Market scorecard
Yesterday US markets fluctuated between small gains and losses, ending with mixed results. The S&P 500 lacked direction, with most major sectors declining, except for tech, energy, and utilities. The good news is that the Nasdaq has risen in four of the last five days.
In company news, Johnson & Johnson (NYSE:JNJ) has made significant progress in its $6.5 billion plan to settle thousands of lawsuits from individuals claiming that its baby powder caused cancer. Meanwhile, Eli Lilly (NYSE:LLY) said it will raise $5 billion through a bond sale to finance its $3.2 billion acquisition of Morphic Holding (NASDAQ:MORF), a company specialising in gut-drugs.
In summary, the JSE All-share closed down 1.19%, the S&P 500 was unchanged, and the Nasdaq ended 0.21% higher.
One thing, from Paul
A client pointed me to this excellent article by Ted Lamade, Managing Director at The Carnegie Institution for Science. You can read it here: Risk Seeking vs. Mitigating.
Lamade compares investing to the golfing styles of two current superstars: Scottie Scheffler and Jon Rahm. Those two have nearly identical scoring averages (about 68.6 per round), but very different strategies.
Rahm is a "risk-seeker", averaging more than 5.5 birdies per round in the first half of 2024, the first PGA player to do so since 2000. Scheffler's success comes from "risk mitigation", because in the same period, he made a bogey (or worse) on fewer than 10% of the holes he played. Coincidentally, that's also something that hadn't been done since 2000.
Most amateur golfers are not like either of these greats, they pivot between being too cautious and too aggressive. Sometimes they lay up off the tee, or lag their putts. A few holes later they get excited and take the "Tiger line" with their driver, or thump a putt way past the hole. They let their emotions get the better of them.
The same is true of investors. Here's Lamade's take: Most investors are notoriously mercurial. They chase performance, buy high, sell low, and endlessly pursue fads. Bull markets convince them that they are brilliant, when in reality they are often just pawns in another wealth-destroying bubble. Bear markets, on the other hand, force them to do things they had previously convinced themselves they would never do (namely selling at the lows and stop committing to private investments)."
There are different ways to make money in markets, but you have to have a consistent process and stick to your system. Here at Vestact we buy high-quality, large companies and hold on for very long periods, avoiding share sales in tough times. This is how we win.
Byron's beats
A client emailed me recently, saying he was concerned by his portfolio's concentration risk. He owns the standard Vestact portfolio of hand-picked US stocks. Here was my reply.
You own the biggest and best companies in the world; the combined market cap of the stocks in your account is around $14 trillion. To put that into perspective, after the NYSE ($25 trillion) and the Nasdaq ($21 trillion), the biggest stock exchange on the planet is the Euronext worth just $7.2 trillion. Then comes Shanghai ($6.7 trillion), Nikkei ($6.5 trillion), Shenzhen ($6.2 trillion) and Bombay ($5.5 trillion).
In other words, I don't believe that Vestact portfolios are overly concentrated. Yes the share prices might jump around but that is normal for all equities. If you are a long-term holder that does not really matter.
By the way, I got most of that information from Microsoft's (NASDAQ:MSFT) AI assistant, Copilot. I even pasted in our list of recommended stocks and it calculated the combined market cap for me. Very cool.
Michael's musings
I spent some of the weekend watching the Olympics and, of course, the Boks thumping Australia. I don't usually pay attention to the adverts that interrupt sports broadcasts, but it was hard to ignore all the online betting promotions. It got me thinking about how online betting has exploded in South Africa. It is such a lucrative space at the moment that Betway is paying R900 million, in a three-year deal, to be the title sponsor of premiership soccer in South Africa.
As luck would have it, The Outlier recently created some graphics showing the explosion in online betting - #76 It's a gamble. Covid forced people online, and now it seems that they don't want to go back to casinos. Online gambling sites are falling over themselves to lock in as many users as possible, before the market gets saturated.
According to The Outlier, more than 50% of gamblers under the age of 34, are doing so because they need money. For most, they are just digging a deeper hole of financial misery. The house always wins.
Making gambling so easy raises some interesting ethical questions. Many South African users don't have the financial literacy to know what they are doing, but they are adults, and should be treated as such. Should regulators make it harder for people to gamble online?
Bright's banter
Scientists at Northwestern University have developed a groundbreaking bioactive material that can regenerate high-quality cartilage in knee joints, potentially eliminating the need for knee replacement surgery.
In tests on large animals (sheep in particular), the material significantly repaired damaged knee cartilage within six months, promoting the growth of new cartilage rich in essential biopolymers like collagen II and proteoglycans.
This innovative substance, a blend of bioactive peptides and modified hyaluronic acid, forms a scaffold that encourages natural cartilage regeneration.
If further developed, it could treat conditions like osteoarthritis and sports injuries, offering a long-term solution for joint pain and mobility issues. It's still early days but this is why we love science!
Signing off
Asian markets are mixed this morning. Equity benchmarks rose in Hong Kong and Japan while they ebbed in India, mainland China, South Korea, and Taiwan. Broadly speaking, Asian stocks have fully recovered from last week's plunge.
In local company news, Gold Fields (JO:GFIJ) closed down 6% after it announced that it had entered into an agreement to buy Toronto-listed Osisko Mining (TSX:OSK) for R28.8 billion. Elsewhere, retail distributor and marketing firm CA Sales (JO:CAAJ) (CA&S) anticipates up to a 22% increase in headline earnings for the first half of the year, driven by organic growth across all its operations.
US equity futures are in the green pre-market. The Rand is trading at around R18.24 to the US Dollar.
Today we'll see earnings reports from Home Depot (NYSE:HD), Nu Holdings (NYSE:NU), Sea Limited (NYSE:SE), and On Holding (NYSE:ONON).
Have a great day.