WEBINAR: Global portfolio turns 3 – delivers 37% annualised return

JOHANNESBURG — In December 2014, Biznews founder Alec Hogg sat down with Standard Bank and decided to launch the Biznews Global Portfolio on their WebTrader platform. The premise behind the move was a clear one – the South African economy was being mismanaged by the Zuma administration, so the best place for capital was outside South Africa. Fast forward three years later and – so far, so good – not only has the US stock market outperformed its peers, but the rand has weakened, giving the portfolio the benefit of a double whammy. Join Alec as he reflects on the three years that have been in the December update of the portfolio. – Stuart Lowman.There was a question that was sent through that Stuart was talking to me about off-air. Maybe it's a good idea for us to go with that and that could give us a nice basis from which to continue from here..___STEADY_PAYWALL___.Thanks Alec, it was just on one of the Premium articles done by Jackie Cameron. She spoke about US equities and bubbles of epic proportions and a chart to take note of. I'll put that link into the chat for people to have a read, if they want, but he just wants to get your thoughts on this view of the bubble, etc., and the chart itself..It is something that has to be starting to exercise our minds right now and certainly does for me. Let's just take my pretty face away from the screen and just go into the portfolio. I want to just show you this portfolio while we're talking about this. This is a portfolio that began three years ago. As you can see, our first investments were on the 5th December 2014. It's grown by 65% in US Dollar terms, over that period. When you add the South African Rand appreciation it's more than 100% of your return on your money in three years and the ZAR is only up just over 20%. The intention of the portfolio to begin with was that we would give South Africans who were as concerned as we were about the economic mismanagement of the country – some guidance in how they could invest money offshore, so instead of just throwing it into something that you don't really know. The idea was that every month we would be going to these shares, which I have personally invested in. I've invested in the portfolio just like everybody else who has come along for the ride. By investing in these shares, we would then keep updated and that would be my job to first of all, select the stocks, and then to update everybody on those shares, so that's the background to it..You cannot honestly believe that a share portfolio is going to grow at this kind of rate indefinitely – 37% annualised growth rate is what we've achieved in the portfolio and those are mind blowing figures. That's in ZAR by the way and not in USD. It's quite a lot less in USD. The reason for this has been we were very lucky in a number of cases and as we go through the portfolio we can show you that but also because we've understood the underlying companies, I think, and then understood why we were investing into those businesses. When there have been reverses in certain businesses. You will recall, for those of you who have been around for a long time that we sold IBM, and we sold Novo Nordisk, and we sold Barclays because in all three instances there were fundamental changes to those businesses or to the reasons why we bought into the business in the first place. We've also reduced our stake in the ETF (Exchange Traded Fund) in Vanguard, and we've also reduced our stake in Berkshire Hathaway, which as you can see is 6% of the portfolio now – it started at 15%. The idea there was that if we found a better investment opportunity than those two bankers then we would put the money into those shares..Generally speaking the portfolio has performed extremely well, as you can see from the percentage rise in the holdings that we have. If you look back on it, it's very easy to listen to what Neil Woodford, the very famous UK fund manager is saying, about there being a bubble in international shares. My concern about this, well there are a few issues that I have. The one is that if you get the Fourth Industrial Revolution and if you get what exponential companies are then you have to believe that the extrapolations that you're making into the future for an exponential company is very different to that of a business that is growing at best, by 5%. Amazon is accelerating its growth and it's been around for 30 years. Similarly, Alphabet and Apple has had a fantastic run recently. Tencent, well yesterday there was a presentation in New York by Naspers, whose major shareholding is in Tencent, they own 34% of the company, and the Naspers team continuously look at whether or not the return on investment from the money that they've invested is likely to grow into the future. They don't look at the share prices. They look at the company itself and they still see Tencent growing exponentially..A similar story can be made for Facebook. Microsoft, which is a mature business in there, and in my opinion because of their move to the cloud to Office 365 has got the potential to transform that business. Metro Bank is a bank in the UK and it's growing at 60% a year. Tesla, well, we can have a whole hour on Tesla if we want but Tesla is a bet on…Well, if you bet on Apple and the iPhone in 2007, you would be betting on Tesla and the electric car, particularly the Model S, as things happen right now. The iPhone completely transformed the cell phone market, and Model S, the electric car of Tesla is completely transforming the electric car market. What Tesla is now doing is, of course the big challenge there is whether or not they can deliver on producing the mass market model called the Model 3..When you look at this portfolio this is not a typical portfolio that you would invest in and say, the share markets go up, the share markets go down. These companies are perhaps going to have a wobbly or come off the tracks. All of the companies in this portfolio have the potential to continue to grow exponentially, with the exception of Vanguard and Berkshire, but I've explained that before – they're our bankers. So when you make these broad statements about the 'market is in a bubble' then you really need to unpack what the guy is saying and if he is saying that Amazon is overpriced, or Alphabet, or Apple, or Tencent is overpriced then you need to look into that company itself and get a very good sense for yourself as to whether or not if the stock market was closed for the next five years you still be happy to hold them, because that's the way that one must invest, Warren Buffett taught us that. That in five years time is that company going to be more valuable than it is today?.In every instance of these companies, if there was no stock market trading whatsoever in the next five years. From where I'm sitting at the moment, I would say that all of them would be more valuable. Are the prices likely to decline in the short-term? Indeed. Are we going to continue to grow at 37% compound a year? Well that would be ridiculous. It would be fantastic if it happens but to even suggest that that is likely, is really pushing the limits of any credibility. In the long-term, if you can get 7% a year real growth in equities then you are the best and achieving the best in the world. If you're nervous and you can't sleep at night then I would suggest what you do is you take money off the table, take a significant portion of your portfolio, put it into cash and then you just let the rest ride, if that's the thing that worries you. If this is a portfolio that you are very comfortable to close your eyes to for the next five years, and if there are bumps along the way, just live with them because in five years time if you look at the growth of these companies, then in five years time they're likely to be worth more..Whether there's a bubble of the NASDAQ proportions of the year 2000, or a bubble of Bitcoin of the year December 2017, it just doesn't look like it. From every angle that I look at it. It doesn't mean that there can't be a correction but to start calling bubbles and start calling the top of markets is a very dangerous business. I think as we go through the portfolio we'll get a better sense of that..Just to give you the portfolio in Rands. We started off, by the way, in the US with $200,000. That was the whole idea that in December 2014, $200,000 was invested. That is now $330,000. In the last month, incidentally, the portfolio is down by $1,000 so it gives you an indication that it's pretty stable where it is at the moment. From a ZAR perspective, we started with R2.14m, remember it was $200,000, you could multiply it by, I think it was R11.70 at the time, and here is the ZAR value today, which is at $4.5m so if you'd put in just over $2m, you're now looking at $4.5m. You've done fantastically well. If you're nervous about it well sell half your portfolio, put that money in the bank. You can lose nothing, and then let the rest ride if you're nervous. Where I'm sitting right now, I would leave the funds to run for the next five years, whether Neil Woodford thinks it's a good idea or not..The problem that one has with any of these things when you're investing is that you just don't know about timing and this graph that we have on the screen of the ZAR's performance, remember this was a portfolio that we created. Based on the fact that we felt the ZAR would be weaker in the long-term because of the mismanagement of the economy and that's the fundamental basis. What has happened, as you can see, it was a correct view. Between 2015 and 2016, and then from 2016 to 2017, when the mismanagement of the economy, well it tapered somewhat because you might recall in fact, today it's exactly two years today, since Pravin Gordhan took over again as finance minister of SA. When Pravin Gordhan came back in, which was on the 13th December 2015, after Nenegate, we had that spike in the ZAR going the wrong way after Nenegate. Then through his efforts and through the belief in the international community that SA would start adopting more sensible economic policies. You can see what happened between 2016 and 2017, and that was the ZAR appreciating from over R16 to the USD, to around R13, at one point to the USD. Then you can see again, just go a little bit further on that graph, it's very clear, follow it all the way down and you get to around to the 31st March or one-third into 2017, and what happens? Whoops, the ZAR starts going the other way. It takes a spike to begin with. That was when Pravin Gordhan was unshuffled out of the cabinet and as you can see, the ZAR bounced around for a while at higher levels and depreciated and it is now around about the R14 level..What does all of this mean for the immediate future? We don't know who is going to win after the ANC elective conference, which starts in three days. We've got no idea but if Cyril Ramaphosa wins you will probably have the Gordhan effect because Cyril Ramaphosa is someone who understands economics. He is likely to have the same kind of impact as Pravin Gordhan had between 2016 and 2017. Indeed, it's likely that he would reinstate Pravin Gordhan, give the international community the reason to invest in SA, and this country desperately needs foreign investment capital to create jobs. If, however, the pollsters are wrong and the numbers that we've seen from the branches are incorrect, and Cyril Ramaphosa does not win for whatever reason, then we are likely to see a continuation of what we've seen with the ZAR since the departure of Pravin Gordhan, and that's a very clear signal that you can see running up to when he was appointed between 2015 and 2016, and what happened between the first-quarter of 2017, and where we are right now in the ZAR. I think it's about as clear as you can see but within all of that you could, if you were trying to time your purchases this way or the other way, you could have got it wrong and that's really what it's about..If you can get the big trends right. If you can just make sure that you understand why it is that you're investing in a certain portfolio. My sense would be that we would need to reassess everything on an offshore portfolio should Cyril Ramaphosa win in December but I'm not going to say to you now that we need to liquidate this portfolio or sell everything in anticipation of that. It's too high a risk to do that but if Cyril were to win in the next few days, when the ANC gets together, and anybody who is economically savvy will be praying for that result. If that were to be the situation then you would have to reassess because this whole portfolio, for the last three years, has been based on the premise that the economy would be poorly managed. Under Ramaphosa it's likely that the economy will be better managed, much better, and as a consequence of that the ZAR's weakness, which is the underlying reason why you have invested in this portfolio, could actually be reversed. It's a watershed period for the ANC, and it's a watershed for the country and we need to be very mindful and very aware of that and that's on the one side..Then on the other side, of course, are the stocks that we've invested in artificially high? Well, look at these individual performances. In three years, remember, we've got Amazon. Well there's the ZAR, incidentally. In three years the ZAR has depreciated by 21% so, the underlying view that we needed to get a hedge against the ZAR was accurate. Where we've been incredibly fortunate is that first of all, we invested in the USA, which has been the best performing market of the big markets. Secondly, that we were very fortunate to get some stocks that have performed incredibly well. Primarily, Amazon.com as you can see there, when we bought the shares, call it R3,700 each. They're now R16,000 each – a gain of 341%. Does that mean that Amazon is going to fall in a heap? Probably not because the Amazon story has only now been understood. Amazon is making a lot of money out of is Amazon web services and the rest of the money is being reinjected into its distribution model, which literally is taking over industries..I've said this before, if you live in the UK as we do at the moment, you can see the Amazon effect, and the Amazon effect is enormous in that you literally go online to buy anything from a marker for a whiteboard, through to technology equipment and computer, and it gets delivered to your home, through to bookcases, although my famous story of bookcases is that it took three months for the first one to arrive. I'm still waiting for the next one so the bookcases are not something that Amazon is really good at but anything that's small and easily deliverable to a house, there it is. Amazon has just gone into China. This month it announced that it's going to be operating Amazon web services in China, and that is a huge opportunity for the company to continue on its very rapid growth spurt. There's still a lot of road left. You only have to look at how many shops there are in retail outlets in High Streets to know that Amazon has got a long way to grow before it starts getting saturated. Is it going to go ex-growth any time soon? I don't believe so, but we have to be mindful that it's had a fantastic run..So putting all of that together, where are you in this portfolio at the moment? Well, you've got some stocks that have performed incredibly well, and you have a ZAR that has weakened in the way that you thought it would. From here, depending on what happens at the ANC conference, the ZAR could become a different determinant. You could have these companies share prices as an immediate consequence, if the ZAR were to go back to R11.27, clearly that would have an immediate 20% smack on all of these share prices, which would bring those returns down quite significantly but if you have a look at Vanguard S&P 500, the one halfway through, with a 52% growth rate – that has been the US stock market. The ZAR has depreciated 21% but our benefit has been doubled on that because we've had the Vanguard S&P 500 Index. We've been betting on the American share market, and that's the base level there. Stuart, I hope that answers it. I know it's a long way of addressing a question like that but I thought it was a good way to kind of kick things off..Thanks Alec, I think it's important to separate the bottom-up and top-down approach, and this is bottom-up so you've got to be aware of what's out in the media, in terms of investing so very nicely done. Alec, there's a question on Naspers and I know it's not in this portfolio but I do you know you referred to it in your newsletter this morning. Benjamin just wants to know if it's a buy now? I think it's off the back of that comment from Bob van Dijk last night..I spent quite a bit of time listening to Bob. I listened to his whole presentation and to the questions and answers, and I really thought he did very well. I also intend listening to the rest of the presentations because there have been reports, and it's on BizNews Premium that Naspers is looking aggressively to start an ADR program. Just to put it into perspective. Naspers owns 35% of Tencent. Tencent is a gigantic company. It's the operating system for 900-million Chinese. When they get their cellphones, when they switch it on, the first thing they see is Tencent. They don't see Apple, or Samsung. The operating system goes through apps. That's how strong Tencent is in that market. Naspers is really a proxy for Tencent. We have Tencent in this portfolio because I'm extremely enamoured with the opportunity and the potential of Tencent. As you can see even from this little graph, we didn't buy Tencent that long ago, it's already given us nearly 42% return, there's a better one. We bought it for R500 a share. It is now R720 a share, if you convert it into ZAR terms. It's been a smashing performer so, if Naspers is a proxy for Tencent what do I mean?.Well, if you were to take the Tencent shares that are owned by Naspers and if you then distributed them to Naspers' shareholders so, forget about the rest of it. Forget about Mail.ru, forget about Flipkart, forget about Delivery Hero – some very good businesses that Naspers has got there and it's bringing to profitability and these are billion-dollar businesses that I've just mentioned. If you just took Tencent you would then have a 33% uplift on the Naspers share price today, if you just gave everybody who has a Naspers share a Tencent share. So when you buy a Naspers share you're getting, in essence because you add everything else together, you're getting a 38% discount on the underlying value of Naspers. If you stopped the company today and distributed everything that it had to shareholders, they would get 38% more than what they have at this moment so that's the value..The question with Naspers is, is 38% the right number, or of a discount or should there be a discount at all? Well, Bob van Dijk made the point yesterday that because of liquidity and it's not that easy for foreigners to get in and out of shares and because Naspers is listed in SA, and they're a bit worried that there could be political risk or political turmoil, etc., there needs to be a discount. Traditionally, Naspers has been running at a discount of between 20 and 25%. Now it's at 38%. Why has it gone to 38%? Van Dijk says, the reason for that is because since, and he put it down to 20 months ago, and in the last 20 months he says, the political turbulence in SA has frightened foreign investors to the degree that they've sold shares in the SA market indiscriminately. Even though Naspers' share or its profits from SA is a fraction, it's nothing if you think about a R1.5trn company. What MultiChoice and News24, and the rest of them make hardly register in that context because Tencent is just so dominant..Despite the fact that it was a proxy for Tencent, so nervous are international investors about what's going on in SA right now that they sold the whole market. Now, Naspers is 20% of the All Share Index of the JSE so if you're selling index funds in SA it means if you sell R1 of index funds you've got to sell 20-cents of Naspers. What the management is trying to do to offset this is the obvious thing. Find another way for investors to invest in this company. You can't take the listing away and neither does Naspers want to take it from SA, and go and make a primary listing somewhere else. We saw what happened with Steinhoff, my heavens, it would take a very brave man or woman to make that call right now but what they can do is launch ADRs (American Depository Receipts), and it can be a very liquid and a very good market in ADRs. What that means is that American investors can buy the shares in America so put all of that together. What Bob van Dijk and his team are saying is there's a massive discount between our stock and Tencent. We would like to close that discount. All other things being equal, in other words if Tencent share price doesn't move, closing that discount would see the Naspers share price rising and how they intend doing that is by making it more appealing for international investors to invest in Naspers..Bob van Dijk said that the loss of money from SA in the last 20 months from foreign investors, in shares, in equities, has been between $15 to $20bn. Now, just take 20% of that, which would be $3 to $5bn, if that were to be put into Naspers shares because that's what Naspers would have lost from investors you can imagine what the impact would be. So when we invest in companies we don't invest for short-term benefit. Naspers is in our SA Champions Portfolio and because of Tencent's success it has appreciated but not by as much as Tencent has appreciated for the reasons that Bob van Dijk explained. As far as Tencent is concerned that is a company that I'm very happy to have in this portfolio and again, getting the reaffirmation from the Naspers team yesterday on the view that they have for their biggest investment and the way that Tencent is performing. You really cannot look at it in any other way..Let me just give you one other little thing about Tencent, which was interesting. We'll get onto that stock a bit later. I'm looking at my notes from yesterday. The Tencent share of the Chinese market is 54% so of people who are online 54% of them in China have a…Well, the way they actually described it yesterday was per internet hour. So, if you took all the hours that people spent in the country on the internet in China, 54% of that time was spent on Tencent so more than half of the time they spend online. The only comparison that van Dijk had was Facebook in the USA, where 19% of the time is spent with Facebook. Now, remembering that China has three times more people online than the Americans do. China has got a population of 1.6-billion. America's got 300 to 400-million so that makes a lot of sense. It gives you an understanding that if Tencent were operating in the USA market, it would have one-third the market number, and if it were in Facebook it would have under a half of what its market share is so when you start getting that as an understanding…Something else that he mentioned, which I thought was very exciting. In the USA around 10% of the population buys online. In China its 20%, so it's a bigger market. Tencent has a bigger share of that market and there are people who are more-keen to use the internet to transact, which is where companies like Tencent make their money, you've got to know that we're onto a winner there, and you've got to know that Naspers is onto a winner as well so hopefully that gives you as much confidence about the company as I have..However, our big winner is this baby, Amazon.com. That's Jeff Bezos and what I've done for this special edition, if you like, it's three years since we began the portfolio, is to give you a five-year chart and to show you when it was that we bought into the stock and how the stock has done since then, and whether or not we should be considering lightening the holding or actually selling it. The big green arrow on this is showing you exactly where the purchase was made. As you can see, it was after a period – this is a five-year chart, I've done this with all of them. This is after a period of a couple of years that Amazon had bounced around, not doing a whole lot. It had got to a price of, and there you can see, around $400 in 2014. When we bought in it had come back from that level and it didn't do much for about a month or two and then after the quarterly results for the last quarter of 2014 came out, Amazon started moving in the right direction. It's had a few bumps along the road but we were very lucky in our timing, and very lucky in the period that we bought the share and in fact, if you like, when we started this portfolio because it didn't take very long for Amazon to start moving so we had the perfect storm in this respect..Just one last thing there. Some traders would be considering, at this point, selling out and taking profits, if you like, on their portfolio. Well, it's not something that we would consider, and certainly isn't something that we would be looking at because the best thing that you can do when you find a great share or a great investment is actually to continue running or to stay in that investment. That was something that Koos Bekker has done with Tencent, as far as Naspers is concerned, and we need to learn our lesson from that. All along the way in the last 20 years, Naspers or some activist shareholders have been saying to Naspers, sell the shares or sell our holdings in Tencent, and the brilliance perhaps of Naspers is their ability to have resisted that. The reason they were able to resist that is their shareholding structure is such that it is controlled in the same way that Google (Alphabet) is controlled, and the same way that Facebook is controlled by a pyramid company, if you like, at the top of the shareholding and they are not open to a hostile takeover bid. That's an interesting point that has been to the benefit of many of these companies that we have in the portfolio and the idea here, with Amazon, is you just continue to ride your winners..Alphabet, those co-founders of Alphabet, Larry Page in front and Sergey Brin behind, is an interesting story for us as well. As you can see, there we bought in towards the end of 2015, and the share price didn't do anything for six months. Then suddenly, when Ruth Porat was appointed as financial director, she changed the way they thought about a lot of things and when she came out with the quarterly results halfway through 2015, for the second quarter of 2015, suddenly there appeared to, at least to the investment community that there was somebody onboard who would be able to cut back on unnecessary wastage or expenditure, and that's what has given them such a strong ride since then. It's very clear, it took us about six months of holding this and not seeing any improvement until that point happened. Since then, Alphabet or primarily Google, has been a fabulous performer..Next up is Apple. Now, Apple is a company that in 2007, it was completely rejuvenated through the invention of Steve Jobs' iPhone, the very famous iPhone, which changed the world. It was definitely the best invention that there was in the first ten years of the new century. When you have a look at this share price, I had watched Apple for a long time and in December 2015, when we launched this portfolio, we did not put Apple into it. At the time, it looked like Apple was expensive and if you look at the other two shares, just quickly looking back at Alphabet, it hadn't done much for a year. Similarly, Amazon hadn't done much for a year either but by contrast, when you look at that Apple share price, you will see in the last year in 2014 to 2015, at the end of 2014 when we launched, it had run very strongly. So, it pretty much doubled in that year and that was a mistake. I should have made the investment at that time. I kept watching and watching, and then of course the investment was made in Apple, eventually in June 2015, and as you can see, this was a sweat one, a hard and white-knuckle time because all the way from June 2015, until late in 2016, so for more than a year this share had underperformed. You could have bought it for cheaper than what we acquired it for in the portfolio..What we do in buying shares in this portfolio is we buy them over three months. So, for instance with Apple, we started buying them in June, July, August and of course, by the time we'd finished our purchases then the share price started falling down. The intention was always to spread it over three months so that you take out the impact of the exchange rate, the ZAR, which can be very volatile and you take out the impact of share price movement. We try not to get involved in share price movements at all. We're buying the company but again, if there's ever an argument for doing your homework, understanding what you're investing in, and being patient, Apple has to be it. You see that we came in there at $135 and $140, round about that level, and it went down to as low to $90. At one point we could have looked back at this and said, my goodness we are losing our boots, let's cut our losses. Had we done so then Apple wouldn't be such a good performer in the portfolio as it is today and one never knows when the market is going to catch up to the underlying fundamentals..Our next biggest holding already is Tencent, and we only bought it fairly recently, as you can see there. This is a five-year share price graph, and if you go along to when we bought it was at a time, and again, I had been watching Tencent very carefully and for a period of time, earlier this year, Tencent bounced around for a period. Around about when we bought in, in May, and you can see it stabilised there. We were very lucky with this one too that very soon after we bought it suddenly it started taking off. In our first two months that we acquired our shareholding here the share price was very attractive and then it was already rising when we bought in but Tencent has been a fabulous performer for us and I'm expecting it to continue into the future..Facebook – there's another interesting situation. Again, buying at a time where eventually, after watching it for a long time and as you know I had my first internet company more than 20-years ago, so this is a field that I understand probably better than any other field, from my own personal perspective. I can see the value and the potency of Facebook as a business as a social media platform. It just seemed too expensive so, as a consequence the buying decision was postponed and eventually, it couldn't be postponed any more and of course, just after we bought it the share price fell, and you can see what happened after, where that green arrow is. However, again patience and holding onto it and Facebook has certainly not disappointed..This is the Vanguard S&P 500 Index. This is the index tracker. We started off by having 15% of the portfolio in this stock, we had another 15% in Berkshire so, it was third together in, if you like, the bankers. We have slowly reduced this as we've gone along but this gives you an understanding of the way that the US stock market has performed because the Vanguard S&P 500 Index follows, it tracks the US stock market exactly, it tracks the S&P 500 Index. There again, when we began the portfolio in 2014, it did nothing. In fact, it went down if you go back to 2016. The All Share Index in the US was trading lower than where it began in 2015. It took halfway through 2016 to start breaking into the green and then you had, as you can see towards the end, when Donald Trump was elected as US president and all the promises that he's made – investors love it. Well, they certainly loved him more than they would have loved Hillary Clinton. With all the warts that Trump brings and you can see how the price of the ETF, the Vanguard S&P 500 ETF has performed. Just a little aside, the charge on this is five bips, that is one/twentieth of 1%, is what the fee is if you buy into the Vanguard 500. It's one of those benefits of scale..Microsoft is a fairly recent acquisition. Again, there was a lot of good fortune here. We like the story of Microsoft and its move towards Office 365. It's a fairly recent decision that they've done. The share price – it's a mature company, it's got a fantastic product and a fantastic platform. It's been able to reengineer itself when it needed to but at the time that we bought it had been stabilising for a period of time, and what really attracted us to this one was the change in its business model to Office 365, and what that is, instead of going and buying your Office product, your Microsoft Excel, Word, etc., every year. In this way, you have a recurring monthly cost or a recurring annual cost and then you just get the updates as they come through on your new software. It moves Microsoft from an old model to an automated model and that is a very powerful business model. One that it appears as though investors are now starting to get their heads around..That's a picture of myself with the founder of Metro Bank, Vernon Hill. I guess, one has to be careful about these charismatic leaders, as we well know, but Vernon Hill has done it once before. He built Commerce Bank in the USA from nothing to more than 500 branches. He sold it for billions, he went on leave for a week, and then came back and started Metro Bank in the UK. He thinks that Metro Bank is even more of an opportunity than the bank that he started in America. You can see that it hasn't done much though but I wouldn't worry about this. As our track record shows, often we're a little early to these investments and as you can see, very shortly after we bought into Metro Bank the share price fell, but subsequent to that it's a little better and a little higher, but it hasn't been a great performer yet. It is one of those. It's a company that's underlying business is growing 60% a year and at some point, in time the market will be able to appreciate or give it its just due reward..Where the fight is going on, as far as Metro Bank is concerned is that some investors are saying, with this rapid rate of growth they're going to need to raise more capital, and as they raise more capital they're going to sell more shares so we'll not buy the shares until they offer us more shares at a reasonable price. That is part of the strategy that one would see from the City of London but it will be interesting to see how that works out. Vernon Hill, the chairman, when I put this to him said, 'well, you've been in London too long – you just don't understand how business really works.' Let's see..Berkshire Hathaway has had a fantastic month. In fact, it was the second-best performer just behind Tesla, of all of our shares this month. The overall portfolio this month was down by $1,000. The moves were Amazon down $1,500, Alphabet down $1,000, Apple down by $500, Tencent down $1,500, Facebook down $1,000. Then on the plus side, Vanguard up by $500, Microsoft up by $500, Metro up by $500, and Berkshire up by $1,500 so it balanced the books for us quite nicely and that's unusual because Berkshire being a very strong holding and Warren Buffett has invested in good, old fashioned businesses. Of course, he did make a huge investment into Apple and that has helped him as well. He also has big shareholdings in big US banks so that would also have been lifted by the better outlook for the banks but anyway, Berkshire had a particularly good month, but you can see there again, look at where we bought it, in December 2015. Berkshire was underperforming for a long time. Now, in 2015 to 2016, that was a period when we had the ZAR that was appreciating as well because Pravin Gordhan was in the hot seat at the finance ministry, as mentioned earlier. So, we were very fortunate that we had some of the stocks that were performing extremely well in that year and then other stocks, like this one that were underperforming and if you had lost patience with them you'd be very sorry..Finally Tesla. What a story Tesla is. We watched this one for a long time, again, for obvious reasons. Tesla is run by a South African, or SA born and raised, Elon Musk. He still speaks like us. He is an absolute polymath, a genius, who began a number of companies that are transforming industries. SpaceX is a company that we hear a lot about when you look at the whole space story. Musk wants to get humans on to Mars and that's one of the things that motivated from day-one. SpaceX has been a phenomenal story. In fact, if you read the biography of Musk, you'll see that his first three rockets of SpaceX failed and his fourth rocket had it failed, we probably would never have heard of him. Tesla would never be with us because he would have been bankrupt yet that one succeeded. What he's able to do is disrupt the whole space travel sector and he has been able to take on, with SpaceX, business opportunities, launching satellites, etc., from the major corporations and of course, NASA and that has made SpaceX into a very exciting company..The one that we are looking at here is Tesla. I mentioned SpaceX because there are quite a lot of rumours doing their rounds that SpaceX might be merged into Tesla, which could be transformative for this company as well but that's just rumours so put that on the backend. Elon Musk owns both companies. Tesla is the one listed on the stock market and again here, after watching it for a long time we had the good fortune of buying it at the time that we did, which was in late 2016, because at that time there was a merger between Tesla and the third Musk company, called SolarCity. Now SolarCity is a company that he funded that is run by his cousins who grew up with him in Pretoria, the Rive brothers. In fact, Rive is the surname of Elon Musk's mother's sister so his aunt. His name is Elon Rive-Musk so, you can appreciate that the families are very close. When this merger was done there was a lot of antagonism on Wall Street about it not making any sense. For Elon Musk it made all the sense in the world because first of all, he funded the business and secondly, it was his family who were in the other side. They holiday together and are very close to each other, the Rives and the Musk's. He then felt that the business rationale for the merger was that SolarCity, which is the biggest installer of solar powered panels in the USA. Just think for a minute at how big that is. That's their business – they put solar panels into peoples houses, claim back from selling the electricity into the grid. They enjoy the subsidies that the government gives them. It's a phenomenal business model but the most important thing for SolarCity into the future, is batteries, and the most important thing for Tesla into the future, with electric cars, is batteries. .As far as Elon Musk saw it, it was quite simple. Both companies had a huge incentive in producing great batteries or storages of energy and it seemed sensible to him that they should be working together on it. Tesla, by the way, in the merger of the two was 93% of the value and SolarCity only 7%, but Wall Street got in a tizz. They issued some sell recommendations on Tesla and we saw that as a great opportunity. As you can see, we finally bought into the company after watching it for a long time in late 2017, and we bought it over a three-month period, as it was falling. Again, the timing was excellent. Tesla has surged since then. Why has it surged? Is it worth where it is at the moment? Well, remember that story about the Apple iPhone in 2007, when it was introduced. Up until that point what did we have? We had the old Nokia dumb phones and Blackberry's. Apple came in at a huge premium price. I think the Nokia phones were around $200. Apple came in at $700 to start with and people just went mad for Apple because it was such an improvement on what was existing. That's the classic disruption. You don't have to always disrupt by coming in cheap..Tesla did exactly the same thing. There are parallels between what Apple did in 2007, and what Tesla did with its Model S. Model S was the first electric car that people could drive as they had any other internal combustion engine car. He sparked a revolution in electric cars. Although Model S costs about $100,000 there are enough of them on the road to see how exciting it is, as a vehicle for people who wanted to move away from internal combustion engines. Of course, things have come a long way since the first Model S was produced. Even so today, there's still 95% of the cars on the road are internal combustion engines. In other words, petrol or diesel engines. Elon Musk is wanting to change that and he's trying to change that with something called the Model 3, and this is where all the controversy comes in because Musk says, 'we'll produce hundreds and thousands of these Model 3s, and we'll sell them at $35,000 each.' The market, again as what happened at the time we were first investing in the company. Not everyone in the market believes him. There's lots of sceptics. I went to a presentation with the Schroders guys about a month ago and they were outspoken on why Tesla was not going to succeed. Their belief was buy the car, by all means, but don't ever buy the shares – it's massively overpriced in their opinion..The story here though is can Elon Musk deliver? Can he deliver the cars, the hundreds of thousands of Model 3 cars, given that he's not a manufacturer? Given that he's an inventor and he can manufacture high-end, everyone knows the Model S, but can he do this mass production, almost like a Model T Ford kind of transformation for the motor vehicle industry? Well, nobody, initially as you can see everyone got terribly excited about it and more recently, the share price has been bumping around a little bit. It came down from $350, and got down to $300, went to the late $200s for a period of time but the major reason for that was when the quarterly results came out and you can see that very recent dip in the share price. That came when the quarterly results came out and it showed that instead of producing thousands, in the third quarter of the year production issues meant they only produced 260 Model 3s. Remember, this is a car that should be producing hundreds of thousands but they only managed to get 260 off the production lines. So the investors don't like it. Elon Musk is going to bomb, he's doing it wrong, etc..Yet, you see that uptick. This last little while and in fact, last night the share price, as you can see, was up by nearly 4%. What's going on? Well, the latest stuff that's coming out of Tesla is that they have managed to sort out their production issues. They are looking good for producing five thousand vehicles per week, from the beginning of next year, and they've been doing that since the end of November so that's the story. Somebody somewhere has gone along and had a look at the output. There's been no announcement from the company, we'll only get that early in the new year, with their quarterly results but somebody has gone along there and the word has spread like wildfire. There are 400,000 of these Model 3s on order. At the rate of 5,000 a week, you're talking about 250,000 production per annum. My view on this is very simple. Are you prepared to take a bet on human ingenuity? If you do, then you believe the exponential story, and if you do then you believe the Tesla. If you're not prepared to take a bet on human ingenuity. If you are going with the naysayers, who say that Musk will never be able to turn from producing a limited run of cars to mass production. The view as well is yes, sure, he's a clever guy and he's a good inventor, etc., but there's something more that's needed to be a mass producer of motor vehicles. Well, that's what their story is and that's why this is one of the biggest short positions in the USA, is in this stock because those who don't believe that he's going to get it right. They think that the company is going to crash and burn. That's the choice you're making..The view I'm coming from on this one is we've bought in at a very good price. It can reverse, the stock price can come back a long way. We're running on profits if you like, on this and if he gets it right then $400 is a possibility for this share price. So that's the Elon Musk story. It's going to be a very interesting set of quarterly results that come out in January because that will tell us whether all these Model 3s that have been seen in parking lots and in distribution centres of the Tesla Group. All these Model 3s reflect that they're overcoming their production issues. If they have, well, the sky on this stock, I suppose, is the limit. So that's the story of the portfolio, Stuart. I've given you quite a lot to run through there but it is an anniversary so, I'm glad I had that opportunity..Thanks a lot, Alec. It's always good to see progress. Just quickly, there's a few queries on stocks that aren't in the portfolio. I'm not sure if you've got any short comment on them. It's from Johan and Benjamin. Johan wants to know, Alibaba, Oracle, and then Benjamin talks about marijuana medical shares. I'm not sure if you have any thoughts on those three..Yes, Alibaba, we're back to it again. Alibaba is the one I missed. It is a stock that I missed. We should have, with hindsight, bought it at the same time as Tencent and it is one that I'm still looking at. Hopefully, there'll be some kind of a dip there, which will give us a good value proposition or a better value proposition but as you've seen from my record I tend to either wait too long or buy too early. In this case, it's on the watch list. If you've already got the shares, I certainly wouldn't be selling them. It's interesting, Alibaba was a little like Facebook. When Facebook came to market it came with a huge hype. The share price was strong and then it got smashed, as people didn't believe the story anymore, and that was the time to have bought Facebook shares. Alibaba was the same thing. When it listed on the New York Stock Exchange, it came on with huge hype. Then it fell like a stone and of course, that would have been the time to buy, with hindsight..Oracle is one that often gets brought up by investment analysts. It's one that I don't know anything about and thank you for reminding me. I will need to be doing some more homework on it but it's outside of my circle of competence so, no comment on that one. Then the final one, on marijuana shares. Now you talk about Oracle being outside my circle of competence. The 'Mary Jane' producers are like on a different planet for me so, sorry, I really can't even start to hazard any kind of suggestions on that..Excellent, thanks Alec. There's a question on Moody's. Obviously Moody's is the only one of the three rating agencies who hasn't junked SA debt. Simon just wants to know if you know when the announcement is due and the impact it might have on the portfolio, given the media concerns on the $100bn sell-off if we do get junked?.That's a very good question and it's anticipated early in the new year. Moody's, of the three ratings agencies, has been the one that probably knows SA best. It's the one that has been giving SA the benefit of the doubt because it knows what's at stake here and it hasn't jumped to any conclusions. The elective conference, which starts in three days time, is a watershed for this country, and Moody's knows that and it's paying attention to it. If the elective conference is to have the kind of result that would see sensible economic policies being implemented here you can probably see Moody's continuing to give SA the benefit of the doubt, and retaining the rating where it is and not having that big sell-off and not seeing a decline in interest rates and all the horrible knock-on effects that would come from it. The reason for that is that there would be hope that the economy would be able to move towards a position where it could start fulfilling its potential..It's not that this is going to be fixed quickly. We've had a dreadful ten-years. The economic mismanagement in this country, fuelled by the politics of hate and fear, have really caused damage that is going to take a long time to fix. Ratings agencies look around the world and it's all a relative game. No other country in the world is perfect. The Americans have got Donald Trump, the UK has got Brexit, the Europeans have got a social welfare system that's unsustainable, and overlay that demographics and immigration. China has got its own issues. Russia, well…Brazil, wherever you look there are relative issues that are affecting those countries. The bright spots are relatively few and far between, Argentina being one of them with Macri, and Macron in France being another of them, and SA under a Ramaphosa regime could be another one of them as well so, that's what Moody's is thinking about. The other two have already made up their minds. There's been lots of discussions here, in London, about the fact that those who think Ramaphosa is going to be elected are actually living on 'Cloud Cuckoo Land.' That it's a done deal that the election has been bought and paid for long ago, and that it's going to be a continuation of the Zuma legacy. Perhaps some of that talk has permeated through to the perceptions that have been created because SA's institutions have been steadfast, or many of the institutions in this whole State Capture story that is now well appreciated around the world. The view of some people is that's going to have been a forlorn home. So, Moody's is taking a more optimistic view and I think, for the sake of us all, let's hope that Moody's is the one that's right..Thanks, Alec. Chris just wants to know if you can please display the Dollar portfolio again so not the ZAR one..With pleasure Chris. There's the Dollar portfolio. Lovely to have 50 Amazon shares, isn't it? When you have a look at that number where you started off with $16,000, and it's now worth $58,000. Just to buy one Amazon share today, and that's the other thing that often, people get wrong. They think you've got to buy in blocks of 100. That's archaic. You can buy a single share on many online platforms. I had a guy emailing me today, and very grumpy about it saying, Naspers' first thing that they need to do is to have a 100:1 share split. You just think but why. You can have a R3,500 share and in fact, if you buy it through Easy Equities for instance you can put in R50 and get a fraction of that share so there's all different ways of owning shares nowadays but it is still nice to be owning 50 of those Amazons, isn't it?.Thanks, Alec. The questions have been cleared so I think it's time to say goodbye, and it's our last webinar of the year unfortunately..It is and a very Merry Christmas to everybody, and a wonderful 2018. If you are of the Jewish religion or in fact of the Chinese faith, then you know that 18 is a very lucky number. For our Jewish friends, Happy Hanukah. May it be an amazing 2018, and may it all start in a few days where hope is rekindled for our country but even if it goes the other way. In other words, even if Zuma does a 'Grace' on us or as Mugabe tried to do a 'Grace' on Zimbabwe, and that didn't work but if that happens and his ex-wife becomes the next president and perpetuates the Venezuela type policies that are being proposed. All's not lost. There is very likely to be a split in the ANC, if that were to occur and then in 2019, almost certainly a change in government. So there's a lot at play. The next few days are a watershed for SA. I'm hoping that we all get an early Christmas present, courtesy of the ANC elective conference. I'm saying that as somebody who understands from economic history that there are certain laws of economics that cannot be broken. Those laws are the type that were injected into SA by Nelson Mandela and Thabo Mbeki – those laws were forgotten for the last ten-years. If they are to be reinstated by Mandela's favourite, Cyril Ramaphosa, then everything else will flow from it and I think we'll all be enjoying our Christmas chicken a little more than in the past.

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