Boring wins

 

“The spoils are not enjoyed and divided amongst shareholders in year one or even five of ownership. Ownership of equity requires powers of concentration akin to those of the cricketing kind of Amla and Kallis. It requires the cool head of the same kind that Roger Federer possesses. Whilst we may never have the cover drive or forehand of the aforementioned folks, we do have time on our side, and time can be the most important arrow in your quiver of investments.


 

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To market to market to buy a fat pig Thursday was so long ago. I can’t think of any other four day weekends, unless Christmas and the day after fall on working days. In the US, stocks are open on the Monday, a friend of mine who lives in Mozambique was back at work yesterday and a large part of the world does not observe the christian holidays, so there were markets open. We had stories of the Nigerian parliament urging the full extent of the fine to be levied against MTN. The stock subsequently fell over ten percent and hardly recovered on the day, even as the company put out a press release: MTN notes reports out of Nigeria.

The statement says: “MTN has previously advised shareholders not to make decisions based on press reports and MTN again urges its shareholders to refrain from doing so.” Well, then the statement continues: “MTN continues to engage with Nigerian authorities in an attempt to ensure an amicable resolution to this matter in the interests of MTN Nigeria, its stakeholders and the Nigerian authorities. To this end, we shall await clarity and further guidance on the fine from the Federal Government of Nigeria.” So I guess the market reacts in the same old fashion, sell first and then ask questions later.

After all was said and done, stocks in Jozi, Jozi sank around half a percent by the close of business Thursday. Pre Easter eggs and pre hot cross buns. Post all of the festivities, the markets in New York, New York were mixed last evening, the Dow Jones closed a little in the green, the S&P just managed to squeak into positive territory, whilst the nerds of NASDAQ closed up shop down 0.14 percent. Today, the expectations are for markets globally to trade a little better. The recovery from early Feb still continues.


 

I was struggling to find a book to read, something that I would really enjoy, and then I remembered a book that Charlie Munger had recommended. And his old pal Warren Buffett too, who is quoted as saying something along the lines of “This is that rarity, a useful book”. It is a book by Oaktree Capital Management founder Howard Marks. Not so much a book, rather than a collection of notes that he has published over time, it is called “The Most Important Thing: Uncommon Sense for the Thoughtful Investor“. The firm, 21 years old, manages around 100 billion Dollars in client assets.

The most important thing (and I am by no means finished) is that if you are beating the market, then you are better than the pack. In other words, less than half the people out there beat the market, in single currency terms. For every dollar that beats the market, a dollar does not. Bright, our newest and keenest (and youngest employee) recommends this fellow highly, he has been watching him for a while. On a note of Bright, he completed his first Ultra, The Two Oceans Marathon over the weekend. Well done. Paul did a smashing time, just over four and a half hours, astonishing, well done.

I recommend these readings highly, it is common sense. Whilst Marks suggests that number crunching is important, over a longer dated period (i.e. trying to find a great investment today in the years to come) these numbers become less useful. It is insight into what you think is likely to happen that I think counts. I recall reading that the Dow Jones publications used to have a thirty year hence segment at the end of every year, some of the predictions came true, some of them were outrageous and outlandishly wrong.

I suspect that the right way to go about investing and making sure you understand that you have ownership over a business through a stockholding is to quantify what you are trying to achieve. In the end, it is pretty simple, you are trying to achieve consistent returns over time that are superior to the market, at the most acceptable risk you can take on. You can’t own everything, you will equally own companies that will disappoint you, the stock price that is. Recency (and ownership) bias, pattern recognition, market gains (all boats being floated) are investors fools gold, you pat yourself on the back when things are going well. Equally, when stock prices fall, investors think that something is “wrong” with the company they own. Nobody likes seeing red in the P&L (Profit and Loss) column. You should however view your equities as you would ownership of a house, or a personal business. A long term commitment.

The reason why we write to clients day in and day out is not to try and deliver the secret apple sauce, we don’t have it. The reason is to drum home the basics of equity investing, to be a partner in what is essentially a marriage of sorts. To be a voice, to be someone who guides, to be a shock absorber when the going is tough. The spoils are not enjoyed and divided amongst shareholders in year one or even five of ownership. Ownership of equity requires powers of concentration akin to those of the cricketing kind of Amla and Kallis. It requires the cool head of the same kind that Roger Federer possesses. Whilst we may never have the cover drive or forehand of the aforementioned folks, we do have time on our side, and time can be the most important arrow in your quiver of investments.


 

Company corner

Apple has been in the news engaged in a battle with the US authorities lately, seemingly someone has cracked the password of a phone that the FBI is trying to get info from. It is a very tricky and sensitive subject, on the one hand, there is the subject of national security, on the other hand there is a fear of big brother. i.e. Personal security. The FBI has “won” this round, perhaps even Apple users will feel OK with the fact that the FBI can crack it, it did take a long time. Here is an organisation with all the resources in the world, and it took that long to do. I guess that all ends pretty well for both sides. This piece is not about that however, this is actually about an article that I read from Horace Dediu, an American Romanian who lives in Helsinki. He has a blog called Asymco, a weird looking place really.

His recent post is titled, The Next 40, and it is about Apple as a PC maker. Apple have shipped more computers than almost any other manufacturer. You don’t think of the company as a PC maker now, do you? The Mac and Macbook have actually been gaining market share, in a falling PC market. The paragraph that caught my eye was the one in which Horace tries to explain what Apple is, and that dovetails nicely into the thesis above.

“My simple proposal is to think of Apple (and actually any company) as a customer creator. It creates and maintains customers. The more it creates, the more it prospers. The more customers it preserves the more it’s likely to persevere. This measure of performance for a company is not easy to obtain. It’s not a line item in any financial report.”

 

I suspect that if you look deeper into the services segment of Apple, you will see that it is a fast growing business. And the more people inside of the Apple ecosystem, the more people that will require extra services, apps and music/movies and so on, the more profitable the business will be. I just find it very interesting that Apple have sold more computers than any other computer manufacturer. Ever. We continue to accumulate what is a very attractive business. I suspect that a Virtual Reality product will come soon from the company, and I suspect it will be huge.


 

Linkfest, lap it up

One of the biggest cost components of Uber is the drivers salaries. When we get to a point of driverless cars, it will no longer make sense to own a car – This might be the only time it’s cheaper to use Uber instead of owning your own car. The other advantage of using a driverless car will be that all the cars will be linked to a central traffic system with the result being that cars will take routes that result in the least amount of traffic jams on the roads.

We will probably start seeing this more and more from the mobile operators, were they to embrace making calls over the internet but levy a small charge for the convenience of not having to use an app like Skype or WhatsApp – AT&T launches international Wi-Fi Calling

Here is part of the cost of stabilising the Chinese stock market. For these brokerage firms it is important to have a stable market to keep customers confident enough to keep their money in stocks – China’s biggest broker spent more on bailing out the stock market than it earned in 2015.

The headline is “no pressure”, in a huge week for Tesla and Elon Musk: Model 3 launches this week, the world will know if Elon Musk called the electric-car future correctly.


 

Home again, home again, jiggety-jog. Another short week here for equity markets, the Rand is a little weaker, perhaps more Dollar strength on the basis that the Fed may actually raise rates in April. Who knows! I certainly don’t.


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

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