Cry the Beloved NHI

 

Market Scorecard


Trade war tensions are rising as the EU announced that they would raise tariffs against US products in response to Trump’s tariffs. Higher prices mean that people will buy fewer products on both sides of ‘the pond’; leading to lower taxes and lower economic growth. You can understand why the EU has implemented their own tariffs, they needed to send a message that the EU won’t just accept taxes on their products.

The Health Minister Aaron Motsoaledi released two bills on Thursday that could lead to big changes to the South African healthcare system. Both are likely to lead to heated debates in industry and civil society, and could directly affect our investments in Discovery and Mediclinic.

We should note that the ANC leadership is under huge pressure to implement the NHI, as they have been mandated to do this by every ANC policy conference over the last two decades. Most sane observers agree that the current state health system is a mess, and there is no money to pay for expanded services, so all this may just be political posturing ahead of the 2019 elections.

The first piece, the National Health Insurance Bill seeks to establish a single fund that will contract with accredited public and private sector providers to pay for healthcare services for its beneficiaries. It’s not clear who is in and who is out, on either end. It is hard to see how this could all be compulsory, without breaching parts of the Constitution.

In its initial rollout, it is also not clear how the NHI Fund will be funded. To start with, it will probably snaffle the current medical aid tax deductions, so those who are lucky enough to belong to a medical aid fund should expect their future income tax bill to be a bit larger. The Minister earmarked 2026 as an implementation date. I would not be surprised to see that pushed out, again.

Of course, commentators have already warned that the governance structure envisaged for the NHI Fund is vulnerable to corruption. Who is going to be in charge? Brian Molefe?

Motsoaledi seems to be obsessed (in a bad way) with the reality that doctors charge differently for their services. He seems to think that he should regulate tariffs, so that there is one price for every procedure. That makes no sense to me? Some specialists are in high demand because they are better at their jobs, or use more sophisticated tools?

The second proposal, the Medical Schemes Amendment Bill, apparently contains lots of waffle about improving scheme governance, expanding mandatory benefits and regulating broker fees more closely. Discovery is the market leader in this sector, and is probably already in full compliance.

In our view, the state should get its act together and make sure that its taxpayer-funded facilities provide effective, basic care to all citizens. There is nothing wrong with well-off people setting aside their own money to pay for high-quality private healthcare services provided by world-class practitioners. Leave them alone!

Yesterday the JSE All-share closed down 0.74%, the S&P 500 closed down 0.63%, and the Nasdaq closed down 0.88%.

Our 10c Worth


 

One thing, from Paul

Death is inevitable, but the most likely causes change as you get older. The chart below is for women in the United States.

There are a few interesting observations to make here. Kids die of congenital problems, and some really nasty conditions like Leukaemia.

Those in their teens and early twenties are much more likely to die of external causes. If its any consolation, young women are much less prone to such accidents than men.

As people become middle-aged, Cancer is really the big killer. If you die at 55, that most likely is the reason.

Those lucky enough to stay alive into their golden years will most probably suffer from heart related problems, but dementia and Alzheimers also gets many in the end.

There are some fairly obvious investment implications. Companies working on drugs for these prominent ailments will continue to attract interest. Health insurers like Discovery, that promote wellness and good habits will also do well.

You can find a larger version of this chart and some more commentary on FlowingData.


 

Byron’s Beats

The way people look has always been extremely important in human history. It is engraved in our psyche. With the likes of social media, people take the way they look even more seriously. I know there are negative connotations to an image oriented world but I am afraid that is the way the world is.

The silver lining to this trend is that people look after themselves. In my opinion looking healthy is often more attractive than natural good looks. This can be achieved by simply looking after yourself, eating well and exercising. The long-term effect is that people are more productive and live longer.

That brings me to beauty products. They are the ultimate soft luxury. Not only can they enhance your looks but they also promise to maintain them for longer. Most of these companies spend more money telling you how well the product works than actually producing the good. None the less, it is a growing trend and Vestact is invested alongside it with L’Oreal.

According to the Wall Street Journal, this trend is exploding in China where annual sales reached $33bn in 2017. We expect this trend to continue alongside urbanisation and growing middle classes.


 

Michael’s Musings

While going through my twitter feed this morning, while eating my cornflakes, I found this great tweet. It shows how much wealth has been created by tech companies, and it is mind-blowing. Enjoy!


 

Bright’s Banter

Fairtree Capital’s esteemed portfolio manager Jean Pierre Verster shared his thoughts at a seminar recently on the four strategies he thinks investors should consider employing during these tough investing times. I thought these were very interesting, but I must admit these are not your everyday investment strategies. Like our favoured buy and hold approach, they’re not easy to apply for the average small investor.

What I would like to emphasise in this banter is the fact that no single investment approach works in all market conditions, all the time. As a matter of fact, Howard Marks discusses this topic in one of my favourite memos “The Most Important Thing”; here’s an excerpt from that memo (emphasis mine):

The most important thing – above all – is the relationship between price and value.

For a value investor, price has to be the starting point. It has been demonstrated time and time again that no asset is so good that it can’t become a bad investment if bought at too high a price. And there are few assets so bad that they can’t be a good investment when bought cheap enough.

When people say flatly, “we only buy A” or “A is a superior asset class,” that sounds a lot like “we’d buy A at any price . . . and we’d buy it before B, C or D at any price.” That just has to be a mistake. No asset class or investment has the birthright of a high return. It’s only attractive if it’s priced right.

Hopefully, if I offered to sell you my car, you’d ask the price before saying yes or no.

Bottom line: there’s no such thing as a good idea regardless of price!

. . .As expressed by David Swensen of Yale, “. . . investment success requires sticking with positions made uncomfortable by their variance with popular opinion. Casual commitments invite casual reversal, exposing portfolio managers to the damaging whipsaw of buying high and selling low.”

 

I guess the point I’m trying to make is that for the past three and a half years, things have been disappointing for investors, our economy has been in limbo, and the consumer is not consuming fast enough.

The JSE hasn’t kept up with global markets when it comes to performance, which means (using Charlie Munger’s inversion principle) there are a lot of bargains here at home. Some of these businesses have grown their earnings significantly in those years, and yet the share prices are trading at 2013/2014 levels. Don’t lose hope on Mzansi, the patient investor will be rewarded in the end. Hold the line and Happy Friday!

Linkfest, Lap it up


Here is how the Rand compares to other bank notes on the security front – 10 Banknotes From Around the World, and Their Security Features.

If you are making more money than you can spend, and are wondering where other rich people park their money? Well here is the answer – Where the Rich Park their Money.

Infographic: Where the Rich Park their Money | Statista You will find more infographics at Statista

Vestact in the Media


This week on Blunders: Boris Becker is from the Central African Republic?; Burger King Russia drops a Whopper; General Electric is demoted; and Non-GMO Baking Soda – Blunders – Episode 106.

Michael gets a mention in this Business Day article talking about millennials shifting eating habits – Investment firm Silvertree has its eye on 2023 listing

Signing off


Our market is up this morning, which was the case yesterday too but then we ended down anyway. Turkey goes to the polls on Sunday; before their currency crisis last month, Erdogan mostly had the election wrapped up. Things are a bit closer now though, but I think Erdogan will still win it. Later today, normally around late afternoon, Naspers release their results. Exciting times! We will have more on those numbers next week.

Sent to you by Team Vestact.

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