Market Talk, October 17th 2021
Each Sunday I will share:
• 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
This Monday I will be sharing research on Redfin and its second-quarter earnings.
The breakdown for this report is as follows:
Section 1: Performance - A glance at the performance of the second quarter, complete with some of the core takeaways including; RedfinNow as a profitable entity, Mortgage market pressure, Attrition, Website traffic, and Redfin Premier.
Section 2: RentPath - A discussion on the future of Rentpath, how this will integrate with Redfin’s brokerage business, and my core takeaway for the coming year.
Section 3: Liquidity & Cashflow - A brief discussion of Redfin’s balance sheet as of the second quarter.
Section 4: Guidance - Commentary around Redfin’s third-quarter projections.
Section 5: Concluding Remarks - My final remarks, and some discussion surrounding my own position in Redfin.
📈 Market Action 📉
Here are your quick updates from the past week for various asset classes.
The S&P 500
Sectoral ETFs for the US
🌎 Global Indices 🌎
Europe & UK
🛢️ Commodities 🛢️
💷 Major Currencies 💷
FX rates are correct as of the time of publishing.
🔇 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 51 up from 34 last week.
The CBOE VIX stands at 16.30, down from 18.77 the week before.
Major Earnings for the Coming Week
Some of the major earnings for the upcoming week, compiled by Fincredible.
📰 Brain Food 📰
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) The Arithmetic of Asymmetry
Length: Moderate Read
Source: (Value Situations)
Conor, the author of Value Situations, who also has a great name, is someone I had the pleasure of Zooming with a few weeks back. Since then, I have been an avid reader of his research, where he shares insight into mispriced or undervalued companies and special situations in public equity markets. Highly recommended (it’s free).
In this piece, Conor looks at the benefits of using asymmetry in his investment approach, as well as discussing risk/reward scenarios and the importance of downside protection.
“With the future inherently unknowable, risk is inherent to investing. Things can, and do go wrong despite the best research, due diligence and analysis, and this holds true for all investors. In making an investment, one implicitly accepts the possibility of things not working out and incurring a loss. Even if you buy a stock with firm conviction, you are still “signing up” for the possibility that you could lose some or all of your investment. The trick is to mitigate this risk by finding situations where this risk has been mispriced in the market, and exploiting this mispricing.
With this in mind, my asymmetry requirement helps me tilt the odds of success in my favour. While I consider myself a fundamental value analyst, I came to understand this concept of asymmetric investing in reading about two leading macro investors, Paul Tudor Jones and Stanley Druckenmiller.”
2) OpenSea: The Reasonable Revolutionary
Length: Moderate Read
Source: (The Generalist)
If you find yourself immediately disregarding something you know little about, it’s probably worth exploring further.
Whilst I am not overly knowledgeable about NFTs, and some may think they are this year’s hot trash, I am always open to learning and this report by the Generalist provides unique insight into the rise of OpenSea, the online marketplace for NFTs.
“It’s hard to grasp just how much the NFT market has grown in the span of a year. Earlier in this piece, we noted that OpenSea alone was on track to surpass $27.5 billion in volume for 2021. Should the company hold on to its 97% market share, that suggests a total annual GMV of $28.4 billion.
NFT sales in 2020 were $94.8 million. That’s a 30,000% increase year over year. Our brains are not made to comprehend this kind of growth, this sudden gigantism. In the blink of an eye, NFTs have matured from a nettlesome triviality to a strolling behemoth.”
3) Developing Dogma
Length: Moderate Read
Source: (Crosswind Capital)
Nick Green, the author of Crosswind Capital, has a sumptuous and fluid writing style.
This piece follows Nick’s narrative surrounding why it is important that investors learn to follow their own rules and how one might manifest this ability. It’s hard to describe how great the writing style is here, so I urge you to just sit down and sample 2 minutes of it. Following that, you’ll likely understand what I mean.
“Considering this environment, one must systematize their actions to achieve a result not correlated to the collective nature of the market which preys upon reactionary decision-making. The market has a large appetite for relieving investors from decisions now considered faulty and tempting you into making new decisions that remedy the old. This cycle is what kills novice market participants and at times, seduces the seasoned investor. Because of this, you must set strict rules to follow. Like a person following a diet at an all-you-can-eat-buffet, rules are only worth following when you are tempted to put them on hold. The investor needs rules that are hard to follow; easy rules aren’t actually rules. Mediocre ideas and principles yield mediocrity, which is easy to obtain. You must develop personalized principles that will stand true in hard and volatile times. You must develop dogma.”
4) The First Rule of Compounding
Length: Light Read
Source: (Woodlock House)
Chris Mayer, the author of 100-Baggers, wrote this short piece back in September about the most important considerations when seeking to compound one’s returns.
In this discussion, he covers IPOs, insider selling, and how to ride volatility.
“Trimming is one of those things that sounds so sensible, so smart. It also satisfies that itch to “do something.” Yet, if you own a really good business and take the long view, you’re probably better off leaving it alone.
There is a similar idea to trimming that sounds smart, but doesn't hold up if you’re a long-term investor. It goes like this: “X stock is too expensive, I need a 10% [or 20%] correction before I buy.”
If you’re a long-term investor, 10% or 20% is a rounding error.”
Other Items I Read This Week
• Charles Schwab: Recency Bias
• Baillie Gifford: Lessons from Bessembinder
• DMZ Partners: Semi-Annual Letter to Partners
• A Wealth of Common Sense: Time Horizon is Everything For Investors
• McKinsey: Future of Asia: The future of financial services
• McKinsey: The 2021 McKinsey Global Payments Report
🕵️ Company Insight 🕵️
• Sutherland Woods Capital (RDFN): Take the red pill?
• The Global Investor (PINS): Pinterest is just different
• Value Situations (WLTW): Willis Towers Watson PLC, From Busted Merger Arb Play to Value Situation
• MacroOps (4479.JP): Makuake
• Trading Engineered (UPST): Upstart Holdings High Tight Flag Breakout
- FYI, Richard Moglen (former guest) just started a substack with a technical analysis focus, called trading engineered. For those interested in this side of investing, highly recommend it. He works so hard to create great work.
🍬 Ear Candy 🍬
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.
The Game Within the Game by Yen Liow
I wanted to share another one of the MicroCap Leadership Summit presentations this week, this time with Aravt Global’s Yen Liow.
For anyone who has listened to him before, they will know how educational his talks can be. In this presentation, Yen covers Aravt’s investment process, honing in on three core topics; actionable volatility, hunting early-stage horses, and surviving the ride.
Host: Yen Liow
Thank you for reading Market Talk and have a great week,
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