Biznews Global portfolio: After October’s 14% wipeout, what now?

LONDON — In this special edition, Alec Hogg assesses the next step for investors in the top performing Biznews Global Share portfolio in the wake of a 14% hit in October. – Alec Hogg.Well, this special edition of the Rational Perspective, we have a look at the Global Share Portfolio, which has come under a lot of pressure in the last month..___STEADY_PAYWALL___.Every month we get together and we've been doing it for the last four-years with Premium Subscribers and some clients from Standard Bank to look at the performance of the BizNews Global Share Portfolio. It was started in December 2014 so, coming up for its 4th Anniversary. I'll be giving you more insights into that in a moment but it's a very special edition of Rational Perspective, where we have a look at the performance of the Share Portfolio and what to do next after the chaos of the past month. Well, usually when we have the BizNews Share Portfolio I'm here to answer questions and go through the different ideas of the presentation but of course, today we had some technical issues and actually, what do they say, 'there's no ill wind that blows no good.' So, perhaps this was a wind that's going to blow very good indeed..Okay, so let's start off with our very first graphic and there you can see, October's Wall Street Wipeout. In the portfolio we have, at the moment, nine different stocks. These stocks have been changed since we started the portfolio in December 2014, but for the most part the core holdings have been around since 2014. In fact, of the nine stocks, four of them were bought on the opening day, 5th December 2014, that's Amazon, Alphabet, Vanguard S&P 500 Index, and the Berkshire B shares. They have been held throughout that period. We've changed some of the portfolio, in fact, we've dodged some really heavy bullets there. Metro Bank – I saw it came out with its results last week. We managed to get out of that some time ago. It's now fallen another, virtually 50%, since we sold it. Nova Nordisk was another one we got out of at the right time. We were also fortunate to dispose of IBM before it slid really poorly, and so on..But on the other hand, we've made some investments that haven't been that great and you can have a look at the past month what's happened to this portfolio. The hardest hit was Amazon, which was down 22% in the month, by more than 1/5th of a percent since we had our last Global Share Portfolio Webinar, which was in late September. The decline in Tencent Holdings 21%, and Alibaba 19%, and Alphabet down 14%. So, when you have a look at those four, the hardest hit of the past month you've got to be shaking your head and wondering what is going on..First of all, Amazon, and I'm going to give that quite a lot of airtime in this podcast, but both Tencent and Alibaba are Chinese stocks. We are seeing the knock-on effect of what Donald Trump has been up to in his Trade War against China. The Americans just itching for a fight with China. Whether you are a Trump supporter or not, you cannot possibly gainsay the reality that the Trade War or talk of it, or the tariffs that he's brought on has substantially affected the share prices of both Tencent and Alibaba. Tencent on top of that has been hit by a concern by the Chinese government that it's major revenue source, which is in gaming, i.e., games that particularly youngsters play on their phones, that is addictive and they're spending too much time on their phones and it is affecting their eyes and, as a consequence of that the Chinese government is brining in regulations to stop the mushrooming of that area. But it's interesting to note that both Tencent and Alibaba have had virtually the same decline in share price in the past month. Tencent is down 21%, and Alibaba is down 19%, and that talks to a much broader perspective..Alphabet – their financial results were out. They missed the revenue target fractionally by about $300m, when you're talking over $20bn. But the profits were up substantially above where the Wall Street was expecting it to be. So, those were the four that were the hardest hit. We're going to spend more time on Amazon in a moment. In line with the market, as you can see there, the S&P 500 Index Vanguard was down 9%, so the stock market in America, overall, dropped 9% in the past month, up until today, since our last portfolio update, which was late September..Microsoft is down the same. Berkshire a little bit better than the market overall, down by 8%, and Adobe slightly worse in the market, down by 10% and the resilience that's been shown in the portfolio is Apple, which is our third biggest holding, with 16% of the portfolio invested there. That is only down by half as much as the market but it has been a wipe out of note..Have a look at this graph now. The portfolio in USD terms, and you can see there that Amazon's incredible performance, it still looks pretty good, it's up 369% since we bought the shares on the 5th December, despite that 22% wipe out that you saw in the past month. It remains easily the best performer in the portfolio followed up there by Alphabet, which has grown by nearly 91%, and Apple is up 70% since we bought into that in June 2015..Overall though, the key number at the bottom there, the portfolio value in September was $390,000. That fell to $336,000, a decline on the portfolio of 13.8% in the month. There it is, in bold headlines for you. When you compare that with the market overall down by 9%, we clearly underperformed the market in the month, not surprisingly because our two biggest stocks, Amazon and Alphabet, were hardest hit or amongst the hardest of any of those on the New York Stock Exchange. You can see there that the total return has now come back to 68% in USD terms, and that is compared with 28% for the US market overall, so this portfolio is still comfortably outperforming the US stock market but it has come back to earth with a little bit of a bump which is not surprising..It's a different picture though, when you look at the year-to-date, as you can see there, from the 2nd January, when the markets opened this year until the end of October, or the 30th October (today), Amazon is still the best performer in our portfolio, up by 29%, despite that 22% smack that it's had in the month of October. Apple – 22% improvement and Microsoft is up 21% for the year so far. So, Microsoft has been kind of the steady ballast in the portfolio over this period of time. In line with the market – Berkshire, Vanguard, which is the market, and Alphabet, the parent of Google, surprisingly is actually down a little bit this year. But there you can see the impact of the Chinese shares, Tencent and Alibaba, which have been smashed. A year to date, Tencent down 39%, Alibaba down 28%. So, the question has to be, 'have they bottomed out?' 'Are they being affected by the Donald Trump attack?' 'Is this going to worsen?' 'Is it going to intensify and what happens next?' What should we be doing about that?.One of the major issues here is because the portfolio is aimed at SA shareholders the main reason for starting it in the first place was to give us a hedge against the ZAR (Rand). As you can see there, the ZAR again deteriorated in the past month. It went from R14.15 against the USD to R14.63. That made an impact on the performance of the portfolio. In USD terms it was down, call it 14%. In ZAR terms it was down 12%. So, the ZAR offset very slightly the crash or the smash on Wall Street. The annualised return of the portfolio since inception is still at a very healthy 32% but last month it was sitting at 41%. Now, you can't believe, with hindsight of course, and hindsight is an exact science, if you were able to trade the market well, obviously you should have been selling all of the stocks a month ago. But the problem is, we just don't know about timing and the approach that one has to have to investments, I believe, is that you find the best companies. You invest in the best companies and unless there's a fundamental change in those companies you ride the waves because you don't know when those companies are going to be offering great value or less than great value in the short-term..What we've done here is we've purchased into shares at times that we felt that the shares themselves were offering exceptional value. It doesn't look so clever, as you can see, on both Tencent and Alibaba, both of whom are down in ZAR terms by 7% each, so that doesn't look too clever any more. It didn't look too bad last month of course, but when you consider or you overlay what has happened to the share prices of those two stocks in the past year and how American investors seem to have been running for the hills, and American investors makeup more than half of all investors around the world. Then you've got to ask yourself, 'is the worst over for these two companies or are American investors going to continue to sell and offload Alibaba and Tencent?' Or have they really just done as much as they can do? Or, on top of that, do you sell into a falling market?.As you can see there, on the portfolio, the ZAR value has gone from R5.36m in September to R4.78m, so a huge decline in the month of R500k but again you have to look at that annualised return and have a look at it over the year as a whole, and over the year as a whole – it has been a far better performance generally..Looking at the individual performances of the stocks in the portfolio. There you have them. Since launch, 2014, the ZAR has depreciated by 30% but the portfolio has appreciated, if we go back to look at that previous slide. The portfolio has appreciated by 123%. So, the result of that is that the portfolio has outperformed the decline in the currency and for that, I guess, it means we've achieved our intention..The whole idea was to invest money in the US stock market and to enjoy the benefit of being outside of Zuma-nomics and inside of the most efficient economy in the world. You have to worry now about the impact that the Trump administration is likely to have on the American market in the medium-term and the longer-term and that is why we are focussed here primarily on global stocks. Amazon, Alphabet, Apple, Berkshire, Microsoft, Adobe – they're all global shares. They operate all over the world and the international picture is as important for them, and in some cases more important than the North American story. For the moment, the North American economies are doing very well. The America economy growing at more than 3.5% as we sit right now and that is giving us a strong-undertone to the profit performance, which, as an investor, you've got to look at the profit performance. You can't get yourself confused by what 'Mr Market' tells you on a day-to-day basis..But as you can see there, on the individual stock performance, and here's a picture of it, which maybe makes it even more easy to understand. The two Chinese stocks, Alibaba and Tencent – going backwards. Amazon.com despite that pull back in the month of October is still looking very strong, and the rest of the portfolio, for the most part, outperforming the market generally. Even Berkshire is a little bit ahead. Apple and Alphabet significantly ahead. So, those are the big stories..But let's start off by looking at the individual constituents of the portfolio and having a look at Amazon.com. It is our biggest stock in the portfolio, as you are aware, we have almost a quarter of the total portfolio invested in Amazon. It's also been, by far our best performer with an appreciation in USD terms of 369%. Is it a time now to offload? Remembering, that Amazon has come back sharply in the past month as a consequence of, first of all, concerns over the sustainability of a bull market in tech stocks, which really did seem to get a little bit out of control, with hindsight. Secondly, on the financial results, so when you look at this remember that Mr Market is a manic depressive and that means that when he's manic he will push share prices way beyond where they probably should be trading. It's hard to calculate that. It's hard to make a call on that because you are taking… When you try and trade stocks you are taking on huge balance sheets and lots of brain power that is inside or embedded within financial institutions..The sense that one has when you make investments is find a company that you can stick with and hold onto forever and then check if the fundamentals change then sell out of that company. But otherwise trying to time your purchases and sales in a business is really, very difficult and certainly it's beyond my capability. So, the question has to be, after that decline in the share price of Amazon in the past month of about a fifth. What do we do now? Do we hold onto Amazon? Do we buy more Amazon or in fact, do we sell Amazon? I spent a lot of time going through the financials as they were delivered on Friday. Remembering that straight after the financial results were produced, you had a significant reverse in the share price. If you go onto BizNews and you go into the Premium section and read through… Well, go onto WSJ.com and go and have a look at the data that is available to you and as you're looking through the performance of Amazon.com. You'll see that when the financial results came out there was a steep decline in the share price..So, the financial results were anticipated to be better than what was actually delivered, that's what it tells you because if the market or if punters (if you like) are having a look at a decision to sell-off the share very sharply, as a consequence of the financial results then it is because it is disappointed. So, ahead of results Amazon was trading at $1,778, after results it fell down to $1,617. So, it dropped by $150 a share on the financial results. It then, subsequent to that managed to pickup a little but then with the wipe out that we saw on Monday in tech stocks, had gone as low as $1,500 a share. Remember, this is a stock that was at $2,000 a share a month ago. It got as low as $1,500 and picked up $40.00 in late trading yesterday. Suggesting that well, there might be some people looking at this and saying, 'hang on a minute, the decline has been overdone.' I'm among them. I think the decline has certainly been overdone and that Mr Market, having gone from his manic phase and straight into his depressive phase. Is now perhaps, hopefully taking some medication and settling down a little bit because we have had an October to forget. It doesn't matter where you were invested on the stock market but, by the same token, remember those year-to-date figures – this is a reflection that shares cannot go up in one direction indefinitely, it just isn't possible..So, having a look at the Amazon results – what were the big issues there? First of all, every quarter Amazon tells us what it expects its going to be producing in the next quarter. It's what is called guidance. When Amazon's guidance came out three months ago, looking ahead, to the quarter just past, the September quarter. The guidance there had revenues to rise between 23% and 31%, and profits, or operating income, to go up to somewhere between $1.5bn and $2.5bn. That's what the forecast was. The actual return came in with revenues up 29%. Now, remember the range they gave was between 23% and 31% so, that's very close to the top-end of what the guidance was..However, Wall Street thought that Amazon was being conservative and the spreadsheet jockeys who inhabit the Wall Street firms were looking for even more than the actual figure of $56.5bn in revenues that Amazon produced. As a consequence of that they felt that Amazon had underperformed. Now, if you're a shareholder you can't listen to what the spreadsheet jockeys are talking about – you've got to listen to what the company itself tells you. The company itself was telling us that it was likely that the revenues would be between 23% and 31% higher. They came in at 29% higher. In fact, if you take out the stronger USD it's 30%. So, it's right at the top of the guidance range. I'm happy with that. But I'm ecstatic with the fact that operating income is now starting to actually crank up and that came in at $3.7bn rather than the $1.5bn to $2.5bn that had been forecast or projected or given as guidance three months before. Let's just stop there for a minute..What Amazon have done is they've produced sales, which are towards the top-end or very close to the top-end of its guidance range, and they produced profit, which is way beyond what it expected three months ago. So, when you look at that you've got to be asking yourself, 'what's going on here?' How come the share price has fallen to the degree that it has? There can only be one reason for that and that's the punters overdid things and are now starting to get a little concerned about it and pulling back the share price. But as a shareholder you've got to look at the number. What are the numbers important about?.The other issues that punters were concerned about was that Amazon's forecast for the fourth quarter is below what they hoped for. So, Amazon told us, in its guidance as it does every quarter that in the fourth quarter, in the three months to the end of December it's going to grow sales between 10% and 20%. Shock horror because in the most recent four quarters those sales numbers have been in the 30's. In fact, one quarter got over 40% but again, you've got to look at this in context. The context is Amazon introduced a year ago Whole Foods, a retailer. It's like having a highly profitable, high margin business, where you make an acquisition for a low margin, high turnover business, and then expect that the turnovers for the combined whole are going to give you the same profit margins. Of course, it doesn't work like that..If you were to acquire, for instance, Shoprite, which runs at a 2% profit margin, with a business that is at a 30% profit margin. You can't expect that Shoprite suddenly is going to give you a 30% profit margin. That seems to be what the punters have been expecting of Amazon. Clearly, it's not possible. So, the sales that have been going up by 30%, have been because Whole Foods, this retailer, had its sales added to the Amazon figures for the past year. Clearly, that has made an impact on the total sales number and it's also had an impact on the overall profit margin, which has, of course been compressed..The other big thing that's happened in the past year is that Amazon Web Services, which is literally seven-years ahead of everybody else in cloud computing and has over 50% of the cloud computing market as a consequence of that. Amazon Web Services has been growing like Topsy. It's been growing at over 50% a year, in the past year, and it's now grown in the past quarter by 46%, and it's very profitable. It makes a 31% margin on the sales. So, Amazon Web Services is also growing like Topsy, has helped that sales line. So, you've got to understand why the sales line grew that fast..Now, when Amazon comes back and it says, 'we're looking at between 10% and 20% for the December quarter.' What is it telling us? Well, it's bringing in a very big chunk of revenues from Whole Foods, which is now going to be directly comparable with Whole Foods last year. You can't expect Whole Foods to grow at the same rate, for instance, as Amazon Web Services. It's a retailing business. It's not going to be growing at 10% to 20%. It's going to be growing at far less – that's the reality of life. When you're selling food, people don't spend 20% more on food in a year just because it happens to be Amazon that is selling it. So, that's the first part of it..The second part of it is Amazon is clearly putting into its pictures a conservative figure. Now, why do I say that? Well let's listen to what the financial director, Brian Olsavsky said in the conference call, which was held on Friday..What I would say is that we feel like we're in great shape for the holiday. The warehouses are very clean. We feel like we're going to have great capacity, not only for retail products but also for FBA. We're going to have great capacity for shipping to our customers so, we're very ready to go. The selection should be at size point, especially for prime members so, we're very bullish on the fourth quarter and we just have to see how revenue comes in..'We're very bullish on the fourth quarter and we'll just have to see how revenue comes in.'.That tells me everything. He's not going to come below 10%, that's the financial director. They certainly might, in this case, be secretly hoping they can get above the 20% year-on-year growth. But remember, it's a different Amazon that you're comparing now. It's not the Amazon – you can't just put 30% in or write 30% into the numbers. In fact, before Whole Foods was acquired Amazon was growing in the 20's so, you add a new chunk of low margin, low growing sales and now you expect suddenly that you're going to continue to grow at the rate that you did, which was in the 20's before then. Okay, I think that kind of knocks that one on the head..The second thing that they're talking about, that Olsavsky is talking about is conservatively forecasting a drop in profits at somewhere between $2bn and $3.5bn. Now, remembering that it shot the lights out in the September quarter on profits and how did it do that? Well, let's have a listen to what I think was the most important part of the sales call. It was only a half-an-hour sales call but the most important part to me was the insights that we were given about the operating performance now, of the company. How is Amazon going to be working, in the future, as far as profits are concerned? What is happening to profits? What is happening to the numbers or the costs – are the costs contracting and profits growing? Or are costs contracting, growing at a lower rate than sales? If that happens then you get what is called the crocodile jaw effect and that is what every business owner looks for. Sales growing faster than costs. It's really, that simple. Let's hear what Olsavsky had to say about this..First of all, we've had very strong growth in some very profitable businesses that we have, you must now AWS in advertising but we've also had a great cost performance this year in three specific areas I'll call out. So, first on head-count. If you remember we grew head-count 48% in 2016 and 38% last year. If you adjust for Whole Foods, with Whole Foods it was 66%. But without Whole Foods we still grew 38%. We have looked to really leverage our investment from the last couple of years and as we funded and moved and invested in a lot of new areas that we've talked about AWS devices, digital content. We've had a lot of movement within the company that has filled a lot of those roles. So, we're only up 13% on head-count through nine months, year-on-year, so a real step down in that. Again, the theme here is going to be banking some of the investments from prior years and looking to get greater control. In a performance centre world, we had grown square footage for our performance and shipping areas by over 30% over the last two-years, 2016 and 2017. I've talked about that on prior calls. It's making that investment to match up with very strong, fulfilled by Amazon demand. AFN or Amazon Fulfilled Network units that are growing at a faster rate than our paid units. This year we're only adding about 15% to our square footage so, again, getting better efficiencies on what we have and banking the multi-year investment that we've been making. .So, let's just stop there for a minute. He talks about head-count growing at 38%, excluding Whole Foods. So, the whole of Amazon is growing at such a clip that it's adding 38%, more than a third of the existing staff every year. That's been happening in recent years and that, of course, adds to costs clearly. This year, head-count up 13%. That is a massive difference. Now when you're growing your sales, as it happened in this past quarter by 30% year-on-year or up to 20% in the last quarter, and you're only growing your head-count by 13%. That's good news..But add on top of that, huge investments that have been made in the past in what they call fulfilment centres or warehouses as he explained there, the financial director. They've been adding to these warehouses at a rate of 30% a year. This year, half as much. Now, as long as you can keep your sales growing at a more rapid clip that you're investing in your fulfilment centre or in your warehouses – clearly, you're adding to profit margin. That is a business owner's dream but let's pick up on the third issue..And the last one, which is really significant, is on the infrastructure side. You see the operating margin for AWS is up to 31% this quarter. A lot of that is based on efficiencies of our data centres. Not only for the AWS business but also for our Amazon consumer businesses – AWS is the biggest customer. If you look at Capital Leases, which is where we spend money for the data centres. It's up only 9% year-on-year, during 12-months, and it was up 69% last year at the end of the year. So, those three areas have driven a lot of the cost performance and a lot of the deviation from probably the estimates that I've come up with this year. .So, even the financial director was unable or was surprised by the way that the costs have now started to be pulled back, and listen to that number, on infrastructure, growing at 69% last year. This year it's down to 9%. So, what do we have here? We have a company that has suddenly got into a profit mode. A company that for years would be criticised because it didn't deliver any profits, because it was investing and investing. Suddenly, it's now in a position where the investments have given it the scale that it needs. Additional investments are less than the growth in the sales. It continues to win market share. The Bezos bulldozer is still gathering momentum. You put it all together and you really are looking at a business now that is going to be delivering superior profit growth into the future. That is the signpost that seems to have been missed in all of the noise and the chaos that Wall Street has been busy with over the past month..But finally, some of those external analysts are now worried that Amazon is going to get itself into trouble because this wonderful business that it has, Amazon Web Services, which as mentioned before has got a seven-year lead in more than 50% of the market for cloud computing, and everybody… For those who don't know what cloud computing is, its in essence, you take the information you would have previously kept on a hard drive within your own computer, your laptop or desktop or whatever, and you put that into the cloud because of ubiquitous nature of the internet, pretty much every where you go now, you can access the internet. So, it's kept off-site. Amazon saw this before anybody else. They got into this field seven-years ago and has more than 50% of the global market in this field. Concerns that some analysts have is Microsoft and Google, and now with the deal that IBM has done with Red Hat, will be starting to come and to cut away at Amazons lead. Well, maybe they will, but on the other hand it isn't going to be easy and again, let's listen to what Olsavsky had to say in the conference call..Cloud pricing philosophy is work relentlessly, take costs out of our own cost structure and when we can pass savings onto the web services customers in the form of lower prices. So, it's easy to lower prices but it's much harder to be able to afford to lower prices and that's something we work really hard in all our businesses, including AWS, to do that. When you look at AWS now we've lowered prices 67 times since we launched. Including a few more in the last few months so, those pre-op price reductions are a normal part of our business for us..67 price reductions – wow. Pretty hard to go head-to-head with a company that's made the investments before you have and is continuously able to cut its prices to its customers and still generate a 31% margin. Good luck to Google, Microsoft, and IBM. Amazon is not giving up that market easily. On top of that you can add the work that's been done on voice-recognition software. We know that Amazon has just a huge advantage, a huge leadership in that field. Many people are tipping that as being the next big thing on the internet is that you would be telling your devices, you'll be talking to your devices and your devices then will be translating that into actions, text, sales, purchases or whatever you like. But anyway, as far as what I can see from Amazon's perspective this is a company that is incredibly well positioned. It's continuing to grow its sales at a very rapid clip. It's not a company I would ever be wanting to be selling the shares of and certainly not, even though it's got to around about $1.500 a share now. Certainly not at these levels and I think that that's the most important thing to put into your perspective when you're having a look at how or what next, we should be doing with the portfolio..The other big issue is now the two Chinese shares so, let's have a look at Alibaba and Tencent because those are the two shares that have been the laggards. They're both down by 7% in ZAR terms, on what we paid for them in this portfolio. Is it time to call both companies or call an end to both companies? Is Tencent, and by definition for SA shareholders, Naspers, is it now beyond the level at which we should be investing in? Should we be leaving it? Should we be running for the hills or not? Well, as far as Tencent is concerned, you've just got to go back and have a look at what's happened with the share price over the past few months, and it is quite disturbing that it got as high as HKD463 a share, and it's now down to HKD252 a share..What are you buying when you're buying into Tencent? In essence you're buying an app that is owned by a billion Chinese people who have it as their 'go to' and their home page when they open their phones or their laptops or computers. When they register or when they start engaging with the internet they do so through WeChat, which is the app that's in front of everything else that they would transact with. Now, when you have a market of a billion people who are automatically using you every day, what is that worth, who knows? But what I can say to you is that it is an investment position that from a longer-term perspective is surely going to be paying off handsomely. If you get to a point with a company like this and you ask yourself should we be selling the stock the question has to be, has something fundamentally changed? There is a lot of talk around the fact that the Chinese government is unhappy about video games and that it is going to make it more difficult for Tencent to make money out of the games that it sells or the gaming population..True – that is the reality of it but if you then translate that back into the fundamental of this business and the fundamentals are you've got a billion people who use you. They haven't found an alternative. They're not going off WeChat to an alternative to Apple, or Samsung or somewhere else. They're still on WeChat. You have to believe that it's not a one-trick pony and that if you have that ecosystem that is an ecosystem that you can then translate into profits in another way. Even if the decline on the video games is to be substantial. If you were talking about the Chinese government making these moves when Tencent share price is HKD463 a share – sure. That's a reason for being concerned. Is it worth half the company? I'm not sure and certainly not given the record of Mr Market and the way that he would get terribly enthusiastic on one basis, and then very depressed on the other..So, Tencent has pretty much corrected as much as its likely to. Can it go further down? Of course, it can because you can see Mr Market becoming even more depressed about Tencent. Indeed, where we are right now is only where the share price was in early 2017. So, it can still get back to around the HKD200 level, I guess, that you saw it in 2016. Would it go further than that? I'm looking forward to talking to my expert, my China – 'go to man in China' Dawid Krige, who invests exclusively in China and is a big shareholder in Tencent and I'll bring that to you in due course. But from looking at where our portfolio is positioned at the moment. To be selling Tencent today is a little bit like getting out of a company, once the horse has bolted and secondly, is it a fundamental deterioration in the long-term prospects of the company?.Well, if you think that Tencent is a one-trick pony, which is only going to be making its money out of video games then sure, you have to believe that that's the case. If you believe that Tencent is something else that it is working off an ecosystem that it is investing in, as it has been doing, in businesses all over the world and by bringing those together it will make, in the longer term the base from which its working count, then clearly not. I'm in the latter school and I also believe that, as has happened with Alibaba and there's no video gaming threat that has impacted that share. So, you've got to ask yourself how big an issue that really is in Tencent's life if Alibaba has also fallen dramatically, as a consequence in this past year..My sense on Alibaba is that you bought into Alibaba or we bought into Alibaba on the strength of the positioning it has in the Chinese market. There are really three big businesses in the Chinese market, in the tech space and that's Alibaba, Tencent, and Baidu and all three of those businesses still have and are still growing rapidly and they still have the potential to continue doing so as they expand more deeply, not just into the biggest market with the biggest population in the world, but also outside of it..So, Alibaba has its decline in the past month, as we well know. It is down sharply. It has fallen from a price of $162 on the US market, to $133 at the moment. Can it go further? Of course, it can – it can decline further from there. But on the other hand, it's got to now be very close to an area where long-term investors reassess and say, at $370bn market cap for a company that has such a huge positioning in Asia, the fastest growing part of the world. Are you really over-paying when you consider that you talk about some of the big American companies that don't have the market penetration that Alibaba has, people wise, and are trading at double the market cap to Alibaba… No, the whole story here and the whole story of this portfolio is about exponential growth..This is not about a trading portfolio. This is not a portfolio that you would be investing in on the belief that you can change when market conditions change and you could then find a stock that is offering a deep discount to its share price. That you're actually smarter than everybody else in the investment market. What you're doing here is you're saying let's find those companies that are growing dramatically. That are growing their sales. That are growing their penetration. That are growing their profits at an exponential rate and that would be 20% per annum, and more. Then stick with them because you're going to have your bumps in the road, as we've had in October, but the point is you're buying into an idea, you're buying into a long-term theme of exponentiality, and underlying all of that, you're buying into the disruption of the old system by the Fourth Industrial Revolution (4IR)..Sometimes it's going to get very exciting. People are going to get over exuberant, and we have seen that happen in October. At other times they're going to get terribly depressed and believe that this has all been excessive, and of course, it will do that because in the market economy system and the stock market is the best reflection of that. You have times when share prices will go beyond the real valuation and at other times they'll go below the real valuation. The question you have to ask is, 'is that company, of which you are a co-owner, one that's fundamentally changed? Has the underlying reason why you became a co-owner of that company fundamentally altered? The second point would be, 'am I smart enough to take on everybody else in the world and trade in and out of that company in the short-term?' Both of those answers are no. Then what you have to do is fight those emotions, fight the fear, fight the concerns and just know that as you keep investing into these great underlying businesses that continue to grow at a rapid clip. When they start coming back, when or should you get to a point where they are saturating the market. Should you get to a point where the growth is now no longer exponential – that's the time to be making a reassessment on whether or not you should be investing in the companies..This special edition of Rational Perspective having a look at the BizNews Global Portfolio, has brought us up to date with where we are in the markets today and where we see investments going..I'm Alec Hogg and until the next time, cheerio.

Biznews Global portfolio: After October’s 14% wipeout, what now?

Related Stories