Money with a dash of Funny

Wednesday, 11 May 2016

Solar trying to shine through

"The company has continued to warn that they are likely to fall short of their installation goals, notwithstanding that they plan to install 1.1 Gigawatts this year in rooftop solar to customers (residential, business and government), that is below the 1.25 they had initially signalled. Competition from newer and more fragmented businesses, regulatory issues, issues around financing and of course the most irritating for the company, the installation costs continue to rise."

To market to market to buy a fat pig A better day for stocks locally, the weaker currency lent itself "nicely" to the industrial and resources complex. One of the reasons that the Rand may well be weakening is the weak employment data from a couple of days back. In a parallel, yet far richer universe, the presidency race in France is set between a centre right candidate intent on market reforms citing the lower employment rates in Germany and the UK, and another fiercer very far right candidate, the daughter of a former political. With the necessary steps to reform economies and make them all inclusive, the longer the stalemate remains.

It is easy for me to sit here and dictate with suggestions, I come from a privileged background in a South African context. Quality education changes everything, I know that, I believe that, as did the founder of the modern South African nation. It starts early, with children from their birth to the end of their tertiary studies. In the US, according to work done around 2013, the cost of raising an individual child to the age of 18 is 245 thousand Dollars.

In the UK, a 2012 study suggested a middle class child costs (to 21 years of age), 222 thousand Pounds to raise. In India, an upper middle income family can expect to spend 90 thousand Dollars to raise a child to the age of 21. So I guess, depending on where you sit in the economics tables of each respective country, it does cost a monster sum that includes transport (vital in a South African context) and good nutrition, before even the quality of the education is called into question. I know that some very elite boarding schools cost an arm and a leg in this country of ours, the fact that people get the opportunities to send their children there means that they are definitely one-percenters.

Bright and I were discussing Curro yesterday (or was it the day before), and noted that a couple of years ago (when Curro had 41 schools), that the business wasn't even 5 percent of the total private schooling system in South Africa. And of the overall system here in South Africa, only 5 percent of the school going population was privileged enough to go to independent (private) schools. The rest of the 95 percent of the country didn't get that opportunity. Education, healthcare (including nutrition), win there and then you will win across the board.

Back to the market quick-sticks, it was a ping pong for Anglo American again, the stock was up 4.4 percent (after being down 10 percent in the prior period), no such luck for AngloGold Ashanti, their results from a couple of days back were not well received, that stock was down 2.4 percent. Naspers cracked the 2000 mark again, that stock was up sharply, nearly three and three-quarters of a percent. See the link below that Michael inserted about TenCent. Pretty amazing stat.

Over the seas and far away, in New York, New York, stocks rallied hard through to the close. The Dow added over a percent and one-quarter, in fact both of the other two watched indices, the nerds of NASDAQ and the broader market S&P 500 added exactly the same amount. I guess against that same-same backdrop it wasn't surprising that the rally was pretty broad based, and that volatility got crushed. Energy stocks continue to catch a bad as disruptions in Nigeria lead to the lowest output on 22 years for that country, plus the Canadian wildfires (that could burn for a while still) mean that oil prices could remain at these levels (mid-forties Dollars per barrel) for a while yet. Energy stocks were amongst the biggest winners, as a collective up over two percent whilst materials rallied two and one-quarter of a percent.

Company Corner

Solarcity seems at face value, a company that has the ability to meet our energy needs, solving both the storage problem (with Tesla included) and enabling a cleaner future for the unborn children that inherit the earth from us, and previous generations. Ambitious plans, with that man Elon Musk involved as chairman and his childhood friends and cousins (the Rive brothers, Lyndon and Peter) at the helm of the business look like the perfect mix for success, hard work, determination and of course a founding principle of the business that encourages change, real change at that. Since the company listed their business back in late 2012 the stock has returned 50 percent, as ever it depends where one draws a line in the sand, from the February 2014 highs the stock is down 80 percent.

The company reported numbers on Monday evening, a few sessions after short seller Jim Chanos announced he was short the business. On that news alone from last week, the company stock price fell sharply. In fact, the share price has almost halved since the 27th of April. That is a spectacular fall from grace in such a short period of time. Whilst the company reported in their results Monday night that they had managed to install 40 percent more capacity than in the prior year.

The company has continued to warn that they are likely to fall short of their installation goals, notwithstanding that they plan to install 1.1 Gigawatts this year in rooftop solar to customers (residential, business and government), that is below the 1.25 they had initially signalled. Competition from newer and more fragmented businesses, regulatory issues, issues around financing and of course the most irritating for the company, the installation costs continue to rise. The company continues to report a loss, and according to Jim Chanos, it is the worst conference call he has heard this year. That is a little like Carl Icahn I guess, he is of course talking his own book.

The only way that the company can regain the trust of a very shattered shareholder is possibly to reduce costs heavily and meet targets. That is what I have read. I am thinking that they cannot do all of these things. Whilst this is hardly a swing for the fences type investment, in our context here in Mzansi it is more apt to say six-or-nix, anyone who has engaged in a fierce match of backyard cricket will know exactly what I am talking about. It may well be that this company is well ahead of their time, I would not count against the never say determination of the Rive brothers and chairman Elon Musk. It is possibly way too speculative and out there for many to own widely.

Linkfest, lap it up

A new research paper has shown that by following Twitter it is possible to outperform the market - The Wisdom of Twitter Crowds: Predicting Stock Market Reactions to FOMC Meetings via Twitter Feeds. I think that the research shows that money can be made in the short term when you tap into momentum and market emotions.

Here is one of the reasons that Tencent (Naspers) is worth what it is, League of Legends is owned by them - Most played PC games on gaming platform Raptr in November 2015, by share of playing time

Tourism can contribute to much needed growth in Africa, we are not doing ourselves any favours though - Why Africa needs to open up to Africans

Home again, home again, jiggety-jog. Stocks across Asia are a mixed bag, futures in Europe are equally mixed. We may well be in for a slow day on the equities front. Never dull I might add!

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

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Tuesday, 10 May 2016

Online Travel

"For those of you who are not familiar with the business, they own various travel portals and interfaces, including ones that you may have used often, Booking.com, Priceline.com, Kayak, Agoda, OpenTable and rentalcars.com. I am pretty sure that you have used these services at some point if you are familiar with online travel."

To market to market to buy a fat pig What happened? In Jozi, the all share index was a percent to the good, and then by the close of the day, we were down just over one-tenth of a percent. Markets in Europe were particularly good, US futures had drifted lower by the time we were signing off for lunch, it was the commodity price slide that saw heavyweights fall across the board. As a collective the resource complex were down four and one-quarter of a percent, heavy selling in both Anglo American and AngloGold Ashanti, both down over ten percent. AngloGold Ashanti had results that looked OK at a cost control level, unfortunately not so much at a production level. Notwithstanding a 13.8 percent slide in the share price ADR market last evening, the stock is still up 98 percent year to date.

Sappi was another company that surprised, this time to the upside. Whilst the stock rallied over 15 percent during the course of the day, perhaps a short squeeze of sorts, the gain by the time the bell had rung for the close was still a respectable 5.99 percent. Better profitability off the same (slightly lower) revenues. People like the cellulose business, they like it a lot and think (rightfully) that there are great prospects for that specific business segment. Management must be given an enormous amount of credit for acting on what they said they would do, reduce debt and slim down, selling non-core assets.

They still have a long way to go and the jury is still out (for me), with coated paper still accounting for 61 percent of sales by product and sales by source being 51 percent Europe and 27 percent North America. It doesn't mean the end of magazine, it just means that they will be consumed on a different platform, see this from Statista -> Consumer magazine circulation revenue in North America from 2008 to 2016, by platform (in million U.S. dollars).

Mind you, over here we have been very wrong to predict the share price going lower, Sappi's full year revenues last year in September were at their lowest since the 2007 financial year. If this half year is repeated, then expect lower revenues again for this year, perhaps comparable to the 2006 year, a decade ago. The ten year performance, which includes a rights issue at some point (One big one done in the late 90's too), sees the share price down 25 percent. That is your decade return, if you had followed your rights in full I am pretty sure it would look better than that. Glossy paper future, do you feel positive on that? Or do you think people are going to consume "magazines" increasingly in digital format? I'd be happy to know what your views are. All I can say is that we have gotten this one wrong so far.

Stocks across the seas and far away were a mixed bag, energy and basic materials stocks took some heat, healthcare stocks were at the opposite end of that equation. By the end of the session the Dow (or is that Down?) Jones Industrial had lost one-fifth of a percent, the broader market S&P 500 just managed to squeak into the green. The nerds of NASDAQ added nearly one-third of a percent.

There was a 30 percent premium offered for the shares of Krispy Kreme by privately owned JAB Beech, the owner of Peet's, amongst some other well known brands. We were shocked in the office to learn that the size of the company was small, with the premium the market capitalisation is 1.31 billion Dollars at the close of trade last evening. That equates to 19.9 billion Rand. For comparisons sake, the market capitalisation of Famous Brands in Dollars is 750 million Dollars, the market rates the business on 22 times earnings, the buyout of Krispy Kreme is double that multiple. In other words, on a comparable earnings basis, the two companies are of a similar size.

Company Corner

Priceline has recently been in the news for the wrong reasons, the CEO resigned a couple of weeks ago after admitting to having an affair with an employee of the business. An improper relationship led to Chairman Jeffery H. Boyd Appointed Interim CEO, Huston had been at the business for years and years. Why oh why can't people just keep their personal "stuff" away from the business, this happens all too regularly. I guess, who am I to judge these things, it is another reminder that no matter how you may be at the top of your respective industry, a fall from grace is possible at any moment. Big up to the board for having the courage to press on with this action against what is essentially one of the most powerful people in the company. I am pretty sure that Mr. Huston has deep regrets.

The business of business goes on. The company reported Financial Results for 1st Quarter 2016, a 21 percent increase in profits off an increase in first quarter travel bookings of an equal percentage. In constant currency terms revenues were 26 percent higher. The outlook however was muted, with revenue expectations of only 7-14 percent in Dollar terms expected for the full year. Gross profits expectations are expected to be in the region of 9-16 percent, again, this is no mean feat to be growing revenues and profits by mid teens. Most especially in what is very definitely an environment that is seen in part as not exactly friendly. 137 million room nights booked in the first quarter. There are now 31 percent extra hotels and territories, 900 thousand hotels to book from. In 220 countries around the globe.

For those of you who are not familiar with the business, they own various travel portals and interfaces, including ones that you may have used often, Booking.com, Priceline.com, Kayak, Agoda, OpenTable and rentalcars.com. I am pretty sure that you have used these services at some point if you are familiar with online travel. Even though the business turns 20 this year, the concept of travel completely online has only taken a true foothold in the smartphone era. It is completely paperless, you can book almost anywhere, in any currency, from your smartphone. Your airline tickets and place of residence will show up as tickets on your smartphone. I still think that people are yet to appreciate the awesome life changing internet. Think about how you booked a holiday 20 years ago, before all of these platforms existed. Physical airline tickets with carbon copies (don't lose that or you are stranded), remember those?

The stock traded sharply down after the release, the Q1 results were ahead of expectations, the guidance is below. At current levels of 1244 Dollars, with earnings expectations in the region of 55 Dollars a share, the stock trades on 22 times forward earnings for 2016, around 18.5 times forward for 2017. I really think that the company is in a very sweet space, more and more people are travelling around the globe than at any other time. Definitely look to accumulate on weakness.

Linkfest, lap it up

Is this the best example of a company giving people what they want? On the one hand giving them sugar and on the other giving them a way to manage diabetes - Nestle Wants to Sell You Both Sugary Snacks and Diabetes Pills

Africa is the leader in mobile money due to the low number of banked people. In South Africa it hasn’t worked though because more people have bank accounts and because the likes of Capitec have targeted the unbanked - Vodacom to discontinue M-Pesa mobile payment offering in SA.

The maker of the AK-47 is moving into clothing fashion - Sanctions inspire Kalashnikov move into fashion.

Home again, home again, jiggety-jog. Some bits and pieces reporting today, markets across Asia are on balance higher. We should start on that footing too. Excellent.

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

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Monday, 9 May 2016

2.629 million jobs in a year

"Put differently, US non-farm payrolls gained 2.629 million folks over a year. Sounds OK to me! Why the watch month-to-month? That is the people that we have become unfortunately. I call it the credit card generation, perhaps it should be Twitter or Vine. 140 Characters, 7 seconds, get what you want when you want it."

To market to market to buy a fat pig Friday was a while back, with the day to celebrate mothers around the world in-between. It certainly is a lot more commercial in this neck of the woods than it used to be, perhaps I am only paying closer attention at this point in my life than before. Perhaps that is the case, with young kids the dad is the guardian of the day of the mother, not so? Friday of course was the biggest monthly employment read since the previous one. The headline number, being the number of jobs created in the month of April, as per the data that the US Labor Department has at its disposal, was a miss.

From what I could tell, the labour force participation rate fell, which is not good. Equally, the employment rate was flat. I did notice that there was massive job shedding in mining activity, whilst the services economy looks in pretty nifty shape, along with the broader healthcare sector. Healthcare is becoming an increasingly big employer across the globe, healthcare and social assistance employs a staggering 19 million people across the USA, that is more than we have in the entire workforce here in South Africa. The US government, specifically at a local government level, is one of the biggest employers in all of the country. A lot of that is teachers, education at a government level in the US accounts for 7.81 million jobs. Out of the total civilian workforce of 158.9 million folks.

I think that people look at these numbers in a very focused and narrow way. Population growth in the US is higher than some of their developed market peers across the globe. People tend to focus on this number as the number one litmus test of what the health of the US economy is. Instead of looking at month to month, what about this time last year? The change is massive. In April 2015, the labour department in the US reported that the total non-farm workforce was 141.286 million strong. On Friday, the same department reported that the non-farm workforce was 143.915 million strong.

Put differently, US non-farm payrolls gained 2.629 million folks over a year. Sounds OK to me! Why the watch month-to-month? That is the people that we have become unfortunately. I call it the credit card generation, perhaps it should be Twitter or Vine. 140 Characters, 7 seconds, get what you want when you want it. And then worry about the consequences later. The number itself can be quite volatile and move around, again, I wouldn't get too excited if it is a blowout number or a disappointment. The trend is still intact. Tell that to the constant worrywarts.

Finally, on that score, as investors in businesses that provide services and produce products for consumers around the world, consumption is something that we need. In the same way that everyone does not have the same savings disciplines, consumers must consume large quantities in order for our businesses to produce higher revenues and higher profits year in and year out. So crass consumption might be frowned at by the (bless them) purists, it is very necessary for societies to advance. The careful use of leverage for fixed asset formation is part of the process. On that score, at least there are many nations across the globe that have a relatively low starting point.

Scoreboard check quickly, whilst the markets in New York, New York started lower and slid through to midday for the lows, as a collective stocks recovered into the finish and all ended with a positive print. The Dow Jones Industrial Average added 0.45 percent, the nerds of NASDAQ four-tenths of a percent and the broader market S&P 500 up just shy of one-third of a percent. Moving the needle were basic materials shares and in the opposite direction, being a short drag on the market were the healthcare stocks.

Across to our market, stocks ended the session a full one percent lower. There was pretty much broad based selling, industrials and financials slightly worse than the rest of the market, resources better, yet still in the red. Today the price of iron ore is getting caned, too much supply in Chinese ports and wild speculative activities on commodity prices might drag us lower here today at the start. That could be offset a little by rising oil prices. A shakeup in the world of oil as the Saudi oil minister is replaced and a massive fire in the Canadian interior (in the Canadian oil sands) may well lead to production cuts that the rest of the industry needs. Other countries, including Saudi I suppose. For now, we do not advocate investing in commodities. An investment in raw commodities is a bet against humanity or said differently human innovation to do more with less.

Company Corner

Cerner is a business that focuses on healthcare intelligence. Just the other day, at the beginning of last week, there was a report that suggested Medical errors now third leading cause of death in United States. What? We wrote about their full year results in February, giving some good background to the business - Cerner 4Q and Full year numbers. Back then as we showed you, the stock swooned to a level not seen in a while, the same applies now. Certainly the company is one of the leaders that are looking to reduce medical errors, through their Hospitals & Health Systems business.

Owning a business like this, Cerner, means that you get to participate in the improvement of drug administration to care during and post surgeries. The seven most worrisome emergency surgeries that account for 80 percent of the deaths in the US are closely related to surgery in the abdominal area. I am pretty sure that all parties involved are well aware of the problems and issues associated with these surgeries and are going to work hard to fix them. Department handoffs too are part of the problem, this is no doubt where Cerner can continue to make huge strides in integrating the patients history. Surely information readily available from the consulting doctor through to post op must be available at the click of a button. Knowing everything about the individual, making sure that the correct drugs and care is administered, goes a long way to avoid the medical errors. This is why I think that a business like Cerner still has huge growth potential.

When the company reported their First Quarter 2016 Results, the market was not the least impressed with a 14 percent rise in revenues and an 18 percent rise in earnings. Perhaps it was more likely the guidance given for the quarter and the full year. For the full year the company expects revenues of 4.9 to 5.1 billion Dollars, and earnings per share (before share based compensation expense and acquisition related adjustments) to be 2.35 Dollars at the mid point of the range, a high teens increase in earnings. And that means that the stock trades on a 22.82 times forward. And then further out, less than 20 times earnings on the same growth, implying a 1 PEG ratio. With PEG being price to earnings ratio over the implied growth rate. And by that measure the stock hardly seems expensive for an information technology services company.

The share price performance has been very disappointing. Over the last year the stock is down over one-fifth, nobody likes to see those types of returns. The thesis is still intact, the company is on a firm footing and will continue to find more and more work in the future, as we move towards a greater integration in the internet era. It is a company that I am positive on their long term prospects and whilst there may be very little action in the short to medium term. We maintain our buy recommendation on the stock and are accumulating on weakness.

Linkfest, lap it up

You know that you want to look at this link - Inside the Gigafactory That Will Decide Tesla's Fate. It definitely is futuristic, the setting makes it eerily James Bond villain like. Except Elon Musk is like a superhero.

The dream of transcontinental flight in a few hours rather than overnight might sound like a great idea, until you have to pay the price, a big one at that. Getting from Joburg to Europe, or the far East, or North America, or even the northern part of our own continent is a long way away. Don't expect that to change any time soon, as a result of the economics of flight - Why planes aren't getting any faster-and won't any time soon.

India is one of the countries that Naspers has a growing footprint, unfortunately one of the investments isn't doing as well as it was previously - Is Flipkart turning into the perfect example of what a tech startup must not do?.

If Britain decides that it no longer wants to be part of the EU one of the unintended consequences will be that Premier League Football will loose a big chunk of players and not be able to attract future foreign talent. Foreign players would need to get work visa's to play in England, not always that easy - If England leaves the EU, it's the end of the Premier League as we know it

Since the financial crisis, ETF's numbers have been surging. One of the byproducts of people focusing less on individual stocks and buying indexes is that index trackers are getting more complicated. ETF's that incorporate factor leveraging like Smart Beta ETF's are seeing a rise in popularity because a normal index tracker is too boring - The Temptation to Time

Do you doodle whilst on a phone call? Did you doodle in class or a lecture? Or a meeting? It turns out that doodling may well be a very good way of learning something - The scientific case for doodling while taking notes. I am going to try this.

Taking selfies may be more than just vanity. A smartphone may recognise your unique features for password protection - Companies are betting on a new way to protect your identity: the selfie.

Home again, home again, jiggety-jog. Futures markets are marginally higher everywhere. We are drawing to the end of the earnings season in the US, and no doubt there will be excitement with it starting here. Hey, a full week here, who would have thought. Hey, Arsenal fans, Arsene Wenger has a 57.2 percent win percentage. He has lost only 19.48 percent of all of the matches he has been in charge of. If that were an investment managers record, he would probably be the best of the best. Fans want 100 percent in my experience, it is never going to happen.

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

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Friday, 6 May 2016

Mad Musk never blinks

"So the company makes a loss, their delivery record against the projections have fallen flat, this business has nearly run out of money and got a last minute reprieve moments away from waving the white flag. Their targets are incredibly ambitious."

To market to market to buy a fat pig After an awful start to the year that led to the lows of mid February, stocks roared all the way in late March as some concerns abated about the health of the global economy. In recent weeks, the same old concerns have reared their ugly head again. There have been huge stock withdrawals by ordinary Americans on the street, selling stocks for some reason or other. Same old. Herd and crowd reaction to global events present opportunities. Oil prices, and in general commodity prices have recovered, sending materials and energy stocks to much higher levels. Whilst we have come though the best part of earnings season relatively unscathed, guidance has been lowered.

Single and collective company earnings are always set by the earnings current and potential, the share price of a business represents the balance of each and every buyer at a level. Not to say that all of them are right or wrong, time is the true determining factor on the returns that you end up with. You cannot get that time back after the returns, be they out or under performance.

What we try and do, and perhaps too often, is to draw a distinction between price and business, and most importantly prospects. There are examples of some companies with share prices that are perpetually expensive. Google is a great example. If you are waiting for Google to get to a low double digit or single digit forward multiple, you may well have to wait years. And by that time, the stock price may well be five fold higher than it is now. Remember that this is by no means an indictment on any investing style, just an observation.

Different is good, and if your investing style doesn't meet certain criteria, then that is what works for you. Being too rigid and setting rules in stone means that you may well miss many opportunities. Lastly however, you can't own everything in the market, there will always be stocks that you wished you owned and that you should have bought back then. I am sorry, you have to condition yourself for that certainty. You will miss opportunities. Equally, you will get impatient with companies, more specifically their share prices are not meeting your and the rest of the market's expectations. In fact, you should be grateful for these moments, that means (provided the thesis is still intact) that you can get the same company at a cheaper price. The provisor, as ever, is that you have the capital to add. Always be saving.

Quick look at markets as they stand this morning, our stocks locally are down over half a percent. Recently there has been a renewed bout of negative perceptions of emerging markets, our currency has weakened strangely in local step with the Dollar, that suggests other forces, the possibility of a downgrade is taking hold somewhat. Stocks overnight in New York, after a better start, softened towards the end of the session. Remember today is the "all important" non-farm payrolls report.

Company Corner

Nikola Tesla was a strange man. At least from all of the reading that I have done. He moved to New York a couple of years before the founding of our city, Jozi. There he worked for another inventor, Thomas Edison. There was a dispute between the two over a pay issue, Tesla resigned and started with his own string of inventions, including developing a patent for a biplane (it was 1915) that could take off vertically. A list on Wikipedia is a testament to his extraordinary and perhaps unrecognised brilliance -> List of Nikola Tesla patents. He was a dashing, weird, obsessive workaholic, who repeated the ordinary and suggested to all that he never slept.

Sound familiar? Workaholic, hardly sleeps inventor who is busy with craft that go straight up, once crossed by his brilliant work colleagues (whilst in the air on his way to enjoy a honeymoon). Yes, that is Elon Musk. And the company (one of them) that he runs is Tesla, named after the eccentric inventor of yesteryear. The noticeable difference between the two is that Elon Musk has built an incredible empire in a relatively short space of time. That is worth something. It is hard to believe that Musk turns 45 at the end of next month. The inter-webs tells me that Musk is "worth" 13 billion Dollars. Nikola Tesla died a pauper, with debts owed to various hotels, restaurants and others. Ahead of his time no doubt.

And perhaps Musk is too, ahead of his time. If you haven't read the Elon Musk book, you really should, it is nothing short of fabulous -> Tesla, SpaceX, and the Quest for a Fantastic Future . Enough of that, the comparisons are obvious to the past and to the modern day Iron Man, one thing is for certain, you need people like this to change the future. I asked my kids what they think about him, the failed relationships and all. Their overwhelming feeling was that he must continue to save the planet from excessive emissions and future endeavours. If he doesn't do, who will, they asked.

Tesla reported numbers two nights back, Tesla First Quarter 2016 Update. The big surprise was that the company have aggressively brought forward their aggressive roll out of the Model 3, perhaps in response to the overwhelming and unprecedented demand for the product. It is, by all counts, the most successful launch of any consumer product. Ever. As Chamath Palihapitiya points out in this article titled Hey Jerkwater: Do your math on TSLA ... , it took Apple roughly two years to reach that sort of sales number. You could well argue, and it is valid, that Apple have the capacity to product the phones on time, and have the capital to roll this out without too many problems.

Tesla, that is very different. Elon Musk suggested that they will have to raise more capital. Jim Cramer of Mad Money fame suggests that Musk's transparency is shameless, he is talking things up to raise more money. The other reason is that he loves the thrill of setting impossible (for ordinary people) targets. This is an amazing article that nails it - Why Elon Musk Keeps Promising the Impossible. The reason is that he needs everyone to be on board. Whilst two major manufacturing execs have jumped the board, just before the company reported a 12th consecutive quarterly loss, Elon Musk has his desk and a sleeping bag at the end of the production line, as you can see at the end of the article - No need to worry-Elon Musk's desk is right at the end of the Tesla production line.

So the company makes a loss, their delivery record against the projections have fallen flat, this business has nearly run out of money and got a last minute reprieve moments away from waving the white flag. Their targets are incredibly ambitious. Various Wall Street types think that he is mad, and that as an investment, you are equally mad. Short interest in Tesla has been trimmed somewhat, ahead of the recent results, just over 29 million of the 133 million shares in issue are currently short the stock, or nearly 22 percent of all the shares. There are certainly many people, even at nearly one quarter or so below their 52 week highs that think this company will hit the proverbial skids.

So why own a company of this sort at all? Surely the disappointment of another production miss and manufacturing troubles along the way will lead to a massive re-rating of the shares? You are actually owning the company for a few reasons only. Expectations are if the company can deliver on the aggressive projections, they will become profitable, the demand is most certainly there from the broader public, not just fine car lovers. Although as we have said before, the new Model 3 is a soft luxury product, not an ordinary sedan. You own this business for the visionary, the beautiful product, which is the most important thing at the end of the day, you own this business as a result of changing perceptions of rich people about the planet we live on, future trends of battery technologies. If you must own them as part of a bigger and diversified portfolio, expect an extremely volatile ride, expect the price action to be wild, you need a strong constitution. If you had to side with one man that well may change humanity, you certainly have an outlet to own a piece.

Linkfest, lap it up

Lyft is a competitor in some ways to Uber. We have seen Tesla above, Google two days ago -> Google, Fiat Chrysler to partner on self-driving minivans and now Lyft reportedly planning to pilot self-driving Chevy Bolt taxis 'within a year'. About that New York taxi medallion, the price may well actually go to zero.

There continues to be big regulatory pushback in all parts of the world against tobacco companies. Interestingly the companies themselves share prices have done well, we have got this theme wrong here at Vestact, thinking that lower volumes would lead to lower valuations. Surely this cannot however be good for their businesses over the coming years? - EU court ruling paves way for large, graphic tobacco health warnings.

Millennial this and that. Surely this graphic (via Brightest Millennials in Business: Here’s What They Think) from the Visual Capitalist tells you all that you need to know about branchless banks of the future, and most importantly being optimistic about the future. Let me know you if you fall into this age category of you patterns.

Home again, home again, jiggety-jog. Looking at a graph is a good way of knowing what happened in the past. Looking at a graph and using lines and patterns to determine what is likely to happen next is akin to rolling a dice and nodding when it lands on numbers four through six, and saying that you told me so. North Korea is putting on a phoney showing today of their global prowess. Sigh, what a tragic, tragic accident of history. Draw a line of prosperity of the two Koreas and please let me know what is going to happen next. As we said earlier, non-farm payrolls folks, this is the most important read ever. Since the last and no doubt since the next one. We owe you a few important company pieces, they are coming, stand by in the coming week. too much philosophy this week, it must be the best Marks of them all, Howard, that has fried my brain. Happy weekend sports lovers.

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

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Thursday, 5 May 2016

Investment Lesson

"Ownership is not the share price. It is an option on the future. We all know what has happened, we can read the annual reports (hard in itself) and look at the stock charts, tell me what is going to happen next year, I am more interested in that."

To market to market to buy a fat pig You always have to hold your nerve in markets. What I always struggle with, and I am sure that it is my own biases, is how people can always make an issue as the most important thing of the moment that will derail markets. I wish I could remember who said it, it may have been Peter Lynch, it went something like this: People spend 90 percent of the time worrying about a 2 percent probability. Another better piece that I can assimilate with, also from Peter Lynch: "Although it's easy to forget sometimes, a share is not a lottery ticket... it's part-ownership of a business." Well put. Too many people look at the share price, we are all guilty of this, and suggest that company is "doing well" based on the share price.

Obviously I can have a look at a 10 year share price of Bidvest and Anglo American and see the highs and lows of the share prices of respective companies and quickly determine that Bidvest has been more consistent with their returns. There is a point for the first three years that Anglo's share price smashed Bidvest. More recently, since the era of lower commodity prices, Bidvest has been on fire. Differently put, Anglo American has been suffering from problem after problem, and whilst the stock may be up 101 percent year to date, over ten years Anglo is down 46 percent relative to Bidvest being up 233 percent. So what that means is that Anglo needs to double from here to just break even over a decade.

In a world where the biggest consumer of raw materials is shifting towards a consumption driven economy, it is difficult to see that pan out. Unless India (or the US for that matter) comes with a massive infrastructure plan. The WSJ asked an interesting question, how come the oil price rallied 67 percent (from the bottom) when producers were struggling to find a place to store the excess.

To simply draw a line in the sand and say Anglo is a good one, based on recent price movement, or that Bidvest is not so much, the stock is up 10.6 percent YTD certainly misses a bigger picture when owning a company. Ownership is not the share price. It is an option on the future. We all know what has happened, we can read the annual reports (hard in itself) and look at the stock charts, tell me what is going to happen next year, I am more interested in that.

A common investor mistake is to say, oh, I knew I should have sold them there (when the stock price was thirty or so percent higher than it is now), so I could buy it now. The truth is, in the moment, at that very point when the stock price was thirty percent higher (in the hypothetical example) we were not to know that matters could change. Or that the share price was simply overvalued. Taking the market mood right now is important, remember that it varies from company to company. I realise that it is important where the market is, where the companies are, that is what really, really excites us here. If you want market nerds, our office is full of it. Passion for something means that working is not a job.

Scoreboard time, quickly. JSE All share index closed marginally lower, stocks of the Rand hedge kind were boosted by a weaker Rand. Resources were lower, anxieties about China will persist now, as that economy gets larger and more important globally, so will the strength of the anxieties. It is natural. Industrials were the "winners" here locally, stocks like the aforementioned Bidvest (who have a management statement this morning) and Naspers were at the top of the leaderboard. At the bottom was South32 and MTN, as well as BHP Billiton (the huge fine hanging now) and Capitec, some investigations into some of their practices wasn't exactly well met.

Over the seas and far away, in New York, New York, there was a really good looking ISM services read, and a tepid looking ADP report. ADP of course is the payroll processing company that releases a report two days prior to the "jobs report". Bright, who is relatively new to this industry asked what the ADP report was. We told him to go and stand in the corner and think about what he said. There is a very interesting theory on equity markets, how young people (like Bright, Michael and Byron) come to the equities markets full of the joys of life, full of energy and they are generally optimistic about the future, replacing old cynics. Having said that however, I still feel young and full of energy, I have known Paul since pre-Y2K and I can unequivocally say that this is the best shape that I have ever seen him in. Really.

And just quickly, as we like to celeberate success around these parts, two big ups to Paul from the beginning of the week. He cracked a list (again) of the top 100 people to follow on Twitter, well done for making that annual list. And then the fitness part that I was talking about, he runs for a pretty large running club, and managed to come fourth in his age category for that specific team. And that team came third in the Two Oceans for their age category. Which means that he won a cash prize from the Two Oceans on the team front. Respect! Well done.

Let us finish with the markets segment, the Dow Jones Industrial Average ended 99 points lower or 0.56 percent these days, the broader market S&P 500 sank nearly six-tenths of a percent whilst the tech stocks had the worst time of it, the nerds of NASDAQ closed the day down four-fifths of a percent. Healthcare was hardest hit, as were basic materials (slipping commodity prices dragged that sub-set of stocks lower).

Linkfest, lap it up

This is pretty awesome. Facebook runs something called a "bug bounty program" where I guess you can fix flaws in their company software for an earned fee. No limits. So it turns out that anyone can do it, even a young Scandinavian. 10-Year-Old Earns $10,000 for Finding Instagram Bug. Get those kids coding for rent money!

We own Cerner for clients, they have services and products to reduce human error in medicine. You may well still be surprised that notwithstanding the advances that we make, Medical errors now third leading cause of death in United States. Stay long that Cerner! They actually have results tonight.

One of the reasons Netflix has been successful is due to the large amount of data that they collect on the audience, learning what everyone likes and how that fits in with different shows. House of Cards is the perfect example of how it all came together perfectly, here is another way Netflix is learning about you - The thumbnails are always changing on Netflix because you're being tested

At what point does public health trump the intellectual property rights of tobacco companies? The big thing to consider here is that most developed nations fit the medical bills of people who smoke, so governments have huge incentives to cut the number of smokers - Tobacco Firms Lose EU Court Fight Over Bloc's Packaging Law

Excess steel production has hurt steel producers all over the globe, including producers in China - China's Steel Makers Undercut Rivals as Trade Debate Intensifies. If China can produce steel cheaper than the rest of the globe then I don't have a problem with them exporting as much as they do. If they are "dumping" (where you sell your goods for lower than cost price, just to drive your competition out of business) then it is a worry but cheaper input prices for now is good for other sectors of the economy.

Home again, home again, jiggety-jog. There is something that I found yesterday. It is quite weird really and at the core of it is human relationships. Ivanka Trump, the Donald's daughter, is good friends with Chelsea Clinton. The daughter of course of Hillary Rodham Clinton, the candidate that Trump is likely to come up against in the fight for the White House. According to her Wikipedia profile, Ivanka Trump counts Georgina Bloomberg as a close friend too. That is right, the daughter of Michael Bloomberg, who nearly ran as an independent candidate.

That would have been interesting now, don't you think? Ivanka and Georgina appeared on an Emmy award winning piece titled Born Rich, over a decade ago, the Clinton friendship? Just a NY thing I guess. Perhaps in twenty to thirty years time the three can return to go head to head against each other in the first ever all woman affair in a chase for the presidency 2040. I always think that woman should be politicians, men should not be. Hopefully the trend shows that I will get my wish in the future.

Stocks markets to the East look mixed to lower, the Nikkei is down 3 percent today. YTD the index is down 15 percent. The Yen is on a surge, the central bank in that part of the world has been aggressive on a forever basis, meaning for exporters of the listed kind, this is not the best news. Futures in the US are pointing a little higher, earnings season continues to roll around. It is getting time for our turn soon, looking forward to that.

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

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Wednesday, 4 May 2016

Profits. Not hidden in the jungle.

"This commitment to customer service is what distinguishes Amazon.com from their competitors. I think that the company is fairly priced considering its huge growth rates which are likely to continue for years to come."

The latest blunders video has hit the screens last week, what haven't you watched it yet? Follow the link Blunders - Episode 12, enjoy all the latest in the world of blunders. Subscribe to the Blunder Alert! and never miss a weekly update, you will get the email delivered to your inbox at the end of the week.

To market to market to buy a fat pig Ooof. That looked bad at face value, stocks as a collective were thumped yesterday. Why? Worries about global growth. Yes, I can hear the collective sigh. The cause, Chinese PMI numbers that were lower again, possibly lower than the expectations that I didn't quite know. Yesterday there was still a lot of digesting of the weekend Berkshire AGM. Some snarky remarks, comparing the meeting to Hogwarts and the rest of the investment world being full of muggles. Michael tells me, and I struggled with this, that people spent good money on no doubt elevated air ticket prices, elevated hotel prices, elevated food prices, only to sit in an arena slightly across the road from the main event. Yes, you sat and watched a screen where you got to see Buffett and Munger, rather than see them in person.

Ummmmm ... If I were these two guys I might move the meeting to a larger location, charge high ticket prices, give the proceeds to charitable causes, that sort of thing. Why not? If these guys are the business equivalents of modern day Beyonce (and Jay-Z), Taylor Swift, Pharrell Williams and Co., yesteryears Sinatra, Hendrix (that's Jimi), or more likely for those two, Gene Austin, Harry Belafonte and perhaps the Fleetwood Mac, the Eagles crowd. Who knows what those guys like! There was more than a little made in the broader media (that includes Twitter) of a question about Coca-Cola and obesity posed by a journalist to Warren Buffett (I think it was NY Times and CNBC's Andrew Ross Sorkin asking), which the Oracle of Omaha (sort of) dodged.

He had this to say: "I elect to get my 2,600 or 2,700 calories a day from things that make me feel good when I eat them. That's my sole test." And then he continued along the same lines: "I like fudge a lot. Peanut brittle. I am a very, very, very happy guy." I wonder how the sugar is evil crowd would counter this argument, after all the fellow is 85 and he seems in pretty good health. His mental health is about as sharp as ever. I am pretty sure all of us want to be like that when we get to that age. For sure! Without a single doubt. Charlie Munger weighed in and suggested that perhaps the criticism was immature and one sided. I guess he has a point, there certainly seems to be momentum on the side of the quick shift to healthier lifestyles, notice the food changes in Woolies? All that "carb clever" food, from pizzas to granola that contains little old style processed food.

There were also questions raised about their ability to outperform now, as a result of size and scale. I am guessing for those of us who have watched their progress over the decades, that might have always been the case. Also, why did some say that the advice is always to find a low cost market tracker? Perhaps for the average retail investor who is not interested in owning single stocks, this is definitely the answer. Dollar cost averaging. If you are not going to own single stocks, then make sure that you find a cheaper alternative. I think Berkshire, as long as they maintain the legacy of Charlie and Warren, will be one of those American institutions. Yes. Smart people are drawn to attractive workplaces. Talent is retained at reputable and principled firms. Yes. Charlie and Warren may be gone in two decades time (perhaps not), the company is more likely to be a lot bigger that it is now.

Lastly, the two (Charlie and Warren) had choice words for Valeant Pharma., which was countered by Bill Ackman (obviously), he holds a big position in the stock. The two also sneered at hedge funds and their fee (fleecing) structures, I am not too sure that Bill Ackman came back from that one. That was intertwined with the index tracker thing. For the record, Buffett is smashing hedge funds on the bet that he took a while back. Hedge Fund fees and underperformance relative to the index makes you wonder if Hedge Funds shouldn't change their classification to High performance, high fees leveraged Funds.

Markets scoreboard quickly. Comments from Tim Cook in an interview with Jim Cramer saw Apple stock higher and looking even better against the rest of the market in the red last evening in New York, New York. The whole market fell sharply, stocks were off their worst if that makes anyone feel better. By the end of the session, the Dow Jones was off over three-quarters of a percent, the broader market S&P 500 sold off 0.87 percent, whilst the nerds of NASDAQ fell 1.13 percent. Energy and basic materials fell hard, lower prices as a result of the concerns over Chinese growth. Same old, same old as "they" say in the classics.

Quickly, listen to and read about the interview with Tim Cook done by Jim Cramer, the chattering classes of Twitter suggested that he sounded desperate. For me, I am not so sure that he needs to respond to Carl Icahn or anyone else, he works for the shareholders and is the custodian of their funds, being the man in charge. And if he needs to remind everyone all of the time that the middle class projections in China is set to grow from 50 million in 2010 to 500 million by 2020. Cook is right, the most important thing at the end of the day is that their customers really love their products. It is a little long (nearly 12 minutes), it is worth a watch.

Cramer always holds no punches and remember the short term nature of the beast. Loyalty rates and satisfaction rates have never been higher. Smartphone market penetration rates globally are in the 40's percent. Cook says that Apple will give products to people to enrich peoples lives, and Cramer talks about people going to have to pry that product (the iPhone) from his cold dead hands. Cook talks services, the App Store, Music and so on. China is the clincher though for me. Everything is going to be fine, OK? I believe Tim Cook, Howard Schultz (Starbucks CEO who was here recently, could still be here) and people like Jack Ma who make comments on the transition of the Chinese economy. Cook says that the long term thesis remains intact on China. Thanks.

Back to local here for a moment. It was pretty much a sell all emerging markets. China is finished and stuff. And we are impacted by that as much as every other emerging market. It was not very pretty. It is unfortunately again the nature of the beast. Deep and liquid markets are overtraded and supply us with the necessary liquidity in order to execute with ease. It comes with the territory, we just have to roll with it.

Company Corner

As we chatted about last week, Amazon.com released their 1Q 2016 numbers and they smashed expectations pushing the stock back to record highs. Here are the numbers, Revenue up 28% to $29.1 billion, operating income up 331% to $1.1 billion and Net Income is $513 million from a loss of $57 million. The net income number is not of huge importance, as Amazon is spending most of the cash that comes through their front door on infrastructure development.

What is important is the growth rates being achieved and the customer loyalty being built as they grow. Sales in North America grew 27%, International sales grew 24% and Amazon Web Services (AWS) grew 64%. AWS is the big reason for the Amazon share price being up 58% over the last year, that segment of the business makes a healthy 64% operating margin unlike the 3.5% operating margin on the e-tail part of the business. The result is that North American net sales amount to $17 billion and have a profit of $588 million compared to AWS who has net sales of $2.5 billion but profits of $604 million.

On a customer service front, Prime same-day delivery grew by 11 metros in the US to now include 27 metros. This commitment to customer service is what distinguishes Amazon.com from their competitors. I think that the company is fairly priced considering its huge growth rates which are likely to continue for years to come. As a comparison Alibaba (who is the other global online seller) trades on a price to sales of 12 times, Amazon "only" trades on a price to sales of 3 times. The company is run by one of our generations great visionaries and operates in a sector that will become of greater importance to society, Buy Amazon.com.

Linkfest, lap it up

Many Africans stay in one country and send money to their family in another country, the cost of doing this is eye popping - It still costs more to send money to Africa than anywhere else. The people that are paying these high fees are the people in society who can least afford to pay the costs, solving this price problem will help put some cash back into peoples pockets.

It looks like battles between government's and technology companies is starting to gain momentum - WhatsApp, Used by 100 Million Brazilians, Was Shut Down Nationwide by a Single Judge. This follows the FBI case with Apple earlier this year. You can understand why governments feel they have a right to the information. I don't think this will be the last battle.

I suppose the best way for AI to develop is through trial and error. Here is one way that the systems can learn and be tested to see how the programming stacked up to different scenarios - Elon Musk's $1 billion AI company launches a 'gym' where developers train their computers

An interesting stat out of Italy - Why Italian merry widows perk up after husbands die.

Home again, home again, jiggety-jog. Cruz quits. And then unfortunately in the closing hug accidentally "punches" poor Mrs. Cruz in the face and then to add insult to injury, elbows her on the other cheek. Trump as the Republican nominee. The Teflon Man. Good luck America, it certainly seems that extremism of all kinds rose after a financial crisis, this is known through history. When economic hardships are experienced, you will just about believe anyone who says that they have the secrets to #winning. Wow. I would think that his debating skills are going to be called into question against an eloquent states person like Hillary Rodham Clinton. See poor Mrs. Cruz -> Failed Candidate Ted Cruz Elbows Wife in Face. Shem, when it doesn't go for you, it certainly doesn't.

BHP Billiton are in a whole heap of trouble. Nothing new, just the quantum of a fine that the Brazilians want to levy on the company. The stock was down nearly 10% in Australia. The stock is down around 5 % at the start here. 43.5 billion Dollars is, as Paul says, a large number. Stocks are mixed at the open here, some up and some down!

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

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Tuesday, 3 May 2016

Icahn can't

"11 months and 10 days after writing this open letter to Tim Cook, the dude said he no longer owned shares in Apple. I am guessing he ended lower than where he started. So much for being a no brainer, a company like this only coming along every half a century, the year 2020 and the car, the TV and the watch, as well as having huge respect for Tim Cook."

To market to market to buy a fat pig Leicester City win the league. Wow. That is like Afghanistan winning the cricket world cup, or your portfolio going up three fold in a year. Such outside odds were given, there are some people who did win some serious money having a wild stab in the dark. This is apparently the worst ever season for the bookies -> Leicester City win Premier League and cost bookies biggest ever payout.

As Michael and I discussed, no worries, this will mean that the bookies get a chance to win their money back next year, as fans stick larger amounts at lower odds. Perhaps this is a chance for the bookies to reflect a little on how wide their odds are and should be. As of yet, Elvis has not been found, the same odds being offered by bookies as Leicester winning last evening back in August. I definitely thought that Leicester would struggle after their fantastic start. What do I know?

Back to something I know a little more about. Or I hope that I know more about. Markets. That general term riles me, "the market". I have just finished reading a book that I highly recommend to all of you. Written by legendary investor Howard Marks and titled The Most Important Thing: Uncommon Sense for the Thoughtful Investor, it points out many of the obvious things that we miss a lot, when you become an investor who "lives" the investments. Only when you own something, watch it, report on it, watch the fortunes of a business, does it become real.

Marks makes the same points (more elegantly I think) that we try and articulate here at Vestact. It is not that the bigger macro picture, the central banks of the world, the economic outlook and so on that matters the most, it is rather the companies that you own that matter more. Whilst all boats rise and sink with the tides in investing (all the boats being floated in a market going up, the reverse being true too), it is ultimately the quality of the investment (boat) that matters the most. The analogies with sport are well made, I suspect in my world the best sporting analogy must still be test cricket, you can leave as many balls as you want if they are not there to hit. Better than the Buffett baseball analogy. See the links below to the annual (51st) Berkshire Hathaway annual general meeting.

Talking of which, Buffett had this to say about Marks: "When I see memos from Howard Marks in my mail, they're the first thing I open and read. I always learn something, and that goes double for his book." I must be grateful to Bright, our newest employee, for introducing me to these incredibly useful insights from what seems like a really level headed chap in investment markets. Read it, let me know what you think.

Markets look, a quick peek from overnight in the US where stocks rallied sharply after a brief period of weakness, the Dow Industrials added two-thirds of a percent, the broader market S&P 500 was marked up just over three-quarters of a percent, whilst the nerds of NASDAQ added about 0.1 percent more than the broad market. Energy and materials stocks lagged a little, there was another good day for Amazon after their results, we will get that to you shortly, tomorrow hopefully. Results that moved the markets most certainly.

Company Corner

Amgen, one of the world's leading biotech companies reported results for their first quarter of the 2016 financial year on Thursday evening. This is not a company that we have owned for a long time, it is a relatively recent acquisition for our clients. In fact, we have only been buying this company for clients for around a year. The nearly four decade old company, as per their mission statement are involved in producing cost effective therapies that are based on advances in cellular and molecular biology. If you were not paying attention in those respective subjects, biology and chemistry, then I suppose like most of us without the advanced studies in the respective fields, we will have to understand what the therapies do, whether or not there will be greater need for them, whether or not the company is on the right track, whether or not importantly that the company is a good investment at this juncture.

You may know the company for the production of one of their most successful blockbusters, in fact in their field of pharma, one of the greatest therapies so far in the short history of biotech, EPOGEN. Lance and his friends, well, almost everybody who rode le tour de Farce for a number of years knows the therapy. It is supposed to be used on patients who are struggling, not "healthy people". Remember that from 1999 to 2005 there are no winners of the tour, as a result of excessive doping. Sigh. Cheats, money, power and fame.

Their number one current drug is Enbrel, you can get a complete run down of their therapies via their website, under products. Of course as an investor you will be very excited to know what is in the pipeline, remembering that the process is a tough old one. It is important to look under phase 3 to look at therapies like Repatha and Xgeva, even something like AMG 334, which might alleviate migraine sufferers constant pain.

In the world of biotech, things can get a little hairy sometimes for the shareholders. The nature of the beast determines the volatility associated with the smaller listed stocks, one FDA rejection or approval for a small business with a single therapy results in dramatic moves in the share prices. And recently the well documented Valeant woes have put a cloud over the whole sector. The sub sector as a whole is down nearly 20 percent over the last 12 months.

Amgen is one of the big hitters in the sector, with a market cap of 117 billion Dollars, the company is larger than the amount that AB InBev is shelling out for SABMiller. And is on a lower multiple, Amgen currently trades on a 17 times historical earnings multiple, with a two and a half percent yield. In the earnings release, the company guided higher for the year, adjusted earnings per share is expected to be between 10.85 to 11.20 Dollars, meaning forward the stock trades on a 14.4 multiple in the middle of the earnings range. That is hardly expensive, in fact for a business that has managed to grow Q1 comparable revenues by 10 percent year on year and adjusted EPS by 17 percent, the stock may well look very cheap.

Added to that is the fact that the stock price has not moved a single iota in the last 12 months, it is essentially flat. Whilst it may seem counterintuitive, a lower share price over a period of time where their peers have done worse (a few cases here and there) is actually a good thing for the prudent investor. An investor wants to accumulate quality for as long as they can at lower share prices, when the stock is cheaper. Obviously you want the stock to go higher in time, and be rewarded for putting your money at risk, with quality businesses, it is only a matter of time before that happens. This is one such business, we continue to recommend a conviction buy on the stock.

This I can't believe. Carl Icahn't get outsized returns by talking it up, which leads him to changing his mind after a year and a half. Less than a year ago, on the 18th of May, Carl Icahn wrote: "After reflecting upon Apple's tremendous success, we now believe Apple shares are worth $240 today. Apple is poised to enter and in our view dominate two new categories (the television next year and the automobile by 2020) with a combined addressable market of $2.2 trillion, a view investors don't appear to factor into their valuation at all."

Icahn is a hugely successful man, in an industry where the scoreboard measures the successes with the amount of money that you have amassed, the man and his team have done better than most. The 80 year old native of Queens, New York is worth around 17.6 billion Dollars, according to Forbes, that is 43 in the world, down from 31st place last year. I suppose, that other than being the Icarus man, Eike Batista, what is in a few billion here or there when the numbers are so big? Batista, remember, "lost" 35 billion Dollars in personal wealth in less than a year, the reason for the inverted commas is that it possibly wasn't there in the first place.

Back to Icahn however, on Thursday last week, 11 months and 10 days after writing this open letter to Tim Cook, the dude said he no longer owned shares in Apple. I am guessing he ended lower than where he started. So much for being a no brainer, a company like this only coming along every half a century, the year 2020 and the car, the TV and the watch, as well as having huge respect for Tim Cook. The reason for selling? Fears around Chinese growth. His biggest position is no longer. I am not sure about you when you go about portfolio construction, chopping and changing like this on a whim (and I am sure there are other examples) when the stock doesn't go up or down as predicted.

What should you do with your Apple shares? Nothing. Whilst the company is selling their core product at a lower click than previously, I think that based on current price metrics, selling is the wrong thing to do. To sell at a little over 10 times earnings and a yield beyond two and a half percent based on a single bad year, that is wrong. Apple is cheaper than IBM, Cisco, Intel, definitely cheaper than Microsoft (and certainly Google and Facebook), it may not however be, as most businesses are, comparable to any of these companies. It is one thing to say cheap, the prospects, at least the immediate prospects are concerning. I suspect not as much as Mr. Market thinks, the quality is undisputed, services is becoming a bigger part of their business, I think Chinese consumption will be just fine. We continue to accumulate, even if uncle Carl doesn't want to own them any more. BTW, Carl still thinks that Apple is a great company, which is a compliment, not so?

Linkfest, lap it up

Remember the movie, "Honey I shrunk the kids"? This is like science fiction, yet will have many applications in medicine no doubt -> World's tiniest engine small enough to enter living cells. The FT (paywall) also have an amazing piece on the breakthrough invention -> Scientists build world's tiniest engine.

If you didn't get a chance to watch all 7 hours of the Berkshire Hathaway annual shareholders meeting, here are some links to give you the highlights:

13 key moments from Berkshire Hathaway's annual shareholder meeting;

Recap: The 2016 Berkshire Hathaway Annual Meeting.

I watched most of it, it strikes you that most of what Buffett says is not ground breaking but he has a very broad knowledge and he ties simple topics together to bring insight. As he says, you don't have to be clever to be an investor but you do need to be able to control your emotions.

Sticking with the Berkshire theme, here is a speech the Charlie Munger gave a couple years back - The Munger Operating System: How to Live a Life That Really Works

Low oil prices have been great for the consumer, the oil industry and their workers have been hit hard by it though - Oil rig count falls for 6th straight week. Note though that oil production has stayed near it's highs, even though the rig count has had a massive drop.

Home again, home again, jiggety-jog. Stocks across Asia are mixed, in Japan stocks are sinking (highly correlated to the currency) as the Yen strengthens sharply. The Aussies cut rates to an all time low, that has boosted their market sharply. Shanghai is up over a percent and a half. Time for the workers to work, not so, too many public holidays. It is what it is! I suspect that we should start a little better here today.

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

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