Podcast: Investment lessons from Boeing

In JSE Direct, Latest by Simon Brown

Simon Shares

  • Group5 (JSE code: GRF) goes into business rescue with “a slim chance for any realisation of value.”. It seems the construction of a power station in Ghana was the final nail. Remember the +R1billion they were offered to their Eastern European toll operations? But in the end a lack of liquidity killed them. Be very careful of holding Aveng (JSE code: AEG), if nothing else check the bid/offer, price is heading to 1c.
  • No Brexit deal with 15 days to go. A mess of epic proportions.
  • Back in November 2017 I wrote in FinWeek that we’d get zero fee ETFs and eventually negative fee ETFs (they’ll pay you to hold them). It has happened. MoneyWeb is reporting on a US ETF offering to pay investors to buy their ETF. Locally our much smaller market and hence much smaller ETFs means we’re a long way from free, but I do think in time it’ll happen locally and Satrix40* (JSE CODE: STX40) would probably the one able to do it.
  • Aspen (JSE code: APN) taught us some important important lessons. Debt is fine until it’s not and then it can be fatal. Buffett talks about this in his latest shareholders letter. Secondly the market has become a lot more skittish and punishing since Steinhoff (JSE code: SNH). This is not likely to go away any time soon. The answer is simple, watch a companies debt and hold quality, real quality, only. Lastly, all growth stocks mature and that process of maturing is often painful.
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* I hold ungeared positions.

Investment lessons from Boeing

We live in wild times made possible by the internet and powerful computers in our pockets. Much of it is good with a fair amount of bad as well (think Twitter trolls), but for large old school companies it can be especially bad.

    • Think Momentum refusing to pay out the life policy. They were correct as per the law and policy wording, but they showed a complete lack of compassion and eventually backed down.
    • Think Vodacom trying to scam us on the ICASA rules for rolling over data with crazy fees. They backed down and from a business profit motive they may have been right but they were a million miles away from the spirit of the law and ICASA may have blocked their fees anyways.
    • Think TigerBrands and their total lack of empathy as they responded with legal speak while South Africans were dying from listeriosis originating at their production facilities.
    • Think Boeing, standing firm after another of their new Boeing 737 Max crashed shortly after take off. In the olden pre Internet days Boeing would have been able to control the message with ease and insisted everything was fine, hoping like hell another plane didn’t crash and quickly rolling out a software ‘update’ that may or may not fix the issue (from what I have read the issue is training, not software, here’s a long NYT read on it). Boeing have failed to understand the new rules in which businesses operate.

Firstly those rules are a lot more ethical. Consumers want to be treated fairly. Hey we always did, but we never really had any power. And that’s the second and very important point, consumers now have power. That power comes via the Internet and very quickly a raging anger can over whelm any attempt to manage the message. Now sure often the raging anger is actually just a lynch mob and this is very much the dark downside of the Internet. But the upside is that consumers have power and they’ll exercise that power. Sometimes for good and sometimes for bad.

A business needs to understand this. I remember attending a presentation on generational theory a decade back where the message was that millennials wanted ethical companies and would pay more to these companies. The flip is that they’ll boycott a business they consider to be unethical. Now this is way more than just millennials, the issue is that millennials were given the power to firstly know a companies ethics and secondly do something about it.

Companies that are going to survive and thrive in this new world will have fairness and ethics at their core, and that’s hard. It’s easy to put that into a mission statement, but living it is something else entirely and often a company messes up. For example the news that a company will phase out plastic straws by 2022. Nice, but why so long? Simple because they’re trying to protect profits. Fair enough but the ethical demanding consumer doesn’t care about your corporate greed, they care about the planet.

The even harder issue is how do we manage this as an investor? Truth is we need a crisis to see how a business manages it and that is late in the process. But we can see glimmers of it via other means, such as the plastic straw example mentioned earlier. If a company is not putting the customer and ethics front and center they will eventually be in trouble.

Lastly as investor we need to not chase profits at any cost. We need to invest ethically as well, this means fair fees we’re charged by providers. It also means exiting dodge companies even if we think there is money to be made. We also need to focus on ESG (environmental, social and governance) issues.

A very last point. Will Boeing survive? Of course. Will this hurt? Absolutely. Will it be a great investment going forward? No chance.

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JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

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