WEBINAR: Global Portfolio annualised 34% return; Apple slides, Metro lags

JOHANNESBURG — Despite the Rand appreciating over 12 percent against the US Dollar following Cyril Ramaphosa's appointment as ANC president, the Biznews global portfolio maintained a 34 percent annualised return since inception over 3 years ago. The portfolio, which consists of eight stocks, saw tremendous grow over the past month in all but two. Apple, due to release results this week, lost a few percent, on concerns the numbers may not hit analyst expectations. While London-listed Metro Bank did not move. Alec Hogg explains this and more in this month's global portfolio update hosted on the Standard Bank Webtrader platform. – Stuart Lowman.https://youtu.be/hHmoFG3ZnHY.Maybe we should just touch very briefly on the big news of the moment, the Viceroy Report that's come through, which is telling us that Capitec is in trouble. Their share price was down nearly 20% the last time I looked. It does appear that the Viceroy-Effect is still pretty potent. We saw what Viceroy did to Steinhoff. I haven't had a chance to read through the report yet, I will be doing so no doubt, along with hundreds, if not thousands of other people. My feeling on Capitec though, from what I know of it and I have been down to the business. I went there 3 or 4 years ago, to go and look at what was going on there. They have a good business model..___STEADY_PAYWALL___.They certainly are very up to date when it comes to all the information that they have at their fingertips. Where Capitec did worry me was the share price was priced for perfection. It really, at almost an eight-times book versus under three-times book for the other SA banks. It really was a stock that people have actually been pushing maybe a little bit too far. I have said that a few times and, also when you see the chairman and the CEO dropping 10's of millions of Rands worth of their own shares or selling them into the market place, when the share price hit R1,000 in December. I did suggest that one needed to take a very cautious look at it. Anyway, it is what it is but no doubt, Capitec will be responding to the Viceroy Report in due course..Now that we've got that behind us because I'm sure there are a few people who are going to want to discuss those issues. There isn't really a lot more that I can add to the Capitec story than that, but I can give you a whole lot of information on the Global Share Portfolio, and we'll be going into that in a moment. Stu, just to make sure – is everything on the screen as it should be?.Yes everything is as it should be. I've got a question, if you want to kick-off with a question, from Dirk? .Sure..I see that it's on an old stock, which we used to have it in the portfolio, Novo Nordisk. He says, it's recovered again. Do you know if there was a change in the fundamentals and can an investment be reconsidered?.Thanks Dirk. Yes it can be reconsidered. I see Novo Nordisk recovered on the strength of an attempted takeover that isn't going ahead. It's a little bit like what happened with Mediclinic. Mediclinic was making a charge for Spire here, in the UK. It was unsuccessful. Well, it was unsuccessful in getting Spire to agree to a friendly takeover. Novo Nordisk has had exactly the same thing with a Belgium company, they've attempted to acquire them. It hasn't been successful and the share price has improved. I think with investing you've got so many options to choose from, 3,500 shares that you can look at around the world. To go back to one that has actually not told the truth and that has burnt you once before fortunately, it didn't burn us as we got out early enough, but that has burnt shareholders by not giving them the full story – I think you just leave it..It's like Tesco – would Warren Buffett ever buy Tesco shares again? No, there's always a remnant or a residue of the culture that's within the organisation and its best just to go elsewhere. There are easier opportunities in other areas of the investment market so that's my view. If Novo Nordisk, if you know the company and it takes your fancy, and you do like the story as its going ahead. Well if you've done your homework, and that's the most important thing, and that's really what we're trying to do here is to try and say to you, here are the shares that we like. These are the ones that we've done our homework on. These are the ones that we keep following, and do the same thing yourself..It doesn't mean if a stock is not in our portfolio we don't believe it's worth owning. All we're saying, and all I'm trying to say as a general trend is please, just go and do your homework. Once you've done your homework you can make your decisions on what to buy and what not to buy..But there's our portfolio. That's the portfolio in Dollars and it's been an extraordinary month. We'll get into it in just a little while on what happened in this month, but as you can see the portfolio is now worth $363,000. It started at $200,000 so that's really, the big, overall story and, as you can see there, Amazon has been spectacular. As has Alphabet, which has doubled since we purchased them 3 years ago. Apple has come back quite sharply in this past month. That's the only loser in the past month but all of the others have done pretty well, particularly in USD terms..The portfolio in Rand, you can see there. The Rand surged in the past month, but the portfolio in Rand terms has annualised over 34%. That means if you bought in December 2014, when we began you would have made 34% a year on your portfolio, and it's about right because if you look at the total value of the portfolio, R4.4m, that comes from just over R2m, where we started. Interestingly enough though the portfolio in December was R4.5m so it's down about R100,000 in December and the reason for that should be pretty clear. There we go, we'll start off with the Rand/Dollar..Last time we had this presentation was about 6-weeks ago, we did it on the 13th December, just before we went into the Christmas break the Rand was at R13.62. That was 5 days before Cyril Ramaphosa was elected as the president of the ANC, and at that point in time, if you recall, I did say that we believe that sanity would prevail within the ANC, and that the ANC is peopled by more good people than bad people, and that good would always win over evil and it would prevail in this instance and indeed, that is what happened. We discussed the issue, well, if you think Cyril is going to become the next president and you think the Rand is to appreciate, what are you going to do about this portfolio?.My sense on these things is that of course, if you are a trader you would have been hedging the Rand-value, etc, but that's not what this portfolio is about. This is a Buffett driven philosophy, if not exactly all of the shares would be owned by Buffett, but a Buffett driven philosophy, and that is you own the shares forever, so your holding period is forever and not for a period of time. So as a consequence although, there was a sense that the Rand would appreciate strongly after Cyril Ramaphosa was elected ANC president, we weren't making any changes to the portfolio..Now you can see that the impact of that was very significant. The Rand appreciated by 12% against the USD since Ramaphosa's ascension and indeed, even more so since mid-November, when it became apparent in some people's minds that it was possible that the Zumanomics trend was going to be reversed. You could see the Rand peaked out at R14.47 and that's only 2 months ago. How the world has changed – I can tell you more if we get to the questions about the remarkable excitement that surrounded SA in Davos this year, at the WEF (World Economic Forum), where Cyril Ramaphosa was leading the charge. We can talk about that later, but just to let you know that that surge in the Rand's value is on the back of a rerating of the country's economic outlook..As you can see, the Rand has been very weak for much of the last 3 years, (this is a 3 year graph). If we were to take it back even further it would show you even worse numbers. The reason why we started this portfolio in December 2014 was because we had a negative view on the future of the Rand because of Zumanomics, and on the other hand we also felt that it was a good idea to invest offshore and to get to know the international markets. Now I think we've achieved both of those but with the change from Zuma to Ramaphosa that the first issue here – you're not investing in offshore investments simply as a Rand hedge. You're investing there because there is a much bigger market that you can play in and as we've seen the performance of some of these stocks has certainly done us proud..As far as the Pound is concerned. I hear some people say, yes, well the Rand, don't believe that Ramaphosa or the Cyril-spring effect is coming through yet. That's not true because when you look at the performance of the Rand against the Pound – again, from R18.98, and you can see it is R16.84 at the moment, so it's a couple of Rand appreciation there, subsequent to Ramaphosa, it's a 7% gain. So even against the Pound, which itself has been appreciating because it seems like common-sense is starting to prevail on Brexit, there is an improvement. The Rand has improved against that, and 7% is no small matter..Against the HKD (Hong Kong Dollar), which is the other currency that we need to watch given that we have purchased Tencent, which is listed in Hong Kong. There you can see, there's an improvement there as well from around R1.84, at its worst, to R1.75, when we last spoke to you. It has now appreciated by 12% since that point, and we're now sitting at R1.54 against the HKD. That means it's going to cost you R1.54 for each HKD. Whereas it was costing you R1.75 a little while ago. Maybe not a bad idea to go do some of that duty-free shopping in Hong Kong, when you get the opportunity. Okay so that's the story. We have an offshore portfolio, which has, in the past month, been affected by a strong performance of the Rand because the Dollars are converted into less Rands because of the appreciation of the Rand. Of course, it's a very good thing to see the country's currency, the Rand, appreciate but it does have an impact on the portfolio..However, as you can see from the individual performance, we still are showing a profit in every one of the stocks. The one that's disappointed the most has been Metro Bank. This is really getting me scratching my head. I do know that there's a tug of war always that goes on between investors and opportunities in a stock like Metro Bank. Metro Bank is growing very rapidly and as a consequence it needs capital, so the providers of capital, and as Metro Bank has been doing quite a lot of rights issues, the providers of capital are saying, let's not let the share price runaway from us. That would mean that we'd have to give them more capital at a more expensive level for us, but at some point, in time that has to break-out, one would believe. We're not sure but as Metro Bank keeps growing it has to reach a point where the value of the assets that it's got on its book, is superseded by the reluctance of the funders or the providers of capital, to let the share price appreciate. It's an interesting conundrum that we have there. I was expecting that Metro Bank would by now would have appreciated a lot further than it has..Well, there you see the results of it. It's been over a year that we've owned the stock. It's really been a laggard but on the other hand, the exponential companies in the portfolio have really done amazingly well, and there you can see Amazon, Alphabet, and Tesla leading the pack. Remember, both Amazon and Alphabet we've had in the portfolio for 3-years, and Tesla for only about a year, so you can't really compare those two together. The overall market there on the Vanguard S&P 500 is 47% in the 3-years, so the American stock market has done very well in the 3-years. At Davos this year, Donald Trump was claiming credit well, at least since he was elected in November 2016, he claims credit for the fact that the American share prices have gone up. He says that since he was elected the share prices are up 50%, there you go 47% – it's about right. He said that had Hillary been elected share prices in America would have been down 50%. Well, in this era of fake news, you believe what you'd like to believe..Apple, a little bit concerning. I'm not worried about Facebook, Microsoft, and Tencent – all of those have performed pretty well given that they were brought into the portfolio after we began it in December 2013, and there's the reflection of it. As you can see, now the Rand/USD would have been a really awful investment if we had taken the money offshore, put it into USD and done nothing with it except leaving it in a bank account. We would have done worse than our worst holding in this portfolio so the decision to take it offshore and to invest it in US equities has worked an absolute treat. Stu, before we go into the individual constituents, is there anything we need to address?.Yes, Alec. A question from Paul Jefferies. He asks on the FAANG-type stocks, as they get so big and powerful, do you see regulation coming into effect, which might hamper the business plans or growth prospects of these companies?.That's a very good question Paul. If you had read The Economist of two-weeks ago, the cover story there was all about the challenges that are coming for big tech. In Davos this year there was a lot of talk around this as well that big tech has just become too powerful and I would point you towards the speech that George Soros gave, which we republished on BizNews. In fact, I recorded. He throws a dinner every year on a Thursday night in Davos and it's a very well attended dinner, but it is always inspirational. George Soros is a guy who is 87 now, so he doesn't speak as fluently as he would have done in years gone by, but the content of what he puts out there is extraordinary..He talks about the two big things. He focussed on what's going on around the world. He went into each of the areas of the world and gave some insights on them. Then his second part of his talk was all about big tech, and how he feels that things have gotten out of control. It's a really interesting debate this one. Big tech, at the moment, has done enough or it seems to be in a nascent stage as far as the attack from the regulators are concerned. It's got so big but it hasn't yet got to the point where everyone is screaming about it. It's the warning signs though, as we saw from The Economist, as we hear from Soros and as we saw last year. You'll recall that Google's share price took a knock after the EU (European Union) anti-trust regulators fined them. So is this the beginning of the resistance from society towards big tech? It looks like it but it's still early days..So big tech has got the opportunity to change, to perhaps manage the system or the antagonism more sensibly to adjust its policies where it needs to. Or it could ignore that and just keep driving ahead and becoming ever bigger. These are issues that we'll see as time develops but for now, I just think it's a little too early to start panicking about the impact on big tech of this growing resistance. If you find it difficult to sleep at night because of these emerging trends then it is sensible to start adjusting your portfolio accordingly..Hans just has a question on the trust barometer that you brought up in the Davos discussion. He says, after the crash of the trust index in the US, is it not time to look at some of the European shares?.Hans that's a really good point. I just want to make another point on that. I listened to the Bloomberg Surveillance podcast and it's a really good podcast done by Tom Keene. It goes on for a bit long sometimes and there's a lot of stuff in there that isn't really relevant to the SA audience, but there's good, strong stuff in there. The point I'm making though is that Tom Keene, who's a huge name around the world, and certainly within the Bloomberg firmament. He reckons that the Edelman's Trust Barometer is the most important document that is produced every year and he says it shapes the entire way that they handle their broadcast going into the year ahead, so isn't that interesting. He had Richard Edelman in the studio. There's a very good podcast, if you look up Bloomberg's Surveillance, to listen to that and you'll hear what Tom Keene has to say about it. This is not a guy who's wet behind the ears. He's very experienced and a real veteran. I think he's been to Davos 14 times so he knows what's going on in that side..As far as the Edelman's Trust Barometer is concerned, where we must not get distracted is the trust in government in America has fallen through the floor. In fact, as mentioned, it's even below SA. Of the 28 countries SA is second last with trust in government. America is even below SA, and that was their point. It's almost like, 'wow, how bad is that?' It doesn't make us feel too good but remember that the analysis of the 30,000 plus people who were surveyed was done in mid-October/mid-November so we're talking about a SA run by Jacob Zuma and not a SA run by Cyril Ramaphosa so let's just bear that in mind..The second point though is that the trust in companies in the USA has gone up so you have the strange situation where people in America are now looking to their employers for truth, and they look at government as fake. So no, it isn't the time to start worrying about the trust barometer's impact on American companies or indeed, on our portfolio because it's actually gone the other way. If anything, you should be buying more American shares given the way that the American public is now putting more trust into the companies..I've got a question on Facebook. Do you want me to bring it up when you talk about Facebook or should I throw it at you now?.Let's pick it up when we go onto Facebook, I'll then continue with this and just jump in when any of the questions come through and please do that guys. If there's something that bothers you about one of the companies that we're talking about, or you just need elaboration on it, please do tap those keyboards and Stuart will bring us in. Now the big thing that's happening in our portfolio, and in fact, in the investment markets over the next week is that many of these big companies are reporting..Amazon is reporting on Friday and as you can see from this graph, there's anticipation of a monster quarter. Now I'll take you back to where you see at the bottom that very high volume at the end of November, and you see the share price of Amazon broke through to $1,000 a share very decisively, with a significant volume down at the bottom. That was immediately after the financial results or the quarterly results were released, where after bumping along for a few months the share price then surged on the basis of quarterly results, and you can then see, subsequent to that, the Amazon share price has, first of all, it steadied and then went very strongly in the last couple of weeks and that is an anticipation of another strong set of quarterlies..The view is that Amazon did very well in the fourth quarter of last year, and to quote some of the analysts, we're going to see some monster figures. They're expecting that there will be around about $60bn in revenue reported, and that earnings per share, which really are irrelevant in the Amazon setup but that they will come in at around $180 a share. That's not really what one needs to look at here. The big thing, as far as Amazon is concerned, is to consider how much of a market share it keeps taking away from traditional retailers, and of course, with a fourth quarter of every year, being the Christmas quarter when people are busy doing Christmas sales that is the time that you'll see how much of an impact there has been on Amazon's trend towards acquiring more and more of the market that is being held by traditional retailers..So what to look out for on Friday – the reports are going to come out after the market closes so it's giving analysts a lot of time to assess what happens over the weekend, is to see how the web services have gone. Amazon web services are expected to be up 40% year-on-year. Remember, this is a huge part of the business that isn't even put into the valuation of the stocks and the web services is where Amazon is number one in the world, and it is fighting there with… Well, the second player is Microsoft and Apple, who are just a long way away, and Alphabet are moving into that as well, into the cloud, but they're a long way behind..The other bit of good news for Amazon was that Citibank came out with its latest report to say it's upgraded its valuation of Amazon or its target price, as they call it, from $1,400 to $1,600. Now that's not surprising given that Amazon is already through $1,400, and the other big issue about all of this or the primary reason why the Citi analysts believe that that's justified is because of a belief of the under appreciation by the market of the opportunity that exists for Amazon in online advertising. That's an area where Google and Facebook have got 70% of the US market at the moment, which is by far the biggest part of the global market. They believe that Amazon, which has got a small share of that market will be growing it dramatically. In fact, in 10-years they expect to go from $10bn to $50bn, and remember that drops straight to the bottom line because they already have the business model and the costs are to do with the distribution and the selling of goods. If you now start advertising or bring in advertising on the platforms, it's huge. So Amazon is going forward and forward, and when you talk about on the JSE, the Viceroy-effect on Steinhoff and now Capitec, when you talk about retailing it's everywhere in the world. They now talk about the Amazon-effect..Just on Amazon. Fred says the share price seems to have run quite hard. Is this still a good entry point as of now?.That's an interesting question Fred, because it is something that we keep being asked and I continue with the same answer. Yes, just buy the Amazon shares. It's going to bump up and down, but the model, well, there is no way of attacking this business model at the moment. You need to just understand perhaps why this portfolio was structured the way that it was, and the longer-term perspective on this. The belief that we are into a long-term transformation of the economy, the global economy that is, and that it is being led by the tech companies. So if you can suspend your disbelief just for a moment and understand that the reason why people are talking about the Fourth Industrial Revolution, is because it is like the third, the second, and the first industrial revolutions..You can go back to the First Industrial Revolution, which was in the 1800s, where you had this transformation of about 90% of people who were living on farms, once you started getting mechanical power driven by steam, then they moved into the cities. Today, it's the other way around. Well people who are living on farms are only about 10%, 90% are either in cities or in towns. That's the dramatic transformation that you're seeing. We are seeing that as well around the world in the structure of the economies and it's the companies that are best positioned for this, the exponential companies, which are the ones that are going to benefit. So if you step away from it and say, 'my goodness, Amazon was sitting at $1,200 at the end of last year,' only a few weeks ago. Now, it's at $1,400, can I still buy the stock? Well when the results come out on Friday, we could see it go into $1,500 or even $1,600, as we saw Citi Group is putting its target there..On the other hand, if Amazon under-achieves, the market or analysts are expecting we could see a pull-back in the price. My problem with Amazon and many of the other stocks is if you try and time your pricing it's likely that you're going to get it wrong because we don't know about the day-to-day movements that the traders are doing. What I would suggest to you though, Fred, is that it is part of our portfolio. We have 20% of our investment in it. Buy the shares over a period of time so, you can stagger your purchases over 3-months. If you've got, for arguments sake, if you've got $15,000 that you want to invest in Amazon then buy $5,000 worth now, $5,000 the next month, and $5,000 in March. So you'll spread your purchases over those 3-months and the best you can you do is hopefully, you come in March and the share price is a little bit lower than it is today – you'll be delighted because you'll be getting the shares cheaper, but as a stock that you should have in your portfolio, it's unquestioned..Let's move onto Alphabet and this has also been a mover, as you can see, since the beginning of the year. Part of the reason for the way that Amazon and Alphabet have been moving is the global economy. Remember, these are companies that are invested right around the world. Although, their main base of earnings is in the USA. When the global economy does well multi-nationals like this also benefit a great deal. The global economy is enjoying a cyclical upswing at the moment. I went to the IMF update of its economic forecast for the world in Davos and Christine Lagarde, who is the MD, said that the world is in a cyclical upswing. In other words, up and down cycles – we've got an up-cycle at the moment, for the global economy and as a consequence of that, it's like the tide lifting all boats. So all around the world countries are enjoying improved economic performance because we're in a cyclical upturn. How long it's going to last is anybody's guess but what the IMF did say was that this year, because of the cyclical upswing, it once again increased its forecast of economic growth for this year, for the world. Unfortunately, it actually reduced the one for SA but that's another story. But it increased the forecast for the world, and companies like Alphabet and Amazon would feel that because they are global..The other issue that is benefitting some of these stocks is Donald Trump, who has now introduced these enormous changes to the tax regulations in the USA, and whether you like him or hate him, the fact is that that is good for companies. So the companies have benefited from it, and we'll hear in just a minute when I talk about Apple, some of them substantially so. As far as Alphabet is concerned, they report on Thursday, and here, we're going to be watching out for Google Cloud. Now in Davos this year that's the brand they were pushing. So as you walked down the main promenade, Google has been in Davos many times. In fact, I've been to a few of their parties and Sergey Brin and Larry Page are regular visitors. The chairman, Eric Schmidt, was easily spotted. He was often seen by us within the congress centre so they are regular visitors to Davos..This year they promoted the Google Cloud concept, so they're more and more wanting to get into the cloud, in the old days we used to keep all of our data and information on hard drives, first of all in these big computers that would be kept in a computer centre at the organisation. Then it moved onto hard drives in our own computers that we had at home, or on laptops. Now this is all moving into the cloud so it goes onto huge computer centres that are owned by Amazon, which is the market leader, and that's somewhere where Alphabet has been moving into, and is getting more aggressive. Already they do about $10bn a year in business, which they did last year, and it's anticipated, when the results come out on Thursday that Alphabet will report $14bn in revenue for 2017, and the analysts are forecasting that it will go up to $18bn in 2018 so that's a huge growth market when you think about companies like Berkshire Hathaway, who'd be happy with 5% growth from its different subsidiaries. When you're talking 30% to 40% from the likes of Alphabet and Amazon – you can see why the ratings of these stocks are so different..The other thing that's going on here is that advertising investment or the investment around the world in advertising is still the biggest part of Google's business, and we need to keep an eye on that as well. Usually what happens is that the volumes grow but that the price per click falls so online advertising is the area where Google dominates. It has the lion's share of that together with Facebook and of course, this is what irritates publishing companies so much is that these two companies who literally just aggregate content rather than producing anything are the ones who are benefiting the most from online advertising revenues..Onto Apple, and as you can see, this was the one disappointment. In fact, when you go through it, just to put it into context. Amazon in the last month went from $1,165 to $1,417. Alphabet went from $1,040 to $1,175 – those are big jumps for both of them. On the other hand, Apple went from $171 to $168 a share. It was the only stock in our portfolio that went down in the last month. It tells you that the market overall and that's shown by our Vanguard holding, which went from $245 to $261. That gives you an understanding of how the market generally performed, and Apple went down. As you can see, it's broken below, I'll just use a very simple 15-day moving average, just to give you an idea of the trend, but it's broken that trend..Apple reports on Thursday and the expectation is, although they're going to come out with record sales for the iPhone X, the new iPhone, which has got all the bells and whistles, and that's primarily through the iPhone X and, also the iPhone 8 – there is growing concern that Apple is now starting to go ex-growth. We've seen this movie before but what always seems to happen is the 'Street' or the investment analysts go off Apple, and then a little while later they realise there's a lot more to this company than just selling iPhones. It's got a whole ecosystem, which runs from Apple watches to many of the apps, or the iTunes and many ancillary services but the big revenue generator is still the iPhone. As a consequence of that what happens to the iPhones affects the short-term share price..The other thing to look at here is the total revenues. The anticipation is that Apple will come in at about $87bn for its revenues and earnings per share are projected to shoot-up from $3.36 to $3.81. If either of those are underscored or not achieved then you might see a little bit more weakness in the Apple share price. The big story though of Apple, is the story about the tax cuts. The reason for that is that Apple has got $350bn cash, sitting outside the country. Up until Donald Trump coming into office that money was not brought back into the USA because there are huge tax penalties for doing so. Trump or his advisors saw the opportunity to bring that money back in and to earn a little bit of tax revenue from it. As a consequence, he's made it attractive so when Apple brings in its $350bn it's going to pay $38bn in tax. That's about a half of the total tax revenue that SA generates in a full year, just to put it into context, and that is a bargain as far as Apple is concerned because it can then bring all of that money back home..What Trump is hoping, and he was telling us this in Davos, was that Apple will then use that money to build new factories in America. Apple is obviously, looking at ways of deploying it. A lot of the Apple products are made outside of the USA at the moment, but if it decides to build products within the USA. It certainly is going to be able to go all in cash. That's the big story for Apple at the moment. It will bring the money back in. How the tax revenues get treated, how the cash that comes back in gets treated – we'll know all about that on Thursday. So a big story on Apple but the market is not getting terribly excited about the company, at this stage..Here's a company that the market just loves, and boy aren't we happy that we bought into Tencent. Now there's a big SA interest in Tencent, always has been, given that Naspers bought into the company when they were only 30 people. It acquired 50% of the shares at that time, and provided the funding for it – it was about $30m. When Tencent listed Naspers went down to one-third, about 34% of the shareholding, and that's what it still owns. If you were to take Naspers' shareholding in Tencent holdings and sell it on the market you'd get about R140 for every R100 in the valuation of the Naspers' share price. So it shows you that Naspers is actually a cheap way into Tencent, and more and more international investors are starting to make this connection between the two, but that's the Naspers side..How's Tencent going? Well it continues to invest in interesting assets. Together with Naspers, they've been buying into things like Flipkart in India, they're investing alongside each other. There's a very close connection between the two companies, as you would expect, the one being the one-third shareholder. The most recent investment though that Tencent made is an interesting one in that they got together with part of a group who've bought 14% of the company, which is China's biggest mall developer, yes, shopping malls. The idea there is that by getting into the shopping malls there's an opportunity to continue to grow an already astonishing 900m customers that Tencent has, who all use the Tencent facility, as their operating system so when they start-up their iPhones or their Samsung, or even their Microsoft phones, the software that's been used is an app in China anyway, and that software is the WeChat app. So Tencent holdings is set fair. Also from Davos, the discussion when it came about attacking big tech did not extend to Tencent because the view that the American government has of its big tech companies, and the view that the Chinese government has of its tech companies are very different..Tencent, Alibaba, and Baidu work together with the government. If the government says, 'we don't like you doing x, y, or z.' They deal with it accordingly but if the government in the USA says, 'we don't like you doing x, y, or z,' to Facebook, Apple, or Amazon then they fight them in the courts and there's a very big difference in that. So the government threat to the Tencent holdings business is a lot more muted in China. Also the fact that the Chinese government right now is looking for international champions so it is actually supportive of the Tencent story..Just on Tencent from Hans. He just wants to know, is Naspers not a better buy than Tencent now, with the big discount?.It is but one has to remember that the story with Naspers though is that it's always going to be trading at a discount of about 20%. What we're talking about here with Tencent is we're investing in a global portfolio so if you've got Rands that you want to invest then obviously, the logic says, put those into Naspers. If you've got Dollars and you're looking to appreciate the Dollars outside of the country then Tencent should be part of your portfolio. It's a very sensible call that you're making there..Just a follow-on from there, Deon wants to know your thoughts on Alibaba..Yes Deon, I really like it. In fact, I almost succumbed to the negative pressure on Tesla to switch it into Alibaba. We've got to find a spot for Alibaba in the portfolio, and in the near future, we'll be doing that. I saw Jack Ma in Davos and he's got what you want in a CEO. He's so smart but he's very humble as well. It was interesting, just standing there and watching these players move around. As Jack Ma would walk he had 2 people with him. Literally, it looked like it could have been his wife or girlfriend, and maybe his personal assistant. The 3 of them walked down and somebody would come and tap him on the shoulder – I didn't see what they were talking about but he'd take a selfie or let somebody take a photograph of him, and Jack Ma would walk another 10-steps and somebody else would come to him, to ask if they could take a photograph with him. That's the kind of guy he is. A nice smile, he'd chat to the guy for 10 to 15 seconds maybe, and off he goes..It really was impressive just to see the difference between him and other leading CEOs, given that Jack Ma is now the richest man in Asia, and often one gets these stories that come back about how he has his feet on the ground. How he's a very sensible, centred human being. If you ever want to find out about what kind of CEO you should be following, I love a book by William Thorndike called, The Outsiders. I study this book and I'm busy going through it, I think for the third time now. You really want to invest in very stable human beings, who've got their feet on the ground. Who are not arrogant and full of their own egos, and you don't usually find them. In fact, Thorndike says, in his book, 'these guys,' and he looks at 8 of them – they don't attend Davos. Well, Jack Ma does go to Davos but his behaviour in Davos is very different to the traditional CEO and I can't tell you how obvious it is – the arrogance of some of these guys, the way they fly in on their private jets..I suppose a story that hasn't been told yet was how when Donald Trump came into Davos. It wasn't just one helicopter, it was 6, and they were flying in formation over the Alps and taking photographs and sending them onto their Twitter streams… or, whatever. The point is, Jack Ma really impresses me. His company is amazing. The Chinese support of the tech companies is another thing. The only thing I worry about is like somebody was talking earlier about Amazon. The share price has doubled in the past year, and when you're going into a stock where the share price has doubled you should be kicking yourself for not buying it a year ago. Secondly, you have to be pretty sure that you know the fundamentals well enough to say, 'we'll buy this one over the next 3 months so, we're going to be happy holding it forever.' I'm still in that process of doing the analysis..I've got 2 more questions on Tencent and Naspers. The first one is from Maureen who just wants to know about the Tencent holding and the difference between the one on the NASDAQ and the one on the Hong Kong Stock Exchange? Gavin on Naspers says you said it should trade at a 20% discount, relative to Tencent but we know it's much wider currently, what are your views? .Okay, on the first of those. The ADR that trades in America, it trades very lightly so it's best through the WebTrader platform and you can invest in Hong Kong. It's much better to do that so go for the Hong Kong one where the volumes are. That's the one that we've invested in and that's where the volumes are high. Tencent also trades in Frankfurt, I think, where the trade is a little bit better. The advantage that you have with WebTrader is that you can actually go directly into the main markets..The second point about Naspers, and I might not have communicated this properly. In essence, what Bob van Dijk, the CEO of Naspers said, at the investor day, which was on the 12th December 2017, the very first investor day they had in New York. He said that you can understand a holding company like Naspers could trade at a 20% discount because of liquidity issues and because of the SA listing. Being listed on the JSE is not like being listed in London, New York, or even Hong Kong for global investors because on the JSE there are other risks that come in. Such as exchange control, which could be re-imposed, etc. so, it does warrant a discount of say 20%, but he said only 20%, and the discount was trading at 40%. So their whole job that they've set themselves or the task they've set themselves on the investor relation side at Naspers is to get that discount reduced from 40% to 20%, and that's a substantial upside..Interestingly enough, and I'm not sure that the market has picked this up yet that that discount should be narrowing in line with the valuation of the Rand because the Rand is the share price of the country and that share price has appreciated by 12% since Cyril Ramaphosa came in. What van Dijk was telling them in New York was that there had been a massive outflow of money from SA, as a consequence of their concern about the economy and the economic policies, and that was part of the reason why this discount in Naspers had actually widened from 20% to 40% so however you want to look at it – with the Rand appreciating, it's a very bullish point for Naspers because international investors, instead of running away from SA, will be coming back in and when they come back in, about 1/5th of the JSE's market-cap is in Naspers so it makes sense..Onto Facebook. You can see the share price is trading above or the simple moving average is still positive. Facebook will be reporting on Wednesday, tomorrow, and the thing to watch out for – they made an announcement on their newsfeed after being accused of allowing fake news to be propagated. Believe me, fake news is being propagated all over the media environment at the moment, as a result of juniorisation of newsrooms and people just simply not doing their homework but anyway, it is what it is. Facebook is now having to change its newsfeed and probably take a little bit of a knock on its numbers as a consequence of it because the newsfeed generates 85% of its sales. Remember this is a company that relies primarily on advertising sales for its revenue stream. We'll see what happens on Wednesday so not really a whole lot more that we can say about Facebook at this stage..The Vanguard S&P 500, this is the umbrella fund that invests in the top 500 shares on a weighted basis of the New York Stock Exchange. As you can see, it's had a wonderful run this year already up from $245 to over $260, and that reflects how the US market, as a whole, has gone. Interesting to see the volumes are also improving down at the bottom..Microsoft is a stock that we like a lot. We brought it into our portfolio recently on the strength of the view that Microsoft 365, which is a significant shift in the business model, away from selling one-off products to having this annuity revenue stream is going to be very good for the company. Microsoft has hit record levels in the share price, and Microsoft itself, continues to benefit from its other investments too. We will be looking out for their results also, in the next week..This is the one that I spoke about a little bit earlier. I've got to scratch my head about it, I think we all have to. Metro Bank will also be bringing out its quarterly results in the next couple of weeks. I'll be looking at those with a fine tooth comb to work out why the share price, as you can see, has not really performed relative to the underlying growth in the business, but that is that tug of war that I discussed a little bit earlier between investors who are going to be required to put more money into the company, to grow or provide the funding, which is needed for this breakneck growth rate that Metro Bank is enjoying, and the share price itself. If they can find a different way of funding it, in other words maybe come out and do some preference shares, or other types of debt funding – Metro Bank would see the pressure coming off its share price, but we need to watch that one carefully..Warren Buffett's Berkshire Hathaway – a lovely jump again. A beneficiary of the tax-cuts, which is pretty obvious. You see that previous jump in November that was after the financial results that the market liked a lot..Then Tesla – I've sped through the portfolio to get to Tesla because Tesla is a company where you have an incredible tug of war going on between the bulls and the bears. The biggest short position in history is on Tesla at the moment. It's an amount of 30-million shares worth $10.5bn. So what that means is that people have sold shares that they don't own in Tesla, on the expectation that the share price is going to collapse. A little bit like the Viceroy research guys who sold shares they didn't own in Steinhoff and are presumably doing the same thing now with Capitec, because they have found out or they believe that the share price is overvalued and it will fall when the rest of the market comes to their way of thinking. 10.5 billion short positions, at $340 a share so if Tesla's share price falls below $340 a share then the short sellers make a lot of money..However, you've got to wonder how come with all of the negative publicity that is going around Tesla, the share price is still around $350 a share, despite this huge short position. If Elon Musk is able to deliver and if the market continues to believe him that those short sellers will be burnt even more. If they were out of the picture one can only wonder where the Tesla share price would end up. As far as Tesla is concerned, they report next Wednesday the 7th. That's going to be a very big reporting date. The story that they need to explain to the market is the new Model 3, which is the mass-market produced car, where there's many reports of production issues and nightmares, they haven't produced enough every quarter. The focus is going to be on what's happening with the Model 3..The other thing is that Elon Musk's compensation or pay-package, if you like, has been adjusted. It's a little bit like what Koos Bekker did at Naspers. He didn't take a salary but he had an upside on the share price, and of course, that's made Bekker one of the richest people in SA, and shareholders should be delighted because his benefits have been aligned with what has happened to their wealth. It's a similar story here, on Elon Musk now, but the market again – not everybody likes it and the short sellers are using it as ammunition to say that, you see, this guy is greedy and he's profiteering, even though he's not taking a salary. It's a strange world, Tesla. People either love Elon Musk or they hate him, and the haters are growing given that big short position..It was interesting to hear as well that Ford Motor Company, one of it's executives came out to say that they would never put together a battery farm in the same way as Musk has done at Tesla because they think that it's a really bad idea that other people can make batteries better – they weren't making electric cars though, when Elon was doing his first lot. I'm still a fan and as a long-term, I still think that he really is a genius, who is transforming, not just one but 3 industries. He's an entrepreneur as well, read the book, the Ashlee Vance book on him, and you'll see that this is a guy who's prepared to hang it all out there, and he was only one rocket launch away from losing everything. Yet he was prepared to do that. The fourth rocket launch of Space-X, he will have his detractors, but to me, you buy the shares and you put them in the bottom drawer and come back to them in a few years time. As it is, he's done amazingly well for us, or Tesla has done amazingly well for this portfolio, in the time that we've owned it. As you can see there, Tesla Motors is up 54% profit, in Rands, and it's 5% of the portfolio so it's not a stock given the different views on it that you're going to go hugely overweight in, but at 5% of the portfolio it's like an option on an SA boy who's making big in Silicon Valley..You can see the annualised return of the portfolio – 34%, which gives you a reflection of how things have happened in the past month. In the past month the Rand is up 12% so that would have really hit the portfolio hard. But the share prices in USD terms, have gone up that strongly that last month we were sitting at an annualised return of 37%. Now, we're at 34%. These are crazy numbers, but we are riding the exponential wave..Arum just wants to know if you've got any thoughts on Nvidia, it's an artificial intelligence company, which apparently has had a good write-up in Fortune Magazine?.I don't know it at all. Sorry, I wish I could help Arum, it's not one that I have looked at and I don't know it..And then obviously the monthly question around Bitcoin – any thoughts from Michael Wolffe? .Michael Wolff, not the author. I can tell you a lot more about Michael Wolff, the author's book on Donald Trump, Fire and Fury, than I can about Bitcoin. Essentially, blockchain, going back to Davos – blockchain is rolling. It's going to start disrupting industries. It's beginning to have practical application. How it's going to work is that each of us will have our own personal number and we'll use that number, and the belief is that every asset on earth will have its own number as well. Then you will own those assets or they will be on your balance sheet, and you can then use those assets in the same way as you use other assets today. For instance, and I'm just going to emphasise for effect. If I have a fancy pen, which is a Montblanc pen, which is worth $1,000 – I might use that to swap part of it or a percentage of ownership of it with somebody else, with Brett, to buy myself some lunch. Say, 1/100th percentage of it or whatever..So what the blockchain unleashes is going to be quite extraordinary. Whether Bitcoin itself is going to be a beneficiary is really questionable because Bitcoin is a currency, like all other currencies, when the blockchain really gets working then all assets could be bartered in the same way as currencies are bartered. This was the message that I picked up from listening very carefully to these experts who were in Davos, they were guys from Ethereum. If you think about this, imagine if there was a way that if you were bartering from one product to another product that you could fractionalise the product that you're bartering to such a degree that you could use it to buy a cup of coffee. So let's just say you had a big rock, as they did on some of the old islands in the past, and you used part of that rock and sliced off a tiny piece of that rock to give to somebody to buy your cup of coffee, or in that case your coconut juice. That's where we're going with the blockchain..The blockchain will have all of your assets registered to you, and you'll be able to transact with that. Now how far are we away from getting to that situation? It could be 10-years, 20-years, or 50-years, who knows. It could be 10-months, but the reality is that's where we're heading towards. So what happens to fiat currencies or things that don't really have an asset value? All the asset value of a currency is what the other person is prepared to value it at. I don't know but it certainly doesn't seem to me as though Bitcoins are going to be worth, when you've got that kind of a situation, which is down the line that this cyber currency that you have is going to be worth 10's of thousands of Dollars, as some people suggest..What is helping Bitcoin at the moment also that came back to us, is the fact that it is being used by the underworld, it can't be traced so you'd have people or criminals who want to transfer money can do it very easily via Bitcoin. Their problem comes when they want to convert the Bitcoin into hard currencies because that's where the authorities now start getting involved so it's very complicated, (all of this), and when it's too complicated to understand it's best to step away from it. I'm not a fan of Bitcoin. I haven't traded in it, I haven't bought them, I haven't sold them – all I can say to family members who've suggested that they want to get involved in Bitcoin is that I wouldn't, and if they decide that they know better – then it will be their experience, either to make a lot of money or not. It isn't something that I would do. I work far too hard for my money – I would rather have it invested in something I do understand, rather than to take a gamble. If I'm going to take a gamble, and I don't, but if I were I would rather go to the horse races and at least make somebody in that industry a little wealthier..Just one to end off with from Hans – are there any other shares on your radar, as we head into 2018?.Definitely Alibaba is one that I have been already toying with but if you recall it was what happened, those of you who've been following this portfolio for a long time. It was like with Facebook, and I watched it and watched it, and eventually we did go in and buy Facebook. It's done well, as you can see a 30% appreciation in Rands. Alibaba is one that I would say right now off-bat that I have been looking at and have been anticipating. The rest are still very embryonic, and very early stages. I see a lot of stocks on a daily basis that, if you like, come across the radar and I have a look at them. Then I put them in the back of my mind but to invest in a company you've got to understand that company. You've got to know what that company is about..I know what Tesla's story is. Tesla is a company that is making batteries. It's in the solar business as well. If you recall, they did the deal with SolarCity, with the Rive brothers. His name is Elon Rive Musk, so Rive is his auntie's surname, and her sons, who are Elon's partners in SolarCity, are also from Pretoria. So it was kind of a no brainer for people who knew their background that there wasn't going to be a clash of cultures when they did that deal..Also with Tesla, they're looking to get into the mass market. To me the big back stop for Tesla, if there were to be a problem or if Elon Musk were looking like he was struggling to raise more funding, which isn't the case right now, is that he's got SpaceX sitting there, and SpaceX is an incredible opportunity. There's a company that's complete blue sky or black sky I suppose you should say, if we're talking about space, which could be put into Tesla at some point in time to bolster the hole, if required. Those who think he's going to run out of money – maybe they haven't worked that into their calculations, but that's the point. It's a bet on electric cars. I do believe that the internal combustion engine in time will die, and electric cars will take that over. So there's your long-term bet – you're exponential bet on it. .Amazon similarly, the transformation that Amazon has made to retailing around the world and when you live in a country like the UK, you see it every day. If you want a book you literally go online, you pay your $8 or $9, and the book arrives the next day or the day thereafter. It's just so much easier and more convenient than going into an old-fashioned bookstore. That's where Amazon started and of course, they now go in most other areas. That's what you've got to do with making an investment because you want to hold onto those shares forever, Alibaba, I'm getting close to the point where we've now got to just try and reshuffle certain things in this portfolio to bring them in, but are there others that are at that stage? No, not right now..I think we've overstayed our welcome by a few minutes, and I apologise for that, but I hope that you've enjoyed this update and really the astonishing thing for me is that despite the strength in the Rand and the appreciation of the Rand, the portfolio has overcome that with some quite staggering share price appreciations in the last month. It isn't something that when you look at that annualised return of 34%, you really mustn't bank that because that is just super unusual. If we could have anybody in the portfolio, if you can have an annualised return of 15%, you're doing twice as well as the long-term average of the market. So our strategy is to invest offshore. To invest in the best companies in the world and the most exponential potential in those companies, and all of these, with the exception, I guess, of Berkshire Hathaway and of course, the Vanguard Index – those are our little bolsterers, and we started off with big slugs in those stocks. It was almost like having a bank and putting your money in the bank and then you keep them there. When you find something good, you sell those off, and put the funds into the new stock. That has served us well, I'll keep looking, and I'll keep updating you so, I look forward to our conversation again next month. .Thanks very much Alec..So-long for now.

WEBINAR: Global Portfolio annualised 34% return; Apple slides, Metro lags

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