Investment Lesson

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


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

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

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

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

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

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

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

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

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


Linkfest, lap it up

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

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

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

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

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


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

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

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

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

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One thought on “Investment Lesson

  1. Pingback: Investment Lesson | Bright and Breezy

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