Weekly Update: 1/17/21
FANGM are value stocks, pockets of bubble behavior, Howard Marks dropped some fire, TSM earnings, Roku bullishness, Q4 investor letters, online dating & gaming
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🔍 Tickers mentioned: SNOW, MDB, VEEV, FIVN, ZI, AVLR, NFLX, FB, GOOGL, MSFT, TSLA, AAPL, AMZN, ADBE, NFLX, CRM, NVDA, INFO, GFL, CHTR, RICK, TSM, ROKU, PGR, SPGI, TSCO, PYPL, MTCH, GME, BTC
⚡️ Quick links
📊 The Technology Letter — The Smart Way to Buy Expensive Software Stocks According to Canaccord (link)
“These are the types of names that you can buy, put away, and own almost irrespective of price,” writes Hynes. Clearly, he writes, investors are doing that with Snowflake, the most expensive stock in software anyone can remember.
With that in mind, Hynes proposes five companies that could be category killers. Four of these I had heard of: MongoDB, Veeva, Five9, and ZoomInfo. The fifth, Avalara, is new to me. The sixteen-year-old company is based in Seattle and provides programs that have to do with tax collection.
🍿 Variety — Netflix’s Massive 2021 Film Slate Will Deliver New Movies Every Week This Year (link)
🔮 Jason Zweig at WSJ — The Crystal Ball Fails Again (link)
I have no idea what's going to happen between now and Jan. 20, let alone between now and Dec. 31. And I'm not going to pretend I have a crystal ball. Some people might find such a confession useless or annoying. I find it liberating.
As I wrote in last week's column, "What We Already Know About Investing in 2021," one thing you can be nearly certain of this year is that Wall Street will push investors into chasing whatever was hot last year. Pour a few extreme political forecasts into that mix and the result could be an explosion of hype. The best investing strategy for 2021 might be paying up for a good pair of noise-cancellation headphones.
📈 Tom Tunguz (VC at Redpoint Ventures) — The Missing Insight Around Software Multiples for Valuing Companies (link)
But the point we can make today is that multiples should follow a power-law, a geometric shape as a function of growth rate, and they do in the public software markets. And that’s why growth is so desirable: it increases the value of the company exponentially.
🇮🇱 Elad Gil — Why Has Israel Succeeded At COVID Vaccination? (link)
🤔 Ally Bank — Are Stocks in a Bubble? (link)
📊 Charts of the week
Fade the big tech overlords?
H/t one of the best follows on FinTwit @modestproposal1—click the link for his full thread of charts:
The current market environment is baffling.
A growing number of investors are chasing “the Chinese Tesla” and hydrogen fuel cell forklift companies trading at 100x sales. Another group is basing their trades on predictions of which companies might be added to a Cathie Wood/ARK ETF. Tesla (the real one) is now regularly beating the SPY (S&P 500) ETF in daily volume (h/t @EricBalchunas):
@MIcapital2 highlighted this last week—Goldman Sachs’ mega cap tech basket (AAPL, MSFT, AMZN, GOOGL, FB, ADBE, NFLX, CRM, NVDA) has been flat since mid-September while the not-profitable tech basket has DOUBLED since then:
Maybe the explanation is as simple as Robinhood-enabled mobile trading frenzy + millions of new retail investors + stimulus checks + 0% rates. In other words, animal spirits are alive and well.
Personally, I’ve been adding to my Microsoft, Adobe and Facebook positions, among others. Buying high-quality tech businesses when sentiment turned against them has historically been highly lucrative. @PythiaR also has some reasonably-valued names to consider:
Cloud growth forecasts
Also worth noting:
📚 Good reads
Howard Marks (Oaktree Capital) — Something of Value (link)
Is Marks 15 years late in understanding how to invest in high-growth tech businesses? Probably. Still, this memo could go down as one of the best he’s ever penned. I recommend reading the whole thing but TLDR:
Value investing doesn’t have to be about low valuation metrics. Value can be found in many forms. The fact that a company grows rapidly, relies on intangibles such as technology for its success and/or has a high p/e ratio shouldn’t mean it can’t be invested in on the basis of intrinsic value.
Many sources of potential value can’t be reduced to a number. As Albert Einstein purportedly said, “Not everything that counts can be counted, and not everything that can be counted counts.” The fact that something can’t be predicted with precision doesn’t mean it isn’t real.
Since quantitative information regarding the present is so readily available, success in the highly competitive field of investing is more likely to be the result of superior judgments about qualitative factors and future events.
The fact that a company is expected to grow rapidly doesn’t mean it’s unpredictable, and the fact that another has a history of steady growth doesn’t mean it can’t run into trouble.
The fact that a security carries high valuation metrics doesn’t mean it’s overpriced, and the fact that another has low valuation metrics doesn’t mean it’s a bargain.
Not all companies that are expected to grow rapidly will do so. But it’s very hard to fully appreciate and fully value the ones that will.
If you find a company with the proverbial license to print money, don’t start selling its shares simply because they’ve shown some appreciation. You won’t find many such winners in your lifetime, and you should get the most out of those you do find.
Mule’s Musings (Substack) — TSMC Earnings (link)
Great review of Taiwan Semiconductor’s Q4 earnings report from one of the best semiconductor analysts on the Internet
TSMC continues to shock and surprise! I’m frankly shocked, and I have been selling TSMC off because of valuation - partially frustrated that I felt the narrative had outrun the operating results. I was wrong and am not going to sell what shares I continue to own.
Curious Capital (Seeking Alpha) — There Is Only One Roku (link)
Solid piece highlighting the bull case for Roku. Valuation-wise, the stock is probably fully priced right now, but this is one of my largest positions and I don’t see their competitive advantages (agnostic platform/OS, wide & growing distribution, platform network effects via first-mover advantage) going away anytime soon. If you haven’t already, check out what media GOAT John Malone had to say about the streaming landscape
Wedgewood Partners — Fourth Quarter 2020 Client Letter (link)
The latest letter from Wedgewood Partners (+32% net return vs +18% S&P 500 last year and good long term track record). Includes in-depth write-ups on Progressive Corporation, S&P Global and Tractor Supply. Also mentions PayPal, Google and Microsoft, among others:
S&P Global announced the acquisition of IHS Markit, a provider of financial indexes, fixed income data, and industrial market data.
The combined Company should be able to generate mid-to-high single-digit revenue growth over the next several years, as both businesses expand their offerings commensurate with the massive expansion of capital markets thanks, in part, to perpetually profligate monetary policy. We also expect the new Company to be able to generate steady expense leverage and drive very attractive marginal returns on invested capital while leading to healthy double-digit earnings growth, once the dust from the acquisition has settled.
Upslope Capital — 2020-Q4 Update (link)
I thought the SPAC discussion in the appendix was especially interesting
Baskin Wealth — Always think like a business owner (link)
Stock markets give us the ability to buy and sell shares of companies very easily and on short notice and one can be tempted to take a short-term view. Business owners know that real value is built over time, sometimes years and sometimes decades.
🎧 Press play
Chit Chat Money — Nick Sciple | Online Dating & Gaming
This week your hosts, Ryan and Brett, welcome Nick Sciple onto the show. The three discuss online dating, gaming, and many other topics. Before we get to the interview Ryan and Brett share their favorite stories from the week. Stay tuned after the interview with Nick to hear who's in hot water, buy-sell-hold, and anecdotal evidence. (link)
Match Group, Gamestop (pre-short squeeze) and Roblox were the main companies discussed. As a biased shareholder, I really liked Nick’s take on Match.
📺 Video of the week
The Compound — Is the Stock Market in a Bubble? | Animal Spirits Episode 186
In this excerpt from episode 186 of the Animal Spirits podcast, Michael Batnick and Ben Carlson discuss why the stock market is creating bubbles, the battle between fiscal and monetary policy, Jeremy Grantham, Chamath Palihapitiya, and more!
Sentiment check
From Reuters:
Enter Maren Altman, bitcoin investor and astrologer.
The New Yorker has been following the movements of celestial objects to predict bitcoin price fluctuations since last summer. And while many people might mock her methods, she has built up a 1 million-strong social-media following on TikTok.
Last week, the 22-year-old told her followers to watch for a price correction on Jan. 11.
Why? Saturn was going to cross Mercury.
Disclosure: None of this is investment advice. I own BTC, AVLR, FB, MSFT, AMZN, ADBE, INFO, GFL, RICK, TSM, ROKU and MTCH shares.
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