Bend It Like Apple!

The Jewish new year got off to a rotten start, hit by the “bend it like Apple” risk of another bad launch. It was also hurt by some BASH: the arrest of Vladimir Yevtushenko who runs Bashneft and other firms in Russia and the rise of the BASH “shellshock” virus which hits Apple computers. Most viruses aim at Windows.

Please do not buy into the German Rocket ipo. Alibaba was seriously underpriced compared to this new tech launch.

Buffett and Keynes on Forecasts

Last year Warren Buffett wrote about how avoids Rockets:

“You don't need to be an expert to achieve satisfactory investment returns. But if you aren't you must recognize your limitations and follow course certain to work reasonably well. Keep things simple and don't swing for the fences.

“When promised quick profits respond with a quick 'no'. Focus on the future productivity of the asset you are considering. If you don't feel comfortable making a rough estimate of the asset's future earnings, just forget it and move on.

“No one has the ability to evaluate every investment possibility. But omniscience isn't necessary; you only need to understand the actions you undertake.

“If you focus on the prospective price changes of a contemplated purchase, you are speculating. There is nothing improper about that.

“I know I am unable to speculate successfully and am skeptical of those who claim sustained success in doing so.

“Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.

The Playing Field, Not the Scoreboard

“Games are won by players who focus on the playing field—not by those whose eyes are glued to the scoreboard.

“Forming macro opinions or listening to the macro or market predictions of others is a waste of time. “Owners of stock too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about the markets, the economy, interest rates, price behavior of stocks, some investors believe it is important to listen to pundits, and worse, to consider acting upon their comments.

“The main danger is that the timid or beginning investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur.

“The antidote to that kind of mistiming is for an investor to accumulate shares over a long period and never to sell when the news is bad and stocks are well of their highs. The 'know-nothing' investor who both diversifieds and keeps his costs minimal is virtually certain to get satisfactory results.

“Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long-term results than the knowledgeable professional who is blind to even a single weakness.”

Good Timing

Listen to the Oracle of Omaha about timing. This spring I joined a forecasting game called “The Good Judgment Project” on politics and foreign affairs, a 4-year program funded by Uncle Sam. It used volunteers who competed in working out the odds of various events. It was run by a US university on the Internet.

Using “aggregative contingent estimation” the program sought panelists' votes on the likelihood of an event. You won points if you were right. After learning about the project from The Economist, a magazine I used to write for which I read, I had to take an exam to get admitted to the contest panel.

Then I and many others lost points because we forecast that Russia would invade Ukraine. The reasons were a deadline of March 1 for the invasion which had to be confirmed by an objective observer (whatever that might be) stating that Russian military had crossed the border. I quit the panel in disgust. Subsequent events totally changed which panelists forecast rightly or wrongly.

After that experience I hesitate to forecast which stocks will gain in 2015. What if the deadline passes and the share soars in 2016? Being ahead of the gang is penalized just as it was over the taking of Crimea and the cross-border incursions into eastern Ukraine.

Moreover it is hard to predict patterns to appear in the future if you are not one of those making the patterns appear. So what you really are forecasting in a list of stocks is not which shares should go up based on their valuations or business, but which shares will be bought by more people and then rise. So what you are really trying to forecast is what analysts will like better in the course of next year..

You are not trying to select the most beautiful woman; you are trying to guess which woman is viewed as most beautiful by the largest numbers of those who get to pick her, an insight I owe to Lord Keynes.

Pimco, Merrill, Lehman, Bear?

I run a small newsletter with few subscribers. We do not often make markets move. One solution would be to replicate a bunch of forecasts from big kahunas in the market. I could copy major fund shareholdings (assuming they are correctly valued, not always what happens at Pimco.) Until he unexpectedly resigned today I could have copied Bill Gross at Pimco for bond ideas.

Or I could plagiarize analysis from Wall Street biggies like the thundering herd (formerly Merrill Lynch, and now—because it didn't correctly forecast the global financial crisis—Bank of America-Merrill Lynch.) In 2008 I could have copied a next-year portfolio from Lehman Brothers or Bear Stearns.

That is because stock picking is not always the key to making money; it depended during the Global Financial Crisis on the analyst or forecaster anticipating the marco-economic collapse, which few did.

Moreover, what funds and brokerages publish about stocks may not be everything their forecasters have to say particularly as the year goes on. Sometimes they shift gears but only share this information with people who pay for instant upgrades, usually institutional clients are brokerages or the house-team at a fund rather than those getting updates every quarter.

There is also the problem of self-fulfilling prophecies. If a stock guru got a forecast right chances are that his or her other forecasts will be followed by those seeking guidance. And if a guru got it badly wrong about one stock, his or her following would fall.

So that solution to the problem would not only be dishonest; it probably would fail.

What Benchmark?

Another problem is what the benchmark is. With US shares a well known index like the S&P 500 grades the return forecasters achieved. But what is the benchmark for global markets? Mark Hulbert of Dow-Jones's Hulbert's Financial Digest uses the Russell 4000 to include more small caps. But his benchmark is pretty much of the USA and not right for www.global-investing.com

But as he has been rating us for decades, I don't complain too loudly.

We pick foreign stocks exclusively and a major factor in their performance is the exchange rate of the currency of the country where they have their primary listing vs the US dollar. So we would have to get the foreign exchange trends right to do well. And foreign exchange markets with vast sums at stake and running 24 hours a day can turn on a dime.

And that takes us right into the macro morass Warren Buffett warned against!

After that dose of cold water, I begin today with my predictions for 2015. I aimed to have 15 picks for the year but the copywriter who is helping us market our blog said that was too many to avoid MEGO reaction. So I am aiming at 5, using the last digit of the year. I will not pick a Single Best Idea because that is like walking at the edge of a steep cliff.

Today's blog has news from Canada, Finland, India, Switzerland, Denmark, Malaysia, Britain, Kenya, South Africa, Mexic, Israel, and Dubai. Plus bond and fund notes.

Spring?

*As you know, sometimes i delay writing up a stock i like waiting for a better entry price — and then the share rises before the recommendation goes out. Today's pick, Vodafone, is back in our sights because it has gone down. We already own VOD bonds for yield.

VOD shares have been priced recently based on its US actual and potential deals. First VOD sold its stake in a jv with Verizon. Then rumors began that VOD was a target for T. Then the market took fright and repriced VOD as yet another low-growth moatless European telco. So at £20.475 (yesterday's close) after distributing to me and other shareholders a special dividend with theVZ proceeds early this year), VOD is now priced at well below half it's year's high of £44.206. The Feb. payout took the form of a 6 for 11 stock issue, a special dividend.

It then announced something called Project Spring which was supposed to differentiate its European network for those of rivals by bringing over US innovations for better network, advanced self-care options for customers, cheap data pricing, and a greater choice of terminals. The idea is to increase customer loyalty by tailoring services to what the client wants. It is far from clear if this will work out. But given our lousy service fromBT in London I intend to try it out. It acquired landline-Internet firm Cable & Wireless, a specialist in services to business, a couple of years ago.

The Spring is supposed to provide over GBP 11 bn in cashflow by the end of fiscal 2015 (Mar. 2015) and positive cashflow after capital spending but before any M&A spending on new spectrum of or restructuring spending. It will spend £19 bn over the next two years, before cutting back to a target of 13-14% of revenues. And VOD plans to up its dividends per share.

Yesterday CEO Jeroen Hoencamp again promised that he would return VOD to growth in profit and revenues over the next 18-24 months. VOD also announced it would take over the bankrupt UK phone retailer Phones 4U because it is confident in a recovery of the UK telco market. Earlier it announced a purchase this year of Spain's Ono, a cable co., for euros 10x cash flow, or 7.2 bn.

The US share because of exchange rates is even cheaper, at $33.25 despite having risen yesterday despite the market debacle. Its low for the past year is $31.87 and its high of over $72 (before the Feb. payout), so the US price has moved more widely than the British. US analysts hate VOD: 56 of those who cover it (mostly without doing any company research) rate it hold or sell and only 8 American analysts rate it a buy. Standard & Poor”s expects essentialy flat revenues in th e next FY

Its UK business is a mess with spiraling costs eating its margins. Margin on cash flow (earnings before interest, taxes, depreciation, and amortization) are below 20%, a poor showing for a telco. Offsetting that, VOD has a low debt ratio for a telco, at 41%, thus a strong balance sheet. Its revenues are estimated as likely to fall 3% by the close of this FY (Mar. 31, 2015) by Standard & Poor's. S&P rates it neutral but at least does some research. It is expected to report losses next quarter and in the final one for the current fiscal year.

M-Pesa Is Our Reason to Buy

All these developments from the Mother Country are not why we are now buying VOD although Europe accounts for 2/3 of sales and service revenues. We are after the other 1/3, from emerging markets where business is growing faster: up 6% on average in H1, and up 13% in India. VOD is present in the Middle East (notably Egypt and Turkey), but 60% of its emerging markets business is in Africa, via a sub called Vodacom, traded in South Africa, which I want to own at least indirectly.

With part of its VZ loot, VOD in May bought out Tata Communications' 67% stake in Neotel Pty, another South African telco, for 7 bn rand, then $675 mn.) and merged it with Vodacom. Tata is Indian. There may be more deals to come.

Vodacom while listed South Africa operates all over the continent. And it is all about m-Pesa, a money-transfer system developed about 7 years agao in Kenya for a place where banks and and landline telephones barely function. It allows people to use their cellphones to transfer money and pay bills.

M-Pesa spread first to Tanzania next door to where the service began (and where the software was written. Pres. Obama is not the only smart fellow of Kenyan heritage!) In Tanzania, Vodacom is adding about 150,000 M-Pesa customers per month and their transactions now total about $1.2 bn and growing. This is not a small business. M-Pesa now is on offer in a dozen countries, mostly African, but also including Egypt, Romania and India. There are 17 mn users at last count. There will be more. For now the African Vodacom operations have spread to Mozambique, Congo-Kinshasa, and Lesotho.

M-Pesa was developed for 2G cellphones but its users are now being upgraded by VOD to 3G and smartphones. The growth telecom markets now are emerging ones which account for over 300 mn of the world's 435 mn phone users. And they are upgrading like mad although of course they spend less on phoning than those in richer countries.

VOD announced plans to double the number of M-Pesa mobile banking clients by 2017.

There are 26.4 bn VOD shares out and just over 10% is owned by institutions. The yield (after removing the VZ payout which will not be repeated) is 7% but analysts are not sure it can  to continue. This is NOT a yield play but a buy and hold. The trailing p/e ratio is a beaten down 4.9x, which makes even NOK look expensive.

I considered buying Vodacom in Johannesburg but opted to buy in the UK. Incidentally, the Jo'burg shares followed their parent down YTD but not as much. They trade as VOD there and the ADRs are VDMCY. They closed today at 12,780 rands, and yield 6.75%. The S. African shares trade at 0.15x earnings, according to Dow-Jones but don't trade much. BUY BRITISH. BUY VOD.

*Petronas may pull out of a rival gas liquefaction plant in Canada where it owns 62% of the action because of regulatory impediments, taxation, and US share gas competition hurting price levels. This move by the nationalized Malaysian company makes our Veresan project more likely to succeed as it wends its way through the regulatory thicket to build a LNG plant in the State of Washington fed by US and Canada gas fields. FCGYF was first tipped by our Vancouver-based reporter, Martin Ferera.

*Nokia revealed yesterday that Blackrock cut its stake to under 5%. The impact was reduced by the NOK share buyback plan for its own retirement funding.

*Infosys, INFY, was downrated from outperform to neutral by Macquarie, an Australian brokerage. INFY is Indian and it has risen along with the stock market overall on Modi moves.

*Novo Nordisk is building a research center in Seattle to study the genetic bases of obesity alongside its existing facility there to study juvenile onset diabetes. The facility is part of the research which will emply 300 people worldwide, ten initially in Seattle, for the Danish insulin leader.

Ticker Tape Digest's Leo Fasciocco yesterday tipped NVO for 2015 net profit rise of 13% (according to “the Street”, whatever that may be) and because it is an institutional favorite. He called NVO “a breakout play most suitable for conservative investors” and set a target price of $56 and a stop loss at $45. We told you first.

*The European Committee for Medical Products for Human Use CHMP approved Novartis's Signifor (pasireotide) extended release pills for adult patients with acromegaly or Cushing's disease, a hormone disorder.

*CHMP also approved Teva's Vylaer spiromax (budesonide), a glucocoritcoid steroid to treat asthma, chronic obstructive pulmonary disorder, and hay fever, and Crohn's disease. It also approved egranli to stimulate white blood cell production.

*Hikma Pharma fell 2.75% in London trading today. HKMPY has no trading in Dubai on Fridays so it is hard to figure what is up.

Bond notes:

*We already own bonds from Vodafone, the 6.25% of 2032, cusip 92857WAB6.

*HSBC now rates Barrick Gold a buy again contending that ABX expansion will offset lower gold prices if they continue. And the bank revived the theory that Barrick and Newmont can work more closely together in Nevada even if they don't merge. We own the US$ 4.4% of 2021, cusip 06844RAF9. Unlike the stock, down 20% since we sold, the bonds are up.

Fund notes:

*Among the stocks which fell yesterday was Fibra Uno, off 2.5% in Mexico City trading. We sold half earlier. The El-Mann family which operates FBASF are Jewish.