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Settlement Secured

Market Scorecard



As expected, the Tesla stock got crushed on Friday, closing down 13.9%! Then in the early hours on Sunday morning, Saturday afternoon in California, I received a notification on my phone saying that Musk had settled with the SEC. The first question I asked myself was, why not settle the first time around? Delaying things by a day resulted in the steep drop in the stock, and the new settlement is worse than the old settlement.

Under the new agreement, both Musk and Tesla each need to pay a $20 million fine, Musk needs to step down as Chairman for at least three years and then the company needs to appoint two more independent directors. I would argue this is a win for Tesla shareholders. In South Africa, CEO's are not appointed as Chairman of the board too, which improves corporate governance. By having a non-executive chairman, the CEO becomes accountable to the board, instead of having a board mostly rubber-stamp decisions.

Through this ruling and settlement, the SEC has set a precedent around senior management using Twitter to announce inside information. The company is liable if management says things they shouldn't, which means companies will now implement policies of what can and can't be tweeted. As a Twitter user, this is not great, but as a shareholder, it is better not to have management tweeting things off the cuff.

When I heard the fine of $20 million, I thought that is a drop in the ocean for Musk. I then started to think about how much money it is. Converting to Rands, it is R290 million! Ouch! One tweet cost him R290 million. Yes he is a billionaire, but most of that wealth is tied up in the stock of Tesla and Space X. Not many people have $20 million just sitting in cash.

This chapter is now behind us. It means Tesla will have improved corporate governance, and Musk can now focus on running operations and not have to worry about board-level policy. We should hopefully see a bounce in the share price this week. As we have said before about this stock though, it is a very risky holding. Elon will either succeed or go down in flames, sort of a '1' or '0' scenario; we back Elon.

Yesterday the JSE All-share closed down 0.50%, the S&P 500 closed down 0.00%, and the Nasdaq closed up 0.06%.




Our 10c Worth


One thing, from Paul

I'm returning to work this morning after a fun weekend of trail running with friends in the Kogelberg Nature Reserve, above Kleinmond in the Western Cape. Spectacular!

Amongst the two news stories in my feed this morning, these two stood out. Firstly, Canada, Mexico and the US finally reached an agreement to replace the 24-year-old North American Free Trade Agreement (Nafta), with the U.S.-Mexico-Canada Agreement, or USMCA. It seems to me that the new deal is not much different than the old deal, but it does allow Trump to declare victory. He called the previous deal a "disaster".

Secondly, for those 84 Vestact clients (including myself) that are Tesla shareholders, the settlement between Elon Musk and the SEC is most welcome. Musk will pay a fine of $20 million and relinquish the position of chairman for at least three years. He remains the CEO, which is what really counts. Given how strong the SEC's case looked, he got off lightly.






Byron's Beats

This opinion piece in the Motley Fool comparing Square and Visa made some interesting points. First and foremost it estimates that consumers globally still spent over $17 trillion with cash and cheques last year. That right there is the opportunity.

The other interesting point was that no one really wants to compete with Visa and the other payments processors. A company like Square has its own role in the transaction processing chain but still leverages off Visa's network. The same applies to Apple Pay and Paypal.

These companies want to play a role in the chain and make things more convenient, but no one is interested in taking on the actual switching process. VisaNet can handle 65 000 transactions a second and is one of the most trusted brands in the world. Visa has returned 810% in the last ten years; we plan on remaining loyal shareholders for decades to come.






Michael's Musings

Getting to Europe recently, required two flights and 24-hours of travelling. You need a holiday just to recover from the travelling! It is at times like that, where you wish the aeroplane seats were bigger, that you didn't have someone next to you and that you could put your seat further back.

Most people never get past the point of complaining about small seats though and think about how amazing it is that you can go anywhere in the world at an affordable rate. This blogger points out that small seats and full aircraft mean we pay less per flight - Why you should be glad to sit in the middle seat.



He points out that over the last 30-years, a one-way internal flight in the US would average 1.5 days of work to pay for it, now it takes the average person a mere 6-hours of work.

The reality is, if I wanted a bigger seat, with no-one next to me and the ability for my seat to go flat, I could buy a business class ticket at double the cost or around the price I would have paid for an economy class ticket 30-years ago! As a consumer, I have options! For my current life stage, I'm 'happy' to suck up a small seat in exchange for a cheap flight.






Bright's Banter

Feliz lunes mi gente bella! My colleagues above spoke about Elon Musk's $20 million settlement with the SEC, so this is just a continuation. First of all my favourite twitter reaction on the news that Musk lives to see another day came from Jim O'Shaughnessy of O'Shaughnessy Asset Management (OSAM):



Musk has 45 days to relinquish his post and will be unable to serve as a chairman for three years, however he will stay on as Tesla's CEO.

This means the chairman position will be vacant and two independent board members must be appointed. Tesla must establish a committee to oversee Musk's communication, including his tweets. This reminds me of the time when Adele got drunk and started tweeting like crazy, and her manager took over her account, but then Adele opened a secret Twitter account under a pseudonym, but we digress.

Tesla will also pay $20 million fine to the SEC, and as part of the settlement, Elon Musk will neither admit or deny any wrongdoing. The filing by the SEC alleged that Musk misled investors and made false or misleading statements about funding. In addition, failing to take the necessary steps to identify regulatory approvals for the transaction.

The chart below shows the impact of Elon Musk's famous "funding secured" tweet on Tesla's share price over a period of two months.

Infographic: Tesla's Turbulent Stock Market Run | Statista You will find more infographics at Statista




Linkfest, Lap it Up


I'm impressed that the Fortnite Hype has continued this long. The game was released in July 2017, and started to go main-stream towards the end of last year. Generally humans have a short attention span, and hype only lasts one or two months before the new 'big-thing' comes along - Fortnite - The All-Consuming Gaming Hype.

Infographic: Fortnite – The All-Consuming Gaming Hype | Statista You will find more infographics at Statista

Having transparency about what people get paid is normally good news for employees and bad news for employers. As an employer, you can't use a divide and conquer technique to bring down your salary bill - What happens when you let employees pick how much they want to be paid? This company decided to find out..



Vestact Out and About


Michael was on CNBC Power Lunch talking about Tesla's issues on Friday - Tesla shares tank as SEC files fraud charges against Elon Musk






Signing off


Chinese markets are closed today, part of their Golden Week holiday/ celebration. The CEO of the industrial conglomerate ThyssenKrupp, was on Bloomberg this morning saying that for their business things in China are not as bad as some people are reporting. On to data out today, locally we have Manufacturing PMI data and New Vehicle sales. Both indicate how things on the ground are going. In the week ahead many South African companies go ex-div, including Aspen and Discovery, so expect some 'free money' to flow into your account this weekend.

Sent to you by Team Vestact.


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