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 following segments:

• 6x Must-Reads: The 6 readings I found most insightful, with commentary.

• Intriguing Trends: Highlighting a few intriguing trends from Glimpse.

• Other Items of Interest: A collection of other readings I found enjoyable.

• Great Listens: Podcasts, interviews, or videos I enjoyed.

• Something Interesting: A palate cleanser to round off the issue.

Masterworks 🎨 📈

I think we need look no further than what has unfolded over the past couple of years to highlight the benefits of avoiding being long one factor. As investors overexposed to tech have learned, diversification is a tool to plug the capital drawdowns in times of rotation. One only need observe the holes that sunk Cathie Wood’s Ark. Like that of an actual vessel, the quality of construction matters to portfolios as well as boats.

Now investors are looking to diversify across equities, and asset classes too. In the pursuit of diversification, assets with a low correlation to the stock market (no, not bitcoin) can act as a structural support beam, reducing the likelihood of capsizing. And according to a report from Citi, art has the lowest correlation to stocks. Citi suggests that Contemporary art outpaced the S&P 500 by 2x with nearly 0 correlation to equities from 1995-2021. It might come as no surprise that hedge managers like Steve Cohen own art portfolios in the billions of dollars.

Case in point: even though every stock is in the red, the art market is fairing better. Paintings are selling for 15x their asking price. Just last week, someone spent $195 million on an Andy Warhol painting. Most don’t have $195M lying around, however. Similar to the immense value-add that fractional shares had to the retail investor, there are now ways to purchase exposure to Picassos and Warhols. Masterworks, the company leading this movement, have made paintings like these investable to everyone, and allows regular investors to benefit from the non-correlative exposure that art brings. This is an idea that has landed Masertworks at $1B+ valuation today.

If you are looking to diversify or learn more, check out what Masterworks has to offer. They have kindly extended priority access to readers of Investment Talk.

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Comments from Me

As my partner ventures home to visit family for a few weeks, I am dwelling in isolation, apart from visits to see friends and family. Once an insatiable reader of books (nowadays it tends to be reports and SEC filings), this time has allowed me to rekindle my old habit. In the last two weeks, I have re-read the Innovation Stack, as well as consumed Super Pumped (Uber’s story by Mike Isaac) and Zero to One (Peter Thiel’s musings on start-ups and innovation). Each is a great read if you have not tried them before, all scoring between 9 and 10 out of 10. At present, I am halfway through ‘An Ugly Truth’, a scathing review of the miscomings of Facebook, which is great thus far.

Elsewhere, after 3 long years of remaining fixed within the UK, and not really taking many breaks, I have decided to grease up the travel muscle. I will be heading to Amsterdam 🇳🇱 in July, Paris 🇫🇷 in August, and Hyderabad 🇮🇳 in September, so if you happen to dwell there, I would love to hear your best recommendations!

Recent Publications: Memos I have shared since the last Market Talk.

• Guest Interview, Giro Lino

• 7 Billion Sets of Spectacles

6x Must Reads

In every edition of Market Talk, I share a sizeable number of readings that I have consumed over the past two weeks. Here are the 6 that I found particularly enjoyable or insightful. 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) Long-Term Investing in a Short-Term World

Length: Moderate Read

Source: (Legg Mason)

A classic from Michael Mauboussin back in 2006. While the data may be somewhat dated, the takeaways are evergreen. This paper discusses the nature of short-termism and the primary stimuli for said short-termism. Incentives; and how they alter behaviour. Psychology; and how stress can mobilise short-term thinking. Information; and the astute observation (even back in 2006) that the signal-to-noise ratio in an increasingly information-saturated world is vitally important. Rate of change; and its influence on time horizons.

“You see it all the time: a baseball fan’s mood rises or falls based on a ten-game stretch in a long season; an investment manager is heralded or derided for a quarter’s results; investors dump, or euphorically buy, a stock after an earnings release. These scenarios share a common feature—a heavy focus on short-term results. In every case, a short-term emphasis can hinder intelligent long-term decisions and perspective.”

2) The Unwind of the Hamilton Helmer Growth Bubble

Length: Dense Read

Source: (STROTW)

I have no idea who the author is, besides the name they provide (James Lafarge), and only stumbled on this author’s maiden substack entry after Jerry Cap shared it on Twitter. But boy am I glad he did. An excerpt from the piece that Jerry shared, which caught my eye and encouraged me to read it, was the remark that “investors have gone from debating things like “who will be the eventual winner?” and “what’s the real TAM?” to now asking questions like “is this even a real business?”.

This memo, which starts as an introduction to Delivery Hero (an EU food delivery business), digresses into a discussion about the great unwind of compounders, before getting back on topic and covering the food delivery market once more. A great write-up in its own right, but I wanted to shine a spotlight on the author, so that you are aware of them, in the event they publish more reports of similar quality.

“Whatever the cause, most public growth stock prices are down anywhere from 50-90%+. And, to bring things back to why we are here, publicly traded food delivery businesses Delivery Hero, Doordash, Deliveroo, and Just Eat Takeaway stocks are all down 65-75% since the middle of November 2021. Investors have gone from debating things like “who will be the eventual winner?” and “what’s the real TAM?” to now asking questions like “is this even a real business?”

3) Mental Tension and the Value of Falling Stock Prices

Length: Light Read

Source: (Saber Capital Management)

A short dose of Buffett-isms from Saber Capital’s John Huber, in which the central theme is this; if you are a net buyer of stocks, you should desire lower stock prices. Contrary to the majority of our other consumption decisions, investors oft forget this. When I expressed that “On the way up, they are investors. On the way down, they become economists” it was said partly in jest, but it’s something I believe to be true. Everyone’s attention is now drawn towards those preaching macro, which is fine. Besides the rising cost of capital and liquidity, macro eventually interrupts micro (the consumer), which in turn interrupts businesses, and that can stick long after the macro situation recovers.

That said, now is probably the time to be more fixated on scouring the market for quality businesses. Perhaps not to dive head first, but to be aware of what’s out there, when the moment comes. Inadequate preparation and pre-empt is a failure’s best friend. We may still be trudging in dark waters for some time, but I adore the irony that investors preach for so long their desire for amicable valuations, only to squirm when the wish is granted. That said, there are no points for trying to be a hero in a bear market.

“To summarize what Buffett is saying: as consumers, we would always rather see lower prices of things we regularly buy, from hamburgers to gasoline. But when it comes to stocks, we feel better when stocks are rising, not falling. But rising prices are counterproductive if we are planning to be net buyers of stocks. What is so interesting about Buffett’s idea here is that it makes so much sense, yet very few people feel this way. Rooting for lower stock prices when you own stocks creates significant mental tension. But, if you make more money than you spend and thus have excess capital to invest, you are a net buyer of stocks. And that means — at least during those years when you are working and your earnings exceed your spending — you benefit from and should root for lower stock prices.”

4) The Economics of Stadium Names

Length: Moderate Read

Source: (Axiom Alpha)

At this point in the cycle, we look back at moments like when Crypto.com bought the naming right for the LA Lakers stadium for $700M in 2021 and scoff at how seemingly top-ish behaviour that was (sorry Spotify fans). Typically these deals are not the “purchase” of naming rights but, rather, the “rental” of the naming rights for a set period of time, and paid on a quarterly or annual basis.

Spotify’s stadium partnership with Barcelona, the Spanish football team, for instance, is expected to last 4-years and cost ~€75M per anum. For a business that generated ~€280M in free cash flow last year, that’s a hefty sum. The rationale of course is that Barcelona is a team that is viewed worldwide. My opinion, however, is that Spotify could have maybe selected a team that actually does well in international competitions. Liverpool for instance…

Anyway, there is the adage that once your company rents naming rights, it’s time to sell. But is there merit to that remark? This article seeks to answer that question by outlining what companies actually get when buying rights, how the deals are structured and providing 10 short case studies. The findings show that 9/10 of those case studies underperformed a basic 50/50 portfolio split between their peers and the S&P 500. Moreover, 6/10 underperformed the S&P 500 in isolation. But there are outliers, and the author does a good job of highlighting what he believes makes for a successful partnership.

“These companies are willing to shell out massive piles of cash in order to build their brand and market themselves as important, trustworthy companies. However, given the massive size of the expenditures, it’s worth the time of any investor, executive, or board member of one of these companies to quantitatively estimate the ROI. In this article, I do exactly that by pulling data from SEC filings, historical stock performance, local government records of cities that have stadiums, company announcements, and media coverage of sponsorship deals.”

5) Why America Will Lose Semiconductors

Length: Moderate Read

Source: (SemiAnalysis)

Semiconductors are a vital base of technological innovation in computing and infotech. Without them, Facebook, Tesla, Microsoft, Apple, and Google was cease to exist. Once a global leader in the design and manufacture of semiconductors, the US is losing its footing and with it, its technological advantage over the rest of the world.

Dylan Patel, a resident expert in semiconductors, breaks down why the US appears set to let its lead slip, touching on the brief history of its dominance, the reasons it’s now faltering, the rise of Asia, start-up funding, and his recommendations to divert the course of destiny. An excellent brush-up on the global semi-industry, that I thoroughly enjoyed reading.

“While startups and IPOs don’t necessarily indicate innovations, they are one of the corner stones of it. Not all startups will succeed, and it’s very likely the stricter funding models of US based startups will mean they are more likely to succeed, but the disparity is a big issue. America isn’t the land of entrepreneurship anymore, despite continuing to dominate other areas of the world such as Europe. It’s China. Why are there so few semiconductor startups in the US? The US private market of venture capital and angel investing is completely off its rockers investing in software platform based “tech” companies. While this type of investing is fine, these same venture capital and angel investors have completely ignored the semiconductor and hardware space. We here at SemiAnalysis have seen it firsthand as we have helped a few firms in the semiconductor industry raise money. It’s extremely difficult to convince venture capitalists to invest in startups, even if they have promising technology and exceptional track records.”

6) Taking Stocks with Teens

Length: Moderate Read

Source: (Piper Sandler)

Teens don’t represent the largest body of consumption in any economy. This study from Piper shows that the teens surveyed, which had an average age of 16, still primarily used cash (likely mommy and daddy’s) as a form of payment. Nonetheless, they are the consumer of tomorrow and this report which covers trends for teens across payments, social media usage, fashion, commerce, apparel, and gaming, is a flicker of insight into that emerging demographic.

Of particular intrigue, the data showed that 26% of teens own a VR device, but 48% of owners seldom use it, and only 5% are frequent users. Of those who don't own one, 32% (the majority) are not interested in purchasing one. Again, one could retort that $300+ hardware devices are somewhat of an elastic good for a teen that has minimal disposable income. Nonetheless, it feeds the beast of curiosity all the same.

“TikTok (33%) surpassed Snapchat (31%) as the favorite teen app for the first time ever, while Instagram followed again in 3rd. Instagram continues to lead the pack in monthly usage at 89%, followed by Snapchat at 84% and TikTok at 80%. When asked, the average teen in our survey spends ~4.2 hours per day on social media (roughly in-line with past surveys).”

Intriguing Trends

This segment provides a sample of intriguing trends, using data from Glimpse, which analyses hundreds of millions of consumer behaviour signals from across the web to surface the most important and fastest-growing trends that are under the radar.

Santa Quest 2

The data from the Piper Sandler Teens report suggests that the Quest 2 VR headset exhibits fad-like tendencies. Teens get one (mostly for Christmas as the search data for “Oculus Quest” suggests), play with it for a month or so, and get bored. I experienced this myself, as have many others I spoke to. The churn rate is fairly high. That said, with each passing year, and each new rendition of hardware, the total search traffic (and sales, which naturally display identical seasonality) reach new highs.

Last year Meta sold over 8.1M units collecting $2.27B in revenues for their Facebook Reality Labs division, of which over $1B was in software sales (discussed in FB: "Planning to Slow the Pace of Our Investments" in the Metaverse). However, the market is young, and whilst consumer adoption and awareness are growing, it’s still fragile in its infancy. There is yet to be a breakout piece of hardware or software that creates a hysteric hockey-stick adoption moment. With new devices on the horizon for Meta (expected to release 2 this year) and Apple soon entering the market, we have time. I am typically a VR sceptic and an AR bull. That said, I think most wrongly distance the two from one another. “VR is immersive, it takes you out of your setting, AR accentuates your setting”, they might say. That’s certainly true but products like Meta’s upcoming premium-end VR device, Cambria, show that VR and AR can be utilised in tandem. Not quite a perfect form factor yet, Cambria is essentially a powerful AR device, with the aesthetic of a VR device. My gut tells me that the ultimate winner in this market is likely being created in a garage somewhere right now, by a group of 20-somethings, but there is a long road left to travel in the AR race.

Buy Now Pay Never

Another trend I pay a close eye on, highlighted in the Sandler report, is how the youth of today interact with the digital payments space. The rise of digitally native apps like Cash App, Venmo, and Zelle is especially pertinent amongst the under-35s in the United States. And we can’t forget Apple Pay.

Within the States, there appears to be a North-South divide that splits preference between Venmo (80M accounts) and Cash App (45M accounts). But zoom out a little, and you’ll see that ApplePay dominates territories like Canada, the UK, Italy, most of the rest of the EU, and Australia.

PayPal was arguably the first onto the BNPL scene of the big players, unveiling their product in 2020. Shortly after, Block (parent company of Cash App) acquired BNPL provider, Afterpay. More recently, Apple threw their hat into the ring with ApplePay BNPL. Global curiosity for BNPL has evidently exploded over the past couple of years, propelled by the entrance of the aforementioned corporations.

Glimpse Chrome Dashboard - Search for “BNPL”

Glimpse Chrome Dashboard - Search for “Buy Now Pay Later”

Credit is not new, however (ever heard of layaway?). I did find it intriguing that search for the recently popularised acronym, “BNPL” only seemed to pick up momentum in early 2020, whilst those searching for “buy now pay later”, particularly around Christmas time, have long derived higher volumes of search. Most common searches related to BNPL are for companies which provide it, followed by which stocks are traded that deal in BNPL, the meaning of BNPL, and the differences between BNPL and a credit card. The irony that searches for stocks with BNPL exposure is greater than those seeking information about BNPL is not lost on me. Pure play BNPL providers such as Afterpay (1st), Klarna (2nd), and Affirm (3rd) top the search rankings, each being touted as ‘breakout’ trends, a term Glimpse uses to categorise the severity of a trend.

Retail Appetite for Investing Dying Down?

As everything that touches BNPL (apart from Apple) has been thwarted with a 50% drawdown by Mr Market this year, we know how the market views this trend. If we do enter a recession, I suspect that (in the very short-term, at least) demand for BNPL remains fairly robust from the low-income consumer. The caveat would be (I hope) the nature of purchases changed (non-essentials→essentials). But what about the interest in the stock market? Yep, you guessed it. The great rotation of bull market geniuses to McDonald’s cashiers has begun and search traffic for the term “How to invest in stocks”, which typically peaks alongside the VIX, has cratered.

As further evidence, brokers popular with the young retail crowd in the UK, Freetrade (blue) and Trading 212 (red), each with ~1.5M users, are witnessing similar declines in interest.

The same can be seen in the US, for brokerages like Robinhood (blue) and Coinbase (red).

Scratch at the surface, and it’s not only search volumes, but actual users, engagement, and invested capital (thanks Mr Market) that are falling like raindrops too. Robinhood’s MAUs (presented above)(and how ridiculous is a brokerage presenting MAUs like its Snapchat?) have fallen from highs of 21.3M to just 15.9M in their most recent quarter. Markets go through these cycles often. The new and enthused become the bruised and abused after they realise this investing thing is harder than it looks. In other words, the easy money has been destroyed.

Weee! Delivery Catches a Biiig! Valuation

Retailers like Walmart have positioned themselves so that most Americans live within ten miles of one of their iconic stores. But despite its success, it has failed to respond to the increasingly diverse American population. Starting out in 2015 as a digital grocery catering to the Asian demographic, Weee! delivery eventually expanded to stock goods popular with the Hispanic population. They felt this was a gap not filled by Big Retail’s ethnic aisles. Asia is the fastest-growing demographic in the United States, so it should come as no surprise that items like Bubble Tea, Mazesoba, Malatang soup, Bao Bun, Gopchang, Matcha, and Mochi are increasingly sought-after goods in the country. Today, Weee! stocks ~10,000 items, has relationships with over 1,000 restaurants and delivers shelf-stable products to 48 States, and fresh produce to 18.

As the US becomes ever-more cultural, and the mixing pot of cultures spills over the side, the consumption behaviours of that country, those individual demographics, can begin to change and, at times, blend. London, for instance, is the epitome of diversity, as anyone who has been can vouch for the exquisiteness of its food scene. On Friday evening at 7PM, you are spoiled for choice with worldly cuisine options. As such, the self-proclaimed “leading ethnic e-grocer in the US” wants to lead where legacy retailers falter and serve the underserved.

Overall traffic for Weee! may be nominally small, but Glimpse reports that more than “60% of traffic is direct, meaning it’s from a bookmark or a user typing in the URL, highlighting Weee’s strong retention”. Those customers tend to make ~6 purchases on average each month. Weee!’s meteoric growth has more recently attracted the attention of Masa Son, the overseer of Softbank’s Vision Fund. Their latest Series E funding round, led by Softbank in February of this year, netted them a cool $425M injection of capital and a valuation of ~$4.1B.

Raking in new capital was an intentional move for Larry Liu, the 41-year-old founder, who is a first-generation Chinese immigrant. Liu remarks that he now wants to take the business to the next level, deepening Weee!’s supply chain, developing relationships with vendors, and expanding into two additional ethnicities. He would later tell CNBC:

“We have a really powerful and unique value proposition in targeting underserved communities and want to offer the most amazing assortment for the community. That is our biggest differentiation, and that strategy is working well for us.”

There were murmurings of an IPO in 2021, but talks died down after the market became more volatile. However, given the company is in the later stages of its VC lifecycle, I suspect early investors will wish to cash in their investments in the coming years, and this may be, yet another, entrant to the public sphere of food delivery businesses.

Glimpse issues an array of intriguing reports on exponential and hypergrowth trends every month. There is a free version, as well as alternate packages which provide the reader with greater quantity, richer insights, and commentary. If you’d like to check out their reports, you can do so here.

They also have a handy chrome extension tool, which incorporates Glimpse’s tools into your research process, which you can find here.

Other Items of Interest

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

• ESG Hound: Texas Hold ‘Em

• CFA: How Sharpe is the Sharpe Ratio?

• Bank of America: June Consumer Report

• Kantar: 2022 Most Valuable Brands Report

• 01 Core: The Exponential Growth of Progress

• Banking on the Market: The Fed Meeting Summary

• The Investor’s Journal: Why I Like Small Companies

• Investor Amnesia: Lessons from the Crypto Gilded Age

• Variant Perception: Not Enough Signs of a Major Market Bottom

• 🕵️ Company Related 🕵️

• Stock Opine (ABNB, BKNG): Head to Head Airbnb vs Booking Holdings

• Bottom-Up Thoughts (FFH): Fairfax Financial Holdings Write-up

• Mizuho (PYPL): PayPal/Venmo Upside with Apple Tap to Pay

• Behind the Numbers (MGHVY): Nordic Fishery Write-up, Mowi

• Moat Master (FIVE): A regional to national expansion story

• Young Money Capital (SNOW): Snowflake Write-up

• McDonough Investments (KO): Coca-Cola in 1923

• 301 Value (DBRG): Digital Bridge Write-up

• Invariant (MO): Altria Write-up

Great Listens

Here, I will share some audio/video materials I listened to during the last two weeks, that I feel are worth your time.

(1) John Collison Interviews Stanley Druckenmiller

Sohn Conference, New York

So, as I alluded to in my opening remarks, I have been consuming good old, tangible, books these last few weeks. As such my audio consumption declined somewhat. That said, I think if you only listen to one this week, then it should be this conversation between John Collison, founder of Stripe, and Stanley Druckenmiller, the legend. Known for his macro chops, Druckenmiller feels that the probability of a “soft landing” is pretty remote, remarking he feels a recession is on its way sometime in 2023. As such, he remains bearish.

Aside from macro, this hour-long discussion covers crypto, gold, work ethic, mobile investing, growth stock bias, conviction, his advice to young investors, and a heap more.

Host: John Collinson

Guest: Stanley Druckenmiller

Something Interesting

I am sure many of you have witnessed the internet sensation of AI-assisted image creation that is Dall-E mini. Search traffic from Glimpse shows that interest has exploded this month.

But for those who haven’t heard of it, Dall-E is an AI technology that uses takes text and prompts and generates images from them. Some of them have the aesthetic of a monstrosity, like this one of Frodo Baggins at the gym.

But others can be quite amusing like this imagery of Beaker from the muppets as the Godfather.

Besides hilarity, there are some genuine use cases for this software, as demonstrated by @marauders who experimented with the service to edit different outfits onto an image of her wearing a plain white vest. Promising stuff, that is equal parts inspiring and terrifying, when considering the potential consequences.

erifili @marauders

playing around with dall-e’s image editing feature and it’s equally impressive, I just uploaded the first one and gave the prompt “wearing blue shirt”

I will save you the philosophical spiel today, and revert you to Casey Newton at the Platformer, who wrote a great summary of the technology and the potential use cases, a good resource for those hungry for more context. I am just here to share this hilarious tool, in the hopes that it might bring 5 minutes of joy to your day. A note for those using it; the traffic is quite high, so if the tool spits back a message saying “too much traffic, please try again”, just try it again 5 or 6 times, and it usually works. The images can take upwards of 30 seconds to generate, so exercise patience. Here is my contribution to the cause, imagery of Mark Zuckerberg eating a raw onion, sure to haunt your dreams for weeks to come. Have a great week folks!

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.

Investment Talk

Short-termism, The Economics of Stadium…