Apples in Ireland

“We will have to wait until the finding is released to hear what the amount will be. Then there will probably be another round of court cases fighting certain aspects of the finding, so I don’t see cash changing hands anytime soon.”


To market to market to buy a fat pig Another day, still slow volatility, mostly in the US. The ALSI finished up 0.11% yesterday after swimming between green and red for most of the day. In the US, The Dow was up 0.58%, The S&P 500 up 0.52% and the Nasdaq up 0.26%. Potential market moving news out last night was that Apple may face a hefty tax bill in Europe due to its corporate tax structure being viewed as unfair, Apple’s Irish Tax Bill May Run Into Billions of Euros. We will have to wait until the finding is released to hear what the amount will be. Then there will probably be another round of court cases fighting certain aspects of the finding, so I don’t see cash changing hands anytime soon.

Sticking with Apple, the grand unveiling of the new iPhone has been announced. It is the 7th of September, so you only have a week to wait till we see what the new design is and if the phone does or does not have a headphone jack. (Apple sent invitations for the iPhone 7 event on September 7). The reports are that the phone this year will be very similar to the iPhone 6S and that next year, the 10 year anniversary of the iPhone we will see big changes to the product.


In portfolio construction one of the key objectives is to try and balance within different sectors of the economy and within different businesses that are likely to perform well under all circumstances. This isn’t always possible, as you well know, when holding a portfolio of assets some will perform better than others, on paper. The price action of the stocks attached to the companies vary in ways that you may, or may not expect. The market as a collective isn’t always right and has been responsible as a collective for some darn awful mistakes, think recently the housing crash in the US that led to a global financial crisis, as banks, individuals and savings institutions were are equally oblivious to the risks and the perceived risks. I recall at the time thinking that it wasn’t a big deal.

Strangely, through the worst crisis of our time, there were some stocks of a consumer nature that actually gained in value. Apple is the perfect example. If you had sold everything as a result of the financial crisis storm, you may have missed one of the greatest rallies (in single stocks) of all time. There were some sectors that were near terminal, there are some banks that have not recovered (both from a share price and share dilution point of view) and may well never recover. There are going to be some sectors that you should try and not time and you should avoid. Or at least we think so, building and construction is one. For the most part, banking is not a favourite. Mining is also hard to call the cycles, energy is equally difficult. Who would have called the recent oil price moves with any accuracy?

From personal experience, when discussing a selection of stocks in a portfolio, retail clients will cast their eyes to the stocks that have done the worst. You may well have a portfolio of ten or twelve stocks, all of them may be up bar for one, the one will be the topic of conversation. There may well be in amongst the others a stock that is woefully overvalued at that point, again human nature dictates and expects equities to rise, so we shan’t and won’t visit that topic. We hate losing. Which is a good thing. The very nature of owning stocks is a risk in itself for many private individuals, it is a giant hurdle that they have been able to overcome and now they must deal with losses and gains simultaneously on specific holdings, trying to decipher it all is like trying to crack the Enigma code. We are of course all afraid of the unknown. The unknown is exactly what we embrace when owning stocks.

In the markets we all have the same objectives (we all want to make money), we just have different time frames and entry (and exit) points. Take the case of a young saver starting out, their portfolio will evolve over decades and they can equally chop and change whilst their share portfolio morphs into a more substantial retirement savings pot. For them it matters little whether the share prices go up or down, in fact, if they can continually add whilst the prices are lower, that is a very, very beneficial outcome. For the older retiree, that may be owning equities for the first time, the prospect of owning more shares in a down trending market is like being forced to watch countless re-runs of electioneering clips. Painful. Even if life dishes you up different circumstances at different ages, your savings pots are there for a rainy day, whether you need it for medical emergencies as a younger or older person.

So here is a trick that I suggest we try more of. Drop the profits and losses columns on the spreadsheets. Have values only. Have cash flows attached to those values. See if it all stacks up. Some companies are very likely to confound you when talking about said cashflows, I recall a time that banks dished out large lolly, technology companies paid nothing. That is changing, as companies mature (and others are forced to stump up higher reserves). What companies do with their cash changes. Berkshire never pays dividends, that doesn’t mean it isn’t a “good one”, on the contrary. You may be forced to sell a single stock every couple of years to meet retirement goals, and deal with the capital gains, rather gains than losses! Less intense analysing and more long term eyes on the prize!


Linkfest, lap it up

Paul was chatting to Bruce last night on 702 about money, investing and lessons learnt so far in life – ‘Collect experiences, NOT possessions!’ – Paul Theron. IF you have 17min it is worth a listen.

This an interesting link between buildings and marketsDo Newly Built Skyscrapers Signal The Top of the Stock Market?. It is interesting that the most expensive house in the world cost $1 billion to build, it is Mukesh Ambani’s house in Mumbai of 27 stories. Compare that to the price tag of the worlds tallest building coming in at $1.5 billion, does that mean building costs in India are really high?

Here is a great example of how to say the same thing but change the perception that people have. Authors and researchers have a large amount of power over how their research is interpreted by others, where no doubt people biases come to play – How to Lie With Fed Statistics. Here is an example, “There was a study a number of years ago that split a number of people into two separate groups. One was asked if they thought it was possible to save 20% of their income. About 50% of them said yes. The other group was asked if they could live on 80% of their income (thus saving the remaining 20%). In this group, nearly 80% said yes.”

When it comes to music Japan seems to have been left behind – Why Japan has more old-fashioned music stores than anywhere else in the world


Home again, home again, jiggety-jog. Our market opened in the green this morning but is heading for the red. On the currency front we are still around that $/R 14.40 level which it will probably stay around until there is more news out of the political arena locally or US economic data.

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

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