Incorrect about Corrections

“He (Peter Lynch) also said: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”. It seems that if you look back from a distance and zoom out, ten percent down and the subsequent recovery is hardly a blip of any sort. The S&P 500 is up, without dividends, over the last 40 years 2268 percent.


 

To market to market to buy a fat pig Markets were a mixed bag here in Jozi, Jozi. Stocks started down (as a collective), sneaking into the green around lunchtime and then ended the session around where they started, a little lower. Around ten percent lower on the day, resources were a little lower, financials a smidgen off. AngloGold Ashanti and Amplats were the two biggest losers, down over three percent apiece, whilst Bidvest was the biggest winner, up three percent on the day.

Ahhh, I see an announcement from Woolworths this morning about their Aussie business, Country Road and David Jones, John Dixon will assume this role:

“Consistent with the desire to create a single entity benefitting from economies of scale and an aligned culture, the company is now creating a single regional corporate structure. The region will be headed by a Chief Executive Officer with a team of regional executives covering the core operational functions plus the Chief Executive Officer of Country Road Group, and Managing Directors of David Jones Food and David Jones Clothing and General Merchandise.”

 

Woolworths of course has been a great and a terrible investment, depending on where you draw the lines in the sand. Over five years the stock is up 60 percent and it is also an excellent dividend payer. Over three years it is only up three percent. Over ten it is up 251 percent. Over three months it is up nearly six percent. Over one year the stock is down 15 percent. See what I mean? It always (always) depends on where you draw your line in the sand. I suspect that you have to have a serious view on organic and premium offering and whether or not the consumer is going to be receptive to it or not. I suspect that the more affluent consumers will be happy to continue to “pay up” for quality. We continue to hang tough on what has been an average stock price for a wonderful company.


 

Across multiple time zones and the oceans, in New York, New York, stocks were reacting to Washington DC events and “negotiating” on healthcare repeal. The thinking is pretty simple, if Trump does not have the majority of Republicans on his side, what is the chance of more being pushed through. As Paul said, why did they start with the hardest thing first? Why not go for tax reforms first, I am sure that more people agree that more needs to be done there. Session end all the major indices were marginally lower, the S&P 500 down by nearly one-tenth of a percent, the nerds of NASDAQ off by 0.07 percent, whilst the Dow Jones fell 0.02 percent by the close.

Snap rallied nearly six percent, it seems perhaps all the early “stagging” may be gone. To stag, the definition (as per Investopedia): “A stag specifically refers to a speculator who buys and sells stocks in short time frame’s to make quick profits. A stag investor assumes that the price of a stock will rapidly increase over the short-term, within the first few hours or days, and adopts an investment strategy that is the opposite of a long-term buy and hold strategy.”

Nike (Nigh-Key) rallied over two and two-thirds of a percent, recovering some of the losses after poorly received results. Alphabet, the parent company of Google, and by extension YouTube, is experiencing some serious bad media over adverts being pulled from YouTube. By some pretty high profile advertisers. Why? How? See a Google apology a number of days back – Improving our brand safety controls:

“We’ve heard from our advertisers and agencies loud and clear that we can provide simpler, more robust ways to stop their ads from showing against controversial content. While we have a wide variety of tools to give advertisers and agencies control over where their ads appear, such as topic exclusions and site category exclusions, we can do a better job of addressing the small number of inappropriately monetized videos and content. We’ve begun a thorough review of our ads policies and brand controls, and we will be making changes in the coming weeks to give brands more control over where their ads appear across YouTube and the Google Display Network.”

 

I suspect that the advertisers will definitely return. You know what they say about once bitten, right? This may be an opportunity to grab a few more. Last year YouTube removed 2 billion bad adverts from the system and 100 thousand publishers. With 400 hours of video uploaded every minute to YouTube, there is unfortunately going to be a whole lot of content that is not generally accepted by the community. Enough said, I think. YouTube are doing something.


 

We always hear about doom and gloom in our profession, how the next market crash is coming. Historically, and I uncovered this from an ancient Peter Lynch piece, there is a draw down in markets of around ten percent every two years or so, that is on the S&P 500. From 1970 to 2008, there were 21 such events, a “bear” market by technical definition. He (Peter Lynch) also said: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”. It seems that if you look back from a distance and zoom out, ten percent down and the subsequent recovery is hardly a blip of any sort. The S&P 500 is up, without dividends, over the last 40 years 2268 percent.

Why do we spend ALL of our time worrying about infrequent events? To illustrate this point, I have taken what should be a normal investing period for investors and circled that horrible no good day. 19 October 1987, the machines went berserk and the Dow Jones was down 22.61 percent in a single day. It happened. The next worst single percentage down day was 15 October 2008, down 7.87 percent. December the first 2008 was the third worst day, down 7.7 percent. And then October 9th 2008 was the fourth worst, down 7.33 percent. We can see all of these up close and personal, we remember some of these. Here goes, 40 year graph of the S&P 500 (not the Dow Jones), courtesy of Google finance.

You are going to say to me, “yeah sure Sasha, you picking such a long period, what happened in the moment isn’t easy to ‘forget'”. And you would be right. However, the S&P 500 closed 0.06 percent up in 1987, from the beginning to end. From the beginning of 1987 to the end of 1989 the S&P 500 was up 43 percent. Stretch that out, five years on, the S&P 500 was up nearly 65 percent. Yet ….. people will talk about 1987 as if it was the bubonic plague or the 100 year war, or the dark ages or some other such thing. A fellow by the name of Charles Lieberman (chief investment officer at Advisors Capital Management) writes for Bloomberg View in an article titled: There’s Always a Bull Market in Fearmongering. This paragraph is pretty telling:

I would care little about these Chicken Littles and their desire to instill fear in the hearts of investors for their purposes, except that they inflict enormous harm on individual investors. How often do retail investors read such warnings and decide that to be safe, they should reduce their exposure to the market? Some pull out entirely. It happens far too frequently. I know of one individual, a close friend of a client, who converted his entire portfolio into cash late in 2008 and has been unable to bring himself to buy back in to this very day! For years now, he thinks he’s missed the recovery, because he’s read warnings that stock prices are high and vulnerable.

 

Oh dear. To bring that closer to home, the 2008 nightmare on Elm street market version, Michael Batnick had this piece on his blog “The Irrelevant Investor”: Gradual Improvements Go Unnoticed. He points out all the reasons why NOT to have invested in the market, some of them fresher in our memories than before. I have taken calls on all of them. I have had long conversations with people on why not to sell, that is part of our job. I am sure for the same purpose (of continued education of ourselves), he won’t mind if I borrow his graph:

I can think of multiple other reasons, as he lists there below. I wondered smugly if I should tweet (like a real troll) at “The Nouriel” and ask when he expects the double dip recession to arrive? The market will humble you. Never ….. like never, ever be smug about your investment decisions and outlook, and how the market looks now. Keep it real, stay humble. You will be humbled. Anyhow, the slow advances that humanity makes are not celebrated. The collective chooses to be anxious and nervous. As long term investors we should embrace this.

Peter Lynch said this in an interview once:

“A lot of people think long-term investing is three weeks from next Wednesday, but when I talk about long-term investing I mean 5, 10, 20 years. During that length of time the market can experience ups and downs due to what I call “background noise.” Events occur – hurricanes, wars, political instability, currency and bank crises – that makes investors nervous and cause market volatility. It does get nasty at times, but it shouldn’t cloud investors’ judgments about thinking long-term. The key organ here is your stomach. Everyone has the brainpower, but not everyone has the stomach for it.”

 

If everyone, like I told a client yesterday, was a pure investor and not a consumer, there would be nothing to buy, right? Choices mean you can get a new vehicle, finance it and end up with an asset one fifth of the original price five years later, or ….. you could invest that in the equities market. You would eventually end up with enough to buy the car cash. That is another story entirely about what is risky and what is NOT. Keep saving. If stocks go sideways or down, and you have money to add, you should. As is the famous line from that excellent movie, the Best Marigold Hotel in the World (It is actually a John Lennon quote): Everything will be okay in the end. If it’s not okay, it’s not the end.

Or, as we say around these parts: Keep on keeping on.


 

Linkfest, lap it up

Facebook has a ‘secret lab’ where they are trying to design the hardware of tomorrow. The ability to do these moonshot projects is thanks to having a cash pile of around $30 billion, if they come off it is good for humanity and shareholders – Facebook’s secretive and ambitious hardware group is preparing for its debut next month

What is the right amount to tax? From a government perspective, you don’t want to over tax, decreasing the incentive to work and invest and essentially crowding out the more efficient private sector. As Barry points out many of our tax models are designed for homo economicus instead of homo sapiens – How Much Can You Cut Taxes? Don’t Ask Kansas

A big factor in differentiating yourself from competitors in the e-tail space is trust. Given that you can’t touch the product before you buy it and that you are giving the suppler your credit card details, trust is important. Here is another step that Amazon is taking to build trust – Amazon Has a New Tactic to Fight Counterfeits

This is awesome, Bright loves this guy so much that his WhatsApp avatar is Howard Marks. Do you have half an hour this weekend to watch this, Howard Marks is in India – Howard Marks: ET Now — “The Global View with Howard Marks”.


 

Home again, home again, jiggety-jog. Stocks across Asia are higher, the US futures are around one-third of a percent higher. This is the best level for the Rand since the middle of 2015!


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

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