October is good/bad

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Linkfest, lap it up

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

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

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

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

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

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