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Good morning Vietnam

03 July , 07:59 am

Market scorecard

The S&P500 cruised to another all-time high yesterday. Remember, when the market is setting records, the odds are that it will continue setting them. President Trump announced a new trade deal with Vietnam and although the 20% tariff was slightly higher than the market was hoping for, it is still well below the 46% initially suggested.

In company news, Nike jumped 4% because Vietnam is one of their key supply countries. Tesla was up 5% after reporting poor sales figures, but not as bad as the market had feared. Elsewhere, Centene plunged 40.4% after the health insurer rescinded its fiscal 2025 guidance. The whole health insurance industry went down in sympathy: UnitedHealth Group (-5.70%), CVS Health (-4.28%), Elevance Health (-11.50%), and Molina Healthcare (-21.97%).

In summary, the JSE All-share slipped by 0.31%, but the S&P 500 added on another 0.47%, and the Nasdaq marched 0.94% higher. Outstanding!

Our 10c worth

One thing, from Paul

Veteran investor and author Charlie Ellis (pictured here) has just published a new book at the age of 87. It's called "Rethinking Investing: A Very Short Guide to Very Long-Term Investing".

Everyone knows that to make good gains in the market, you have to invest for the long term. But what does 'long term' mean? Most people think six months, maybe a year, or a few years.

Ellis says that's not long enough. In this book he says "think 60 years or longer". Most reviewers of his work seem amazed. Who has that much time?

"Actually, many of us have," Ellis says. "Say you start in your mid-20s and you continue through your mid-80s. And then, if you're lucky, you can go longer than that. But if you ask me, who am I investing for today, it's for my grandsons and granddaughters, they've got a long time ahead of them."

Byron's beats

The Costco hot dog is a legendary item in American retail culture, known for its consistency and value. Since its debut in 1984 the price of $1.50 has not changed. Adjusted for inflation it should cost at least $4.40 today. Costco reportedly loses money on the hot dogs but it has done wonders for brand loyalty and brings people into the stores.

I had not realised that Shoprite uses a similar strategy. Since 2016, Shoprite has been selling 600g brown loaves for R5 each. According to The Outlier, the average price of a loaf of brown bread in South Africa is R17.54 these days. Not surprisingly, Shoprite sells 600 000 of their discounted loaves every single week.

I am sure that the subsidised bread has the same impact as the famous Costco hotdog. Despite losing money, those loyal customers are coming in every day and buying plenty of other items. Clever.

Michael's musings

I was chatting to an acquaintance last week, and he said that he had put his money into a hedge fund, not Vestact, because the fund's returns have been a lot less volatile. He was happy to sacrifice gains, and pay higher fees, in exchange for downside protection and less volatility.

Hedge funds have different strategies, but many engage in hedging activities which cost money. Think of it as taking out insurance against a market fall, but that insurance will cost you. Effectively, the downside is limited but it hampers the upside potential too.

That strategy is great if you are a short-term investor, where you aren't in a position to take a big short term hit. If you are a long-term investor, with a time horizon of over 5 years, does it really matter what happens today? Vestact's returns have been volatile, but well worth it for long-term clients. Here are our returns, after fees, for the last five years: 45.2%, 25.4%, -35.8%, 51.8%, 40.9%. So far this year we are up 4.1%.

If you don't like volatility, instead of sacrificing very real long-term gains by implementing hedging strategies, just look at your statement less often. Taking this example to the extreme, imagine investing in early 2020 and then only looking at your statement at the end of 2024. You would have been ecstatic about the gains, and none the wiser about the volatile periods.

Volatility is a feature of the stock market, not a bug. Don't waste money trying to fight it.

Signing off

Asian markets fluctuated between red and green this morning as traders digest the implications of the trade deal between the US and Vietnam. Any goods deemed to be trans-shipped through the country, instead of manufactured there, will pay a 40% tariff. The clause is in place to stop China from finding loopholes around tariffs on their own goods.

Sun International shares jumped 8% after announcing it will no longer pursue its R7.3 billion acquisition of rival casino group Peermont, who own Emperors Palace. The deal was first announced in 2023, but the Competition Tribunal has been dragging its heels. Given the rise in online gambling, does it really matter how many physical casinos are around?

US futures are flat and the Rand is at $/R17.60. Tomorrow is the 4th July holiday in the US, so their unemployment data will be released today, a day early.

Have a good Thursday. Goodbye.