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Market Scorecard

Markets had a strong close on Friday thanks to high hopes of a trade deal, then US markets were closed on Monday, but on Tuesday they dropped over 1% because of worries a trade deal won’t be reached by the 1 March deadline. March is going to be a huge month for political events, with the trade talk deadline at the beginning of the month and the Brexit deadline at the end of the month.

Locally, we had more retailers reporting their trading figures for the festive season yesterday. Clicks seemed to buck the trend, and Massmart had product deflation. It is tough out there for retailers, but without economic growth, you won’t see incremental increases in sales.

Yesterday the JSE All-share closed down 0.11%, the S&P 500 closed down 1.91%, and the Nasdaq closed down 1.69%.

Company Corner

One thing, from Paul

Johnson & Johnson is the eighth most widely held stock in Vestact New York portfolios. We like it for its broadly diversified portfolio of healthcare assets – pharmaceuticals, medical devices and consumer products.

The company posted quarterly results yesterday which beat profit expectations, but forecast slower revenue growth in 2019. Global sales rose by 6.7 percent in 2018, but are projected to rise only marginally in 2019 to about $81 billion. The stock fell 1.4% in a generally soft market.

J&J’s litigation costs doubled to $1.29 billion in the fourth quarter, and the company said the majority of the reported expenses reflected efforts to resolve older cases in its medical devices business and included costs related to litigation on its talcum powder.

The company was cruising for a great year in 2018 until mid-December, when a story broke on Reuters that they had known for decades about the presence of asbestos in its baby powder. They have repeatedly denied wrongdoing and said at the time the article was “false” and that its well-known product was “safe and asbestos-free”, however it resulted in the biggest one-day drop in its shares since 2002.

That came on top of a case where Mark Lanier, a high-profile Houston plaintiffs’ lawyer, argued that the real cause of his clients’ cancer wasn’t the talc but the asbestos hidden in the talc. He also argued that the company should be punished for its decades-long failure to reveal its presence. After a six-week trial, and a mere eight hours of deliberation, a jury in St. Louis awarded his 22 clients $4.7 billion. Of that amount $4.1 billion was punitive damages.

The asbestos and talcum problem seems way overblown to me. There are a whole slew of lawsuits still pending, but even those where juries have awarded the plaintiffs ludicrously large awards are likely to be overturned on appeal. In repeated studies with large groups of individuals, no link has been found between the use of baby powder and increased incidence of ovarian cancers.

More on that asbestos issue here, on

Our 10c Worth

Byron’s Beats

Shoprite’s sales update yesterday had some interesting revelations. Firstly, SA consumers seem to be shopping a lot smarter. Instead of buying toys, they were buying back to school supplies. Well done.

Although these big corporates sometimes attract a bad reputation, they certainly do a lot for curbing inflation which is a massive help to consumers under pressure. Shoprite again kept price increases down to a minimum, food prices only increased by 0.2% for Shoprite in South Africa.

Lastly, the conditions in some of their rest of Africa operations are shocking. In 2018 the Angolan Kwanza dropped 85% to the Dollar resulting in a 45% decline for that business in Rands. Shoprite has often said that they have done so well in these regions because there is no competition. But there is no competition because the conditions are very tough. The optimist in me feels that these operations will come right again.

All in all, another tough set of numbers. In SA, sales increased by 2.6% over the 6 month period.

Michael’s Musings

Did you know that 2018 was the first year where more than half the globe had access to the internet? Before then it was the global minority that could access that treasure trove of data that we call the world wide web.

Just think about how much you use the internet in your daily life. Email, Google, online shopping, Netflix and share prices. Think about the information advantage you have over someone who doesn’t have access to the internet.

Found at IOT and how it will help logistics

Now that the majority of people have access, what is holding back the next billion people from access? Booking Holdings found this – Booking Holdings Releases New Study on “The Next Billion” People Who Will Gain Access to the Internet

Not surprising, a big factor holding people back is the cost of data and of buying a device that can access the internet. Something that was an even bigger hindrance, and something that I hadn’t thought of, is the language barrier.

“three-quarters of respondents (76%) said that the online dominance of English prevented their countrymen and women from fully participating in a digitally economic, cultural and social life”

The language barrier problem will vary in size for the different internet giants. You would think for the likes of Facebook, it would be as simple as creating another language setting. Someone like Netflix has a much steeper hill to climb, where they have to create entire new shows in different languages.

Bright’s Banter

Yesterday I was listening to the Masters in Business podcast, where Barry Ritholtz revisited a conversation he had with the investing legend, Jack Bogle, founder of the $5.3 trillion, Vanguard Group, creator of the index fund, and all round investing legend.

Jack Bogle unfortunately passed away last week. His personal assistant, Michael Nolan, said the cause was oesophageal cancer. Mr. Bogle, who had struggled with a congenital heart defect and had several heart attacks, received a heart transplant in 1996. [read the obituary here]

In this MIB podcast, Bogle regales us with fascinating stories, including Vanguard’s origin tale. He tells one of getting fired as Chairman of the Wellington Fund due to a disastrous merger. Michael Batnick covers the whole story in his book Big Mistakes: The Best Investors and Their Worst Investments. Luckily now you can also read the whole chapter for free which he added to his blog here.

May his soul rest in peace. We all owe him for the significantly reduced fees he fought for.

You can stream the full podcast below, or download it on Apple iTunes, Overcast & Bloomberg, Stitcher.

Linkfest, Lap it up

Finding and retaining top talent is a priority for tech companies. As salaries rise though, it increases demand for housing and then makes living more expensive. Microsoft is trying to curb this problem – Instead of building a new campus, Microsoft will spend $500m on affordable housing

Art is in the eye of the beholderA Toto song will play ‘forever’ in the middle of the Namib desert – or at least until the sand eats it

Vestact Out and About

Signing off

The JSE All-share is lower this morning, Tencent is down by 1% in Hong Kong which always puts pressure on our stocks. Locally there is CPI data out at 10am. How do the numbers stack up compared to what the SARB was expecting? There is not much else on the data front, and there aren’t any Vestact stocks reporting today. Tomorrow we can look forward to numbers from Starbucks.

Sent to you by Team Vestact.

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