LONDON — An eventful webinar today with only the seventh sale since the portfolio was started 50 months ago. Our strategy of buy-and-hold-forever is great in theory, but we live in a dynamic world where the only constant is change. And once again the underlying rationale for acquiring one of the stocks has changed. For the second successive year, the issue of online privacy was high on the Davos agenda, perhaps even more in focus last week than in January 2018. With a highly relevant court action on payment for content in Germany and another massive fine levied in France, it’s time to re-assess the sustainability of a once all-powerful Google business model. Regulators around the world hate the Google/Facebook duopoly in online advertising, and once the laws change – as they must – their hugely profitable business models will be significantly affected. The funds raised from the sale of Alphabet shares (Google’s parent) have been reallocated to the ultimate value investment place, US banks. We’ve picked blue chip JP Morgan and the venerable Morgan Stanley, both trading at low ratios by historical standards and at price:earnings ratios substantially below a year ago (MS at half the 18 times of early 2018). – Alec Hogg
Overall portfolio:
Four of the stocks in the portfolio moved up smartly from their price levels at our end November webinar, with Apple the only significant loser after disappointing news on its sales in China. The portfolio, which began at $200,000 in December 2014, edged a few thousand dollars higher than end November’s level, and is now worth just under $350,000, or almost R4.6m in South African currency. The Rand improved by 25c against the US Dollar, offsetting the stock price improvements. In SA terms, the portfolio has grown at an annualised rate of 27% since its launch.
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Alphabet:
The 56 shares in what was then Google were acquired at a price of $534.30 when the portfolio was launched in December 2014. Their value has doubled in US Dollar terms and risen 145% in rand, adding almost R500,000 to the overall portfolio – a performance matched only by Amazon (which has added virtually R1m onto a R180,000 initial investment).
But the tide is turning against Google. In the volatile world of corporate regulation, one can never predict the timing, but the trend is clear – regulators are keen to tackle the Google/Facebook duopoly, and it is only a matter of time before they pass some profit damaging legislation. It’s always best to leave while others are still enjoying the party.
JP Morgan Chase:
One of the world’s great banking institutions, run by one of the most respected business leaders, JP Morgan is the blue chip in its sector and at a price:earnings ratio of 11.5 times and price-to-book of 1.4 times, the stock is rarely been available at such an attractive level. Banks have repaired their balance sheets over the past decade and the big US banks like JP Morgan are benefitting from a buoyant US economy and eating the lunch of a scandal hit European banking sector (think Deutsche, Danske, Barclays…). To mangle a piece of Buffett’s advice, this is the kind of stock you’d be happy to own should the stock market close for five years.
Morgan Stanley:
Around one fifth the market cap of JP Morgan, this tightly focused US wealth management and investment bank is trading at a giveaway price:earnings ratio of under 10 times – half the level of a year ago. There was some criticism from traders as net revenue fell from 2017’s $9.5bn to $8.5bn, depressing the share price. But when you dig into the numbers, there is nothing to be concerned about. We buy shares to hold forever, and at the attractive current share price, it’s a good time to become a co-owner.
