of the month. Not payday, not time to pay the bills, rather US Nonfarm Private Payrolls: April 2015 Preview. Weaker than anticipated? The Texas economy apparently lost 25 thousand jobs last month, the worst month on more than 6 years, the lower oil price, as we anticipated, is starting to drag down the Lone Star State.

This is incredible. Daniel Tammet (Amazing chap) is quoted as saying: I have never played the lottery in my life and never will. Voltaire described lotteries as a tax on stupidity. More specifically, I think, on innumeracy. That is why it is surprising that Americans spend more on the lottery than on sports tickets, books and music combined, as well as a host of other things. Ah well, what can I say other than if you don't try, you can never win. To illustrate the Voltaire/Tammet point, in a related piece: Sudden lottery fortune no panacea. Losing it all.

The most amazing 40 year graph I have seen this week is also brilliantly summed up in the title: Another limitation of GDP accounting - it fails to capture improvements in economic well-being in the Information Age. LP's turned into cassettes, cassettes turned into CD's, downloaded music has eroded the sales of everything. I guess the truth is that pirated music is readily available. The other points about GDP however being an outdated measure is WELL NOTED.

Home again, home again, jiggety-jog. The market has started better, on account of a recovery on Wall Street last evening and the UK elections this morning. To get over the hump towards the end of the day, we have to negotiate the non-farm payrolls number. Your guess is as good as mine. Ed Miliband, head of Labour in the UK has resigned, that is what happens when your political alliance does not meet your own expectations. So much for polls and close, someone suggested that this was not too dissimilar to the Brazil/Germany World Cup Semi-Final, all one way traffic after much hype.

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

Email us

Follow Sasha, Byron and Michael on Twitter

087 985 0939

Thursday, 7 May 2015

The one Musketeer

"The question that I hear asked often, what is it that Tesla does that someone else can't do better? Or cheaper? The answer lies in other consumer products. You can buy one kind of smartphone, if money were no object you would certainly buy the BEST one. Ditto with Tesla, they are not the cheapest, they certainly (like another technology company I know well), make beautiful products. Are they the best? Time will tell but as expected, Musk certainly thinks so."

To market, to market to buy a fat pig. Things change, sometimes quickly and sometimes slowly. Byron used the example of men losing their hair. One day they look into the mirror and say, is that really me? Where did all the follicular activity go? If you think about the changes in your life time, even if you are twenty, there have been many. As someone who is 60-70 there is more of a reference point in terms of all the amazing technological innovations that have and still will take place in your life. The advent of the 24 hour news channel, videos and global distribution, the internet, the personal computer and more recently smartphone technology leaps. All these innovations contribute to make us more productive in our jobs and save time, freeing them up for us to do the things that we suspect as important to us. I would love you to think deeply about the things that you cannot do without, and the changes that you have seen in your life that made you better, as a person and as a worker bee.

For me, electricity is a necessity. As a young kid we lived in places where there were wood burning stoves, paraffin fridges and paraffin lamps at night, I did not imagine I was missing anything. As you can imagine, you can't miss what you do not know. A mode of transport, at a cheap cost is something that middle income people cannot live without. Ever. A fridge is pretty cool too, the icebox became a thing of the past.

The internet and technology is nothing short of amazing. Think of how this message would have reached you 20 years ago, by letter. And perhaps only once a quarter, which is still unfortunately the traditional way of the industry here in South Africa. Those of you who still own unit trusts (you should cash that in and send the money here), how often do you ever hear from those people, relative to what they charge you? Not often, yet we are conditioned to believe that is the way it must be. I believe that the future of education and unlocking the human spirit is deep in the internet, Facebook and Google are doing great work here.

The future is unknown. To make bold predictions and be right is either luck, good guessing, great insight or a combination of all of those things. Even five years is a long, long time. I have no idea what the oil price will be in five years from now, I know that the combustion engine has hardly changed since the early design, what I do know is that people like Elon Musk are trying to change the way that you see this conventional transport method. Musk is also trying to take people off the grid, ironically we all thought that by being connected we were more powerful. As we know as long suffering "load shedded people", this is not the case. More on Tesla numbers later.

So, I want to hear from you. We can publish your comments on an anonymous basis, or call you by your initials, or just by your first name. Let us all know what it is that you cannot do without, what you think are the biggest technological changes in your life and most importantly, what you think will happen in the coming five years. What amazing hardware do you think there will be, the speed at which android technology is moving I would not be surprised to see multiple robotic advancements, human looking robots doing either dangerous or menial jobs. Stay alert, stay ahead and make sure that you stay ahead of the pack, a robot or process is looking to take our jobs!!!

Philosophy lesson over. What has moved really quickly and has taken the market by storm is the oil price, which is now trading close to the highs of the year. That (the oil price) has moved rapidly from a few months ago when people were suggesting a whole scale bond default of oil secondary producers. What has happened is that the prospects of deflation have evaporated and now the speed of the oil price recovery has meant that some folks are talking about inflation. And of course the Fed having to act quicker on rates. Personally, and you know our view, if you spend too much time worrying about what the Fed is going to do next, that is possibly too much energy expended on a subject that you have no power to change. Focus on what you can, keep it simple. Save more, spend enough of your hard earned wages in order to enjoy the one thing that is unique to you, your life. Save more, I am kidding, eat old bread and drink bad tea, always be saving!

Markets in New York sold off overnight, there was a weaker than anticipated ADP employment report, which points to a rocky recovery after a dull first quarter in the US. You get the sense that just as the European recovery is starting to take hold (even though the Greek bailout flops around like a rag doll), the stronger Dollar is impacting the US economy negatively. Consumers have also been stung by the period of "great pity" as one client calls it, thanks to the 2008 washout and subsequent job losses in the middle classes. Of course asset prices, which have risen, means that people have done better with their asset base, if not with their earnings potential.

At the end of the session, the broader market S&P 500 closed down 0.45 percent, the nerds of NASDAQ lost 0.4 percent and the Dow Jones Industrial Average shed 0.48 percent. At the worst stage, around 2 hours before the market closed, stocks were off as much as a percent. On the local front we saw a sell off through the day, it intensified as the ADP numbers filtered through. At the end of the session the local market had shed 1.33 percent, resources the laggards, down over one and a half percent.

Company corner

BHP Billiton shareholders have overwhelmingly supported the demerger and the creation of South32 by default. Via the IR page: Shareholder support for demerger of South32 by BHP Billiton. Shareholders voted 98.05 percent in favour of the deal. When is this going to happen then? Very, very soon. 18 May soon, which is not next Monday, rather the Monday thereafter. Yesterday was also the BHP Billiton General Meeting, chair Jac Nasser was speaking from Perth, here are a few extracts:

"There are very few companies that have prospered for over 100 years. By repeatedly reshaping itself, your company has evolved to become one of the world's largest companies and a leader in resources. We know you expect BHP Billiton to be strong and resilient; a company that delivers sustainable long-term value through economic and commodity cycles."

And then about the demerger, and what it means for the BHP we know:

"The demerger of South32 simplifies BHP Billiton's portfolio, while retaining the benefits of scale and diversification. We have 41 assets today, which would be reduced to a core portfolio of 19. The demerger enables us to focus on our petroleum, copper, iron ore, coal and potash assets, which together generated 96 per cent of the Group's Underlying Earnings Before Interest and Tax in the 2014 financial year. Our large, long life assets have delivered strong growth for shareholders over the last ten years."

South32 will be a company with multiple assets and not really that profitable when compared to the old big daddy, not that the new team, led by Graham Kerr cannot change that. Old time South African mining personality, Keith Rumble, who used to run Impala Platinum for a period of five years plus, was present in London. For South32, being able to focus on assets that previously were non core does give Kerr more flexibility. These assets ARE the core of South32, they will see them as such, not like an older head office. They are everything to the new team, we wish them well. There you go, in a couple of weeks time, you will get 1 South32 share for each 1 BHP Billiton share that you held on the 15th of May, close of business. That is the last day to trade. We will revert with a little more, post the demerger and "what to do" regarding the new shares.

Tesla released results last evening. Elon Musk is amazing, his energy is electric and contagious. His simplicity of explaining what is essentially a very complex product is the hallmark of a great businessman and can-doer. There are many people that would have approached the projects of space travel and make it cheaper (much cheaper), electric vehicles and better technology with very different methods. If at all. Yet he finds the time to immerse himself into these projects for the betterment of humanity, at the expense of his personal life. Sadly. I guess that is somehow how life works, the best and amazing people in terms of their business lives aren't as successful in their personal lives. Whatever makes you happy, I am all for it, pity nobody, be generous.

Back to Tesla, the company that is run by the modern day Iron Man and the company that is trying to change the world one invention at a time. Read through the Tesla Motors - First Quarter 2015 Shareholder Letter. If you want to see the earnings transcript, sign up at SeekingAlpha and then read it. Tesla Motors (TSLA) Elon Reeve Musk on Q1 2015 Results - Earnings Call Transcript. I learnt that Musk's second name is Reeve, that is what I learned today.

I also learned that the Powerwall and Powerpack units (the new batteries) are sold out until the middle of next year, in the one week that they have been available. Musk said: "So, it's like crazy off the hook. Yeah. And it seems to have gone super viral." The Gigafactory is key to the rolling out of the battery product en masse. The question that I hear asked often, what is it that Tesla does that someone else can't do better? Or cheaper? The answer lies in other consumer products. You can buy one kind of smartphone, if money were no object you would certainly buy the BEST one. Ditto with Tesla, they are not the cheapest, they certainly (like another technology company I know well), make beautiful products. Are they the best? Time will tell but as expected, Musk certainly thinks so.

How do you value this company? After all, they sell only around 11-12 thousand vehicles a quarter. That is nothing in the bigger picture. They spend an enormous amount of money on R&D, the company makes a loss. Revenues for the whole quarter a little above 1.1 billion Rand. That means for a company that sells in the region of five billion Dollars worth of cars a year, with a market capitalisation of 29 billion Dollars, big things are being expected. All the other manufacturers have price to sales ratios (total value to total sales) of between 0.5 and 1 times, from Toyota to Daimler. In fact for the less luxury manufacturers, the ratio of closer to 0.5 times. In Tesla's case this ratio is 9.2 times. In other words, it is overpriced on that metric of a factor of 18-19 times. They do have better gross margins, Tesla that is. Daimler also has revenues of 145 billion Dollars, there is size and scale there. I am pretty sure that Tesla does not want to churn out millions of cars, it would be *nice*, I get the sense is to focus on the quality of the vehicle.

The company is NOT going to be profitable any time soon. As a shareholder the ride is going to be wild, it could be very bitter if the execution is wrong. The metrics, in terms of valuations look out there and too much to pay. It is a disruptor. We could be on the cusp of the next energy revolution, not too dissimilar to when nuclear technology took hold. Ironically it is off the grid, away from reliance on utilities and more onus is passed on to the individuals. The more rich people you get, the more demand there will be for the product. The more conscious people get of their surroundings, the more the economics are less likely to form part of the equation. This investment is NOT for the investor who prefers steady and predictable, this investment is a big bet that the future of battery and transportation is changing rapidly, and these guys are at the forefront. You are going to have to be VERY patient along the way, for the time being momentum is definitely with Elon Musk and his company, expect a few broker upgrades in the coming days.

Holy smokes, what has happened to the Aspen share price? Well, a lot actually and unless you were short the shares I am afraid that it has not gone in the right direction for you. We have been a little puzzled, there are three explanations and it is possibly a combination of these things. First and foremost, Glaxo have sold shares and have indicated that they are possibly exiting out the business in time. It has been a good relationship of injecting assets, on Glaxo's part, in return for greater ownership of Aspen. Relative in size and scale it was a lot more significant in the life of Aspen than Glaxo. The relationship between the two however went back some .... excuse my use of street language! With Glaxo exiting, there is a likelihood that the market would anticipate another bout of share price weakness and perhaps even another discounted placement. There is a connection between the cash flow needs of Glaxo (results yesterday) and them possibly exiting the remainder of Aspen pronto. Take every cent you need, in this case it is negative for the Aspen share price.

Secondly there is always the possibility of a large deal in the works. The management of Aspen have always indicated that if the right deal presented itself, they would ALWAYS be up for it. Using ever increasingly expensive scrip to pay for deals is something that shareholders have been on board with. It has worked in the past, the company does not close deals for the sake of it. That has been proven over time. In fact, back in the day the company passed over deals as they did not make sense. Obviously if there was the sense that something was happening, from a deal point of view, the company is obliged to let the market know. That has not happened yet. It is always a possibility.

Lastly, the stock is not cheap, the stock has never looked cheap for that matter. That is simply another argument to use. I suspect that whilst this is the case, this is a business that you must own. It is relatively small by global standards, yet the chaps in charge have global aspirations. They are more than a safe set of hands that will continue to create value for themselves and their shareholders. The best is still to come. I am very happy to recommend the company as a strong buy at these levels, if you are underrepresented in your portfolio, or have none at all, get them now.

Things that we are reading

More on Munger and Buffett, there will be lots over the coming weeks: The Wit And Wisdom Of Warren Buffett and Charlie Munger.

Google did something complicated yesterday, the announcement from a while back. They paid an adjustment payment. Here it is: Adjustment Payment Information.

This is worth a read, is Apple going to take Tesla on with a car? An electric vehicle? BusinessInsider reckons that could be the case: A steep rise in Apple's R&D spending points to a big new project underway.

This is different. Via the FT: Chinese manufacturers look to Rwanda as wages rise at home. Why can't we have that here?

Home again, home again, jiggety-jog. Is Greece really on the brink of not being able to pay anyone back? I hear that doctors who have done work off the normal register, i.e. call work, have not been paid for over four months. That is hardly a good outcome for anyone. We have started by seeing some selling on the local front, selling across the globe actually. I suspect that in the end that "things" will get tight with the Greeks, they will however get the money they need to tie them down, perhaps even best case scenario, a partial write down of debt, or an extension. It will happen. Oh, and all you Bayern fans out there, sorry for that, ok?

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

Email us

Follow Sasha, Byron and Michael on Twitter

087 985 0939

Wednesday, 6 May 2015

Europe. Growth. Same sentence.

"And whilst 1.9 percent is hardly breakneck speed, it is important to remember that the EU economy is bigger as a collective than the US economy. So whilst it is driven by (in order), Germany, the United Kingdom, France, Italy and Spain (all economies over the size of 1 billion Euros), all the focus at the moment is on Greece, a country with an economy the same size of that as Portugal"

To market, to market to buy a fat pig. Another score for the resources stocks, underlying commodity prices continue to rise, as does crude oil prices along with this. Not the best news for the global consumer, it turns out that the Saudis have been selling more crude at higher prices, I guess that would indicate strength! Industrials were out of favour, seeing as that is the biggest part of the overall market nowadays, the local exchange closed the session down just over one-tenth of a percent. There was a monster lift for the single commodity stocks, Lonmin, Exxaro, Kumba, Amplats all getting a big lift. In fairness to Exxaro they have multiple businesses, not just iron ore.

Across the seas and a long way away, the going was really tough. Tech stocks were particularly beaten up, telecoms and utilities also bore the brunt of the sellers. Session end the broader market S&P 500 had sold off nearly one and one fifth of a percent. The nerds of NASDAQ sank below 5000 points and clocked out down one and a half percent plus. The blue chip index, the Dow Jones Industrial Average, closed down nearly four fifths of a percent. What spooked markets? Was it this? Service Industries in U.S. Unexpectedly Expand at Faster Pace You know, good news is bad news. Perhaps this, although it is seasonal: US trade gap widens on demand for cars and mobile phones. Yes, in fact the same publication (the FT) suggests as much: US trade data unsettle stocks and dollar.

Time to translate, GDP data (which the first read already suggested a very weak 0.2 percent for Q1) should be revised downwards with this weaker trade data. GDP = private consumption + gross investment + government investment + government spending + (exports - imports). That last part, exports minus imports. Imports were far greater as a result of a strike at the port in LA being finished and having to account for a backlog, as well as pent up demand. Ah well, swings and roundabouts. The economy is not the market, the market is not the economy, corporate earnings are more important than anything else.

We are starting to see more and more of these headlines, this one is from the NYT: Europe's Economic Growth Forecast Is Revised Up. Nice. Spanish unemployment was once a problem, it is now contracting at a faster pace than at any other time since the country was in the Euro zone. Admittedly off a much lower base. And whilst 1.9 percent is hardly breakneck speed, it is important to remember that the EU economy is bigger as a collective than the US economy. So whilst it is driven by (in order), Germany, the United Kingdom, France, Italy and Spain (all economies over the size of 1 billion Euros), all the focus at the moment is on Greece, a country with an economy the same size of that as Portugal. My only point is that whilst the Greeks and the rest of Europe stumbles and fumbles about, if the entire Greek economy falls in a hole, the rest of Europe will grow it back.

Company corner

It is not anything that I have ever used, the e-wallet, I know that FNB offers it. I saw an FT article that suggested that Visa expands UK mobile payments service, having formed partnerships with Topshop and the like. The whole idea that we are converging towards a cashless society is happening quicker than I thought. Use big online banking systems for the big secure payments, the consumer payments will still be done by Visa, eliminate cash with mobile wallets. We still all need to adopt the technology and most importantly need to all have better smartphones.

There is something brewing in the iron ore production market in Australia, with no love lost between Fortescue and BHP Billiton and Rio Tinto. So when I read this story, I had to have a double take: BHP Billiton iron ore boss Jimmy Wilson slams Fortescue Metals in memo to staff. The background is that the bigger iron ore producers, Rio and BHP have driven costs sharply lower with improved technology and scale.

Fortescue chairman Andrew "Twiggy" Forrest is suggesting that the two Aussie majors are trying to drive down the price of iron ore with increased production, thereby squeezing himself and the rest of the marginal mid tier companies globally. This article holds no punches: Andrew Forrest and Ivan Glasenberg team up on iron ore. The opening line from the article by Joe Aston possibly has it spot on, with emphasis on the last sentence: For any of our readers who have just woken from a long coma, Fortescue Metals chairman Andrew Forrest is on the warpath, and his big targets are his big rivals, BHP Billiton and (especially) Rio Tinto. Situation normal really - so get some more sleep and we'll wake you for the next mining boom...

Lower prices are hardly good for the producers, majorly good for the steel producers. All we need now is more to build, Chinese manufacturing still looks sloppy. Can the Indian giant awake? I am guessing that if the IPL quadrupled, the number of spectators would be there. IPL, on my bucket list.

This is pretty interesting, the headline tells you all you need to know: Richemont Puts the Smarts Into the Strap Rather Than the Watch. My simple analysis of the smartphone market, relative to the timepiece market is that the one is a tool and the other is a piece of fine human engineering. Not that the Apple Watch is not a fine piece of engineering, it most certainly is, it is a tool. In my mind. With the renew cycle of Apple, you are likely to end up with multiple Watches over the decades, timepieces however are passed down from generation to generation and carry the same memories along the way.

Things that we are reading

This is pretty interesting and another reason why you should always be provisioning for retirement. Via the Time Business blog -> 61% of Americans expect to continue working past the age of 65, comes the news that Americans are basically not planning to retire. The whole idea of kicking your feet up and remaining footloose and face free is perhaps a concept that only past generations enjoyed with more frequency. We are living longer. We are living better, healthier. We want more. Therefore we are going to have to work for it. See the detailed research: American Workers Are Changing the U.S. Retirement Landscape.

We all know that the average American works long and tiring hours, we like to think that all of us work the hardest and smartest. The BusinessInsider, the greatest of the aggregators, had this story which was pretty enlightening: The 40-hour workweek is on its way out. 61 percent of Mexican managers work more than 40 hours a week, followed closely by Americans at 58 percent, what was pretty enlightening is that only 19 percent of their Chinese counterparts worked over 40 hours a week. Perceptions sometimes are not reality, I immediately thought that Chinese managers would put in more hours than any other nation. No, not true.

I really like the way that Cullen Roche explains the link (or lack thereof) between Quantitative Easing and inflation. You do not need any economics background to understand the logic at work here, Roche points out that after 7 years the arguments of many famous economists were flawed and in reality the inability of people to borrow as a result of their flawed creditworthiness (relative to where it was), has not created a big jump in money supply. Read this carefully and slowly, this subject, in terms of all the reading that I have done, has best been covered by this chap. Here goes: No, The Inflation From QE is not Inevitable.

Home again, home again, jiggety-jog. Stocks are lower, following on from Wall Street. We have started the day down by just over half a percent. On the radar today is ADP, that is the precursor to the big jobs number on Friday. Perhaps a chance of breathing room for Dollar weakness.

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

Email us

Follow Sasha, Byron and Michael on Twitter

087 985 0939

Tuesday, 5 May 2015

You think?

"What happened in the past and relating it to staring at charts to presume to know what is going to happen in the future, I am not too sure that holds much water, in my world at least. Read the past to get the background on the businesses, the deals that mattered and shaped the businesses and cultures of today, that is important. Get a feel for the track record of the businesses that you hold, to know that there is consistency and accountability in each and every way, to ensure that the culture continues into the future. However, past performance means nothing, and does not guarantee future returns."

To market, to market to buy a fat pig. The chances of a Greek default loom large, this time the Europeans are getting much tougher on their Greek counterparts, that is at least the senses that I am getting. The chances of an actual Greek default in reality (I would think) is something that will not happen. The Greeks and their creditors will meet halfway, even if the Greek people get a deal that they think is not fair. Life is not fair, if you win the ovarian lottery, as Warren Buffett calls it, you still have to work fairly hard in order to "get there". The Greek finance minister (the fellow who was attacked in a restaurant last week), is on his way to meet with his French counterpart today. The French have lent a friendly ear to the Greek "problems", lately, well, not so much.

The size and scale of the Greek issues have been contextualised by Mr. Market, I think. Meaning that whilst this is a serious and sizeable problem, it is not the be all and end all of the rest of Europe. The weaker Euro has been pretty good for the export driven economies of Europe. Remember, if you have a portfolio of stocks, diversified by sectors, nature of business, geographically, your portfolio is always going to be impacted by geopolitical events. Be it the slowing Chinese economy, be it the economic travails of Greece. Be it the anxiety of when the Fed is going to raise rates next, be it the worries around the strong Dollar. There is always something going on that is cause for concern, something to give you a reason to stay out of the market so to speak.

That garbage line of sell in May and go away. History, at least stock market history is fun. No, it is wildly entertaining to recall scenarios and what happened back then. What happened in the past and relating it to staring at charts to presume to know what is going to happen in the future, I am not too sure that holds much water, in my world at least. Read the past to get the background on the businesses, the deals that mattered and shaped the businesses and cultures of today, that is important. Get a feel for the track record of the businesses that you hold, to know that there is consistency and accountability in each and every way, to ensure that the culture continues into the future. However, past performance means nothing, and does not guarantee future returns. That is true of companies too. I am more interested in what your view is of the next 5 months, the next 5 years and beyond. Give me your fives.

Session end in Jozi the market closed nearly four tenths of a percent higher, resources had another power day, up nearly three percent as a collective. In the end the market closed at 54,640 points, about a percent off the all time highs. So, notwithstanding the fact that last week was a little average for equity investors, the overall levels have improved significantly as a result of the resource stocks turning up the bunsen burner.

Across the seas in New York, stocks closed around one quarter of a percent better on the day, around half a percent off the early session highs. There was great excitement with the annual Berkshire AGM having closed and the sage of Omaha available for ordinary investors to hear his views on all things that matter, education, the state of the economy and so forth. It was also a pretty rare opportunity to get a glimpse of Charlie Munger, he usually is not that available for these types of lengthy pieces.

If you are looking for all the interviews, separated, then here they are (quickly follow the links, they get stale): CNBC US video. The starting point is this video, I guess if you are only going to watch one, make it this: Berkshire & Buffett celebrate 50 years. Nice, good to see a corporate champion taking their social responsibility seriously.

Company corner

Oh. A pretty small announcement, a little after the market closed here last evening. An announcement from Naspers that The Capital Group Companies (on behalf of their clients) had acquired a stake in Naspers of 5.017 percent of the company. Who? Who are they, The Capital Group Companies? It is a worldwide investment house, headquartered in the US, Los Angeles to be exact. Assets under management, according to their website were 1.25 trillion Dollars as at the end of 2013. I suspect that they did well in 2014 and that number has grown. I presume also that this investment will be inside the Capital Group Screened Emerging Markets Equity Fund, which is domiciled in Luxembourg (I think). The fund has a 3.3 percent weighting towards South Africa, it is relatively small by global standards and was founded only in August of 2011. 86 million Dollars of assets under management. 5 percent of Naspers is around 39 billion Rand. Simple calc suggests that this cannot be the fund that houses all of the Naspers stake, around 3.2 billion Dollars worth.

What is interesting is two things. This is a massive company holding over one and one quarter of a trillion Dollars worth of assets under management. They report to have more experienced and steady management than any other business of its kind, many funds have multiple managers with decades of experience. Decades, that is a long time. To take a stab at Naspers is certainly an endorsement. Then again, perhaps I have not been watching this as closely as everyone else, perhaps they have built their stake up over time.

McDonald's is a stock that we used to own. We sold it. The chief, Steve Easterbrook (new), delivered a 23 minute message to stakeholders, franchise owners and employees (stakeholders, medium rare) in presenting the turnaround plan yesterday. If you are interested in watching, here goes: McDonald's turnaround plan. The crowd did not roar with excitement, the stock was a noticeable loser on the day. The long and the short of it all is that you would not need to present a plan if the current one was not working. McDonald's has been a loser on the technology front (Easterbrook cites a lack of innovation as a reason they have lagged).

You would have to say that if you were chasing yield, this is not a bad place to park money, a 3.5 percent yield before tax in the current environment is good, the shareholders when comparing their returns to the competition want more. A burger is just not a burger. There are gourmet burgers, carb free burgers. I suspect however that the business is better owned when the going gets tough (says Billy Ocean), when the economy is going through a tough patch and hungry folks shop down to affordable quality. As the economy turns, people look for less reliable and more exotic. A burger will always be a burger, the company will always be around, and in the end the menu will adapt to suit the needs of the consumer, albeit at a slow pace. At current growth rates that yield would have to be in the region of 5 percent pre tax to entice me.

Another company changing their ways is Cisco. Although, judging by the muted reaction in the stock price, it seems the market is not too impressed. The announcement came yesterday, pre market: Cisco Board Names Chuck Robbins as Next CEO. More importantly, John Chambers is on his way out as CEO, he does however stay on as Executive Chairman. Sigh. The man should go, that is the opinion of us here at Vestact, although in fairness to Mr. Chambers, Bill Gates had only good words to say about him yesterday. Gates was flanked by Charlie Munger and Warren Buffett in a CNBC exclusive, post the Berkshire AGM. So then I said, well what do we know if Gates gives him that sort of endorsement?

Things that we are reading

Facebook let rip with a pretty astounding fact, two out of three people do not have internet connectivity worldwide. Now whilst I agree with Bill Gates that there are bigger problems than not having the internet (like having electricity to power the connection device up), I do think that the internet has the ability to change the world from an education point of view. So, big up to the Zuck and the rest of the folks at Facebook as they embark on their project of trying to get everyone online: THE MORE WE CONNECT, THE BETTER IT GETS.

When Bill Gross was at Pimco, they were the biggest bond fund in the world. Since his high profile departure, there have been fund outflows, so much so that the mantle of the largest bond fund in the world has been passed to Vanguard, see the WSJ article (subscription only, you can get a few free methinks): Fund overtakes Pimco's Total Return.

I suppose this is a pretty good question: Are There Too Many Buffett Disciples? The Woodstock of Capitalism. I am not too sure if there can be too many disciples of Buffett, the guy is a good role model, the friendly and pragmatic billionaire investor next door. He still collects and pays for his McDonald's, he suggested yesterday. They even know my name, said Buffett in an interview, yeah, I am pretty sure that they do!!!

Elton John sung that sorry seemed to be the hardest word, there is another word, however. No. If you are looking to be a leader, it turns out you may have to use that word more often: A Successful Businessperson Has to Learn to Say No. Practice it in a "nice" way, ok?

Home again, home again, jiggety-jog. Commodity prices seem to be up, I guess from where they were yesterday, this bodes well for the rest of the market is my best guess. The Australians have cut the benchmark index to a record low 2 percent. More importantly, Chinese stocks are getting absolutely smoked, down 4 percent in Shanghai and one and a half percent in Hong Kong. Like we mentioned yesterday, stocks in that part of the world have rallied hard, yet they are less than half of the lofty valuations of 2007. As usual, expect the many I-told-you-so's to turn up. When those types say that, irritate them by asking for some more predictions of the future. Ha Ha!

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

Email us

Follow Sasha, Byron and Michael on Twitter

087 985 0939

Monday, 4 May 2015

Visa. Own it and go places.

"Visa is neither a bank, nor the lender. They process the payments. In other words, if you believe that there are going to be more electronic payments over time, more people using cashless payments systems, then Visa is directly in the sweet spot. I have seen adverts that suggest that one in seven people globally do not read, adults that is. How can it be possible? If you believe that the future for humanity is one with more prosperity, more people will use payment systems more frequently."

To market, to market to buy a fat pig. Thursday was so long ago. Too many holidays. I can say that I took advantage of this one, I went down to the 'Berg to see the mountains, big ones by South African standards I guess. Mafadi is the highest peak in the Drakensberg at 3450 metres above sea level, 32 metres lower than the highest point in Lesotho, Thabana Ntlenyana. One other mountain is in-between the two, Makheka, also in the Maluti mountains of Lesotho. Where exactly is Mafadi? Well, the name itself is under dispute according to the Wikipedia entry, Ntheledi is the original Sotho name. You can attempt a climb of the highest peak in the country from the Injisuthi park, in the middle of the Drakensberg, 60 odd kilometres from Estcourt/uMtshezi, the birthplace of Mark Bristow and Henry Honiball. Any takers? For the climb I mean, not for mine visits to Mali (Mark Bristow's choice) or a crunching tackle from Honiball?

For the markets Thursday evening in New York it was a case of all fall down, there were earnings from the oil majors that disappointed, weekly jobless claims fell to a 15 year low. Those two I guess are not really related, in response to lower energy prices the rig counts (a now closely watched number) which has been falling steadily, 21 straight weeks I read, these giant companies in the US (oil ones) have been cutting jobs steadily. Elsewhere however, the labour market seems to indicate, employment is "happening". Employment for boxing matches (of the century), and all sorts of other entertainment. As we pointed out around four months ago, spend at restaurants and bars in the US has overtaken grocery stores. True story, people spend more money out in the US than at grocery stores. Both those numbers register 50 billion Dollars plus a year, see this piece: Retail sales at grocery stores vs. restaurants.

With regards to where we left off here Thursday, I suspect that we will see a catch up this morning, on Friday the US markets closed strongly. In Asia it is a mixed bag, there was a poor Chinese PMI read this morning which Mr. Market translated that the Chinese authorities are going to continue to do more. And then the other story that was and still hogs headlines, the Greek negotiations. The Greeks are pressing hard for more debt write-offs. The Greek people want to stay in the Euro zone, they don't want austerity. The rest of Europe wants them to do the hard yards. Why should the Greek people not leave? Simple, the headline says it all: Grexit could cause a recession 'of unprecedented magnitude' and a 50% currency devaluation. Even if the Greeks struggle and fight for every concession, it is possibly worth it. The problem is, time is running out.

Forget all that, the most important event over the weekend was not the boxing, which impacted the Avengers movies sales in the US (yes, it did), rather the 2015 Berkshire Hathaway Annual Shareholders Meeting, Saturday, May 2nd. That is also brilliant, this one was the 50th version with a chap named Warren involved. The annual newspaper toss, who won that? Check it out: Warren Buffett and the Annual Newspaper Toss Challenge. Bill Gates, Warren Buffett and Kathy Ireland all tossed the paper at the same time. Why does this happen? Firstly, Berkshire bought a whole set of newspapers (why?) a short while ago. Secondly Buffett reckons as a child that he delivered 500 thousand newspapers on his rounds. I am always amazed at how people come with grand ideas to be billionaires and then forget that the starting point is consistency and hard work. Buffett delivered newspapers in order to start an empire, he did not major in mathematics and then start a hedge fund charging ridiculous fees.

For other pithy quotes from both Charlie Munger and Warren Buffett, the BusinessInsider have put them all together: The most important things Warren Buffett and Charlie Munger said at Berkshire's annual meeting. There are some absolute crackers in there, including the internet and how cheap it is, for what you get. And then perhaps the best of them all, from Charlie Munger: "If people weren't wrong so often, we wouldn't be so rich." I guess what he is saying is that there are plenty of investment strategies out there.

The BusinessInsider had someone attend and take tens of pictures in their quest to try and explain how it all works: This is what it's like to be a shareholder at Berkshire Hathaway's annual meeting. Follow the pictures, you get to see the newspaper toss, more importantly you get to see woman wearing a shirt that suggests that she has been a Berkshire shareholder since 1967. We discussed in the office that it is likely that she bought 100 shares, somewhere around there. Even if she sold half off along the way, she still has in excess of ten million Dollars of value left in the company.

It is quite difficult to think of other AGM's of that size, it is quite difficult to conceptualise that this is an AGM, the board gets elected here. This looks more like a trade fair, like a Star Trek convention. I suppose that he is the main attraction. Their views on the world and the allure of how to get rich like him. Start small and humble, be smarter, be patient, learn when to say that you were wrong (we all make mistakes) and keep it simple. In other words, you cannot own everything. Invest in what you know. Buffet continues to make sense and Dollars in his fairly simple strategy. I often wonder about dividends and Berkshire and how much better at allocating capital insiders are. And whether or not that would work for most other companies. The other thing that I notice is that when comparisons are made between Berkshire and the S&P 500, the blue chip index is never given the benefit of dividends and those reinvested. Have you ever seen any mention of that?

Company corner

Visa. What a business! Along with MasterCard, the company is trying to send cash into the afterworld, one swipe at a time. The reason why Visa remains extremely attractive as an investment is clear, whilst politicians may think that the company charges too much for their services, the fact is that they have engineered global payment networks that work like clockwork and is easily accepted at most global pay points. There is no need to get travellers cheques, there is no need to get cash and get ripped off on the exchange rate. You can draw money out of any ATM anywhere in the world, in the local currency if you need cash when you have arrived at your destination.

So here are the numbers: Visa Inc. Reports Fiscal Second Quarter 2015 Net Income of $1.6 billion or $0.63 per Diluted Share. The important metrics inside there, volumes, i.e. payment numbers. That was up 11 percent year over year. The stock actually suffered as a result of folks worried about guidance for the current quarter. I think that is a massive opportunity to buy what is an amazing company, at a cheaper price.

Why is what the young child asks, why? Why own Visa? Visa is neither a bank, nor the lender. They process the payments. In other words, if you believe that there are going to be more electronic payments over time, more people using cashless payments systems, then Visa is directly in the sweet spot. I have seen adverts that suggest that one in seven people globally do not read, adults that is. How can it be possible? If you believe that the future for humanity is one with more prosperity, more people will use payment systems more frequently.

And it will become second nature, as it is to you and I now. We just pull the card out, not thinking twice that 20-25 years ago, a credit card required a flatbed looking machine that required a certain amount of power to get the print spot on. It felt like you were part of a loom type process, in an industrial fabric manufacturing facility. Checks are dead here in South Africa, yet they exist everywhere in the US, people still use that payment type. I have not used a check (cheque) in years. I have a book stashed in a box that I should probably mark "history". Check what the company is up to: Visa Expands Global Technology Research; Hires Senior Scientist to Lead Visa Research Labs. The evolutionary phase of the business in underway, check:

"Digital commerce is rapidly evolving due to the introduction of new technologies. As the world becomes more connected, every device, car, or appliance becomes a place where secure digital commerce can take place," said Rajat Taneja, Executive Vice President, Technology, Visa Inc. "I am excited to expand our technology research efforts and have Min lead Visa Research Labs. This effort has the potential to shape the way we pay and get paid in the future, and transform the lives of millions of unbanked consumers by finally providing them with access to secure digital commerce."

And that is exactly it. It is evolving and keeping pace. Buffett reckons that in 50 years time the Dollar will still be the reserve currency of the world, he is possibly right, you know. And the payment systems pioneered by the networks will be the ones that the likes of Apple Pay uses. Apple does not want to reinvent the wheel, they want to use the existing infrastructure. And if that means not having a wallet, then I am all for just having a phone with fingerprint technology. Obviously there are going to be regulatory issues from time to time, and this is linked heavily to the consumer cycle, we continue to think that governments WANT more electronic payments and consumers in the developed world look better than before. At around 24 times forward earnings, you might think that looks stretched, it is the cheapest that the company has looked in nearly three years. Buy.

Things that we are reading

Do not worry about the stock market run in China. We are still around 25 percent below the highs of 2007. Yes. Whilst each and every other market is making new highs, the Chinese are not. China's Long Bull Run. The most important paragraph in there for me: Valuations also don't yet inspire vertigo. Shanghai stocks fetch 22 times trailing earnings, versus 49 times in 2007. And Hong Kong's Hang Seng Index fetches 12 times earnings, versus 20 times in 2007.

The Tesla announcement last week, which you can watch the launch of the battery, Tesla energy is what Elon Musk calls it. THE MISSING PIECE. Peak trough usage differs by as much as a factor of 2, meaning that the sun is there, Musk calls it a "handy fusion reactor".

Here is something equally cool: A solar future isn't just likely - it's inevitable.

You keep your sandwiches in them. Yet they are more than just a humble bag, here goes: The Surprisingly Complex Design of the Ziploc Bag.

Oh no, that is terrible news. Sheryl Sandberg, the Facebook exec, has tragically lost her husband: Dave Goldberg, Head of Web Survey Company and Half of a Silicon Valley Power Couple, Dies at 47. Life is fragile, enjoy all of it.

Home again, home again, jiggety-jog. Greece, should we care? Yes, in a Manny and Floyd sort of way. There is nothing that you can do to change the outcome of the talks between Greece and their creditors. Brussels expect to have this wrapped up by May the 11th, hopefully. I am wondering what the locals in Greece are wondering, this is possibly not going how they had envisaged. The market started like a house on fire, it fell away a little during the course of the morning. Sigh.

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

Email us

Follow Sasha, Byron and Michael on Twitter

087 985 0939