Did it, doing it, going to do it

"What does all of this mean for earnings? Net income was up 16% and diluted earnings per share was up 19%, due to there being fewer shares in issue. Nike bought back 6.5 million shares in the last quarter and a total of 74.1 million shares at an average price of $71.13 a share, since 2012. Share buybacks in a growing company that has spare cash is a great way of returning value to the shareholder."

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To market, to market to buy a fat pig. I watched Janet Yellen the other night, including the Q&A segment thereafter. I have confidence that her, and the the people around her have it all under control, really. The questions are designed to make the journalist look clever. I am sorry, I didn't mean that, the questions asked at analyst presentations or on conference calls are designed for the same purpose, to make the question asker seem clever. No, no, that is not true, the questions are designed to make the Fed chair, Janet Yellen flesh out the future outside of the statement itself. As best of course as she and the FOMC see it, the future is always unknown, the future rates and prospects evolve to fit the incoming data. The upshot of it all is that expectations for a rate hike, the first one, have moved to October. That is what the forward market is suggesting. So there, you can take from that what you want.

After the heroic move on Wednesday evening our time, markets in New York pulled back last evening, not everything, healthcare companies made a better fist of it. Energy stocks again were the big laggard last evening, the big moves in the oil price the session prior was met with more selling again last evening. The NYMEX oil price is flirting again with a five year low. Excellent news for global consumers, terrible news for the major exporters and private producers.

Locally we were in catch up mode, a really strong day for the resources companies, up 2.8 percent on the day, driving the overall market up just over a percent. Another massive feature of the market yesterday was the afterglow of the TenCent results and the impact on Naspers' share price, it still is very much a sum of the parts calculation when trying to work out what Naspers is worth. The stock is trading over 1800 Rand, up 5.3 percent yesterday, during the course of the day the stock touched 1857.63 Rand.

Of course if you look at Naspers on an out and out earnings basis, you are expecting somewhere in the region of 31-32 Rand of earnings, a PE unwind to somewhere in the region of 55 to 60 times at the current price. Earnings expectations for 2016 are somewhere in the region of 50 Rand next year, over 65 Rand the year thereafter, the share price will need not only TenCent to continue to power ahead on better and better earnings. On some measures the stock is really cheap, on others it is wildly expensive, it all depends what metrics you use.

So. That is why there are many different views on the company and their share price, the business is transforming into something that would be totally foreign to us (as users and investors) 10 years ago. Energetic energy in that company, with new and transformative businesses and old cash generative businesses that themselves are transforming. Koos Bekker even said that their satellite TV business was a legacy business, imagine that!

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Company corner snippets

Amazon has been granted the ability to fly their drones, or more specifically as per the FAA website: Amazon Gets Experimental Airworthiness Certificate. It is pretty simple, as per the release: "all flight operations must be conducted at 400 feet or below during daylight hours in visual meteorological conditions. The UAS must always remain within visual line-of-sight of the pilot and observer. The pilot actually flying the aircraft must have at least a private pilot's certificate and current medical certification." That sounds pretty dumb. I would love to hear a pilots opinion on the matter.

Surely flying drones (which can pilot themselves) in urban areas at a very low altitude does not necessarily mean the same rules should apply as commercial airlines? I suppose that they (the drones) could have accidents and endanger someone below, that is what the broader public and the FAA are worried about is my best guess. One year ago the FAA supplied a document about unmanned aircraft: Busting Myths about the FAA and Unmanned Aircraft-Update. I suspect the last myth is something to watch.

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Michael's musings

Last night we had 3Q results from NIKE, INC which mostly beat estimates. The big trend in the results was that the stronger dollar had a significant impact on the revenue figure and the earnings figure.

The revenue for 3Q are up 7% (13% removing the negative currency effect) to $ 7.5 billion, with the Converse brand growing 33%. Having said that revenue from Converse was $538 million which is in the same ball park as the sales on their LeBron James shoes, which was $340. Revenue from China is up 15% and Western Europe up 10% (21% if the Dollar/Euro hadn't moved so much). The increased sales was also accompanied by an increase in gross margins, from 44.5% to 45.9%. The number is expected to continue growing.

What does all of this mean for earnings? Net income was up 16% and diluted earnings per share was up 19%, due to there being fewer shares in issue. Nike bought back 6.5 million shares in the last quarter and a total of 74.1 million shares at an average price of $71.13 a share, since 2012. Share buybacks in a growing company that has spare cash is a great way of returning value to the shareholder.

An area that Nike have been struggling is their equipment division, which was down in 4 of their six regions. They don't breakdown which products in their equipment division did badly but based on figures from the previous quarter, the huge drop in golf players would definitely be a big contributing factor. The division is small though with revenue of only $382 million out of the $7.5 billion made this quarter.

The market really liked the numbers with the stock being up 4.5% after hours, meaning that the stock has broken the $100 mark. Going forward EPS is expected to grow in the low double digits. Given the move from society towards being more healthy (more exercise), Nike being a very well know brand, margin growth and double digit EPS growth the stock is trading at a P/E of around 30. Not cheap by some metrics but fairly valued I think. Still a buy in our books.

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We're reading this, you should too.

Times they are a changing thanks to the internet - Streaming music revenue beat CDs in the US last year for the first time

Fighting to stay relevant which is hard when your product is unhealthy - Major soda makers are desperate for a drink that tastes like the real thing, but doesn't contain sweeteners that spook consumers

More push back against another unhealthy product - Gates and Bloomberg create $4 million fund to fight Big Tobacco

Some very cool new features introduced to Tesla - Elon Musk: It will be 'impossible to run out of range' in a Tesla, self-driving features coming in 2015

Given that it is Friday and beer will be on the cards this weekend, here is a look at what the top selling beer is in each country - Countries' favourite beers.

Staying with the beer theme, Craft beer is going up against main stream beers and making inroads - THE DIE IS CAST IN THE BATTLE OVER MACRO VS. CRAFT BEER. Watch the youtube clips to see the lighter side of the rivalry.

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Home again, home again, jiggety-jog. The stocks that led the charge yesterday are falling today, resource companies are prone to wild movements one way or another, that is the nature of the underlying commodities markets and the geared nature of the businesses. We live in a country and have a market that is obsessed with commodities and the listed businesses, meanwhile there are other amazing industrial companies that do not attract as much attention as they should.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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Yellen's Tencents worth

"Going forward there is going to be a bigger push to increase advertising, which is still small given the size of their user base. The danger of course is that as you increase adverts your user base starts to drop because adverts decreases the user experience. I don't think that they have to reinvent the wheel when it comes to advertising though because over the last few years we have seen how Facebook, Snapchat, Twitter and other big social network companies have been able to include adverts but not diminish the user experience."

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To market, to market to buy a fat pig. Patient, impatient and confident are words which have probably never got as much attention as they have over the last 12 hours! The reason? Janet Yellen and the FED's statement following their policy meeting. The FED removing the word patient from their statement was such big news that I got an alert from the WSJ and CNBC on my phone. Yellen said,"Just because we removed the word patient from the statement doesn't mean that we're going to be impatient." They will only begin to raise rates when they are confident.

The basic message from the FED was that they will increase rates at a slower rate than previously forecast partly due to lower growth forecasts and very low inflation. There is a bit of a catch-22 when it comes to raising rates because of the dollars influence on the the US economy. As traders have been anticipating an increase in interest rates, they have been buying dollars and other US assets, the result is a stronger dollar. The dollar is up 27% against the Euro over the last year. The impact of a stronger dollar though is to keep inflation down, hurt exports and dampen growth. Low inflation and lower growth means that interest rates need to stay lower for longer. If you are a trader the news is important and trying to get every bit of information that you can from the FED statement counts. For us though as investors it inconsequential. In 10 years time the companies that you own will still be doing their thing and this FED statement, the dollar move and impact on stock prices will be a distant memory. The only annoying thing is that you will have to pay a bit more for some of the companies now.

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Company corner snippets

Yesterday the big news on the company front was the 4Q and full year results from Tencent. Given the high multiple that the stock trades on the results always lead to big moves of the share price; it is always hard to price a company that grows at 50% a year and then try to forecast what the company will look like in one or two years time.

Here are the numbers: Revenue is up 31% YoY to U$ 12.899 billion (4Q up 24% to U$973), operating profit is up 59% YoY to U$ 4.991 billion (4Q up 51%) and margins grew YoY from 32% to 39%! These numbers are generated from their huge user base across their different platforms, QQ has 815 million Monthly Active users (MAU) up 1% YoY. The big growth for QQ came from a 33% increase in MAU on smartphones and tablets, these users are the "next generation" and are the users that you want. WeChat grew its MAU by 41% to 500 million and Q-zone grew its MAU by 5% to 654 million. All in, across those three platforms they have a whopping 1.969 billion users or customers! Granted there will be over laps between users but even if you have the same user across the 3 platforms, you still have them looking at their smartphone for 3 different apps (more eyeball time).

Tencent are an e-commerce company but their current revenue breakdown puts them more into the entertainment/ gaming category, with 82% of their revenue coming form online gaming and only 13% from advertising. The remaining 5% comes from other divisions like their mobile banking operations or online retail. In the 4Q their online gaming revenue grew by 41% mostly driven by smartphones, which shows the value in the growth from the smartphone user base. There was bigger growth from online advertising, with growth of 75% for the 4Q, showing the bigger push to get advertising to the current users.

Going forward there is going to be a bigger push to increase advertising, which is still small given the size of their user base. The danger of course is that as you increase adverts your user base starts to drop because adverts decreases the user experience. I don't think that they have to reinvent the wheel when it comes to advertising though because over the last few years we have seen how Facebook, Snapchat, Twitter and other big social network companies have been able to include adverts but not diminish the user experience. The company has huge growth potential and as long as the Chinese government keeps the likes of Facebook out of China, there will be very little competition.

This morning the company was up 5% on the results which puts their P/E at a solid 44. When a company is growing profit by 50%, I don't think that P/E is the correct measurement of the cost of the stock. Another year of 50% growth (which isn't hard to imagine) puts the P/E at 22 forward. Looking forward two years it is completely possible that the stock will have a P/E in the teens, using todays share price. As a Naspers shareholder you get access to the stock at a discount! An update on the value of Naspers stake in Tencent works out to around R 711 billion, which when compared to Naspers market cap of R753 billion, either values Naspers' other businesses at almost nothing or you get a discount on the Tencent share price! Either way I think that Naspers still has legs both from growth in Tencent and from the growth in their other businesses. Definitely still a buy as it crosses the R 1 800 mark this morning.

Another company making waves, Anchor Group Limited, released their results after the market closed yesterday. The company had a lot to live up to with the share price going from R4 in September (with their IPO at R2) to over R10. They didn't disappoint so to speak with their HEPS up 301% and assets under management up 207%. They still have a large amount of growing to do to fit into their share price. The market likes the results with the stock up 4% today. It is great to see small companies making waves!

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We're reading this, you should too.

We focus regularly on solar energy and how it is booming - 2014 Was the Biggest Year For Solar Power Ever. Given that solar is still less than 1% of the power generated in the US, this is a huge growth sector.

This is another piece from one of my favourite bloggers. In this piece he talks about the problem of sitting on cash and waiting for the next correction - The Psychology of Sitting in Cash. The best way to get solid long term returns is to be always adding. By doing this you average your price in and you are less worried about what prices are going to do because you know that you will be adding next month as well.

Given how prevalent the interest rate topic is at the moment here is a view that is slightly off from the main stream view - The weird way people talk about zero interest rates.

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Home again, home again, jiggety-jog. The market is flying this morning, up 1.9%. Thanks to dollar weakness the Rand/ dollar dropped from R12.40 to R12. Gold stocks are up 5.3%, Naspers is up 7% and Sasol is over the psychological R400 level. All in all, we live in a global village and when something big happens in the US the ripples are felt throughout the "village".

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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Platinum Struggling

"I am not too sure what to say about the platinum producers, whether or not they actually make investment grade, do you think that they have been too discounted for all these factors? Possibly. Whether or not the industry is going to be as profitable as in the past, remember all the special dividends 10 odd years ago, remains to be seen. Perhaps, who knows. Too many question marks."

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To market, to market to buy a fat pig. A day for the resource stocks yesterday, which was kind of bizarre, as the prices of the underlying commodities were slipping badly. That has continued through until this morning, the platinum price has slipped below 1100 Dollars per fine ounce. This looks like comfortably the lowest price for platinum in years. Check out this graph from Kitco, the platinum price over the last five years:

This is clearly terrible news for the local producers, in the face of a very strong Dollar (at least that translates to a weaker Rand), management and a workforce that clearly are miles apart, disruptive power supply, the list goes on. What is clear about the oil and gas markets in North America is that there is a whole lot of extra supply, it is easier to get this out of the ground with improved technologies. Technology has improved equally for the consumer too, motor vehicles have become better in terms of their usage, commuters more aware of their habits. People going green. No inflation, I remember a speech from James Bullard (a Fed voting member) in August of 2013 in which he warned how it could become a big problem. Boom, the market expected the Fed to raise rates, that wasn't necessarily good for commodities.

I would have anticipated that the platinum price would have been higher, recovering European vehicle demand, higher emission control standards and generally all around improvement in the global economy (and tight supply) would have been factors that would have been favourable. Not to be. Even the platinum execs are confused, I share that with them, whilst the investment side winds in their necks, surely the prospects look better for the price of the metal? If not of course for the producers, all the aforementioned factors plaguing them are unlikely to go away. Sigh. Remember that when investing in immovable assets, the law of the territory that those immovable assets are exactly that.

In other words, what I am trying to say is, if the platinum assets from the Great Dyke of Zimbabwe were in Switzerland, would they be cheaper or easier to mine? I don't know the mining laws of Switzerland (if there are any), I would however think that the Swiss government would be more agreeable than say the government in Zimbabwe has been. Maybe, how am I to know how hypothetically the Swiss government would act if there were large platinum deposits underground and they viewed this as a national asset? What I do know is that for historical reasons, the Swiss have more resources to call on, be they government or private.

They (the Swiss) welcome companies, you could argue too easily (along with their secret banking system of years gone by). It does not matter to ask the question, it is what it is. I envisage a world where there is no more need for the Orinoco oil sands (Venezuela), they essentially become useless economically, like whale fat. As they say in the classics, the rocks did not run out when the stone age ended. If anything, they (the rocks) become more useful for building material, it is still an asset after all.

I am not too sure what to say about the platinum producers, whether or not they actually make investment grade, do you think that they have been too discounted for all these factors? Possibly. Whether or not the industry is going to be as profitable as in the past, remember all the special dividends 10 odd years ago, remains to be seen. Perhaps, who knows. Too many question marks. Having said that, Citi is comfortable enough to upgrade Lonmin to a buy, they are probably right! Ben Moolman has been appointed there, Ben Magara the CEO says he is thrilled on that!

Today the Fed are expected to remove "patient" from their statement. Or not. There are so many armchair Fed experts that the subject of guessing must (like the sporting fans) be left to the masses. If the masses had their way on their favourite sporting teams, the team would have absolutely no continuity. The same goes for guessing over and over again as to when the Fed are going to raise rates, or hint that they are going to raise rates. If you think that the Fed doesn't actually fulfil the function that you think it should, then read Cullen Roche's piece today, very good: A World Without the Federal Reserve:

"In the 60 years between 1853-1913 when the Fed was created the US experienced TEN different banking panics. It was an unstable system because it was comprised of private entities who would lock up during panics. Similar to 2008, the private banks would stop doing business with one another for fear of counterparty risk. The private clearinghouses improved the system by creating joint liabilities, but this did not halt the panics."

So, before the Fed was created just over 100 years ago in 1913, there was basically a banking crisis every six years. That does little for either the business cycle, or for your trust of the financial system. So forgive me for thinking that intervention is better than failure and lurching from crisis to crisis. Also, one last point to add to this, many in the market (and this is the sense that I get) are waiting for another market Armageddon type situation soon.

As Eddy Elfenbein pointed out a couple of weeks ago however, in his March 6 2015 piece, CWS Market Review - March 6, 2015: Nearly six years ago, on March 9, 2009, the S&P 500 closed at 676.53. The day before, the index had reached a beastly low of 666.79. Consider how painful that was. The market was still less than half of what it had been nine years before. Adjusted for inflation, the Dow was where it was in 1966. Think of that! Forty-three years of no real gains. If you are waiting for another 1966 inflation adjusted market drawdown, missing everything in-between, perhaps (in a crude way) you are doing all of this wrong.

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Company corner snippets

Oh wow. We knew that this was coming, the logistics of it was not quite something that people could get their heads around. Facebook payments are going to be a reality between two parties using the Messenger option. Check it out: Send Money to Friends in Messenger. It seems really simple and of course, as we have been saying all along, the payments systems will be the traditional ones, you need a Visa or MasterCard debit card.

See: "The first time you send or receive money in Messenger, you'll need to add a Visa or MasterCard debit card issued by a US bank to your account. Once you add a debit card, you can create a PIN to provide additional security the next time you send money. On iOS devices you can also enable Touch ID. As always, you can add another layer of authentication to your account at any time."

It is not a new payment system, Facebook already handles more than one million transactions a day, for those who are fans of all the distractions that go along with it, as well as the advertisers. Same system, different audience. Expect the system, once rolled out across iOS and Android (and desktop) to be spread further and wider across the globe. I am pretty sure that all and sundry will adopt this, this is what you call a cash killer for the smaller transactions. Couldn't happen sooner.

Apple with loads of news over the last few days, the TV announcements are pretty big. Again, sadly for consumers here in South Africa that means very little, at least for the time being. In terms of laws around different programming (inside of specific territories) it is likely to remain that way. I know that Netflix have similar laws around which territories you can, or can't stream in. Michael is simply asking the question, via a Bloomberg video: Apple changed the music industry with iTunes, they are now looking to do the same with television - What Would Apple's New TV Service Offer? Perhaps, I have a Apple TV (I have had for a while), the problem is bandwidth, that is shocking in my area, sadly.

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We're reading this, you should too.

Some big numbers being thrown at disruptive start-ups, here is a rough way to see how the numbers are obtained - The Fuzzy, Insane Math That's Creating So Many Billion-Dollar Tech Companies

Pinterest valued at $11B after latest round of funding

There is a push for increased digital security, remembering passwords is a major weakness in the current model - Alibaba's Jack Ma shows off new 'pay with a selfie' technology

Am interesting experiment from Google on generating alternate power - Google will fly a crazy, plane-like, 84-foot wind turbine next month

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Home again, home again, jiggety-jog. OK. Finally. I saw the monkey off our backs running across the hallowed turf of the Sydney Cricket Ground, young Quinny de Kock and the old man of the side, Imraan Tahir saw to that. And JP Duminy took a hat-trick. Wow, what a day, those memories of 1999 and 1992 still hurt. This feels good. Markets are about flat, apparently "investors" are waiting for the Fed. Ignore that part, pay attention to what the Fed chair says, do not amen to everything.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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Oil and trouble

"Much of the oil producing world is in deep trouble and I believe that it might actually bring about regime changes for those that are completely dependent on oil exports for government revenues. It is probably not the best news for Venezuela, ironically from an oil point of view, it is negative for Brazil. Obviously it is much worse when you click on the metals tab, it is equally bad for us here in South Africa, the lower metal prices have hit exports badly, luckily that we have shifted to more of a consumer economy over the last decade and a half"

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To market, to market to buy a fat pig. Six year lows for the oil price, this is NYMEX of course. A large gap has opened up between the price for NYMEX crude and the price for Brent Crude. Both are produced and consumed in different regions of the world, obviously the lower price in North America represents the difference between a market glut in the new shale supply, versus the inability to export like the rest of the world. It is a strange place that US producers find themselves in, not able to export and having to sell locally at lower prices. I also saw on the Twitter thingie how this is good for some companies around the world and how this is bad for some of the oil exporters, as a country this is very good news for us, South Africa that is. This graph via the Economist (which I saw on Twitter) is pretty self explanatory: A risky state, click on the oil tab.

Much of the oil producing world is in deep trouble and I believe that it might actually bring about regime changes for those that are completely dependent on oil exports for government revenues. It is probably not the best news for Venezuela, ironically from an oil point of view, it is negative for Brazil. Obviously it is much worse when you click on the metals tab, it is equally bad for us here in South Africa, the lower metal prices have hit exports badly, luckily that we have shifted to more of a consumer economy over the last decade and a half. We are not immune and stand out badly. Worst of all on the continent is the DRC, 25 percent plus of exports are metals, another 21 percent other commodities. It is going to be very tough for that country, as if it wasn't bad enough already. For Angola however, nearly 60 percent of all exports are oil. Nigeria is closer to one third of all exports.

This will have a dramatic impact on our trading partners here in Africa, overwhelmingly however we should see a stronger consumer across the globe benefit, it effectively is like having a tax break. A stronger consumer across the globe creates perhaps better jobs in cleaner industries, we all consume, we all desperately need energy however to power our homes (don't get us started) and we need to get to and from work. What it means for key areas of the globe and political instability in the wake of economic instability, I guess it is just the good old fashioned market telling us that we need to do a certain amount of rebalancing I guess! In the end the market does not lie, the price today, that is it.

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Company corner snippets

There seems to be a little confusion about what a rights issue is, this is ordinary run of the mill "stuff" for us to deal with, we have also explained it a couple of times, let us revisit for a second or two. Firstly, why would a company embark on the exercise of raising money? Of course there are many different needs for capital for a business at any given time, in a time of deep stress, often the company will return to their (long suffering) shareholders and ask them for money. Often it is the only way of raising money. The company works out how much money they need to either pay down debt, or advance their business with a specific purchase (as is the case for Discovery), and then works out how many shares at a normally discounted price to the market, and hey presto.

The shareholders, all, big and small, are given the opportunity to follow their rights, normally there is an underwriter that will take on all of the excess shares in this case Rand Merchant Insurance Holdings Limited are the underwriters. What that means is that if there is any excess (people let the right to purchase more shares lapse, that is the default) then RMIH will mop up the balance. You would, as a minority, want to be in that boat. Ideally, all shareholders would follow their rights and then not dilute themselves of the future profitability share of the business, I think that is the most important reason to follow your rights.

A rights issue and dilution is not the very best way to raise money, you could argue that you must and need only the same number of shares to be in issue at all times, not too dissimilar to Berkshire. Their share price however, for a single share, trades over 200 thousand Dollars a share (219 thousand), over 2.5 million Rand a share. No dilution ever, and no dividend. That is another story entirely, for those folks that have owned the company over 50 years, no sweat really, if they need cash they have a huge capital gains income headache. The 25 year return for Berkshire is nearly 3000 percent. Nice problem to have however.

The other way that companies can raise cash is to go to the debt markets and issue debt securities, bonds, with has a fixed yield and a future date to return the funds to bondholders, who would collect the cash in-between. Obviously the company could also borrow money from the bank, in the case of a financial services business this might always be a good idea, from a liquidity point of view. Lastly, if a company is really distressed, they can sell off assets, cut costs aggressively in order to stay afloat. In this case, Discovery specifically, they are using a strong set of shareholders, one gorilla one specifically that will underwrite the rights issue and a good prevailing wind with momentum in their business, to raise money from their shareholders. Not everyones cup of tea, just one of the ways to go about it. Just to be clear, we continue to recommend that you should follow your rights.

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We're reading this, you should too.

SolarCity is one of the alternate energy companies making waves in the US - SolarCity, a Vocal Critic of the Utility Industry, Joins It. Moving into the realm of running their own grid allows them to diversify and to add scale to their operation.

Interesting numbers showing how connected the world is and how much bigger it is in numbers terms - It Took the Telephone 75 Years To Do What Angry Birds Did in 35 Days. But What Does That Mean?

A look at how disruptive technology is, creating jobs as it grows - Uber is the world's largest job creator, adding about 50,000 drivers per month, says board member

Recessions and pull-backs are part of investing in equities - Stock Performance Before, During & After Recessions. An interesting finding from the numbers is, "what these numbers really tell us is that, in general, stocks tend to perform below average in the year leading up to and during a recession and perform above average in the 1, 3, and 5 years following the end of a recession"

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Home again, home again, jiggety-jog. We had a solid day in the US yesterday thanks to a stabilizing dollar. Remember a strong Dollar is not good for global US companies who's earnings come from all over the globe. The market is still focusing on what the Fed will say about interest rates. We are up here today, following the lead from the US.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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Tencent's worth on Wednesday

"On a forward basis, earnings are anticipated to clock 3.51 Renminbi for the current year, meaning that at current levels the stock trades on 38 times earnings, or a forward PEG ratio of 1.06, I guess that is slightly more than you would like for a high growth stock, not however out of the comfort zone. Revenues for the current year are anticipated to be close to 98 billion Renminbi, or 121.5 billion Hong Kong Dollars. Or, 194.4 billion Rand, if you like. Tencent on that basis trades at 10.5 times revenue. Facebook for comparisons sake trades on 17.5 times annual revenues."

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To market, to market to buy a fat pig. We all know that the fox says a whole bunch of things, it almost seems like the same thing when it comes to the US Fed. The number of headlines that you see that go like this: "Stocks wait for the US Fed for next clue on interest rates" or "Markets fall as Fed could raise rates soon". As I said, it is not that I do not care, it is not as if Vestact does not care, it is however in their hands and they (the smartest academic minds in their specific field on the planet) will do what they will do. They will act according to the situation. I think that it (the worry around rates and "what to do") is not too dissimilar to a fear of flying. If you have no control over what is going to happen next, you somehow feel powerless and as such there is an anxiety associated with it.

It is the same with interest rates. Whilst the Fed, I saw on the box (it is more of a flat thing nowadays), is set to even factor in Twitter in their decision making process, the average person, professional investor, has absolutely no control of where interest rates are going next. If that means a strong Dollar, rebalancing of the economic global order, then that is what will happen. If that means that Brazil and Russia (and Venezuela) see lower prices and have to deal with inflation, uneven economic growth and political upheaval, then that is what happens as a consequence of being too reliant on a specific part of your economy to go forward. Fail to plan, plan to fail as they say in the classics.

Do not let it consume you in any way. Do not worry too much about the implications for your companies that you hold. There is no need to "reposition" yourself ahead of the Fed decision. The quality of the businesses and their ability to meet their obligations in a higher interest rate environment depends entirely on their prospects, their management team and the robustness of their consumer. And product. You can have the best business plan in the world, no plan can surely succeed if your customer is nonexistent. Anyhow, expect when the Fed release their next statement to remove a single word that apparently is going to freak everyone out, the word "patient". I kid you not, patient refers to how long the Fed are willing to wait until they raise rates. Pfff ... they must do what they must do, if that has an impact on equity prices, there is nothing you or I can do about it. We remain fully invested at all times, regardless of what any central bank does, or does not do.

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Company corner snippets

Discovery go ex the rights today, meaning that the company starts trading without the rights. It is simple, on Friday was the last day in order to participate in the rights issue in the ratio of 9.38641 per 100 (at 90 Rand apiece), the share price today will trade accordingly lower, possibly around 6-7 percent lower from where it opens. The shares that you buy today include all the extra ones (55.5 million) that are going to be listed in the coming weeks. Remember, we think that you MUST follow your rights. Apply that ratio above to your current holding of Discovery shares, as per Friday's mini statement, and then multiply it by 90 Rand a share, simply make that deposit.

It is approximately 6.5 percent of your current holding, as per the close of trade Friday. That is the simpler ratio. What are the time frames? In other words, how much time do I have? You must do it, as a beloved old client of ours used to say: "immediately at once!" You basically have two weeks today to make sure that the funds are in your account. If you do not do anything, you will lose money.

TenCent fourth quarter earnings are set for release on Wednesday, expectations are for earnings of 0.66 Renminbi per share. Remember however that the company is listed in Hong Kong, where there is a different currency. The inter-webs tells me that the ratio is 1.24 Hong Kong dollars to 1 Renminbi, the expectations are therefore 0.82 Hong Kong Dollars of earnings relative to the share price of 135.5 Hong Kong Dollars. The company would earn, at that level, 2.57 Hong Kong Dollars per share. The stock would then at these levels trade on a historic price to earnings multiple of 52 times. A really lofty historical multiple by any standards of any sort. Earnings however grew by 55 percent on the prior year (if we believe these expectations) meaning that the stock trades on a PEG ratio (price to earnings over growth rate) of less than 1.

On a forward basis, earnings are anticipated to clock 3.51 Renminbi for the current year, meaning that at current levels the stock trades on 38 times earnings, or a forward PEG ratio of 1.06, I guess that is slightly more than you would like for a high growth stock, not however out of the comfort zone. Revenues for the current year are anticipated to be close to 98 billion Renminbi, or 121.5 billion Hong Kong Dollars. Or, 194.4 billion Rand, if you like. Tencent on that basis trades at 10.5 times revenue. Facebook for comparisons sake trades on 17.5 times annual revenues.

Tencent pays a dividend, not a kings ransom, 24 HKD cents. The yield is laughable, the fact is that Tencent is hugely profitable (EBITDA margins of 33 percent), continues to invest heavily in their infrastructure. They will continue to become a more important part of the every day life in China, as an entertainment, messaging, commerce business, as well as keeping up with new technology and adapting. They will also have favourable government legislation on their side, the government wants them (and their Chinese peers) to prevail over multinational competition. That is both good and bad for the average consumer in China and definitely for the companies in the long run. It is what it is, however. I am looking forward to these results as much as I am looking forward to the quarter final against Sri Lanka, it should be cracking!

There are many comparisons between the dotcom era and now, there were 632 Tech IPO's in the US in 1999 and 2000, of which 14 percent were profitable (Yes, true story, here is the data -> Technology Company IPOs, 1980-2013), more importantly they traded at 26.5 to 31.7 times sales. Makes you think, not so? Here is the table:

Walking through the Rosebank Woolies yesterday after lunchtime got me thinking real hard, the new stores in both Sandton and Rosebank BTW are really special. I remember that Woolworths clothing offering was really not great, they were looking tired and it was not a destination for clothing. All that has changed, not only has their food offering in terms of quality and value changed markedly, their clothing offering has transformed the relative shopper. The boutiques internally (Mimco confirms that "feel") and the quality means that you attract more upmarket shoppers who are happy to spend more, margins are better, you feel that the brands then become aspirational themselves. The internal Woolworths brands. If the company can achieve here locally with their David Jones purchase, then you would guess that Woolies made a really well timed purchase. I believe that this management team have the capability to do this, the recent slump from record highs for Woolies is an opportunity in our book.

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This is not quite a Macbook Air and also doesn't have its price tag - Meet Google's New Chromebook Pixel

This is one of the proposals from Greece, I think the headline speaks for itself - Visiting Greece? It wants to pay you to spy on the locals

Some amazing pictures of space, the wonders of modern technology - A breathtaking photo of a constellation 4,000 light-years from Earth is the most detailed ever of that region. Having a look at the pictures it makes us feel small, I suppose we are.

The internet is disrupting many industries and the impact on the TV industry is nothing new, here are the latest stats though - Television is being nuked at all angles by Netflix, Amazon, and Hulu

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Home again, home again, jiggety-jog. Oil prices off the boil sharply. Commodities are again taking heat. The rest of the market is up however as markets around Europe seek to reap the benefits of a weaker Euro and await results from the fed meeting this week.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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GSK up five fold on Aspen

"How did GSK acquire these shares in the first place? At their height, GSK owned 18.6 percent, that is down to 6.2 percent? The original and first transaction from May 2009 was the issuance of 68.5 million Aspen shares (16 percent at the time) to Glaxo for 3.47 billion Rand (my math says 50.65 Rand a share) or 272.6 million Pounds. Or ... 3.98 Pounds a share. Selling 28.2 million shares at 372 Rand, or (at the exchange rate yesterday) of 18.33, that equals 20.29 Pounds per share. So in less than six year, they (GSK) have made a five fold gain, in Pounds!! Over the last five years, the GSK share price has been completely static, up a mere 24 percent as when compared to Aspen, in Pound terms."

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To market, to market to buy a fat pig. Not again. This time when bad news is good news, markets in New York bounced after weaker than anticipated retails sales from the month prior was interpreted as good news. What? What does that even mean? There was better than anticipated weekly claims numbers, that was interpreted as good news. I cannot imagine what it must be like to write a daily message that looked for a reason why the market went up or down yesterday. It is unfortunately something that people need, they want to know what "investors" are thinking. Investors do not change their minds on a day to day basis. The market is made up of buyers and sellers, they always have to agree on price to match one another (there cannot be more sellers than buyers and there cannot be more buyers than sellers), even if their views conflict. There is only one reason why people buy securities, there is only really one reason why people sell securities.

You buy securities of a company because you think that the price is going to increase in either the short or the long run, you can sell it immediately (provided the liquidity is there) if you think the opposite is true. Or you think that your thesis has run its course. Of course we are always wrong, I love that Warren Buffett on a poor Tesco investment said that he was just an old man who made a mistake. Yes, we certainly have had our fair share of being wrong around here, that is for sure. As long as you can make sure that you are more right than wrong, as long as you can make sure that you find and stick with the good companies, you will outperform in the end. It certainly sounds very easy.

It looked easy for those folks who were long yesterday, stocks were up sharply across the globe, locally we ended the session nearly a percent better. Over the hills and faraway, in the US, the markets rallied strongly! Over a percent and a half for the Dow Jones, a percent and a quarter for the S&P 500 and lastly Intel (down nearly 5 percent) dragged on the nerds of NASDAQ, which ended 0.9 percent better. Microsoft also had a poor session, tech stocks as a whole had to drag the rest of the lot higher as some heavyweights slipped on a stronger Dollar, lower than anticipated guidance. Chips sales expected to look average for Intel, that has a knock on impact for Microsoft I guess, they sell the software.

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Company corner snippets

First the price moves and then the news comes. I am talking about Aspen Pharma. The share price has dropped (admittedly along with the rest of the market) after what could only be described as very good results, this time there are reports suggesting that GSK are looking to sell half their stake in Aspen for a discount. The suggestion is a 5.3 to 10.2 discount to the closing price last evening, according to sources. They (GSK) would look to reap 890 million Dollars from the sale, and would agree not to sell the rest for the next six months. They have exited a third before. Why would they want to do this? In-between writing these two sentences above and now, the SENS announcement came from the company:

"GlaxoSmithKline ("GSK") has announced the completion of the disposal of half of its 12.4% shareholding in Aspen (equivalent to 28.2 million ordinary shares). These shares were sold by means of an accelerated book build offering process which resulted in the shares being sold at ZAR 372 per share, raising gross proceeds of approximately ZAR 10.5 billion."

Still, that does not answer the question of why? If you read an FT article from last evening: GSK to sell Aspen stake for almost $900m, the suggestion is simple, GSK need the money in order to safeguard the dividend against the backdrop of stagnant growth in their own business. Don't fret, GSK still have 6.2 percent and the shares were snapped up in a flash. GSK may sell the rest of their stake off, who knows, the fact that Aspen were able to do some early stage deals with GSK from their noncore stable, the fact that the two have a good understanding, the fact that there would be a whole lot of fresh new shareholders is not necessarily a bad thing. In these cases I am always much more interested in who bought the shares, they got the discount and must be feeling happier.

Although, as the market opens this morning the stock is down sharply, down 6 percent at the get go, improving as we speak, down 4 and three quarters of a percent. The same thing happened last time, when the stock sold off heavily after the exit of part of the stake by Glaxo. Currently around 388 Rand a share. We continue to recommend the business as a buy, long term it is quality outfit, spectacular management, growing markets and always looking for quality transactions.

How did GSK acquire these shares in the first place? At their height, GSK owned 18.6 percent, that is down to 6.2 percent? The original and first transaction from May 2009 was the issuance of 68.5 million Aspen shares (16 percent at the time) to Glaxo for 3.47 billion Rand (my math says 50.65 Rand a share) or 272.6 million Pounds. Or ... 3.98 Pounds a share. Selling 28.2 million shares at 372 Rand, or (at the exchange rate yesterday) of 18.33, that equals 20.29 Pounds per share. So in less than six year, they (GSK) have made a five fold gain, in Pounds!! Over the last five years, the GSK share price has been completely static, up a mere 24 percent as when compared to Aspen, in Pound terms.

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We're reading this, you should too.

The dangers of playing the "what if" game and how impulsive decisions influenced by recency bias can be disastrous for your returns - Advice For a Young Robo Investor on Asset Allocation

The amazing brand power and pull that Apple has - Apple Stores Are So Popular They Lift Mall Sales By 10 Percent.

Considering that we are moving to needing more skilled workers than ever, this stat is a bit concerning and confusing - American Millennials are among the world's least skilled. A takeaway from the study though, is that if you are willing to put the time in you should be able to get a job.

A look at where the pharma sector is moving - Big pharma is under threat from a whole new kind of generic drug. The basics of the article is that making generic drugs for the more complex drugs has been a challenge in the past. Things are changing and some of your big drug makers might be facing more margin pressure.

Google is entrenching is presence in the mobile advertising space - Tech More: Google could be about to do a deal that will solidify its domination for years. Nothing is set in stone but having a solid presence in India will be a good thing for Google.

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Home again, home again, jiggety-jog. Do you suffer from triskaidekaphobia? They call it paraskevidekatriaphobia in Greek. Mr. Market does not seem to care much for that funny, we are marginally flat here this morning!

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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Buffett's Blueprint

"Lower on that specific page was possibly a paragraph that should be open to interpretation, Buffett never gives an exact multiple, being too staid and rigid with too many parameters can deeply dent your longer term returns: 'From my perspective, though, Charlie's most important architectural feat was the design of today's Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.'"

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To market, to market to buy a fat pig. What are your options? I mean, what are your investing options as an individual? If you are working in formal employment, you no doubt have pension savings, more often than not outsourced nowadays. The whole idea would have been that if I work for x company for 30 years (or a series of companies for that time) I would have enough savings to retire. Remembering that if you are in formal employment, you are then in a different class altogether from entrepreneurs and unemployed people of course. Not everyone is "lucky" enough to be on a formal salary with a formal contribution towards retirement. The question then remains, how do you get the best out of all of the years of your contributions?

In other words, do you think that for all of the salary that you have saved over a period of formal employment that you are in a position to retire at the same "rate" as before? Or not? Studies show mostly not, i.e. people are not in a position to provision properly over their working lifetime. [I would like to know from your personal experiences, just to get a sense of what to avoid and what to do.] In the end saving and investing is pretty much like anything else in life, planning, protecting and patience, as well as great will power to continue and persevere. I often tell folks who continually add to their investments that they should hope for low prices over their lifetime of savings, obviously they would want the companies to grow profits and pay more dividends to you, the shareholder. Lower prices mean you can buy more shares for the same initial investment.

The two never go hand in hand, you would not add to your investments if they did not do well (stick that in inverted commas), although you should continue to buy good companies at reasonable prices over the years. Always be adding is my mantra, always be in accumulation mode, I am of course at an age that is either old (if you are a child) or terribly young and inexperienced (if you are in retirement). What is a good company at a good price? Michael had a read through the same Buffett slash Berkshire annual chairman letter that I had from a couple of weeks ago, this last one, and the looking back over time segment and it suddenly struck us that there is no right or wrong way. Be flexible when making investment calls:

See the Charlie Straightens Me Out segment on page 26, with this paragraph specifically: "In addition, though marginal businesses purchased at cheap prices may be attractive as short-term investments, they are the wrong foundation on which to build a large and enduring enterprise. Selecting a marriage partner clearly requires more demanding criteria than does dating"

Lower on that specific page was possibly a paragraph that should be open to interpretation, Buffett never gives an exact multiple, being too staid and rigid with too many parameters can deeply dent your longer term returns: "From my perspective, though, Charlie's most important architectural feat was the design of today's Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices."

Obviously trying to figure out what is a fair price is extremely tricky. If you pay todays price and the business falls on worse times, totally unanticipated by yourself, then you are left wondering (often procrastinating) about the bum deal that you made. Equally, if you do not pay up for the quality, you invariably never will. The same people who tell me that Aspen is too expensive at 400 Rand, told me the same thing at 200 Rand and 100 Rand. And at 40 Rand. If you cannot own or buy quality and are only looking for what Buffett calls a marginal business at a cheap price, good luck with that.

Of course this can go horribly wrong. You could have paid 120 times for Microsoft or Cisco at the height of the last NASDAQ bubble. You still would not be making money, they might be paying you a dividend now (not back then), still, you would feel like you have owned a t_rd for 15 years. That is of course presuming that you had not sold any, or whether you had not bought some more at the bottom at the market in March 2009. You could have bought it at one-fourth of what you paid in March 2000. A blended price would see you up comfortably over that time. Be flexible is what Warren is trying to say I think. Of course you can always cherry pick from the same information to strengthen your argument, it is however something to think about. Think about it deeply in fact. I thought we all needed that!

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Company corner snippets

I am always reminded that ones own experiences and reality is certainly not what everyone else experiences. The simple things, convenience and access to certain services and products may be "normal" for you, it certainly is not the case for different people in different parts of the world. The reason I was thinking along these lines is that in a Google alert I saw that MTN had their mobile licence renewed in Cameroon, for another 15 years, that is good news and expected, I would guess. That was not what struck me, it was rather that MTN and Orange had been granted a 3G and 4G licence by the government of Cameroon. Yes. Whilst you swear at your smartphone for not being able to download the latest Taylor Swift or Beyonce album, other people are wrestling with a 2G Edge connection. They did have to pay 125 million Dollars for the privilege of offering people quicker internet, amazing, right? Your reality is not that of someone else, your daily speeds are quicker than some, much slower than you would want them to be.

I picked up the story that Lonmin, the share price, in London yesterday touched an all time low. See the Bloomberg story: Lonmin at Record Low as Metal Drop Compounds Glencore Exit. We also noted a story from the Paris mayor, Anne Hidalgo, on emissions controls: Paris, France to control diesel truck entry into the city due to pollution.

Hmmmm .... Obviously this could be interpreted as either good or bad news for the platinum industry, all diesel cars made after 2011 could be on the road, all those before, sorry. Most diesel cars are set to be banned by 2020, or so that is what is being proposed. That hardly sounds like good news for the platinum industry, sounds better for the palladium industry. South Africa is still a huge palladium producer, around one third, however, the Russians produce more than half. I cannot imagine that they are more desirable than ourselves as a proper trading partner. In the meantime I read this David McKay article from MiningMx: Lonmin, Impala may return to debt, equity markets.

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We're reading this, you should too.

Another avenue that Google is moving - Google opens its first ever store

A look at how South Africa's rich are distributed - Over 2000 South Africans have $10m or more. As people get richer there is a trickle down effect to those on the lower LSM rungs. Not very comforting if you are in the bottom LSM groups, a bigger pies is better for everyone though.

There are many factors that effect the oil price, production, storage and rig numbers are some of them - Oil Prices Fall as U.S. Storage Continues to Fill Up for Ninth Straight Week. Given all the moving parts it is hard to make an accurate forecast for the oil price but given the size of inventory build up you would assume that prices are not going to rise much.

Here is another moving part when it comes to oil, OPEC - History Suggests OPEC's Days Could Be Numbered

What if? - What If Apple Had Entered Dow in 2008?. This highlights the reason why the Dow is largely irrelevant now days, the index has too few companies and it is too subjective on which companies form part of the index.

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Home again, home again, jiggety-jog. Markets are in positive territory, there is something that you haven't heard for a few days now!! The Rand is stronger, the resurrect complex is bouncing quite hard after a torrid time.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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