Investing.com’s stocks of the week
Market Scorecard
Global stocks had a nice bounce on Friday after the market had a horrible Thursday. Over the weekend though, China reported 79 new Covid-19 cases in Beijing and have warned that the risk of the virus spreading has moved to 'high'. As a result, Asian markets are lower this morning, the price of oil is down 3%, the Rand is weaker and US futures are pointing to a red open this afternoon. You would say that the sentiment in the market today is 'risk-off'.
Markets on a day to day basis are very emotion driven. Buffett has called Mr Market a manic-depressive or a psychotic drunk. As Paul spoke about on Friday, it is very difficult to know what drives these emotions, and most times it is all guesswork anyway. As an investor, it means that you should just ignore the psychotic drunk over the short run. Keep your head down when things get volatile and keep your eye on the longterm.
On Friday the JSE All-share closed up 0.65%, the S&P 500 closed up 1.31%, and the Nasdaq closed up 1.01%.
One thing, from Paul
I enjoyed this interview (in transcript) between Sriram Krishnan, an executive at Twitter, and notable venture capitalist Marc Andreessen. Andreessen is the co-founder and general partner of Silicon Valley venture capital firm Andreessen Horowitz.
The focus of the discussion was on Andreessen's personal organisation and work habits. Consider the comments about reading.
Krishnan: "How do you read so much?"
Andreessen: "I've really read all the time since I was a little kid, it's been a lifelong thing. It's basically trying to try to fill in all the puzzle pieces for the big discrepancies. A great term is "sense-making". Essentially, what the hell is happening and why? The world's an incredibly complex and erratic place and trying to figure that out is kind of a lifetime occupation".
Andreessen also professes to seek out people with alternative views, to learn from them. He aspires to be a person with 'strong views, weakly held'. In other words, he's very open to changing his mind.
Krishnan: "How do you seek out alternative opinions?"
Andreessen: "So, generally speaking, most of the people you're around most of the time hate being told that they're wrong, right? They absolutely hate it. It's really an interesting question as to why that's the case. The best explanation I'm able to come up with is: people treat their ideas like they're their children. I have an idea the same way that I have a child and if you call my idea stupid, it's like calling my child stupid. And then the conversation just stops. What I've really been trying hard to do is to spend less time actually arguing with anybody. Because people really don't want to change their mind."
Byron's Beats
Commercial real estate is a hot topic at the moment because so many people are working from home successfully. The sector must be sucking wind.
But this Bloomberg piece titled Trying Out New Office Layouts for the Post-Pandemic Age got me thinking. Companies will now have to take up a lot more space per employee to accommodate social distancing. Office spaces need to be bigger, with larger meeting rooms and cubicles further apart. What is most likely to happen is that businesses will have a portion of their work force working from home and nothing will change in terms of their office size.
Commercial property will still go backwards in my opinion but at least the need for more space will be some sort of tailwind.
Anyways Vestact is ahead of the game in this regard. We have 172 square meters for 6 of us. Plus Michael and I still spend time working from home. Plenty of breathing room in the office.
Michael's Musings
Apple and their main supplier, Foxconn, have been working for years to try to increase the automation on some of their assembly lines. The thinking is that machines will be more reliable than humans. The problem is that they are not in this case.
Foxconn has found that automating an entire assembly line leads to some big issues. The main problem is that machines aren't able to sense when something is wrong with while assembling a product. The result is that a faulty product will go through the whole assembly, and only during testing at the end will a mistake be picked up. Another advantage of humans, is that they are quicker to train. With a machine, you have to program its movements down to the exact millimetre and the exact second. Choreographing the dance of the machines takes time. With humans, they already have a skill set, and it is easy to make a slight change with a new model.
There are two thoughts that I had when I read the article below. The first is that humans won't be replaced by robots as soon as we think. Although, having robots replace these types of jobs won't be a bad thing, assuming that people can find employment elsewhere. These assembly jobs are highly repetitive and can be high pressure too. If we can get to a point where robots replace those types of jobs, freeing humanity up to do more creative things, that would be a good place for our species.
Bright's Banter
The athleisure company famous for technical cashmere yoga pants reported numbers last week that were somewhat worse than expected. Vancouver-based Lululemon saw its revenues for the quarter tank due to the pandemic. The retailer is yet to benefit from the shift from the working-from-home trend which favours more comfy clothing as compared to formal attire.
Revenues fell 17% to $652 million and operating income fell 75% to $32.8 million, for the quarter that ended on the 3rd of May. During the quarter most of its 489 stores had to be temporarily shutdown. The sliver of hope came from online sales which surged by 70%, now accounting for 54% of total sales as compared to just 27% a year ago. Management said that as of the 10th of June, 295 stores were open, including all of the stores in mainland China.
Lululemon (NASDAQ:LULU) has performed much better than some of the other retailers in the athleisure business. Under Armour and (DE:Adidas sales were down 23% and 19% respectively even though their quarters didn't include the full impact of the April lockdown. Nike's fourth quarter numbers will include the month of April, so we're waiting for those with bated breath.
In the call with analysts, Lululemon chief executive Calvin McDonald said they won't be providing guidance for the rest of 2020, which was expected. The Lululemon share price has more than doubled from its March lows and is now positive for the year. I'm keen to see how the next few quarters look as management expects the momentum from online to keep going.
Signing off
The EU is opening some of its borders today, to encourage tourism in the region and the UK opens non-essential shops. The JSE All-share is lower this morning. Unfortunately, the Rand has also given up some of its gains, now trading at $/R17.18. Fortunately for the South African consumer, the price of Brent crude has dropped below $40 a barrel now at $37.50. Enjoy this short week ahead!
