Market Talk, January 16th 2022
Market Talk is a free Sunday issue, where I share a curation of the best things I have consumed during the week.
Each Sunday I will share:
• A quick update on what’s coming for IT Subscribers
• The greatest articles I have read during the week
• The best pieces of company-related insights I have consumed over the week
• One stellar podcast or interview
• Something interesting
Earnings are right around the corner, so you can expect some musings on the companies I own in the coming weeks. Otherwise, still finishing up a few things here and there. This coming week, I plan to share something pertaining to the Turo S-1 Document that was released in preparation for their IPO. This company is part-owned (~27%) by IAC.
📈 Market Action 📉
The S&P 500
Sectoral ETFs for the US
🌎 Global Indices 🌎
Europe & UK
🔇 US Market Sentiment 🔇
Fear & Greed Index
The CNN Greed and Fear Index measures market sentiment based on seven factors; momentum, price strength, price breadth, put/call ratios, junk bond demand, volatility, and safe-haven demand.
The current reading stands at 55 down from 53 last week.
The CBOE VIX closed at 19.20, up from 17.76 the week before.
Major Earnings for the Coming Week
Some of the major earnings for the upcoming week, compiled by Fincredible.
Articles of the Week
Here is a shortlist of a few interesting pieces that I have read over the course of the week, to feed your mind.
Note, these articles are not numerically listed in order of perceived value.
To access the suggested article, click the purple link after the source subheading.
1) App Annie State of Mobile 2022
Length: Moderate Read
Source: (App Annie)
Plain and simple, this report from App Annie breaks down everything you need to know about the AppStore economy as we head into 2022. In 2021 new app downloads grew 5%, app store spend grew 19% ($170B), daily time spent per user increased 30% from 2019, mobile app spend increased 23% ($295B) and the number of apps with >$100M in annual spend grew to 233 (+20%).
The report covers macro mobile trends, gaming, finance, retail, video streaming, food & drink, health & fitness, social, travel, dating, and a host of other industries. I wrote a quick Commonstock memo on what the dating app portion of the report provided (such as dating app spending increasing 98% from 2018), but I implore you each to dive in for yourself. If you own a company that is present in the app store economy, this is a must-read.
“The US has seen phenomenal growth in consumer spend, adding an additional $43 billion in 2021, $10.4 billion more than 2020, equating to 30% growth YoY as mobile gaming and in-app subscriptions go mainstream.
Emerging markets dominate for downloads growth with India seeing standout downloads. Pakistan, Peru, Philippines, Vietnam, Indonesia and Egypt were among the fastest growing markets for downloads at 25%, 25%, 25%, 20% 15% and 15% growth YoY, respectively.”
2) Selling Out
Length: Moderate Read
I must admit, I don’t really enjoy all of Howard Marks’ memos, but I read them nonetheless. This was actually pretty great. Taking a break (yay) from macro discussion, this memo sees Marks discuss the nuances around the ‘art’ of selling.
If your thirst for discussion on selling is not quenched yet, you might enjoy “The Art of (Not) Selling” by the folks over at Akre Capital Management. I found this to be another complimentary read during the week.
“Everyone wishes they’d bought Amazon at $5 on the first day of 1998, since it’s now up 660x at $3,304.
But who would have continued to hold when the stock hit $85 in 1999 – up 17x in less than two years?
Who among those who held on would have been able to avoid panicking in 2001, as the price fell 93%, to $6?
And who wouldn’t have sold by late 2015 when it hit $600 – up 100x from the 2001 low? Yet anyone who sold at $600 captured only the first 18% of the overall rise from that low.
This reminds me of the time I once visited Malibu with a friend and mentioned that the Rindge family is said to have bought the entire area – all 13,330 acres – in 1892 for $300,000, or $22.50 per acre. (It’s clearly worth many billions today.) My friend said, “I’d like to have bought all of Malibu for $300,000.” My response was simple: “you would have sold it when it got to $600,000.” The more I’ve thought about it since writing Liquidity, the more convinced I’ve become that there are two main reasons why people sell investments: because they’re up and because they’re down. You may say that sounds nutty, but what’s really nutty is many investors’ behavior.
3) Valuing Growth Stocks: The Nifty Fifty
Length: Light Read
Source: (CS Investing)
I forgot which Twitter user shared this (sorry) but I found it a great short read on the Nifty Fifty and their eventual collapse in 1973. This group of high flying growth stocks attracted much attention and commanded lofty multiples during this era, only to hammer down a brutal reminder to those who danced with their outstanding shares.
The interesting thing, however, is that a rebalanced portfolio of nifty fifty stocks at the peak of their froth in December 1972 through August 1998 (26 years) would have returned an annualised 12.5% versus the S&P 500’s 12.7%. Some notable winners in the cohort even showed vastly superior annualised returns over the period; Phillip Morris (18.8%), Pfizer (18.1%), Coca Cola (16.8%), and PepsiCo (15%).
This piece asks whether the Nifty Fifty was, indeed, overvalued, or if sentiment (loss thereof) which caused this group to become deeply undervalued shortly after 18974 was the primary factor. Concluding with the adage that one should “pay for growth” but not “pay at any price”.
“The Nifty Fifty were a group of premier growth stocks, such as Xerox, IBM, Polaroid, and Coca-Cola, that became institutional darlings in the early 1970s. All of these stocks had proven growth records, continual increases in dividends (virtually none had cut its dividend since World War II), and high market capitalization. This last characteristic enabled institutions to load up on these stocks without significantly influencing the price of their shares. The Nifty Fifty were often called one-decision stocks: buy and never sell. Because their prospects were so bright, many analysts claimed that the only direction they could go was up. Since they had made so many rich, few if any investors culd fault a money manager for buying them”.
4) Fundsmith Annual Letter 2021
Length: Moderate Read
Terry Smith, CEO at Fundsmith, looks back at the fund’s performance over the last year, beating the FTSE 100 by 3.7%, and coming in 0.8% behind the MSCI World Index. In his usual humorous way, he outlines the importance of sticking with quality over the temptation to rotate into lower-quality businesses which may experience a temporal upthrust in recovery. He restates that the investment strategy remains to be “Buy good companies, don’t overpay, do nothing”.
I particularly enjoyed the segment where Smith discusses the laggards in the portfolio. Singling out Unilver and their obsession with flaunting their sustainability credentials he remarks; “A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot.”
“Turning to the themes which dominated 2021, you may have heard a lot talked about the so-called ‘rotation’ from quality stocks of the sort we seek to own to so-called value stocks, which in many cases is simply taken as equating to lowly rated companies. Somewhat related to this there was periodic excitement over so-called reopening stocks which could be expected to benefit as and when we emerge from the pandemic — airlines and the hospitality industry, for example. There are multiple problems with an approach which involves pursuing an investment in these stocks. Timing is obviously an issue. Another is that their share prices may already over anticipate the benefits of the so-called reopening.
As Jim Chanos, the renowned short seller, observed ‘The worst thing that can happen to reopening stocks is that we reopen.’ It is often better to travel hopefully than to arrive. In our view, the biggest problem with any investment in low quality businesses is that on the whole the return characteristics of businesses persist. Good sectors and businesses remain good and poor return businesses also have persistently poor returns”
Other Items I Read This Week
Note: ($) indicates there is a paywall on this content.
• Marketplace Pulse: Marketplaces Year in Review 2021
• Dhaval Kotecha: Predictive Clearing
• Dividend Growth Investor: There is no alternative (TINA)
• Kyla Scanlon: Narratives, Reflexivity, and Market Go Down
• Unusual Whales: Congressional Trading in 2021
• Oakmark Funds: Bill Nygren Market Commentary 4Q21
🕵️ Company Insight 🕵️
• Investing Brosef (AYDEN): Why Adyen's valuation is too demanding
• The Science of Hitting (DIS): We Can't Just Maintain A Pat Hand ($)
• PR Nigeria (TWTR): Nigeria Lifts Suspension of Twitter
• Antonio Linares (GPRO): Potentially the Most Overlooked Stock
• The Investing Desk (SRG): Seritage Growth Properties is a deep-value REIT
• Mazwood Cap (PYPL): PayPal Write-Up
• Golden Lake (HFG): Hello Fresh Short Report ($)
Podcast of the Week
There is a huge range of Podcasts to listen to, and the choice can feel quite saturated at times. Here, I will share one podcast I listened to during the week, that I feel is worth your time.
A Hhhypergrowth Discussion
The Business Brew
Pretty simple. Muji is an expert at all things software. This discussion was fascinating for a noob such as myself and details how information travels, is secured, and consumed by everyone across the world.
Host: Bill Brewster
I read something quite interesting this week. It was a rabbit-hole thread on the design and meaning of some interesting robotic arm. In the original thread, the OP describes how the machine is “programmed to try to contain the hydraulic fluid that’s constantly leaking out and required to keep itself running”; fluid which has the aesthetic of blood. He continues to state that the machine must continuously fight to scrape back the fluid in order that it may continue to “live” whilst onlookers passively glance at its futile attempts of survival.
The OP then offers up this sumptuous interpretation; “the hydraulic fluid in relation to how we kill ourselves both mentally and physically for money just in an attempt to sustain life, how the system is set up for us to fail on purpose to essentially enslave us and to steal the best years of our lives to play the game that the richest people of the world have designed. How this robs us of our happiness, passion and our inner peace. How we are slowly drowning with more responsibilities, with more expected of us, less rewarding pay-offs and less free time to enjoy ourselves with as the years go by.” The OP is a lot longer and contains a great deal more interpretation, but that’s the gist of it.
So, I read all of this and thought “wow, how thought-provoking”. Only to later find out that the author was merely spinning his own story and this was not the original meaning behind the art installation. Naturally, the great republic of Twitter was triggered.
The installation, created by Sun Yuan and Peng Yu, was actually commissioned for the Guggenheim Museum to “examine our increasingly automated global reality, one in which territories are controlled mechanically and the relationship between people and machines is rapidly changing”. The true intention of the artists was to convey an equally dark theme. I will share an excerpt from the museum below.
“Sun Yuan & Peng Yu are known for using dark humour to address contentious topics, and the robot’s endless, repetitive dance presents an absurd, Sisyphean view of contemporary issues surrounding migration and sovereignty. However, the bloodstain-like marks that accumulate around it evoke the violence that results from surveilling and guarding border zones. Such visceral associations call attention to the consequences of authoritarianism guided by certain political agendas that seek to draw more borders between places and cultures and to the increasing use of technology to monitor our environment.”
Why is this interesting? Well, the piece itself is certainly interesting, for one. But equally interesting to me is how much this triggered people. Bringing it down to brass tacks, who actually cares? What is art, for not a medium in which people can express their own interpretations? When I read the original (“false”) summary of what this machine represented, it made perfect sense. It was the author’s own interpretation. The actions of the machine married up with the idea he was spinning. So too did the “actual” meaning behind the piece.
I guess my point is, who cares? Art is whatever you want it to be. Whatever makes the most sense to you. Keynes once said, “In the long run we are all dead”. The time between then and now ought to be spent on more important matters, like arguing over whether we are in the midst of a market regime change…
Author of Investment Talk