Weekly Update: 1/3/21
US housing market and Seattle's tech scene prove resilient, 2020's biggest tech acquisitions, 2021 consumer trends, marketplaces year in review, Peloton's future, thoughts on software investing
Welcome to Beating the Odds. Our goal is to create and curate content on investing, strategy, tech, fashion and anything else we find interesting.
🔍 Tickers mentioned: Z, LOW, AMZN, AAPL, GOOGL, MSFT, FB, LVMUY, SHOP, FL, MTCH, EBAY, TGT, WMT, ETSY, PTON, CRM, NOW, WDAY, ZEN, TWLO, TEAM, U, DDOG
Happy New Year! I hope you had a safe and enjoyable NYE. 2020 was a tough year, to say the least. Onwards to 2021…
⚡️ Quick links
🏠 Zillow — 2020 Was a Surprisingly Strong Year for Housing. Here's Why 2021 Will be Stronger.
“We are forecasting almost 6.9 million existing homes will be sold in calendar year 2021, the most sales recorded in a single calendar year since 2005 and the largest one-year increase (21.9%) since the early 1980s.”
Historically low mortgage rates will be here for the foreseeable future and strong housing demand continues to exceed supply, so 2021 could be a solid year for home improvement and homebuilder stocks. I recently bought some shares of Dividend King Lowe’s (ticker: LOW)
🌲 Geekwire — LinkedIn migration data shows that techies aren’t leaving Seattle despite ‘exodus’ in Silicon Valley
“Taken together, Seattle’s tech scene is larger than ever and showing no signs of slowing growth or experiencing any sort of “exodus” — in fact, as the data shows, perhaps just the opposite.”
As a Seattle native I’m biased, but with talented knowledge workers and big tech outposts (Amazon, Apple, Google, Microsoft, Facebook, etc.) flooding the region, increasing venture capital dollars, and a strong startup ecosystem, it really does feel like the Pacific Northwest is primed for a major boom in the coming decade
📈 Marketwatch — These are the best performing Nasdaq and S&P 500 stocks of 2020
💎 Business of Fashion — Tiffany Shareholders’ Approval of LVMH Sale Caps Rocky Saga
📊 Chart of the week
2020’s biggest tech acquisitions
📚 Good reads
Coefficient Capital — Consumer Trends 2021
Consumer spending facilitated by Amazon and Shopify continues to grow, and competition between the two should only intensify over the coming years:
The Observer Effect — Interview with Tobi Lütke, Founder and CEO of Shopify
Eli Dourado — Notes on technology in the 2020s
The Sova Group — A collection of company research reports and investment theories from The Sova Group, a Utah-based investment firm. I especially enjoyed their thoughts on Foot Locker, Facebook, Atlassian and Match Group
Mindset Value — Power Law Dynamics
“The stock market used to be more mean reverting, where stocks went up and down, industries went up and down, but things always returned to a competitive balance. At least for now, it appears that the Internet has upended this cozy relationship and definitely ruined the old way of investing based upon mean reversion. The Internet allows a scale and dominance that is breathtaking.”
Marketplace Pulse — Marketplaces Year in Review 2020. Excellent review of the state of play among global marketplaces from Juozas Kaziukėnas
“As e-commerce boomed during the pandemic, some marketplaces have greatly benefited, a few prepared for the future, while others were caught unprepared to react.”
Yet Another Value Blog — Peloton: Fitbit 2.0, or Netflix 2.0?
John Street Capital — 10 Thoughts as 2020 Comes to an End
Logic Magazine — Inside the Whale: An Interview with an Anonymous Amazonian
“One of the reasons why the antitrust people are looking at Amazon is because Amazon is using highly profitable businesses where it has a really durable advantage in order to subsidize losses in other divisions that it uses to capture market share. Without an organ similar to AWS, a competitor like Walmart has to lower prices below the level of profitability to remain competitive. And they can only sustain those losses for so long.”
🎧 Press Play
Value Hive Podcast — All Things Enterprise Software w/ Shomik Ghosh, Boldstart VC
Shomik Ghosh is a principal at Boldstart VC by day and resident Enterprise Software savant by night. Shomik's job at Boldstart VC is to find and become Day One partners with passionate, technical Enterprise Founders. This means Shomik spends all his time thinking, analyzing, and valuing enterprise software businesses.
Our conversation dives deep into the world of Enterprise Software. More importantly, Shomik takes us on a journey through his slide deck "Framework For Evaluating Enterprise Software Companies". This is one of those podcasts you'll want to listen to twice. Shomik breaks down competitive advantages, favorite stacks within Enterprise Software, as well as rebuking common myths investors believe about the space.
Here are the show-notes:
[0:00] Who is Shomik?
[6:00] The Importance of Founders
[10:00] Differences between Investing in the Private Markets and Public Markets
[16:00] 6 Steps for Evaluating Enterprise Software Companies.
[20:00] What is Alignment of Cost Structures?
[27:00] The Importance of Switching Costs
[45:00] Distribution in Software Companies
[53:00] Security as Enterprise Software
[1:03:00] Exciting Areas in the Enterprise Software Industry
[1:13:00] More from Shomik and Closing Questions
If you like what you heard from Shomik, check him out on Twitter @shomikghosh21
Great discussion on software investing, especially the 6 Steps for Evaluating Enterprise Software Companies portion. I highly recommend checking out Shomik’s slide deck and Twitter profile linked above (plus his @MinionCapital account for public markets investing).
📺 Video of the week
Marques Brownlee — 2021 Tech I’m Ready for!
Hindsight 2020! With foldables, Cybertrucks and Apple Silicon, future tech has a lot to look fwd to.
Fintwit’s best thread of 2020
In what was the wildest public market environment I’ve ever experienced, 2020 saw Fintwit dropping gems, memes and shitposts on the timeline day in and day out. The following thread on software investing from @MIcapital2 was arguably the best I’ve seen on the topic. There’s a lot to digest and the entire thread is worth reading a few times:
Some thoughts that really stood out to me:
The importance of a qualitative understanding, curiosity, and humility:
Market sizes are larger than expected and growth rates are proving to be sustainable:
Not only do the top hyperscalers (cloud computing providers) reduce friction to start software/tech companies built on top of AWS/Azure/GCP, but they’re forecasted to continue growing at impressively high rates given their large revenue bases:
Completely agree here. The infrastructure for continuous computing was laid during the preceding decades and it’s still early days for Wave 3 of the SaaS business model. Ben Thompson’s The End of the Beginning post, and the Invest Like the Best episode with Eric Vishria were A1 if you want to go deeper on these topics:
I don’t believe the CRM calculation is adjusted for M&A (could argue that Salesforce views M&A as somewhat of a substitute for R&D/in-house product development) so the ratio may actually be a little higher in reality, but I generally agree with this:
Given the nature of scalability and winner-take-most dynamics in some software sectors, it’s crucial to understand the competitive landscape and focus on best in breed companies:
Again, there’s a lot of information to chew on in this thread, but it’s hard not to be excited about the future of software and all the innovation waiting to be unlocked.
Disclosure: None of this is investment advice. I own LOW, AMZN, MSFT, FB, SHOP, MTCH, TGT, PTON, CRM and TWLO shares.
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