The month post Brexit was always going to be interesting, firstly the result was unexpected, and secondly, no one was certain of how it would all play out. But as Alec Hogg summed up, normal service resumed as the Biznews.com Global Share Portfolio regained the losses. The portfolio is built on Warren Buffett foundations, and over the long term the market noise doesn’t take away from the fact that all the stocks held, are well run companies. Alec takes us through the performance and current position of the portfolio, providing a comprehensive breakdown of how the shares are doing and how the companies, split between the likes of Apple, Amazon, Barclays, Berkshire Hathaway, Alphabet, IBM and Novo Nordisk are performing. – Stuart Lowman
Hi there, Alec Hogg coming to you with the BizNews Global Share Portfolio for July 2016. It is now 19 months since we started. Our annualised return on the portfolio is 25 percent. A lot of that has been due to the fact that the Rand has weakened over the past 19 months, we’ll get into the detail in just a while, but the good news is that every, single constituent of our portfolio rose in the past month. If you recall a month ago we seemed to picket really poorly. Stuart Lowman is with me, the BizNews managing editor.
Stuart Lowman: Thanks Alec, it’s good to have you back in Johannesburg.
Yes, and I see I brought some good weather. The weather over in England has been literally, it’s been in the 30’s (33 – 34) a complete heat wave there, so I guess global warming is making the muddy island a little less muddy.
I was going to say that you brought a little tornado with you to Johannesburg yesterday, so a lot of unexpected events this year.
Indeed, yes well that’s the least of our worries at the moment but when we get back to the portfolio itself. Every, single member of the portfolio in the last month was up and there was a huge bounce for Alphabet (Google) – that was up $70 a share. The Rand improved from R15.20 to R14.25, so when you put it altogether the portfolio, in US Dollar terms was stronger and the Rand was stronger as well, one offsetting the other, remember because we convert everything back into Rands and as a consequence of that our portfolio in fact did very, much better. It was interesting Stuart because last month we couldn’t have picked a worse day. We like picked the worst of the worse days to do our podcasting, which was not a bad idea because it does bring you down to earth a little bit.
Was that the day after Brexit, Alec?
I think it was the day after Brexit and we were sitting at an annualised return of about 21 percent. That’s now picked up to 25, which shows you how markets can move. Remember, this is not a portfolio that has been built so that you can trade it day-to-day. It does give you some really good opportunities and in fact, Apple came up with their results yesterday and that share price bounced strongly. A result of the numbers, which again we’re going to get into in just a moment that was up by 5.5 percent in the after hours trading in the United States, another one that’s bounced very strongly is IBM also with their quarterly results. We’ve got Amazon coming out also Alphabet. Hopefully Berkshire will be able to do better as well, so all around our portfolio is well positioned and we’re looking forward to a continuation of the trend. I guess that’s why, when I sent out a Tweet this morning, it was to say “Normal business resumed. We hope that the portfolio, although it is a long term bet, will continue with its normal business resumed, in other words, moving in the right direction.”
Okay, let’s get through the individual constituents and that’s what you can see where we are at the moment. Interestingly enough the S&P 500 Index and I like to always repeat the overall strategy of this portfolio. When we began it in December 2014 it was on the basis that we felt that the Rand was going to be a fundamentally weak currency. The reason for that is the developmental state ideas, by the politicians in South Africa, will not do the economy any good, so that’s really where we started off. The basis was you can take all your money and put it into US Dollars if you like but we can do better than putting your money just straight into US Dollars by investing in the equity market.
If you have a look at Vanguard, which is the top of them there that is an index tracker, so what that does is it replicates the S&P 500 Index, about as close as you can get it, and in the 19 months, (since we’ve been running this portfolio) that is up by five percent. If you’d taken all your money and you put it into US Dollars you would have clearly improved by that amount. Had you taken all your money and put it into Vanguard, over the period, you would have improved by five percent. As you can see, when you go down the portfolio (right to the bottom) where it says ‘total’. Our total portfolio is up 16 percent, so we have outperformed the market, with these stock picks, by 11 percentage points, since starting. That is a very satisfying return any way you want to look at it. Of course we’ve been very lucky.
We have Amazon in there. You can see up 124 percent (this is in US Dollar terms), also a good move by Alphabet – up 38 percent, and the other one that beat the market was Novo Nordisk, which was up by 22 percent. That’s the overall portfolio, as you can see we’re up by 16 percent. What has been good though is during this period a lot of the stocks have underperformed for a period of time and then come into their own. Indeed, we were sitting on Amazon, which went backwards for a couple of months, after we bought it or brought it into the portfolio, and then of course it just took off. IBM has done something similar. You can look there now, IBM is actually up by nine percent, on where we acquired it, and Berkshire Hathaway virtually breaks even after being down quite a lot. It just shows you once again that what you need to do is to make sure that you do your active analysis, and then you put the stocks in the portfolio and for the most part, just let it run.
Here’s in the Rand terms, and this is the one that we need to consider as we are investing in South African Rand. The portfolio overall is up by 40 percent since inception – that’s 25 percent annualised (a very good return). Had you gone for just the Rand you would have had a return annualised of 17 percent, so we’re eight percentage points better than the South African Rand or had you just put your money into a currency account. As you can see again, the figures there are very impressive for Amazon, which has pulled us higher. The laggards, Barclays, which we only bought unfortunately just before Brexit, when we talk about bad timing. It looked brilliant for about two weeks and then Brexit came along and the price collapsed. Well it has improved a little. In fact, it’s improved considerably in the past month, and we do think that it will be moving in the right direction but just to bring all of those into context for you.
In the past month Alphabet (Google) that’s up $70 a share in the past month, it’s had a fantastic run. Amazon is up $40 a share, also very good. Apple Computer is, in fact up $10 a share, after last night’s disclosure of its quarterly results. In our portfolio though we’ve only taken into account four Dollars, which is where it closed last night. We’ve got a nice, little improvement there on Apple as well, which will take the loss to Apple, in Rand terms, down to about five or six percent, which is now starting to look a lot better than where we were at one point.
Barclays, in the last month, it went up 12 Pence, but of course the Pound fell against the Rand, as it did against every other currency, and the Pound, which cost you R20 for a Pound a month ago, it now costs you only R18.84, a whole lot better than three months ago, when it was costing you £24.00 (ask me). Berkshire Hathaway is up six Dollars a share in the past month. IBM, on the strength of its financial results, $20 a share higher, Novo Nordisk also four Dollars a share, and just to add to the party the index fund, Vanguard, up $15 a share, so it shows you that the portfolio, overall has returned 80 percent better than the Rand return, so our strategy so far is working on both points. The one point being that we think the Rand is going to be a weak currency, so we’re benefitting from Rand weakness. On the other point being the stock-picking that we’re doing in the United States market and improving on that way. Stuart, just tell us how the questions work.
Yes, Alec…to all the listeners, it’s just on the right hand side bar there. There’s a little question and answer section. If they just plot their questions in there, we’ll do them verbally online, so that’s all good.
All right, so it’s easy enough to see?
Yes, we’ve had a few technical questions but it looks like all the sound is sorted.
Great, super. Sorry about that with the sound. Maybe that was what our little interference was a minute ago. Let’s move on. We’ll take questions as they come in, so if you do have a question that you’d like to discuss please jump in.
There we go – the Rand prices at opening versus the prices today. Remember we did start the portfolio, in fact we started in September 2014, and then we decided to change the base, so after having quite a nice run for a couple of months we stopped again and resuscitated from December 2014, which gave a lot more people an opportunity to come for the ride. As you can see since then, the Rand from R11.27 to the Dollar, R14.35, so although it’s improved in the last while the Rand has still declined on average or annualised by 17 percent since we started the portfolio. There it gives you a very good indication of how the individual constituents worked. Apple virtually wiped out now that loss after the financial results beat the market’s expectations. Barclays being the single laggard, but we think we can live with that. We do think that there’s a longer term reason why Barclays will do better. It’s offering excellent value and there’s the graphical illustration.
As you can see Amazon, (but you can’t so well because the graph is a little bit squashed – I apologise for that) but it shows you that three constituents of the portfolio have done far better than the Rand. A fourth has done okay. In line with it, these two, Berkshire Hathaway just a little bit lower, and then our two losers there, being Apple and Barclays.
This is the dividend receipts. No dividends were received in the past month, so no update on that side. Let’s get into the individual constituents.
This is the S&P 500 Index, which is reflected in the Vanguard Exchange Traded Fund, if you like, it’s the American equivalent of the Satrix 40, excepting that there’s 500 shares, American market being a whole lot bigger than the South African market. They literally overlay each other and that’s the way it should be when you are investing in an index fund. Vanguard has improved in the last 12 months by the number that you see there, just over three percent.
Moving onto the next one and here’s one of our three bankers, Berkshire Hathaway. It hasn’t been the best performer on the American Stock Market in the past year. In fact, it’s been rather disappointing for us since inception but I’m not at all worried. I do believe that Berkshire Hathaway (the green by the way is the market as a whole) that’s about 3.5 percent, as you can see in the last 12 months. Berkshire has level pegging in the last 12 months but it’s come a long way from where it was in the beginning of this year. Berkshire is like an index fund itself but over time it’s proven to outperform the S&P 500, so although things haven’t been going that great in the last 12 months. As a long term bet, I’m still very happy to be with Warren Buffett.
From Robert de Vos, he asks if there’s any comment on the Deutsche Bank DBX USA fund, as an overall USA fund and just any ideas on the overall US economy?
Starting off with the DBX Fund – we are, in South Africa, they’re restricted if you’re going to put Rands. If you’re going to use Rands then the DBX USA Fund is a very good option. If however, you’re going to invest that one million Rand that you’re allowed to, in the offshore markets then Vanguard is a far better option. When you invest in an index tracker you should be going for the lowest possible cost and Vanguard is five basis points, in other words 0.05 percent, 1/20th of one percent is the fee that you get charged by the Vanguard Fund, which makes it so much cheaper than anything that is available. If you’ve put your one million Rand into Webtrader and you can do that without asking for any permission from anybody, even if you don’t have your tax up to date. Every South African is allowed that one million Rand, so you can switch that across. It’s when you go over a million Rand and you start asking for special permission that you have to go through the Exchange Control hoops but, up to that point, you should be investing through Webtrader straight into the Vanguard index tracker. If, however you’ve already used that million and you’ve got Rands to spare, in South Africa that you can’t take overseas for one reason or another, it’s not a bad option – it’s not a bad bet.
As far as the US economy is concerned we have to remember that although we do have a slice of our portfolio in the S&P 500, so in other words really focussing on the US economy. A lot of that is already international, so many of those companies will be offshore but our portfolio, if you look at it, each of those stocks that we have in the portfolio have been carefully selected, so they are in many ways, apart from Berkshire Hathaway, not vulnerable to any shocks in the US economy or their profits or sustainability of the business is not that vulnerable. In fact, Berkshire is quite a defensive stock, if you’re worried about the US economy. We are going to have an update on how things are going there tonight, I think Stuart, with Janet Yellen?
Oh yes Alec, she’s talking tonight…
So we’ll know tonight what is happening on that one, but the world is not in a great state at the moment but that doesn’t mean that you can’t find stocks or individual companies that are benefitting. We are riding the disruption wave, and as a consequence we’re in stocks that we think are just going to be shooting the lights out into the future and the first of these you can see on screen now is Alphabet. (I hope that answers the question properly).
Alphabet is the old Google and, as you can see in the past year, it has outperformed by 17 percent, the NASDAQ, which is the index that it is benchmarked against. In the past month Alphabet, well let’s talk about Google it’s just easier to understand because Google is over 90 percent of what the Alphabet business is at the moment. They’ve got a brand new competitor, who could be quite a scare. A business called Verizon, which is a US telecoms business, has been moving quite aggressively into the space that Google and Facebook currently dominate. If you have a look at the digital advertising expenditure for this year, it’s estimated that Google will pick up about $26.5bn, this is for the US. Facebook about $10bn. Microsoft – $3.5bn and Verizon, after its acquisition of Yahoo, for $4.8bn that’s just gone through, is now pushing up its share to about $3.5bn. Just to keep that in context. Google – $26bn, Facebook – $10bn, Microsoft and Verizon – $3.5bn and there really aren’t any other players in that market but Verizon is a potential threat. The acquisition of Yahoo, for $4.8bn is, it looks a snip, if you consider that when Marissa Meyer, the chocolate-box blonde left Google to go over to work for Yahoo, she was heralded as the inspirational leader who was going to transform the business. She did a bit of a Koos Bekker deal there. She threw mud at the wall and hoped some of it would stick. That’s what Koos did in the late 90’s, early 2000’s, and in that process he found Tencent, which he bought when there were only 30 people. Now it’s by far the biggest part of Naspers’ portfolio, and one of two biggest internet companies in China but Marissa has bought 60 start-ups in the last year or so, costing her company $3.3bn. Now imagine this, Verizon is going in there, it’s buying Yahoo, it’s got all the base that Yahoo has, all the users, the advertising that comes through, although the advertising is on the slide there but it’s got all of that content, plus bets on 60 start-ups that Marissa Mayer has done all the hard work for, and it’s only paid a premium for the non-start-up costs, if you like, of R1.5bn, (a very good deal for Verizon). They are merging that together with AOL, which you would probably know best for Huffington Post, for those of you with long memories, would know during the internet boom. AOL was merged with Time Warner and it became AOL Time Warner and famously that was the merge data when it was a disaster.
AOL is still around. Huffington Post is a strong part of AOL. They’ve got other businesses as well and they bought that last year for $4.4bn. Verizon has spent $10bn to get a significant slug of a market that Google and Facebook have been dominating and are looking to increasingly make further acquisitions and to give another option to advertisers who, at the moment are kind of, having to go to those two – an interesting story.
Just on Koos Bekker there, Alec. Gerard asks Alphabet versus Naspers?
That’s a very good question. You really are then taking a bet of Tencent versus Alphabet, and I’m inclined, at the moment, to stick with Alphabet. Tencent has had a fantastic run and remember just to put that into context. Naspers, if you take its market capitalisation, in other words what you’re getting when you buy the shares, you’re actually paying for its stake in Tencent and you’re getting everything else for free. So you get MultiChoice for free, you get the newspapers for free, the Mail.ru, which is a big company in Russia. Some of the other interests in South America – all of that just comes along for free but this is not unusual, when you buy into a company that has a stake in another company. There’s always or generally there’s a discount, excepting if you happen to be PSG here, in South Africa where they put a premium on Jannie Mouton’s deal making abilities but for most companies there is a discount between the value of your investment and what you would pay on the market.
Naspers has got its appeal but right now Tencent is still playing in the Chinese market. There are some very serious questions about what’s going on in China and if you are a believer in the market process, if you believe that the market system is more efficient than a centralised command and control system and it’s not to say that China is what would be typified in textbooks about communist’s management. Certainly the economy in China is very free, relative to where it’s come from but it still has that dead hand of the state there whereas, in the United States, the whole country has been built on unlocking human potential. Just to put one small, little thing into context here. If you are doing a business like ours, like BizNews, in the United States of America you can start-up tomorrow. There’s nothing to prevent you from doing that. The market system, if you’re good enough you’ll get attraction. In China you need a license, and then once you’ve got a license before you can publish anything, it has to go through a sensor. If you consider the difficulties that one has to expand your business or certainly to promote free speech, which is what Tencent has always had an issue with. Then you do know that you’d rather be with the horse that’s running freely.
Andrew asks, it was back on the DBX discussion. Would it be a good hedge against any recession that may happen in the next few months (I’m assuming South Africa)?
The South African recession – my feeling is that you have to look at the big picture when you’re taking a bet on the DBX tracker or on Vanguard, or indeed on the BizNews Global Portfolio. The big picture is when you have a look at the way the South African economy is being managed and you have to either believe it’s been well managed or poorly managed because the Rand will eventually reflect that. The South African economy, sadly from my perspective, is being managed as a developmental state. Clearly those who are making the rules have not learnt from Venezuela. They’ve not learnt from the lessons of South America. They still think that human beings are smarter and that the state is smarter than the free enterprise system. As a consequence of that they will learn the hard way, as has happened through history, so when you’re an economic historian you just have to know that this is a really bad approach that’s been taken but it’s been driven by politics. Politics trumps economics in a developing country, and South Africa is a developing country, so as a consequence of that if your economy does not grow, if you’re not able to deliver the returns that you need you have to make it appealing for people to bring money in.
Remember, a developing country – another definition is you are developing because you need capital from other parts of the world. Developed countries export capital. Developing countries import capital, so if you’re importing capital how are you going to import capital to South Africa? You have to make it more appealing and you do that by depreciating your currency. That’s just if you want a real, simple, basic economic 101, so yes, anything that is hard currency based is a hedge against economic downturns in this country.
From LH – on Deutsche Bank the company, not the DBX, says it’s fallen tenfold in the past ten years in US Dollars. Given the Euro crisis what are the chance of them going bust?
Going bust, oh my goodness? Deutsche Bank is probably too big to fail. It being the size that it is and the Germans being as meticulous and disciplined as they are, it probably is priced to go bust but remember one thing about banks and this is why we haven’t been terribly enthusiastic about banks. Barclays was a special situation that’s why we invested there but banks, generally, the rules have changed dramatically (after the global financial crisis). Up until the global financial crisis banks could leverage themselves to a point where they could make superior returns. Post global financial crisis and the outcry after the bailouts the regulators have caught up with banks and now banks are really like utilities. You’re looking at a bank in the same way as you would be looking at an electricity provider or a gas supplier. They are heavily regulated and because they’re so heavily regulated by Government and the compliance levels are so high they’re never, well not never (never is a long time) but it’s unlikely that they’re going to outperform in the short term.
You have to look, if you’re investing in banks, at special situations, like Barclays – it was trading at 2/3rds of it’s… In fact, it’s now round about half of its underlying assets and its business is High Street where, in the UK primarily but of course it’s got international corporate finance businesses as well but the High Street – that’s where the value of that brand lays and there, the Brits don’t change bank accounts. One percent a year change their bank accounts – not a terribly competitive banking system at a retail level in the UK, so Barclays is extremely well positioned. They’re in the process of selling Barclays Africa, and they’ve done that in a very smart way, so there’s a big capital injection there. They’re coming from a low-base. We like that as a special situation.
As a banking sector overall, Warren Buffet – if you go onto BizNews and you can read the transcripts of the entire Berkshire Hathaway AGM this year. He said ‘of the top 100 banks, maybe five he would invest in’, and he’s already got two in his portfolio. The one is Wells Fargo and the other one is Bank of America. I don’t think Deutsche Bank is going to make one of the other three, so perhaps that answers the question.
Here’s our superstar and it continues to be a superstar. It did come very close to the market, as you can see. The blue line is Amazon – earlier this year the share price, however has been on a rip thereafter, up 40 percent or outperformed the market by 40 percent, this is NASDAQ (its benchmark) and Amazon, when you are based, as I am at the moment in the UK, you realise why people are finally clicking to this incredible business. The world is being ‘Amazoned’ and the news that came through in the last month for this company, has been very positive.
The first one is they have gone into a partnership on financial services with Wells Fargo, Warren Buffett’s favourite bank – he owns ten percent of it. What they’re doing there, it’s a little step in the right direction but if you consider how big Amazon is already and the way that it’s retail footprint – in most countries in the world, most Western developed countries. If you order something from the post it actually arrives. We, in South Africa, don’t understand this because it’s very rare that you would send something of value through the post. In the UK credit cards arrive, similar in the United States, and when you buy from Amazon it is, in fact delivered to your doorstep, either through the post or through a delivery service. That gives this company an enormous footprint and an enormous reach. Now it’s moving into financial services, very slowly as it’s done with new products, with this partnership with Wells Fargo, they are offering student loans to start-off with at 50 basis points cheaper than the overall student loan market is available, so that’s what they’re starting with.
The other thing, which is a huge breakthrough, is that Amazon has desperately been trying to reduce the cost of its distribution. You can imagine it’s very expensive to put… We bought, last month, some khoki pens to write on a white board and they cost £2.50 and literally, somebody came to our door and popped it through the post box. It must have cost Amazon much more than £2.50 to get it to us, you would have thought. They’ve been working on this to try and offset the cost of delivery and this morning, indeed, the news has come through that Amazon has struck a partnership with the UK Government, where it is going to be allowed to deliver its products through drones in UK suburbs. This is the first time its won permission to do so anywhere in the world. It’s been fighting with the American Government and got caught up in a whole lot of treacle on that side but it seems like, with the Conservatives in power and Brexit now behind them, they will be becoming even more friendly towards business and it’s going to make a huge difference to Amazon’s margins. If it can literally have guys sitting in the head office playing – what a ‘lekker’ job. Wouldn’t that be a great job to have, where you play with the drones and send them off to go and deliver at peoples’ houses? What happens there is, because you’d think if you leave it on the doorstep isn’t someone going to come past and steal it?
It’s not their culture. The culture is no, no one will steal it. The company or the part of Amazon that’s been putting this together is called Prime Air. They’ve been working at it since 2013, and they’re looking forward, of course to get into the market, at last, with Amazon pilots now being able to fly multiple drones at one time. The other bit of news from Amazon in the past month is that it’s prime day, it has a day – they call it ‘Christmas in July’. This year the sales were up 60 percent, so that initiative, which has been going for a little while now, is gathering more and more momentum. As Buffett said, “The world is getting Amazoned.” Believe it – we will never be selling this share.
Moving onto Big Blue and at last Big Blue is starting to come into its own. I’m afraid I’ve got the wrong graph here for you. I’ve got Amazon’s graph instead of IBM’s graph. Anyway, that doesn’t stop the story and the story for IBM is that the quarterly results were released in the past month and those quarterly results were very pleasing indeed. Although revenues are down again and I don’t know why the media obsesses about this. IBM has told us, in no uncertain terms that they are moving away from their legacy systems into new areas, what it calls strategic imperatives. Analytics in the cloud – analytics by the way, would include very deep analysis. They have a product called Watson, which analyses big data more efficiently than any other option in the world and it is there where they are making great strides. Remember, IBM has got relationships with the top 100 global companies already because of the hardware that it has installed. Anyway, analytics, cloud, mobile, and security, social – those are all areas where it is focussing. Revenues in those areas are now 38 percent of the business. They were up 12 percent.
The other parts of the business, who needs an old ‘main frame’ computer, if you can put all your information in the cloud, those parts of the business are coming under pressure. They knew they were going to come under pressure that’s why they’ve been moving away and finally the penny is starting to drop. They’ve also been increasingly buying companies, which would slot well into their strategic imperative areas. They spent $5bn on deals there in the first six months of this year. I like still, very much what’s going on at IBM and my goodness, you could have got the shares at about $130 just a few months ago, and they’re now at $160, still offering great value. Still $10 cheaper than Warren Buffett bought in at, so IBM – I’m very happy to have that in our portfolio.
Novo Nordisk as well, this is a good dividend player. It’s underperformed slightly the market, generally but it’s not a worry. Remember this is an enormous slug of the insulin market. People are still getting sick. They’re still eating too much sugar. Until we see a reverse in that trend we don’t have to worry about Novo Nordisk. No news or no big news coming out of the company this month excepting that some analysts are starting to see Novo Nordisk as a good opportunity again.
Apple Inc. – okay, financial results out last night. Up to this point Apple has been the disappointment or one of the disappointments of the portfolio. As you can see it underperformed the market by 21 percent that is up until the results. You can cut that now to about 15 percent. The shares are bouncing strongly in afterhours trading. The reason for this is that Apple beat the market, as did IBM by the way, on its numbers. Apple beat the market quite comfortably. I’ll give you some of the numbers because they’re quite relevant. On profits or earnings per share – the market expected 139 it came at 142. On the number of iPhones sold the market expected (these are for the second quarter of 2016 – the three months to the end of June). Market expected 39.9 million iPhones – 40.4 million iPhones were sold. It expected 9.1 million iPads – the new iPad is taking off, 9.95 million iPads were sold, and so on. It is sitting on cash of $231bn, which is an extraordinary amount of money for a company that’s market cap is almost half of its value. It is sitting, in cash in the bank and you’ve got the Apple brand and you’ve got great products. This new SE model, by the way, has been selling far better than analysts anticipated and what Apple was shouting about was that its services revenue was up $19bn in this period, and it’s now got to $6bn in the quarter. That $6bn out of $42bn, so it’s not by any means a huge slug of the business just yet but the returns that Apple is getting there, the profit margins it’s making there are far higher. Like IBM, Apple is moving into the services business and being pretty successful at it.
An interesting development at Apple is that a gentleman by the name of Bob Mansfield has been switched. He’s a veteran at the company. He’s been there for 17 years and led some of the biggest and most challenging projects at Apple during Steve Jobs’ time and subsequent to that. He has been switched to run the very secret electric car project they’re busy with. I’ve been asked before by some of the participants in our monthly webinar – would we be investing in Tesla? I love what Elon Musk is doing, who can’t or who doesn’t love it, but with Apple and Google looking to try and eat Tesla’s lunch – you’ve just got to worry a little bit if those giants start coming after you. Particularly Apple, they are looking for a new line. It’s likely that they’re moving into electric cars at some stage. Google we know are definitely moving into that area. They are already the global leaders in driverless cars, an area where Elon Musk has had his difficulties in the past month, with the first fatality in a driverless car, by Tesla. It’s a fascinating area when you look at these big giants and they’re taking each other on.
We are however, very happy with Apple. It’s one of those things… One day we’re going to wake up and there’ll be an announcement from Apple and the share price will rocket because they’ve done something spectacular. They’re a very secretive business. They’ve got huge amounts of cash. They’re buying back their own shares at a significant rate. Warren Buffett’s portfolio has bought Apple shares and he hasn’t touched technology for a while. He did admittedly say it wasn’t him but it was his two portfolio managers, Ted Weschler and Todd Combs – the two of them had actually gone in and bought Apple shares because they were just too irresistible. After the latest set of quarterlies, you can understand why.
That’s just to bring everything back into perspective. Barclays have only been in the portfolio for a couple of months. Unfortunately, our timing there wasn’t that great. As you can see the Rand cost price of Barclays was R36.33 per share – it is down at R28.07, so that’s been the worst, down 23 percent. Apart from that there’s really not a lot to complain about. Apple is now down after the bounce in the share price last night, six percent since inception, and everything else, in Rands, has been doing extremely well of course, with the flag bearer being Amazon.com.
Just a quick final question. Are dividends received in your Webtrader account taxed as interest or foreign dividend?
Wow, that’s a little too complicated for me. I would imagine, because they’re dividends, that they would be taxed as foreign dividends and there would be a dividend withholding tax but I suggest the best way to find out that is to drop Stuart a line at Webtrader or in fact, just give them a call and I’m sure somebody in the team will be able to help you out.
Well, that’s it. That’s our webinar for today. Thanks for the attendance.
Standard Bank is like a bank, most banks – there they are. Please look at that disclaimer. I’ll leave it up there, while I jibber-jabber. We are giving you a model portfolio. We are trying to help you to start looking at investing offshore. Something that you might consider, if you haven’t invested offshore yet, is to read my book, my Invest like Warren Buffett book. It really is written in a language that anyone can understand and it will also give you a little bit of a leg-up to get into the market.
A quick one before we go Alec, Bruce wants to know out of all the shares in the portfolio, if you could, which one would you add investment to?
Apple, definitely, I think Apple is so cheap. The problem why it’s so cheap is because it’s so big and it’s hard for investors to get the Apple story because when they look at it and they look at $500bn to $600bn market cap, the biggest in the world, well depending between them and Google which day it is but the most valuable company on earth – it is just hard for them to get their head around it but if you knock off a few zeros and look at these things in perspective. It is to me the next Amazon for our portfolio. Amazon was a sleeper for a while and it took off. I believe that Apple will be the same.
The SE, the new cheaper iPhone has been a roaring success and watch this space when they move into the motor vehicle market. Apple, as they did… Can you remember, when Steve Jobs launched the first iPhone, up to that point there was no such things as ‘Smartphone’s’ they didn’t exist, and yet there’s a whole industry now on ‘Smartphone’s’. There is already an electric car but Elon Musk is, as great an entrepreneur as he is, he’s still looking at 50 thousand vehicles a year that he’s trying to produce. He’s now really working hard at ramping it up.
When Apple go into that market you can be sure that with $230bn in cash sitting in their balance sheet. They won’t be looking at 50 thousand cars. They’ll be looking at an altogether different approach but it’s in the DNA of the company to keep things silent, to keep it quiet, as they did with the iPhone. At some point in time they’re going to be launching their next hurricane on the global business world. That’s why I would be, of all the stocks in this portfolio – the one I like most is Apple.
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