🔒 WEBINAR: Rand hedge continues to deliver

Alec Hogg takes us through the performance and current position of the Biznews.com Global Share Portfolio Webinar, which is still proving to be highly successful. If you’ve just joined in on this journey, not to worry. Hogg provides a comprehensive breakdown of how the shares are doing and how the companies, split between the likes of Apple, Amazon, Berkshire Hathaway, Alphabet, IBM and Novo Nordisk, are performing. The portfolio has been in existence for 15 months and has delivered a 49% return in Rand terms. The rand hedge continues to pay dividends. In this episode he’s joined by Standard Bank’s Stuart Schady. – Stuart Lowman

Stuart Schady: Good day ladies and gents, welcome to today’s webinar. Today I have Alec Hogg with me in the Standard Bank offices, and he’s kindly come through because a lot of his staff were on leave, so we decided to do the webinar here. It’s the… What instalment is this of your Global Share portfolio?
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Alec Hogg: The 15^th.

Okay, so that’s 15 months’ worth of international investing advice, still going strong. We’ve actually just renewed to go for a couple of more months on top of this. Yes, I just want to, before we get going, to check that everyone can hear me. Do you mind just raising your digital hands, just to ensure that you can hear my voice and that of Alex, and you can see the screen and everything is working correctly? Okay, great I’m seeing quite a few hands being raised that’s perfect. Thanks very much guys. I’m going to assume that everything is working. If there are any questions along the way, please just pop them in the question box. If it seems pertinent to what Alec is saying at the time, then we’ll take the question right then. Otherwise, we’ll leave it until the end of the webinar. Right, so without further ado, I’m going to hand it over to you, Alec.

Well, it is unusual to be here in the Standard Bank building but really nice to be here and thanks Stuart it’s also Stuart. I usually work with the other Stuart, our Stuart. The overall portfolio is now annualized growth of 39 percent, so we’re very happy with the performance, no doubt but do remember that the portfolio is one that you are supposed to hold forever. It’s the Warren Buffett investing philosophy. Find the right shares. Put your money in there and just let it ride. Just to go through the constituents, as you can see there on your screen right now, when we kicked off we had 30 percent into Vanguard S&P. That is an exchange-traded fund that follows the New York Stock Exchange 500 biggest American companies in a weighted relationship.

It’s quite interesting to see that we started-off there with 30 percent of the portfolio, and you look at the percentage of the portfolio now. In other words, go along the top and you’ll see it down at 27 percent. That’s because the market has underperformed our portfolio, which is a very good thing, we’ve done better, and if you want to just have another important number to look at is right down at the bottom – the total investment, (the cost) was just over $200 thousand. That’s what we started-off with, today that investment is worth $222 thousand – it’s a gain of 11 percent. The market, as a whole, over the period, if you go back up to the Vanguard number because that shows you where the market was – that lost one percent, so we’ve outperformed the stock market by 12 percentage points in the 15 months. That is quite incredible, helped though by a couple of stocks that have done unbelievably well.

Remember the screen we’re looking at right now is all about U.S. Dollars. Forget about, for the moment, the Rand improvement but in U.S. Dollar terms, the idea is that you can put in Vanguard to give you the market performance, and then add in your stock selections, which give you that uplift over the market performance. Last year four stocks made the majority of the gains on the New York Stock Exchange. They’re what we call the FANGS, (Facebook, Amazon, Netflix, and Google), and as you’ll see in our portfolio we had the good fortune to hold two of the FANGS, Amazon and Google (Alphabet), in our portfolio. If you can get two of the top four performers on the New York Stock Exchange then clearly you’re in a really, good position to outperform.

What is interesting though is in the last month is many of our shares have lifted quite nicely, and you’ll see that when we get onto the details of the portfolio in just a moment but that has also given us a good, strong session and also given us that 39 percent annualized growth, as you’ll see in a moment.

There’s the figures in Rand terms. When we began the portfolio, 15 months ago, the philosophy was we felt the South African economy was being badly managed and, as a consequence that the South African Rand would reflect the poor economic management of the economy. Nothing has happened in the last 15 months to change that view and in fact, the Rand’s depreciation in that period, from R11.27 (as you can see at the bottom there) the Rand, on the 5^th December, when we kicked off this portfolio, to R15.46 today.

It’s a decline of over 30 percent and that is the reason why the portfolio has done so incredibly well in Rands. In Rand terms, it’s a 49 percent gain in the 15 months, which as you can see the annualized return down the bottom there, of 39 percent. Every, single one of the shares in the portfolio, because of the depreciation of the Rand, has actually risen in value. Even though in Dollar terms, some of them have underperformed in the market, in Rand terms they’ve all done better than what we invested in.

This gives you a pretty, good idea of that, in the Rand proportion. In the 15 months, the Rand has depreciated 37 percent. Of the individual stocks, you can see those very, big uplifts from Amazon and Alphabet (Google) – 150 percent one of them and 88 percent the other. Novo Nordisk has done pretty well at 59 percent, Vanguard is the market.

That, as you can see, has performed slightly under what the Rand depreciation has been. It’s because it’s down by one percent in those 15 months. Berkshire improved really, nicely in the past month, so did Apple, so did IBM. In fact, IBM was one of our best performers in this last month period, so those of you who took our advice last month – it went below three, will be smiling today.

On the individual returns, I like this graph because it shows you on the left hand side, the Rand/Dollar, so if you’ve just taken your money and put it into a cash account, in Dollars that is the return you would have enjoyed, over the last period. The gain there is almost 150 percent for Amazon.com and it goes down. Even Apple, as I said is, although Apple we bought probably a little bit early, Apple has even now appreciated in Rand terms, so quite a nice graph for you there. It shows you very easily, well at an instant that our big performers, Amazon, Alphabet, and Novo Nordisk and Vanguard, virtually in line with what the Rand has done, and Berkshire is just about there, and then the under performers IBM, and Apple.

A big part of this portfolio as well is the money that we receive in dividends. It’s small in percentage to it. In fact, over the 15 months probably no more than, well you can see, 1.5 percent. You’ve got total cash of $3.5 thousand but that does help. It improves the annualized return by about a percentage point and we have, in this period, in the last three months, we have added $336 from Novo Nordisk. They paid a nice dividend, an uplift of 20 cents a share on last year’s dividend, as you can see there. It was paid on the 18^th March, a 96 U.S. cents dividend. Then we had Vanguard S&P adding a Dollar from the S&P 500 tracker, and that added another $321 to our portfolio in this past quarter.

A little bit, I’ve added in, (also in bold there) you’ll see the 21^st December – $346. The reason why I put that in now was we hadn’t added that. We somehow missed the dividend that we got in our portfolio in December, but I’ve now put that into the portfolio as well, so that brings the total gain to $3500.00.

Stuart is going to have to look very carefully and maybe go out there and see. I must just describe where we are. We’re in a beautiful conference room, in the Standard Bank building. I’m talking to a screen right in front of me but there’s a huge, big screen behind us that Stuart is, (where your questions are coming up), have you got one there Stuart?

Yes, I’ve got one. It’s from Sid here.. He knows the theory behind Buffettology and investing in the Buffett way is buying and holding, and keeping the company for life. He is kind of referencing about big, unforeseeable events. Well not particularly, or necessarily relevant to the shares that you hold but he talks there specifically about MTN and how the Nigerian Government is just changing fines. I suppose he’s asking what the view is then. I know a bit about Buffettology, a lot of it’s got to do with the integrity of the company as well, and there are big questions around MTN at the moment, from what I’ve heard.

I think, and it’s a really, good question Stuart. Thanks for bringing that one through. In the research for my book, which by the way is selling extremely well, so if you haven’t bought the book yet you know where you can go and get it? In my research, it became apparent that there have been times when Buffett has sold shares. He’s got a trading portfolio, which is not the focus of this portfolio of ours. We’ve said that this is based on Buffett’s long-term portfolio but he was accumulating at one point, the Tesco stock. He got to a quite a significant position and he was continuing to add to it every quarter. In the U.S. with these portfolios, with investment trusts or companies, like Berkshire Hathaway, they have to disclose their shareholdings at the end of every three months, due to their regulations there. You could see in those findings that the growth in the holding of Tesco was continuing.

Then about 18 months ago, we had the scandal that emerged there, where it was seen that the Tesco management had been fudging their figures. Basically, they had been cheating on what they were telling shareholders. Buffett took an immediate decision, at that point that the company had changed fundamentally from what he had done his analysis on and, as a consequence of that, he bailed. He dropped I think it was $500m, on his investment. He’s a very, long-term investor and he was down at the worst point, on IBM down by $2bn on his investment there but he dropped that. He got out. He lost his $500m and wrote it off to experience. Now, when you bring that to the MTN example, if you had done your analysis and worked your intrinsic value of MTN. You would have to have worked in there a Nigerian factor because it is the biggest profit contributor. All of a sudden, Nigeria is turning into a little bit of a rogue state if you’re a business.

If you look at that in the context of MTN, it has fundamentally changed the MTN picture. However else you want to consider it and I would, putting a Buffett hat on, looking at that, I would change my view on MTN completely. Not change my view but change the intrinsic value of it. Probably take MTN Nigeria out of the equation entirely, reduce your intrinsic value then to a particular figure, which it would come out off from the other assets that MTN owns. Take that intrinsic value and see if you’ve got a margin of safety and I doubt that that exists at the moment. There is probably still quite a lot of Nigeria in the MTN share price. The problem about what happened in Nigeria is, very clearly, from an investor’s perspective, a risk that hadn’t been factored in and couldn’t be factored in and when you’re talking about a state that is going to pass those kinds of finds. Well, either you write it off to zero, in the MTN scenario, and then find that you can still invest, or you take the Buffett type decision, which is get out. I haven’t done the analysis of it but I suggest that that is really, what you do.

Thanks for the question it’s a good, old topic but very interesting.

Onto the detailed portfolio. Starting off with the Vanguard, which is our S&P 500 tracker.

As you can see, it has recovered really, really nicely. From even ahead now of where we were at the beginning of 2016. I’ll remind you that January was the worst month for stocks in history. It was the worst January ever and as you can see there, the S&P 500 index came down in January by about seven percent, and then it fell even further in mid-February, to being 12 percent lower. Now, if you’re trading a portfolio and you have stock losses you’d start panicking. I guess a stock loss in an index tracker, you probably put it in at somewhere around ten percent, but this is a long-term portfolio, and I like the fact that we have made our decisions. We think the U.S. is the best economy on earth. We think it’s the most flexible. It’s the most efficient way of delivering goods and services and look at that. Just by not panicking in mid-February, we’ve added ten percent to the value of an index tracker, whilst staying in Vanguard over that period. It gives you an indication of what investing is about.

Now in the 15 months that we’ve had this portfolio it’s down by one percent, the market as a whole and in fact, in the last year, because that’s what we like to track on these graphs, it’s about two percent lower. The U.S. market has lost two percent in the last year. Our portfolio, thankfully, has bucked that trend.

Outside of the 30 percent that is where we started with the index or the overall index, we’ve got three stocks, which have 15 percent each in them. If you like, almost half of that portfolio is in these three individual stocks, and 30 percent thereafter, was allocated to the index tracker. Then outside of that we’ve got three stock picks, which were a little bit more speculative and one of the index stocks, again, you could have panicked with Berkshire Hathaway. When we were talking last month, it was down on the year by 14 percent. As you can see, from the beginning, from January, this share price was six percent lower at the end of January. It followed the market lower. However, the uptake since then or the recover since then shows you the value of actually doing your homework. Making your investments and sticking with them.

I recall the last month, when we were talking about Berkshire it was a strong suggestion that you invest in Berkshire because it was offering great value at that point in time and indeed, it’s already picked up ten percent. For a big stock like that, it’s a very, strong performance and a considerable benefit, no doubt, to our portfolio.

Alphabet, or the old Google, we believe it’s got the perfect business model.

You can see on that graph that the red line is the performance of the NASDAQ. That’s its benchmark it’s down it’s almost like the S&P, around about 1.5 percent. Google (Alphabet) over this period is up by more than 30 percent, so it is a massive outperformer and a very good reason why our portfolio has done so well. Again, it’s picked up really, nicely in the last month. Just a few Dollars but when you have 15 percent of your portfolio invested in one stock, it’s a good thing to do. As far as the news developments or the news flow in Google is concerned. It is quite interesting to notice that they’ve got their version of Deep Blue, if you recall that’s what has now morphed into something called Watson, which is the IBM (artificial intelligence).

Some years ago IBM’s computer, this super computer beat Garry Kasparov, who was then the world chess champion. Well, Google is moving into the same market now, with something called not Deep Blue but DeepMind, and DeepMind took on the Chinese grandmaster of a board game there, they’ve got called Go, and beat the grandmaster, who was speechless afterwards. He couldn’t believe that a machine could ever beat him. If you remember IBM’s artificial intelligence machine, Watson, also beat the world champions in a big American game called Jeopardy. It took them both on and was superior to them. These games versus computers are just a reflection of how sophisticated artificial intelligence is becoming and IBM’s artificial intelligence – it has a jump start on the market there. Amazon has a jump-start on cloud computing. Alphabet (Google) is moving aggressively into both of those areas, which is telling you that these are big growth areas into the future.

As far as the computing is concerned, or the cloud computing is concerned the market shares there are roughly, 57 percent owned by Amazon. They started seven years before anyone else. Seventeen percent owned by Microsoft, and six percent owned by Google but Google is starting to make some progress in cloud computing. In the past month it moved Spotify, a streaming music service, the world’s leading streaming music service – it moved that one over from Amazon, to the Google, back end and we also saw Apple having a rare partnership with Google, in its cloud computing space. It uses Amazon as well but it’s moving there.

I emphasize these issues because when you can understand what the big drivers are in the world economy, the big drivers in technology, and the places that the money is being made. Then you can invest in those companies that are going to be leaders in those fields or at the very least are moving towards it. As you can see from Google, of course, they own search engines and online advertising but now they’re also moving into Amazon’s heartland, which is cloud computing. Incidentally, Amazon’s profits in cloud computing was nearly $2bn last year, up three times on the previous years. It shows what happens when you have got market dominance. They’re also moving into artificial intelligence, where IBM has got the market leadership. It’s just good to understand these mega trends because it gives you a good feeling on what the different companies are doing.

Another big development in the past month was the launch by Google of its version of Apple Pay. Now, Apple Pay, if you travel internationally, particularly into Western Europe, you will see that it is becoming rapidly a form that people are using at the counter, instead of giving your credit card to someone – you just tap it on an Apple Pay machine, or tap your cellphone on an Apple Pay machine. Apple Pay is gaining a lot of attraction and Google has launched its version of Apple Pay for Android phones. That too has been, heralded as a big breakthrough in the last month.

Onto Amazon, our favorite stock no doubt of everybody who followed us – up 150 percent in 15 months, and it’s also had, as you can see a nice move from its lows in February.

Now because Amazon has done, so incredibly well in the past year that decline in February, starting the year at around 70 percent up to a period where it had actually lost 40 percent, or lost more than a half of that gain. It bounced from being 30 percent year on year, improved to 55 percent is a significant improvement in our portfolio. Incidentally, Amazon started as only having an eight percent share in our portfolio. It’s more than doubled that over the period. We’ll get into that right at the end. I see there are some more questions. Do you just want to check?

Yes, there’s a question from Clive. I think that maybe we should leave it to the end. He’s pushing for more of a big picture view on the market.

Excellent. Well, there we go. What happened with Amazon in this period? It had Andy Jaycee, the guy who started Amazon Web Services made the Man of the Year in the technology industry. It’s had some big wins. In addition, in Cloud Computing and thus, the area that many people are looking at. An interesting development for the U.K. was a tyre with Morrison’s, which is their version of Shoprite. It’s currently at the bottom end of the market, but what Amazon will be doing is moving it into the food retail market in the U.K. with Morrison’s doing the delivery. That just shows the global ambition of this company. I wouldn’t even dream of selling the shares.

Big Blue, Big Value: there we go. IBM.

What a lovely rebound we’ve seen in IBM in the past month. As you can see, round about this time last year, it was looking pretty sick. The shares (year-on-year) down by more than 25 percent. That’s been cut to only nine percent so a very big rebound there by IBM. Why? It has restructured its annual report the way it reports the different sides of the business. IBM (very briefly) is a company that offers massive value because it has relationships with every one of the Top 500 companies in the S&P500 Index. Think about that. You have the relationship. You go in. You can tell them about your new products and the relationship you have is because you’re more than 100 years old and you probably sold them most of their computers in the first place.

What it is doing is it’s changing its business model from one where it was moving boxes (these big computers, the hardware, and the mainframe, which IBM is famous for) into a completely different area. While it does that…while it transfers across into the new area, the revenues have been declining because parts of the business that are not regarded as having a future are either being closed, or they’re being sold off. Consequently, the total revenue at IBM in the last year was down by one percent. However, strategic initiative units – the new growth areas, primarily Cloud Computing an artificial intelligence – were up 26 percent in the past year and they’re now one-third of the total. This move from old to new is the secret to the IBM story and you’re being paid to take it because the intrinsic value of IBM is well north of the current share price, and it is a reflection of the fact that the U.S. market likes to see short-term gains. If you could take a long-term view on IBM, you would have enjoyed that 15 percent uplift that we’ve seen in that stock in a little over a month. The company remains (for me) very good value at these levels.

Novo Nordisk was a little quiet in this period.

The share price, as you can see, plumbing some depths (for it). It’s a very stable stock. It pays good dividends. We received a dividend as you saw, a dividend of just 20 cents per share higher and there was a decline with the market in February. It was down by 15 percent which, for Novo, was a very big reverse but it’s regained virtually all of that and now in the last year, Novo Nordisk is really just stroking the market overall. We bought this one really well because by buying it in December, we got it at a pretty low period. It would have been good for you if you’d been fortunate enough to buy it in mid-February this year well. It seems like February is the right time to be investing in this stock, just before it declares its dividend because the dividend was again well welcomed by investors and the share price has recovered very nicely.

Apple had a very big month.

Lots of big news going on at Apple in this period. For one thing, it celebrated along with Spotify the fact that streaming music is now exceeded in revenue terms, the revenue generated by online purchasing of music. It’s quite incredible if you think that Apple started iTunes and it’s been a significant contributor to the business. Now its New Apple Music is already getting to where iTunes is and if you add Spotify with Apple Music, it brings the total turnover there to…well; it was up 29 percent in the past year. If you just understand that in broad terms, what it means is that people are now no longer buying tracks individually at 99 cents each. They are signing up for these streaming services and in future, if you’ve tried Apple Music, you’ll see why you don’t ever need to worry about buying individual pieces of music anymore.

The big news for Apple though, was the launch of its cheaper iPhone (the SE). It’s priced at $399.00 in the U.S. $250.00 (or about two-thirds of the price) of the 6S. Now why would they launch a cheaper phone into the market at this point in time when they’ve got the new Apple iPhone7 due in September? Well, the idea is that many of the customers who got the old 5C’s, which was a cheap version as well and 5S’s whose contracts are now coming up for renewal so the new iPhone SE is a cheap phone in the Apple stable. In fact, it has better technology than the 5S. It’s not the top-of-the-range 8S that’s been selling pretty well. It’s in line with the 5S. Another bit of news on Apple is that they’ve launched a new iPad as well, which has gone pretty nicely and that too, is on that price level. It dropped the price of the Apple watch by $50.00 if you were thinking of participating there.

I’m still a great fan of Apple. It has underperformed the market as you can see, but that is likely to be temporary. The next set of quarterlies will reflect the most important. The biggest profit generator in Apple is obviously the iPhones and iPhones are now tracking sales of about 56.5 million for the year as against the projection that Apple had given of 52, which analysts said were too high. When they do come up with 56 million – as happens often when the facts are released – I’m expecting Apple’s share price to regain quite nicely. If you haven’t taken your stake, do it now.

There’s the overall portfolio coming up on your screen now and it shows you the prices at opening versus the prices today. The Rand: at the time we started the portfolio in December 2014, was at R11.14. As you can see, R15.46. Our view then that the Rand would depreciate has held this far and there’s nothing that’s happening in the South African economy at the moment to suggest that that’s going to change. Were President Jacob Zuma to step down or be forced out, it’s likely that there would be an uptick in the Rand. Anybody could tell you that, but when you look at it from a long-term perspective, the currency is in a declining trend and at this point, I certainly wouldn’t be selling any offshore assets to bring in to South Africa. You can see there, the Rand profit on the various constituents has actually done us extremely proud. Remember though: a 39 percent annualised growth is fabulous and certainly, nobody is going to discount that particularly at a time when the market as a whole has been plodding along at just about zero.

What we are saying (and we must remember that this is a long-term portfolio) is that because you see Amazon up by 150 percent, don’t be tempted to take profits. That’s not the reason we bought this. We bought this so that we could invest in it, follow it, make sure there’s no Tesco or MTN type of event, and then we can continue holding it indefinitely.

Great. Thanks, Alec. Just before we take the questions, I just want to let everyone know about our Webtrader promotion, which we’re running. If you have been sitting on the sidelines and listening to Alec’s Biznews portfolio every single month and still haven’t actually gone and opened up a Webtrader account… If you don’t have a Webtrader account, you go and open one, fund it, and place a trade. Standard Bank will comp you three months’ worth of our research portal. The research portal does give you institutional-grade research. It’s by a group called Fact Set, which you may have heard of. A couple of years ago, in my prior role to this, they actually came and did a sales pitch to me.

They’re a very slick outfit and they provide very good research from what I understand. It’s actually some of the research, which our analysts use. If you are still on the sidelines and you want to get involved, open up an account, fund it, space trade, and let us know and we will comp you a three-months’ worth of the research portal. Right, let’s take a few more questions. Clive asked a question during the presentation, basically wanting to know what your view is on the market over the next six to 12 months if you have to gaze into your crystal ball. Not really your thing?

No, I really haven’t got a clue. Honestly, I don’t have a clue and I don’t believe that anybody does. Lots of people pay lots of money to make those kinds of forecasts and projections and if you read ‘Fooled by Randomness’ by Nassim Taleb you’ll find out that eventually, the reality catches up with you. Only the Good Lord knows what the future holds but what I do believe in investing is if you follow just some basic principles… Firstly, do your homework and work out your intrinsic value of a particular stock. Then make sure that that stock is in an area that you would be happy to be invested in if the stock market was closed for five years. The third thing is to have a look at the pricing of that stock. It must be below the intrinsic value that you’d work out. Indeed, it should be 20 percent below the intrinsic value to give you what we call ‘a margin of safety’, and that’s when you buy.

You don’t buy above intrinsic value. You don’t buy into companies that you don’t understand or you’re not sure how they’re going to perform into the future. You buy below intrinsic value. You stay away from things like resources. That’s trading. That’s gambling. That’s not investing. The prices of resource stocks are determined by external factors over which you have absolutely no control and honestly, no idea. We know low commodity cycles and sometimes you can get lucky by getting in at the bottom of a commodity cycle and selling at the top, but some of the smartest people on earth have found it impossible to work out that commodity cycle. I would add two things onto that on resources stocks right now. (1) When you invest in equities, you’re buying a slice of a company. The benefit of a company is the people who work there and the intellect that they can bring to bear on the company to leverage the value of the money you’re putting in.

By buying resources stocks, you’re investing in an inanimate object. You’re taking away your greatest advantage of buying in an equity. (2) The big play as George Soros has put it – the only one thing you’ve got to remember – is that the world is in a deflationary phase. During a deflationary phase, it’s bad for commodity prices and bad for resource-related exchange rates so it’s not so good for the Rand and not so good for resources. Stay away from them. That’s gambling. Just stick to those very simple principles.

Thanks, Alec. Jaco says he has some cash in a Dollar account. How do we suggest he starts? Well Jaco, I’ll hand over to Alec now but if you do have some cash in a Dollar account and you’d like to start, you can open an account at Standard Bank Webtrader. If you’re maybe unfamiliar with the U.S. stocks and markets, you can certainly replicate Alec’s model portfolio, which is the whole point of this webinar. Otherwise, you could also get his new book, read it, and decide how to analyse companies and look yourself. Maybe you can find better picks than Alec can.

Maybe. You probably can. If you spend your time looking at things and you go for smaller companies, I have no doubt that you’d be able to outperform the portfolio that we’ve put together here. Just follow those basic rules. Just to add to what Stuart said, my suggestion here Jaco, would be ‘don’t put all your money into the model portfolio today’. Spread it out over three months. You don’t want to be exposed to a timing issue. Rather take one-third today, one-third in a month’s time, and one-third the month thereafter. That way you’ll be able to eliminate (albeit not totally because it’s only over a three-month period) or certainly reduce any whiplash you might be getting from timing.

Great and I think that also kind of answers Kenneth’s question, which is around the U.S. dividend stocks being relatively expensive with historic PE’s of 21 plus. As you said, maybe it’s just a matter of timing (i.e. when I buy them) and maybe that’s the answer right there. Spread your purchases out over a period.

Firstly, I don’t ever suggest that you buy a share because it pays a high dividend. That’s crazy. Look at the South African context. Look at the JD Group. Those people who were buying it as a dividend play found out (not very long afterwards) that there was no dividend coming next year. It’s a fallacious argument. Try to steer away from data. Try to steer away from all these signals that you’re supposedly given and get back to the basics. Get back to the fundamentals. Is this a company that I understand? Is this a company that I know? If I like the company (like Amazon. I love Amazon. Seven years ahead of the world in Cloud Computing), that is a massive advantage and you can see it. They own 57 percent of the Cloud Market. What’s happening in the technology field? People are going away from mainframes and they’re putting it all in the Cloud.

Who’s the biggest beneficiary worldwide? Amazon Web Services. Google. Why do I love Google so much? It’s because they have a business model in the Internet space, which you can’t touch. The Internet advertising model: Google gets a share of every single Internet ad that is placed through them worldwide. If you start a new website and you want to get some advertising, Google is going to be your partner- what a pleasure – for nothing. They’ve got it all in place etcetera. It’s a question of ‘what is their business model’ and ‘what price can I buy at to make it value’. Discovery is a good example here in South Africa. I love the business. I think they are smart guys. They’re going into the U.K. market in the right area at the right time where National Health is under a little bit of a dodgy situation there. As people get richer, they want to be able to have the option of going into Private Healthcare rather than National Healthcare.

Of course, Discovery is very strong here in South Africa as well and they’ve got a good operation in China, and their business model is based on incentivising people to do right. Isn’t that a lovely business model? Something like Google’s as well, but Discovery is not offering any value at the current share price. You work out what the intrinsic value of Discovery is and you wait. You wait until it gives you a margin of safety. Once the margin of safety appears, then you buy it. If the margin of safety never appears, you just never buy it. However, to actually go and buy stock because it’s showing a high dividend yield today is really, not the right strategy.

Great. One more question from Clive. Can you give us a few more details about your book, and where one can get it? He’s interested. Where can he find it?

Sure. Thanks, Clive. The cheque is in the post. No, it’s actually sold through all Exclusive Books. Jonathan Ball Publishers decided to make a big print order so we kept the book at R140.00. It’s written in very easy language. I sent Warren Buffett a couple of copies. His office asked for it. He never responded to tell me ‘great book’ or ‘shocking book’, or anything. I suppose that if he was really upset, he would have told me but I think he would approve of the language that is used because I had really pitched it at a person who doesn’t know that much about investing and can then understand in very easy language. It’s an easy read and when you get to the end of it, you’ll have a very good feel for these basic principles because investment is not rocket science. You don’t have to go to the third decimal point.

As Buffett says, “If somebody walks in the room, you don’t need to know they weigh 315 or 320 pounds to see that they’re fat” and that’s the same thing with investing. You don’t need to know that this is an opportunity to the third decimal, to see that it’s screaming out at you to know that it’s a good time to buy. Your intrinsic value is the way you work that out. You don’t have to be exact either. You just have to have yourself a range and as the shares come below that range… I think all of those principles are articulated really nicely in this book, which shares Buffett’s life story as well. It’s a nice read. I’m very proud of it and the feedback we’ve been getting is excellent. I see it’s on some bestseller’s lists now with some of the Exclusive Books without us going out there and really screaming about it. It’s more of a viral kind of way that people are sharing that they want to get it. Clive, pick it up and let me know next month what you think.

Scott says he’s based in the U.K. Can he get the book through Amazon?

Yes. Pick it up on Amazon.com. I think it’s $7.99. In fact, we will soon have the audio book so it will be even better for you, Clive. When you’re sitting on the Tube in the morning, you could be listening to your audio book and maybe getting a little bit of an education on the subject. As I said, I’m very proud of it. It’s easy to read. It is on Amazon.com where it’s selling quite nicely as well and it’s one of those things that you’ll probably refer back to from time to time but once you’ve read it, you’ll know a lot more about the world’s greatest investor.

The last question is from Bob. What is the actual name of the book?

It’s called, ‘How to Invest like Warren Buffett – global edition”. It’s actually called “Invest like Warren Buffett – global edition”. Everything in U.S. dollars – obviously aimed at the U.S. market.

Great. That seems to be all the questions. Thanks for coming through today Alec and thank you everyone for tuning in and listening. We do appreciate your time and we’ll be back next month with some more.

It was my pleasure and thanks guys, for coming onboard. I look forward to next month.

Cheers.