Blood, sweat, tears and a dash of Gore

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


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

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

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

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


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

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

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

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

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


Company corner

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

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

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

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

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

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

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

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

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

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


Linkfest, lap it up

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

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

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

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


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


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

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