Alec Hogg: Biznews’ Global Share Portfolio for March | Fin24

Alec Hogg: Biznews’ Global Share Portfolio for March

Mar 31 2015 15:17

Hi everybody.  It’s Alec Hogg.  I’m so sorry that I’m one-and-a-half minutes late, but we’ve been having a few issues here at Biznews.  It’s been really interesting in the last week.  If you’ve been following our big story on the Ponzi scheme, it’s now being alleged that it’s somewhere between $16.5 and $18bn – bigger than it seems (and bigger than Bernie Madoff).

We’ve been reporting on it and I guess the guys that we’re reporting on are not too happy about that fact, so we’ve had all kinds of glitches and issues that have been going on in our business.  We’ve overcome them all though, and here we are, looking at our global portfolio for this month.  Its good news, isn’t it?

If you’ve been invested in the Biznews Global Share Portfolio, you’ll be looking back and patting yourself on the back because it’s almost like ‘Ponzi scheme type of returns’ which we’ve been achieving.  Thirty percent annualised.  Hello.  Well, that’s exactly what it is because we had to readjust our starting date until the 5th of December and if you go back to the 5th of December and look at where we are today, we’re up ten percent in Rand terms.  If you annualise that over four months, it’s 30% – not bad going.  Remember, the way this works is that you any time you want to throw a question, do so.  I will endeavour to do my best to answer that question as soon as it comes up. Also, do remember that we’re only on for half an hour today, so we will be off by 1pm and then you can go and get yourself your salad and have a bit of sustenance at that point.

Let’s get into the portfolio itself.  There it is.  Purchase price December and today: those of you who’ve been with us for a while will know that this portfolio is structured very carefully.  We have around one-third or 30 percent (the target there) in the Vanguard S&P500.  Newbies, what that means is that it’s an Exchange Traded Fund that tracks the index of the American stock market.  We have 15 percent each in two shares, which are our core holdings.

There’s Berkshire Hathaway who’ve actually had a bit of a poor month this month. It slipped a little bit as you can see, below the price that we paid in December.  If you haven’t bought into Berkshire Hathaway yet, there’s your opportunity.  Incidentally, the code is next to the name of the company.  With the Vanguard S&P500 ETF, that (VOO:arcx) is the one that you have to put into your WebTrader.

You’ll see that Google’s had a very good month and that’s helped to lift the portfolio generally, but we have Berkshire Hathaway and Google making up the other big chunk of our portfolio.  Thus, 30% in the S&P500, 30% in those two shares and then the intention is to have five other shares that we have as long-term holds.  So far, Novo Nordisk, IBM, and Amazon are the three that we have selected. We still have R32 000.00 in cash so at the current portfolio, it’s about $16 000.00 that would be invested into each of our share selections.  I haven’t found anything yet that really excites me as much as those three did so when that happens, we will be in a position to adjust the portfolio, but not just yet.  Okay, if you know how to do your questions, please pop in your questions on the side there.  I’ll do my very best to answer them just as quickly as they are asked.

Let’s move on to the portfolio performance in the past month.  This is a monthly update.  I guess I should also be letting you know that it’s pretty much a quarterly update as well.  There’s the performance of the Vanguard versus the S&P500.  It really does, as you would expect in an Exchange Traded Fund, trade very closely to the S&P 500 Index. That’s what it’s there for.

In this instance, we are doing okay.  In the month, the American market was down a little.  The Vanguard Index was down as well – just under one percent – as it was catching a bit of a breather.  It is a bit of a surprise for me because you might remember that the Federal Reserve decided to hold rates.  Well, that did help the market improve a little bit from its low points of the month (three percent on the month, at one point in time).  Anyway, we are now still in a situation where Quantitative Easing is the name of the game. The Fed will be holding rates lower for longer and that is good for equities.

Question:  What was the name of the Ponzi scheme you were referring to?

The Ponzi scheme is called Belvedere Management.  It’s based in Mauritius.  Its run by a guy called Cobus Kellermann and his partner is David Cosgrove – two names very well known in the South African financial markets.  If you go and look on Biznews you’ll be able to get all that information.  That’s what’s been keeping me more than occupied in the last little while.

Question:  Is that the best-priced S&P Index that you can find?

Yes, it is.  Simon Brown and I were looking at it a little while ago and we came to the conclusion that of all the Index Trackers that were available, the Vanguard was one of the cheapest.  It’s less than one-twentieth of one percent ‘all-in’ costs.  Why is that important?  Warren Buffett says that costs are what it’s all about and of course, the Ponzi scheme on here is one where the costs are opaque.  Whenever you’re making an investment, what you’ve got to do is ask about the costs.  It’s so critical.  In this case, the best-priced on the one hand of the ETF’s that track the American market, is the Vanguard one.  On the second hand, the other reason why I went for this was mainly because Warren Buffett goes for it.  At the Annual General Meeting last year, he was asked what he was doing with his wife’s money.  Is he leaving it in Berkshire Hathaway shares?  He said ‘there’ll be some there’ but he’s actually going to be taking most of it and putting it into the Vanguard S&P500 Index – the one that we have our investment in.  How far wrong can you go if you’re with Mr Buffett?

Question: Why no Biotech or Pharma shares?  It seems to be a good growth sectorRene St. Arnaud’.

Because I don’t know them well enough, Rene.  I suppose you could call Novo Nordisk a Pharma Company.  It certainly is.  I know that quite well.  There’ve been a lot of these start-ups that have done spectacularly well.  A word of warning, though (and I don’t know if it means anything): when I was looking around for David Cosgrove who’s the Ponzi scheme man who operated the Belvedere Management Ponzi scheme out of Mauritius, the only picture I could get from the Internet was one that was on a website that which has subsequently been taken down, which was a Pharma website.  Now, if David Cosgrove is involved in Pharma start-ups, maybe I shouldn’t be.  Anyway, it’s outside of my area of competence.  Rene, I’m sure there are people who probably know this thing far better than either you or I do.  If you’re in there and you’ve made a lot of money, remember that what goes up can come down as well.  This is an investment and for me, whatever we buy here, we’re going to hold for the long-term.  Keep those questions coming.

The next slide is here on Mr Warren E Buffett.  In the past month, the news form Berkshire Hathaway was that the Annual General Meeting date was announced, which everybody knows is the first weekend in May, and that was announced when Warren Buffett sent out his Letter to Shareholders.  It’s always an eagerly awaited event.  In the letter this year, there were some special insights from both Buffett and Charlie Munger.  When Berkshire was 25 years under their control, they gave a ‘pros and cons’ reflection of what happened there and they said that they would be updating it after the next quarter-century.  Now, this is the year that it celebrates 50 years since Berkshire Hathaway became a Warren Buffett/Charlie Munger operation and in the Golden Anniversary, the two of them have given some very interesting insights into what they did wrong.  Remember, Buffett says ‘you must trumpet your mistakes and play down your success’ and what they did right was mentioned in there as well, but in typical Buffett style it was played down a lot.  It’s a lovely read.  Go along.  Go and have a look at the Annual Report of Berkshire Hathaway.  It’s on the website.  I’m still going through it very slowly.  He talks about things like capital allocation.  He talks to the fact that companies should not be buying back shares, but should rather be allocating that capital in ways that can give them a better performance – just pure Buffett.

It didn’t really do a whole lot to the share price in the past month, but Buffett’s share price has had quite a good run.  It’s interesting now that we are a little below where we bought in December.  It’s the only stock in our portfolio that is not ahead in U.S. Dollar terms.

As you can see, Berkshire Hathaway under-performed by about four percent against the S&P 500 in the month.  I’d see this as a buying opportunity and more so because when you do get to the Annual General Meeting (or after the AGM) in May, what tends to happen is that the pilgrims who go along to the AGM come back, become reenergised, and then decided to buy some more Berkshire shares.  It tends to have a very good run just after May.  This might not be a bad time to be buying into it. Everything’s going well at the business. It’s a huge company.  It’s the fifth (by market cap) in the United States.

There was an announcement today, which is worth remember if you are a Berkshire shareholder.  It’s that their partner 3G – a Brazilian firm in private equity, that they have a joint venture with in Heinz – is apparently looking at Kraft Foods to put it into Heinz Foods as well.  That could only be good for Berkshire Hathaway.  I’m very happy with my 15% that we have in that stock.

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amazon  |  federal reserve  |  biznews  |  warren buffett  |  alec hogg


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