“And to a certain extent either scared investors off entirely, or made investors a whole lot more wary of the risks. Boom/bust and guess what, it involved ordinary people, leverage and financial engineering, and of course the animal spirit. You have to love the smell of capitalism in the morning! Releasing the animal spirit is one thing, making sure that they also bear the full brunt of their follies is another.”
To market to market to buy a fat pig Stocks were mixed in Jozi (Jozi) yesterday at midday, by the time the closing bell arrived, we were nearly one-quarter of a percent lower. Financials were the biggest laggards, down two-thirds of a percent on the session. As an index the Financial 15 is nearly one and three-quarters of a percent better over the last 12 months, 60 percent better over the last five years. Over ten years, that return is almost exactly the same, courtesy of the financial crisis which rocked the world.
And to a certain extent either scared investors off entirely, or made investors a whole lot more wary of the risks. Boom/bust and guess what, it involved ordinary people, leverage and financial engineering, and of course the animal spirit. You have to love the smell of capitalism in the morning! Releasing the animal spirit is one thing, making sure that they also bear the full brunt of their follies is another. The old saying that the spoils of war are shared in a small group whilst the losses are shared by broader society might well be right for the last time around.
I am well aware that the consequences of doing nothing would have been more disastrous. We would still be working our way through all of this, had the free market prevailed. In order to protect ourselves, from ourselves, we instituted ordinary measures. Animal spirits with greed only extend so far, I have learned. And I suspect that we have advanced as humanity to have the broader financial system less likely to experience shocks of this sort.
In 2010, after the financial crisis and when banking execs were giving testimony to law makers about the roles that they and their institutions had in the lead up to the financial crisis, JP Morgan head (still to this day), Jamie Dimon said this: “Not to be funny about it, but my daughter asked me when she came home from school ‘what’s the financial crisis,’?” And then Dimon continues, in that same dry and brilliant manner: “Well it’s something that happens every five to seven years,” and then the line that perhaps nobody wants to hear following that: “We shouldn’t be surprised, but we need to do a better job.” John Mack was a little more blunt, he had risen from salesman at Morgan Stanley to CEO (after a brief stint out of the business), he had this to say: “We did eat our cooking and we choked on it.”
Morgan Stanley ten year return? Minus 47 percent. JP Morgan, up 70 percent over ten years. No wonder Jamie Dimon still has his job, he possibly ran the far tighter ship. Better team, better systems, perhaps luckier too. Moral of the story is that whilst too big to fail might have been something that irked main street, they felt that Wall Street had somehow shafted them, upsetting the apple cart for keeping markets “free” and encouraging the animal spirit have to be balanced. Moral hazard – “lack of incentive to guard against risk where one is protected from its consequences”. Zero consequences for actions. There cannot be that, and I think that we have learnt from mistakes. Somewhere, somehow, the next financial crisis is being hatched, it is when we all relax and feel like there are no more risks. We are not there yet is my sense.
Across the seas and far away, in New York, New York, stocks opened better, slipped to their lowest levels after midday and then clawed their way back. And still ended the day in the red, it was a there and back session. The nerds of NASDAQ lost 0.06 percent by the close, the Dow Industrials lost 0.09 percent, whilst the broader market S&P 500 lost just over one-fifth of a percent. Energy stocks were the largest laggards, I noticed that Apple touched a 52 week high last evening. The Canadian Wolf chap, made “famous” from StockTwits (fake or real, entertaining), must have been cleaned out by now. Gearing and trading around results is like giving monkeys the remote control, whiskey and loaded shotguns, what could possibly go wrong?
Apple stock is flat from late May 2015, since the lows and concerns around their “China problems”, sales by Icahn and co., the stock is up 37 percent from late May last year. And this happens to be the biggest company in the world by market capitalisation. It is another reminder that you should continue to be very patient when owning company stock, the price is one thing that reflects the balance of market forces. If anxiety leads to selling from a crowd that has three month time frames, and the thesis remains intact, then continue to hold. The market is always schooling you.
I had many favourite Joost moments, I am not quite the same age as arguably the best number 9 to have ever donned a rugby jersey, I am close(ish). Joost would have been 46 in a couple of weeks, I am 41 next month. His life reminds me somewhat of a fallen angel that captures the imagination with another fight that he was on the losing end. He didn’t lose in the end, he created awareness where there was little and put his illness out there for all to see, as a powerful man who stood head and shoulders above all on the rugby field, he stood in defiance of a debilitating disease. There was the infidelity and the lying and the subsequent forgiveness period, he took responsibility.
I’ll remember Joost for his rollicking runs and multiple tries. To put his record into perspective, Joost scored 36 tries in his starting number 9 position (2 more as a substitute), in 78 starts (11 more from the bench as a substitute). George Gregan scored 18 in 133 starts. Gareth Edwards (for the real old timers) scored 20 in 63 starts, he was regarded as the greatest, perhaps not if you look at the raw numbers. Justin Marshall scored 24 in 74 starts. I think from an out and out records point of view, Joost stands taller (and he did) than all of these amazing number 9s.
We are always quick to judge, and perhaps we should keep high standards. As investors we always learn from sport, that seems to involve more luck than investing. Although luck often is when you start or terminate a specific investment, if you own something for over ten years, whether you “overpaid” or got a “bargain” at the time is lost in the mists of time. And of course your ability to be able to fathom whether or not you were anxious at the time about ownership is also lost.
To stay with sport, I was reading a US publication that suggested that Tom Brady was one of the greatest sportsman of all time. Michael said if he walked past me on the street, I would not recognise him. Whilst there is a large amount of money thrown at US sports, they are not global in the sense that England and France and Australia battle it out. This is also another reason why analysts, who live and analyse only US companies think that the company tentacles end at the Statue of Liberty, the Seattle tower and the border with Mexico (some place you go on vacation).
We have a similar mindset here. One of the “things” that struck me in the Apple results, on the transcript call (courtesy Seeking Alpha), CFO Luca Maestri said: “Since June of 2014, so we’re talking about 2.5 years ago, the dollar has strengthened 25% against the basket of currencies where we do business.” Nobody picked this up. What happens if that unwinds? Would the devices get cheaper (70 odd percent of all sales are outside of the US) and therefore more in demand? Probably. Things change, things stay the same. Joost set a record when he was healthy, he was brave at the end, made huge mistakes in the middle. Lessons from life are one and the same in lessons in investments.
Linkfest, lap it up
This is a very cool post by the evergreen Eddy Elfenbein – 2018 Earnings Estimate = $147.98. At the beginning of the current year (2017), and Eddy is being selective here, stocks are trading on 15.5 times 2018 earnings (projected). Sound expensive? Not to me.
An ingestible weight-loss balloon? It exists – Elipse Balloon. It lasts a few months, and makes you feel full. It can be done in your doctors office, as they say in the explanation: “No surgery. No endoscopy. No anaesthesia.” The holy grail? Certainly looks quite cool. I came across the product yesterday – Allurion reels in $19M. Private business for now I am afraid.
My first question is, who thought of this system? Who thought that taking the longer route would save fuel and deliver more packages – UPS drivers don’t turn left-and it saves them 10 million gallons of gas a year. Probably my favourite read of the week.
Home again, home again, jiggety-jog. Markets were better to start off with, now they are worse for wear. German data has been poorly received and that is not being that well received. US futures are marginally higher, tell that to the sellers of SA inc.!
Sent to you by Sasha, Byron and Michael on behalf of team Vestact.
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