WEBINAR: ‘Ponzi type returns’, global portfolio up 10% monthly

Hi everybody. It's Alec Hogg. I'm so sorry that I'm one-and-a-half minutes late, but we've been having a few issues here at Biznews. It's been really interesting in the last week. If you've been following our big story on the Ponzi scheme, it's now being alleged that it's somewhere between $16.5 and $18bn – bigger than it seems (and bigger than Bernie Madoff)..We've been reporting on it and I guess the guys that we're reporting on are not too happy about that fact, so we've had all kinds of glitches and issues that have been going on in our business. We've overcome them all though, and here we are, looking at our global portfolio for this month. Its good news, isn't it?.___STEADY_PAYWALL___.If you've been invested in the Biznews Global Share Portfolio, you'll be looking back and patting yourself on the back because it's almost like 'Ponzi scheme type of returns' which we've been achieving. Thirty percent annualised. Hello. Well, that's exactly what it is because we had to readjust our starting date until the 5th of December and if you go back to the 5th of December and look at where we are today, we're up ten percent in Rand terms. If you annualise that over four months, it's 30 percent – not bad going. Remember, the way this works is that you any time you want to throw a question, do so. I will endeavour to do my best to answer that question as soon as it comes up. Also, do remember that we're only on for half an hour today, so we will be off by 1pm and then you can go and get yourself your salad and have a bit of sustenance at that point..Let's get into the portfolio itself. There it is. Purchase price December and today: those of you who've been with us for a while will know that this portfolio is structured very carefully. We have around one-third or 30 percent (the target there) in the Vanguard S&P500. Newbies, what that means is that it's an Exchange Traded Fund that tracks the index of the American stock market. We have 15 percent each in two shares, which are our core holdings..There's Berkshire Hathaway who've actually had a bit of a poor month this month. It slipped a little bit as you can see, below the price that we paid in December. If you haven't bought into Berkshire Hathaway yet, there's your opportunity. Incidentally, the code is next to the name of the company. With the Vanguard S&P500 ETF, that (VOO:arcx) is the one that you have to put into your WebTrader..You'll see that Google's had a very good month and that's helped to lift the portfolio generally, but we have Berkshire Hathaway and Google making up the other big chunk of our portfolio. Thus, 30 percent in the S&P500, 30 percent in those two shares and then the intention is to have five other shares that we have as long-term holds. So far, Novo Nordisk, IBM, and Amazon are the three that we have selected. We still have R32, 000.00 in cash so at the current portfolio, it's about $16,000.00 that would be invested into each of our share selections. I haven't found anything yet that really excites me as much as those three did so when that happens, we will be in a position to adjust the portfolio, but not just yet. Okay, if you know how to do your questions, please pop in your questions on the side there. I'll do my very best to answer them just as quickly as they are asked..Let's move on to the portfolio performance in the past month. This is a monthly update. I guess I should also be letting you know that it's pretty much a quarterly update as well. There's the performance of the Vanguard versus the S&P500. It really does, as you would expect in an Exchange Traded Fund, trade very closely to the S&P 500 Index. That's what it's there for..In this instance, we are doing okay. In the month, the American market was down a little. The Vanguard Index was down as well – just under one percent – as it was catching a bit of a breather. It is a bit of a surprise for me because you might remember that the Federal Reserve decided to hold rates. Well, that did help the market improve a little bit from its low points of the month (three percent on the month, at one point in time). Anyway, we are now still in a situation where Quantitative Easing is the name of the game. The Fed will be holding rates lower for longer and that is good for equities..Question: What was the name of the Ponzi scheme you were referring to?.The Ponzi scheme is called Belvedere Management. It's based in Mauritius. Its run by a guy called Cobus Kellermann and his partner is David Cosgrove – two names very well known in the South African financial markets. If you go and look on Biznews you'll be able to get all that information. That's what's been keeping me more than occupied in the last little while..Question: Is that the best-priced S&P Index that you can find?.Yes, it is. Simon Brown and I were looking at it a little while ago and we came to the conclusion that of all the Index Trackers that were available, the Vanguard was one of the cheapest. It's less than one-twentieth of one percent 'all-in' costs. Why is that important? Warren Buffett says that costs are what it's all about and of course, the Ponzi scheme on here is one where the costs are opaque. Whenever you're making an investment, what you've got to do is ask about the costs. It's so critical. In this case, the best-priced on the one hand of the ETF's that track the American market, is the Vanguard one. On the second hand, the other reason why I went for this was mainly because Warren Buffett goes for it. At the Annual General Meeting last year, he was asked what he was doing with his wife's money. Is he leaving it in Berkshire Hathaway shares? He said 'there'll be some there' but he's actually going to be taking most of it and putting it into the Vanguard S&P500 Index – the one that we have our investment in. How far wrong can you go if you're with Mr Buffett?.Question: Why no Biotech or Pharma shares? It seems to be a good growth sector – Rene St. Arnaud'..Because I don't know them well enough, Rene. I suppose you could call Novo Nordisk a Pharma Company. It certainly is. I know that quite well. There've been a lot of these start-ups that have done spectacularly well. A word of warning, though (and I don't know if it means anything): when I was looking around for David Cosgrove who's the Ponzi scheme man who operated the Belvedere Management Ponzi scheme out of Mauritius, the only picture I could get from the Internet was one that was on a website that which has subsequently been taken down, which was a Pharma website. Now, if David Cosgrove is involved in Pharma start-ups, maybe I shouldn't be. Anyway, it's outside of my area of competence. Rene, I'm sure there are people who probably know this thing far better than either you or I do. If you're in there and you've made a lot of money, remember that what goes up can come down as well. This is an investment and for me, whatever we buy here, we're going to hold for the long-term. Keep those questions coming..The next slide is here on Mr Warren E Buffett. In the past month, the news form Berkshire Hathaway was that the Annual General Meeting date was announced, which everybody knows is the first weekend in May, and that was announced when Warren Buffett sent out his Letter to Shareholders. It's always an eagerly awaited event. In the letter this year, there were some special insights from both Buffett and Charlie Munger. When Berkshire was 25 years under their control, they gave a 'pros and cons' reflection of what happened there and they said that they would be updating it after the next quarter-century. Now, this is the year that it celebrates 50 years since Berkshire Hathaway became a Warren Buffett/Charlie Munger operation and in the Golden Anniversary, the two of them have given some very interesting insights into what they did wrong. Remember, Buffett says 'you must trumpet your mistakes and play down your success' and what they did right was mentioned in there as well, but in typical Buffett style it was played down a lot. It's a lovely read. Go along. Go and have a look at the Annual Report of Berkshire Hathaway. It's on the website. I'm still going through it very slowly. He talks about things like capital allocation. He talks to the fact that companies should not be buying back shares, but should rather be allocating that capital in ways that can give them a better performance – just pure Buffett..It didn't really do a whole lot to the share price in the past month, but Buffett's share price has had quite a good run. It's interesting now that we are a little below where we bought in December. It's the only stock in our portfolio that is not ahead in U.S. Dollar terms..As you can see, Berkshire Hathaway under-performed by about four percent against the S&P 500 in the month. I'd see this as a buying opportunity and more so because when you do get to the Annual General Meeting (or after the AGM) in May, what tends to happen is that the pilgrims who go along to the AGM come back, become reenergised, and then decided to buy some more Berkshire shares. It tends to have a very good run just after May. This might not be a bad time to be buying into it. Everything's going well at the business. It's a huge company. It's the fifth (by market cap) in the United States..There was an announcement today, which is worth remember if you are a Berkshire shareholder. It's that their partner 3G – a Brazilian firm in private equity, that they have a joint venture with in Heinz – is apparently looking at Kraft Foods to put it into Heinz Foods as well. That could only be good for Berkshire Hathaway. I'm very happy with my 15 percent that we have in that stock..As I am with Google because well, as it says, Google has the perfect business model and it had a good month as well..The NASDAQ itself has been having a little bit of a ride recently, but there goes Google – up by five percent in the month. Now, Google had under-performed for a while so this is good to see, that Google's moving up in the right direction as people reassess. There are many 'knockers of Google'. The business model though, is unimpeachable. Google Glass wasn't the greatest success but that's not really where their money comes from. Who knows what's going to happen with their driverless cars into the future? It is one of those shares that I'm very happy to have in the portfolio and indeed, to have 15 percent in it..Question: Please explain the U.S. Q.E. interest rate hike/emerging markets connection – Graham Farrington..Quantitative Easing is the creation of money and you can do it up to a point. It's a very interesting analysis here. Zimbabwe for instance, which has a tiny economy, tried to do its own version of Quantitative Easing, but it did it for all the wrong reasons. It created money to pay the public servants and very soon, people saw that there was nothing to back that money and we had runaway hyperinflation in that country. Indeed, you can buy billions of Zimbabwe Dollars in the open areas of Harare today, for just a few South African Rands. There was a time when the Zim Dollar was in fact, stronger on a 1-1 basis, than the South African Rand..Quantitative Easing in the United States sense is a different kettle of fish entirely. They've kept it within limits. It is meant to be a tool to give you time. If you can imagine that you could go to a friendly uncle while you're going through a difficult time and you don't have a job, and your friendly uncle then lends you some money so that you don't have to sell your house. You can then get back on your feet, find another job, and repay the money in time. That's what Quantitative Easing has meant for the United States..What makes the U.S. different to other economies is that the U.S. is in a situation where its economy is highly flexible. It doesn't have the structural issues that we see in many other countries around the world. For instance, they don't have labour issues like we have in South Africa or power problems. They have a very free and very open economy, which sometimes adjust very harshly, but it adjusts in a very sensible, economic way. Adam Smith's 'Invisible Hand – is it work in the United States'. Indeed, his great book, Wealth of Nations was published in 1776. Those of you who know history would know it was also the year that the Declaration of Independence was put together in the United States, so they have a lot in common there. Quantitative Easing in the U.S. has given them breathing space. It's now a question of how quickly you pull the money out of a system by increasing interest rates. If you do it at the right pace inflation will not rise in the U.S. (and they're really worried about inflation)…not as much as they're worried about deflation, but that's another story. As they start increasing interest rates in the U.S. to pull money out, what would happen for emerging markets is that money that has gone into emerging markets – hot money, if you like – would then start flowing back into the United States. In a nutshell, that's how that works, Graham. I hope it makes a lot of sense to you. As far as we're concerned though, the U.S. is the place to put your money..Response: Thanks, Graham. He says that was perfectly explained. I appreciate that..For me, the U.S. is the place to put your money. The U.S. Dollar strength is if anything, likely to get further momentum and the U.S. policymakers are saying 'that's fine. We don't need a weaker Dollar anymore. Our economy is running very nicely, thank you'. Indeed, there are some who think that the U.S. economy might even be in danger of overheating (who would have thought that) before the energy boom that has been brought there by fracking. A fascinating story but then, economies do change all the time, don't they? Okay, so there's Google vs NASDAQ. Here's the stock that gave us a huge boost last month. You will remember Amazon.com and not surprisingly, as against NASDAQ, it was a little bit of an under-performer this month..There was a huge rebound after the most recent set of quarterly results after it had actually fallen in the previous set of quarterly results. We did say it was a good idea to up your stake in Amazon if you had the opportunity, a month or so ago. We're now very comfortably in front on Amazon and it's one of those great companies, like Google. How do you beat this business model?.Jeff Bezos can literally decide how he wants to switch on his profit taps or not. At Amazon, it really is a decision on a daily basis between generating profit and growing market share. Google went through this for many years. They then started switching more and more to generating profit, so that's why we see Google doing as well as it is. I guess it's because in its field – Internet search – it is so dominant. You can't really get more market share than that. In Amazon's case, its market share comes at the cost of bricks and mortar operations, so Amazon still thinks that there's a lot of road ahead for it – a lot of runway ahead – so it's still doing the investment stuff and I like it. I like a long-term investment, a long-term strategy for a company that's in my long-term portfolio. I'm sure you agree..Moving on to IBM, there was some very good news for IBM in the past quarter..That was when Warren Buffett announced in his newsletter to shareholders that he bought another six-and-a-half-million shares. Now, this is a stock that trades at $165.00 per share, so work that one out. The stake that Berkshire Hathaway now has in IBM is 77-million shares in all. It's just under eight percent of IBM's entire portfolio and it's worth $12.5bn. You could almost settle your Ponzi scheme problem with that amount of money, if you just took that out of what Buffett owns in IBM. Of course, I doubt that he'd even consider that as a possibility..Of course, he wouldn't. Anyway, he's the biggest shareholder there and he continues to grow his portfolio in IBM. When you have someone like Warren Buffett doing the homework for you, why second-guess him? It's the only one of his Big 5 shareholdings that he increased in the past year and he seems to want have more and more – can't get enough of IBM. It's a great value proposition and Ginni Rometty and her team are living up to that. We'll see with their next quarterly results how the market enjoys it, but that Buffett news did help the share in this month, to outperform the S&P 500 Index, which is what we compare it against..Every month it seems we are getting up ourselves and we find ourselves a hero. Last month, it was Amazon.com. This month, it's Novo Nordisk..Novo Nordisk, as you can see from that, was up 13.5 percent in the month. It outperformed the S&P500 by 14 percent and I suppose the question a little bit earlier about Pharma can be related here. Let me tell you about Novo Nordisk, though. It's a fabulous company. It comes from Denmark. They own half of the world's insulin market and if obesity continues to grow, that will tell you that they're going to continue to have really good business..In the past month, the European Union approved an obesity drug created by Novo Nordisk, called Liraglutide. I guess that if there are any doctors listening to this, you'd know all about Liraglutide. It's not an area of expertise for me. What I do know though, is if you look at Novo Nordisk's record over the past couple of decades, this company has gotten a consistent growth in double figures. It distributes dividends every six months (and big ones as well), and it owns 50 percent of a market where that market is growing and continuing to grow..I'm very happy to be invested in Novo Nordisk and I'm sure that if you followed me into it, you'd be even happier this month. Remember, these increases are in in U.S. Dollar terms. We do see Novo Nordisk as one of those long-term investments. You can pop up your questions on the question bar. We're coming pretty close to the end of our session now, so please do send me questions is you have any more. I don't see any at the moment. You can ask questions either relating to the portfolio, or in general..The portfolio: just to close off with the last of the slides that I have for you (as we do every month), let's have a look at how we've done in South African Rands because this is what it's all about. When you invest in the Standard Bank Webtrader, you really are taking your own financial future into your hands. You're having a look at what is likely to happen into the future with your offshore investments, and we do know that the Rand is likely to be weak. It doesn't help to just give your money to someone who says they'll take it abroad and hopefully, will make money for you..Response: We started off with a portfolio of $200,000.00, Andrew..He wanted to know how big the portfolio is. If you only have $20,000.00 that's also fine. You can allocate your portfolio in the same way as we've done it here. About 30 percent in Vanguard, 15 percent each in Berkshire Hathaway and Google, and then eight percent each in the other three stock selections. As you can see there, we've had a good run on Vanguard already. This is after four months. We had to rebase the portfolio in December for a technical reason. That's what we are. That money that we've put into the Vanguard S&P500 Index is up nine percent in Rand terms – not bad going for four months is it, when you're in an Exchange Traded Fund..Berkshire Hathaway's been a disappointing performer, relative to others but even that, on an annualised basis, is twelve percent better in Rands. Look at Google. Oh, my goodness – (45 percent as I said, that's on an annualised basis) -up 15 percent in the period. Novo Nordisk up 17 percent in the period, but the real winner is Amazon.com – up 23 percent..We've held onto our cash, so roughly 16 percent of the portfolio is still in cash – that's R355, 000.00. The $200,000.00 would convert into just over R2m. Even the cash component has gone up by seven percent and that keeps our feet on the ground because as you can see, the total portfolio is up ten percent as against the cash component of seven percent. Why haven't we outperformed more? Well, I suppose that at this point in time, the stocks just haven't quite hit their straps in the way that we would have hoped. On the other hand, do remember that all of the costs are taken into account here as well, so it's the same portfolio that you can invest in when you go on to Webtrader..Question: Do you have the graphic showing the time held and the growth of it?.Yes, for sure..Question: How can we invest in these shares? Webtrader is very unhelpful..Let me address both of those. The first one is quite easy. We started on the 5th of December and there are the holdings from the 5th of December 2014. We still have two more stocks to add to the portfolio and we'll be putting eight percent of the portfolio into those two. As mentioned when we started off here, I haven't yet been able to find two shares that I know enough about to make that investment in but it's good to have a little bit of cash because you've got to have your powder dry at all points in time. That's what it comes from..Nick, your question about Webtrader… I also found it difficult to start with, but the more I played around with it, the more I started understanding it. It's quite an intuitive system. It's like when you get an iPad and you give it to an eight-year-old. They somehow manage to get that iPad working really well because it's intuitive to them..The more I played with Webtrader, the more I found that it does work. However, there's a Help Desk at Standard Bank so I guess that if you're struggling a little bit there, it's probably not a bad idea to give the Help Desk a call. Stuart, Brett, or one of the team would also be very happy to guide you through exactly how it all works. I know Fatima's strong. The lady who runs Webtrader is very strong on education. That's really one of the reasons why we're having this webcast today and we will be back again in a month's time. Well, that's it, guys..Just to close off with (if you don't mind), I'll just take you back to the final table, which shows exactly how we're doing in South African Rands. Of course, I'm proud of this. There are no red numbers. There are no negatives at the moment. If there were to be negatives…if Berkshire Hathaway were to dip below what we paid for them, I would suggest that that's a strong 'buy' – not a goodbye signal – but a signal as in 'purchasing'..There is a long-term element to this portfolio. My holding period is in line with Buffett's, which is 'forever' so I'm hoping never to have to sell any of the shares. Maybe that's why it's taking so long to find those two extra shares that we can put into the portfolio. Thankfully, the South African Rand is helping us there. The U.S. Dollar is appreciating against the South African Rand so even just having the money in cash is not that bad an investment..I hope you enjoyed our discussion. I'll be back again with you next month. We'll let you know before time and perhaps we'll have Simon back from his travels, to give us the benefit of his insights as well..Response: Thanks Alec and team..It is an absolute pleasure. We look forward to being back in your company again. Go and have a look by the way guys, on Biznews.com – at the work that we've been doing this past week on that Ponzi scheme..Response: Thanks very much..It is a pleasure, Edward and to everybody else who doesn't feel like just tapping away, I look forward to being back with you. It's nice to see that our portfolio's actually performing really well. If it doesn't, don't panic. This is here for the long-term. Okay guys, see you next time.

WEBINAR: ‘Ponzi type returns’, global portfolio up 10% monthly

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