Market Scorecard

The JSE All-share continued its rebound yesterday, crossing back over the 48 000 mark. The first time our market broke through this level was in early 2014, we then retested the level in late 2015/ early 2016 thanks to Nene-Gate. The March lows took us all the way back to 2013, so we are making up some ground.

In reality, our local market has mostly been bumbling around since Nene-gate. Not helping investor sentiment, we had the fraud and subsequent blow-ups of Steinhoff, EOH, and Tongaat. Then add a few bankruptcies in the construction sector and some terrible international investments from local companies like Woolworths, Famous Brands, Brait and Sasol. It all culminates in a tough time to be a local equity investor. This demonstrates why you want to be diversified and not to keep all your eggs in the ‘Rand basket’. Being diversified helps investors move away from political and country-specific risk.

Yesterday the JSE All-share closed up 2.72%, the S&P 500 closed up 0.16%, and the Nasdaq closed up 0.33%.

Our 10c Worth


One thing, from Paul

I’m going to take a break from analysing companies and their readiness for life on planet Covid-19 (where we all live now), to make a more general point about wealth and investing.

People reading this newsletter are savers, investors and holders of capital. In other words, wealthy persons. In recent decades stock markets have done well, rewarding such people for deferring their consumption and putting it to work in financing capitalist enterprises. This gives rise to wealth inequality.

Leftist academics like Thomas Piketty, who wrote the influential 2013 book “Capital in the Twenty-First Century” believe that this outcome is a travesty. Now, he has written a long-awaited (by some, not me) sequel. It is even more weighty at over 1 000 pages. His proposed solution to the world’s problems is a familiar one: more taxes. As if the state is always a reliable instrument for promoting social progress. Hah!

In any event, when markets fall by a lot, as they did between the 20th of February and the 23rd of March this year, it is the investors of the world, like you and I that take the pain. I doubt that Mr Piketty rushes off to update his charts and tables to reflect that wealth inequality declined by a third in one month?

Not that I am complaining. I’ll happily stay invested and wait for a market recovery. It’s the market’s job to absorb losses at a time like this, it’s working as it should. The value of equity in a company is never guaranteed. I’m afraid that the risk of a downturn due to a pandemic is one of the risks you’re taking. You’re part of the world’s stock of loss-absorbing capital. That’s what it means to have wealth.


Byron’s Beats

Not many SA companies can do share buybacks at the moment. Realistically only one can do R22.4bn worth of buybacks and that is Naspers.

To try and close their discount to NAV they sold 1.5bn Euros worth of Prosus shares in January in order to buy back Naspers shares with the proceeds. The Naspers discount is bigger than the Prosus discount so that makes sense. As Warren Buffett so often says (and does). If the market is undervaluing your own stock, buy it back yourself.

On Monday Naspers announced that the buyback was completed at an average price of R2 447.11 per share. Last night the share closed at R2 615.95. Already in the money.

Paul covered Naspers/Prosus/Tencent in detail yesterday. It represents a significant part of our local holdings so it deserves a lot of coverage.


Michael’s Musings

I came across this opinion piece in Fast Company – How Big Tech survives recessions and always comes out stronger. The columnist makes the point that (large) tech companies are rather resilient during recessions.

When looking at the tech industry, most of the big players are sitting on massive cash piles. Coupled with that, most have low fixed costs too – they are not like airlines for example who still have crippling fixed costs even though they are not flying.

The observation from the columnist is that during recessions, tech companies tend to increase their R&D, to make sure they are ready for when there is a surge in economic activity. It will be exciting to see the next wave of technology.

The last point he makes is that more people will work from home after this lockdown ends. Meaning employees need laptops that will allow them to work from home and have a good enough webcam to participate in virtual meetings. I wouldn’t be surprised to see a surge in MacBook sales in the coming quarters!


Bright’s Banter

Airbnb announced that it was in the process of raising $1 billion from activist investment management firm Silver Lake and Sixth Street Partners. This is good news for one of my favourite businesses because this gives them the cash buffer to have a second chance at life once the travel and tourism industry is back in full swing.

According to Bloomberg, the $1 billion is in addition to $2 billion worth of cash that it already had in the bank and a further $1 billion from an overdraft. I wrote about Airbnb’s plans to list this year, which I was really excited about, but that seems to have fallen by the wayside as the world fights the Coronavirus pandemic.

This cash injection is there to make sure that Airbnb crosses the Coronavirus chasm alive, and maybe pick up some scraps in the form of acquisitions. I like that the management of Airbnb has always been about the long-term, so survival first is an excellent strategy if you want to weather such volatile times.

Airbnb had $1.1 billion in revenues for the fourth quarter of 2019, up 32%. The company made a loss of $276 million in the same quarter though. Even with the loss, the company created a $250 million fund to help hosts who lost money from Coronavirus-related cancellation. The home-sharing company was giving back 100% refunds if you cancelled due to the pandemic.

Linkfest, Lap it up

As people speculate on the speed of the economic recovery, they are using terms like a ‘V’ or ‘U’ rebound. They are even using the term Nike Swoosh recovery. Some nice free brand building right there – A Nike Swoosh Recovery.

Companies are recreating their logos to show solidarity in this time of physical distancing. It is also a good way of reminding people about your brand – Social distancing logos are the design equivalent of ‘thoughts and prayers’.

Signing off

Asian markets are on track for three days of gains. US futures are slightly red at the moment. The Rand is looking healthier, now trading at $/R 18.31. The JSE All-share is lower this morning.

Sent to you by Team Vestact.

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