Investment Talk

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Market Talk, April 24th 2022
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Market Talk

Market Talk, April 24th 2022

Edition 48

Conor MacNeil
Apr 24
12
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Market Talk, April 24th 2022
investmenttalk.substack.com

Market Talk is a bi-weekly Sunday issue, where I curate the best things I have consumed during the last two weeks.

Every second Sunday I will share:

• The greatest articles I have read during the last two weeks

• A few stellar podcasts or interviews

Comments from Me

Nothing interesting from me to share on a personal note this week, besides these brand-spangly-new page separators. I do have a couple of guest interviews lined up, one from a fund manager, and the other from an analyst specialising in LatAm stocks.

Interesting Reads

Here is a shortlist of a few interesting pieces that I have read over the course of the last two weeks, to feed your mind.

Note, that these articles are not listed in order of perceived value.

To access the suggested article, click the purple link after the source subheading.

1) Madness of the Crowds

Length: Moderate Read

Source: (Young Money)

Jack is one of those quirky, non-pigeon-holed, and thoughtful writers that I’d group with the likes of Liberty, Kyla Scanlon, and Lawrence Yeo from ‘more to that’; marrying insight with aesthetic and educational, but non-boring, subject matter. This memo opens with the fundamentals of groupthink; a phenomenon that occurs when a group of individuals reaches a consensus without critical reasoning or evaluation of the consequences or alternatives, and proceeds into a discussion of how this effect make have plagued the AMC cult that managed to niggle its way into the public zeitgeist.

Carefully balancing the distortion of perceptual reality and …well… reality, Jack does a great job of drawing conclusions on why AMC investors likely became embroiled in this mass bout of groupthink-itis.

“Rationality is subjective, largely dependent on the communities that we surround ourselves with. To a random observer, it seems absurd that someone would invest their savings in a movie theater chain that is worth 10x what it was just two years ago. At the same time, to one of the 500,000 members of the AMC subreddit who constantly absorbs information about price suppression, short squeezes, and manipulation, the most rational decision is investing one's savings in a movie theater chain that is worth 10x what it was just two years ago. We are only as rational as the communities that we surround ourselves with, so we must be careful not to get caught up in the madness of our own crowds.”

2) MIT Endowment Investor Letter

Length: Moderate Read

Source: (MIT)

An investor letter that looks back at 15-years in which the current management team have overseen the progress of MIT’s endowment fund; a period in which the fund (now $27B in AUM) generated a CAGR of 11.7%. Given the endowment fund has alternate stakeholders, demands, and goals to a regular asset manager, this reading was fascinating to garner perspective on how they appraise investment opportunities across a multitude of vehicles and asset classes; “Adopting a different approach leads to less crowded playing fields and an opportunity to build strengths where others may not be focused”.

Much like MIT may trust their capital in the hands of other fund managers, VC firms, or real estate managers, we retail investors are placing our trust in the hands of the stewards of capital that run the companies we invest in.

“Maintaining an edge in the investment management business is incredibly difficult. The potential for outsized financial rewards draws in innumerable participants and provides ample motivation for intense effort. Early signs of success are usually followed by a flood of capital that crowds out opportunities and drives up prices. Market environments change rapidly, making formerly useful strategies and techniques quickly obsolete. These forces make it very hard for anyone to generate compelling returns over long stretches of time.”

3) A Further Call to Action

Length: Moderate Read

Source: (Blackwells Capital)

Some of you might remember in February when Blackwells Capital shared a presentation titled “A Call to Action” which essentially handed John Foley, founder and former CEO of Peloton, his ass on a plate. Foley was shortly ousted as CEO following the scathing report (no insinuation the two were related) and replaced with Barry McCarthy.

Back for round 2, the opening prose of Blackwells’ report remarks that “Two months since Peloton hired one of the highest-paid CEOs in all of corporate America, nothing has fundamentally changed”.

Whilst being a scintillatingly sassy post-mortem (see above) of the time that has elapsed since the first report, the new edition is an equally high-quality breakdown of the corporate governance failings of Peloton that remain today.

“If Peloton does not commit to taking responsive action, Blackwells will pursue all avenues available — including litigation — to hold the Company and individual Board members accountable on behalf of shareholders”.

4) Attractive M&A Targets: What Do Buyers Look For?

Length: Moderate Read

Source: (Cass Business School)

Referenced in Thursday’s interview with David Paolella, this report might be from 2016, but it’s still an evergreen case study in the best practices for discovering businesses that might be acquisition targets.

The case study examines 33,592 public and private companies that earned a minimum of $50M in annual revenue across the period 1992 through 2014; investigating six key financial measures in growth, leverage, profitability, size, liquidity, and valuation. Using these measures, the paper outlines the significance of each in their ability to ascertain if a business is poised to be an attractive target for M&A activity, suggesting that 4.3% of all public companies studied become an attractive target in any given year.

“Private target companies are more profitable than private non-targets, whereas public target companies are less profitable than public non-targets. Private companies with much higher or much lower profitability than the average are also the most likely to become acquisition targets. Public companies with much lower profitability than the average are also the most likely to become acquisition targets.”

5) Mapping the Asian ETF Market

Length: Moderate Read

Source: (Asian Century Stocks)

I will repeatedly bang the same drum, but Michael Fritz is my go-to guy for all things Asia. I feel fortunate to have such a diverse plethora of analysts in my substack collection. Anyway, this piece from Fritz is a fantastic breakdown of the ins and outs of Asian ETFs. Beginning with a broad overview of the asset class, the nuances between active/passive and diversified/concentrated, and the dangers of thematic-focussed ETFs, the most valuable segment for me was number 6; picking Asian ETFs. After which Michael highlights 5 individual ETFs for gaining exposure to Asia.

High-quality reading, as one has come to expect from Asian CEntury Stocks.

“If you want to allocate capital within Asia according to GDP weight, close to 50% of the capital should be invested in Chinese equities, 17% in Japan, 10% in India and 5% in South Korea. If you want to allocate according to relative population numbers, then the weight towards Indian equities should be higher than the GDP numbers suggest. I personally invest disproportionately in democratic countries since stocks in such countries tend to outperform.”

6) State of Tech Report

Length: Moderate Read

Source: (Kinesic Capital)

Not much to say on this one besides the fact that Kinesic Capital put together this great slide deck of the last two years in tech, what has happened, and the valuations across multiple subsectors of tech.

I can’t say that I agree with their conclusion, that tech screams buy here (because I don’t know, not necessarily that I disagree), but the data that is shared makes for an excellent read.

“We believe this is the most exciting opportunity to deploy capital into the public tech markets since March 2020 as the future returns implied by current valuations look acttractive, particularly for the consumer internet sector. ”

Other Items I Read

Note: ($) indicates there is a paywall on this content.

• Giro’s Newsletter: Pix Handbook Part 1 and Part 2

• The Special Sit Report: Guide to M&A Activity in Banks Part 1 & 2

• Andermatt Research: Oil & Gas: A Boom & Bust Industry In Transformation

• 01Core: How Big Could Cloud Get?

• The Special Situation Report: Placing a Bet on iGaming

• Below the Line: Autopsy of Fast

• Kailash Concepts: SBC Finance, An Update on the Absurd

• Stripe: Investor Letter

🕵️ Company Related 🕵️

• Compound248 (TWTR): Elon Arrives - Is He Offering a Fair Deal?

• Aswath Damodaran (TWTR): Elon's Twitter Play: Valuation Question or Political Rorschach Test?

• Elliot Turner (TWTR): Traditional Metrics Don’t Capture Twitter’s Value

• The Verge (FB): Mark Zuckerberg’s Augmented Reality

• Punch Card (NVDA): Nvidia Write-up, Part 1, GPUs & Gaming

• Young Money Capital (FICO): Fico Write-up

• AGB (SITE): SiteOne Landscape Supply Write-up

• The Long Game (SPOT): Spotify Write-up

• Valuabl (ROO): Deliveroo Valuation Write-p-up

• SemiAnalysis (BC94): Samsung Electronics Cultural Issues Are Causing Disasters In Samsung Foundry

• TSOH Research (RBLX): Roblox, The YouTube of Gaming? ($)

• Stratechery (TWTR): Back to the Future of Twitter

• Franchise Chatter (WING): Wingstop Franchise Review

• Partnership Investing (FTCH): Farfetch Write-up

• Mavix (VOW): Vow ASA Write-up

• ESG Hound (NFLX): Reed Hastings and the Myth of the Great Man

Great Listens

There is a huge range of Podcasts to listen to, and the choice can feel quite saturated at times. Here, I will share three podcasts I listened to during the last two weeks, that I feel are worth your time.

(1) Inside Long Term Capital

Risk of Ruin

After discovering the Risk of Ruin podcast earlier this month, I have greatly enjoyed sifting through a few of the older episodes. This one, sharing the story of Long Term Capital Management’s downfall, which received a $3.6B bailout in 1998, as told by a former partner, Eric Rosenfeld, was another fantastic episode.

Host: John Reeder

Guest: Eric Rosenfeld

(2) Conor Maguire Sees Value in Wickes

Yet Another Value Podcast

Conor is someone I have had on the newsletter interview segment before, and his write-up on Wickes is one that I have shared on Market Talk in recent months too. Here, Andrew Walker digs into that thesis, as well as covering Conor’s background, Dole Plc, and Kenmare Resources.

Host: Andrew Walker

Guest: Conor Maguire

Something Interesting

In the last issue, I shared Leandro’s one-pager on the semiconductor industry. Well, he recently create a 3-pager that was a touch more granular, and I thought you all might like to see it.

I promise, that the next issue’s ‘something interesting’ will not be semiconductor-related :)

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Conor,

Author of Investment Talk

Disclaimer

These are opinions only of the individual author. The contents of this piece do not contain investment advice and the information provided is for educational purposes only and no discussions constitute an offer to sell or the solicitation of an offer to buy any securities of any company. All content is purely subjective and you should do your own due diligence.
Occasio Capital Ltd makes no representation, warranty or undertaking, express or implied, as to the accuracy, reliability, completeness or reasonableness of the information contained in the piece. Any assumptions, opinions and estimates expressed in the piece constitute judgments of the author as of the date thereof and are subject to change without notice. Any projections contained in the Information are based on a number of assumptions as to market conditions and there can be no guarantee that any projected outcomes will be achieved. Occasio Capital Ltd does not accept any liability for any direct, consequential or other loss arising from reliance on the contents of this presentation. Occasio Capital Ltd is not acting as your financial, legal, accounting, tax or other adviser or in any fiduciary capacity.
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Igor Ranc
Writes EightyFour Apr 25Liked by Conor MacNeil

Thanks!

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Liberty
Writes Liberty’s Highlights Apr 24Liked by Conor MacNeil

💚 🥃

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