Time to have fun – we made it by the #pandemic!
Properly, virtually…
Vaccine roll-outs proceed, some quick some sluggish, however crossing the precise end line stays maddeningly elusive right here. Sadly, as so typically proves the case, the loudest & craziest views have a tendency to regulate the narrative. On one facet, we have now the #antivaxx nutters & their ever-expanding conspiracy principle advanced to debate – chances are you’ll as nicely wrestle a pig (you each get soiled & the pig likes it!), so the earlier we abandon them to herd immunity & their Darwinian destiny the higher. And on the opposite facet, we’ve obtained the #Delta nutters who apparently don’t imagine in vaccines both – like them, they’d favor all of us keep masked up & locked down perpetually, regardless of being vaccinated. [Seriously, imagine being told two years ago most people would be walking ’round in masks in 2021…after being vaccinated!?] And for the reason that latter are nonetheless imposing their will on all of us – to a higher or lesser diploma – arguably, they win the loopy egocentric stakes. As Upton Sinclair may need stated:
‘It’s tough to get a person to grasp vaccine efficacy, when his comfortable new working-from-home white-collar profession depends upon his not understanding it.’
However hey, contact wooden, we’re nonetheless virtually dwelling free! And whereas it might be laborious to imagine proper now, historical past’s confirmed it time & once more…we’re gonna transfer on simply as rapidly, with little purpose to presume this particular pandemic leaves any radical everlasting change in its wake. However clearly, as I’ve argued from the beginning, it has & will proceed to speed up sure present traits – each optimistic & unfavorable – together with America’s heroic fiscal & financial stimulus, and its disproportionate influence on the S&P 500. What number of buyers have forgotten (or by no means even observed) its +16.3% achieve final 12 months was truly a complete outlier – my 2020 index benchmark, for instance, was nonetheless flat regardless:
2021 has been way more democratic although, with most indices chalking up no less than a great 12 months’s value of beneficial properties (albeit led by the S&P, as all the time!) in H1 – no actual shock, as buyers applaud profitable vaccine roll-out programmes & the nonetheless breaking tsunami of #YOLO re-opening spending. [And maybe even a New Roaring Twenties to come?!] As traditional, my H1-2021 Benchmark Return (a +11.7% achieve) is an easy common of the 4 major indices which finest symbolize my portfolio:
I’ll take a breath & resist the urge for some grand macro/index abstract right here. ‘Cos I’ve been pounding the desk for years now with the very same macro funding thesis: We proceed to journey down a relentless & irreversible street of fiscal & financial debasement that can finally finish in tears…however in the meantime, it’s gonna be one hell of a journey! In fact, you possibly can’t essentially anticipate all of the turns alongside the way in which – who knew a pandemic would come alongside & speed up our journey?! As I argued in my H1-2020 portfolio efficiency weblog: Due to COVID, we’ve now crossed the Rubicon & there’s no turning again…after all of the trillions spent & sacrificed on the pandemic, how can we not find yourself believing we are able to simply purchase everlasting financial development AND an answer for all of society’s different ills, by way of the alchemy of print & spend (& a straightforward zero-rate fee plan):
Once more, I need to bewail my main thesis error…not being extra aggressive! However that’s OK, my portfolio’s all the time been a wierd mixture of prudence & aggression – these days, I merely settle for that’s how I roll. And I do know there’s nonetheless an enormous wall of fear to climb… Which can embody slightly post-partum bout of melancholy or two within the subsequent 12 months, as regular post-pandemic life & actuality is re-established – some extra-frothy sectors/shares already obtained a style of this, with important losses since Feb/March. However as traditional, I don’t really feel sufficiently prescient or certified to aim to commerce round this…and in the long run, the market’s simply gonna arrange the Fed (& authorities) for failure yet again. A take a look at they’ve been failing for years (& even a long time) now, which has finally normalized a lot the identical behaviour in all the foremost economies. ‘Cos as I requested earlier than the pandemic:
‘Do you actually suppose we got here this far…after a long time of deficits, trillions in money-printing, and tens of trillions in sovereign debt…to abruptly resolve sooner or later to get fiscal faith, flip off the cash spigots, and embrace the agony of full-blown chilly turkey?!
Yeah, in fact not…’
I see slim odds of the Fed efficiently over-riding the market & elevating even nominal rates of interest by greater than a token quantity – no matter whether or not the inflation we’re now seeing is transitory, or not. And even when charges will be raised, it appears very apparent that unfavorable actual rates of interest & monetary repression will stay as deliberate coverage for a few years to come back – Russell Napier offers some nice perspective right here.
And ultimately, if/as this continues to evolve into a traditional social/market consensus, I’ll in all probability simply cease asking the query I’ve requested for years now, ‘cos it’ll simply be too absurd…’cos it’s already so true, we gained’t even realize it:
‘We’re over a decade now into what’s certainly essentially the most unprecedented fiscal & financial experiment within the historical past of mankind…is it so loopy to ask/ponder whether this finally results in essentially the most unprecedented funding bubble in historical past too?’
In the meantime, I’m undoubtedly having fun with the macro funding thesis suggestions I’m seeing in my very own portfolio outcomes – right here’s my Wexboy H1-2021 Portfolio Efficiency, by way of particular person winners & losers:
[All gains based on average stake size & end-H1 2021 vs. end-2020 share prices. All dividends & FX gains/losses are excluded.]
And ranked by measurement of particular person portfolio holdings:
And once more, merging the 2 collectively – by way of particular person portfolio return:
I did marvel at my +56% portfolio achieve/outperformance in 2020 – all of which occurred in H2 – but it surely’s nothing now in comparison with my H1-2021 Portfolio Efficiency:
Yeah…that’s a +158.6% achieve!
And a +147% out-performance vs. my benchmark…or as Chamath would insist, a 1,250%+ return relative to my benchmark!
In H1, Donegal Funding Group (DQ7A:ID) was marginally unfavorable (a 4% loss), as its seed potato enterprise continues to ship bettering margins, however the pandemic lockdowns considerably dented (on-the-go) gross sales in Nomadic Dairy (albeit, it remained worthwhile). Sadly, this unit in all probability gained’t be again on the block ’til excessive teenagers gross sales development is restored, and/or it surpasses pre-pandemic peak gross sales. Presuming an eventual sale although, Donegal will not make a lot sense as a listed firm – we are able to then count on a comparatively quick liquidation, by way of an MBO/sale of the seed potato enterprise.
Tetragon Monetary Group (TFG:NA) gained +1% & additionally continues to tread water as a (deep) worth inventory awaiting a catalyst. It does stay unfairly low cost – buying and selling on a 64% NAV low cost at this time – because it continues to compound NAV at 10%+ pa within the medium/long-term. However potential buyers nonetheless mistrust administration, whereas long-suffering shareholders stay annoyed with their lack of curiosity in closing/realizing the apparent worth hole right here & their failure to IPO its asset administration enterprise as promised. However so long as the bull market in different asset managers continues (& extra hit the market this 12 months), a a lot greater IPO prize will proceed to tempt administration (who now personal 35% of TFG), if/once they lastly resolve to doubtlessly sacrifice their present governance & exterior administration/incentive charge construction.
VinaCapital Vietnam Alternative Fund (VOF:LN) gained +13%, which maybe understates the significance of the VNI lastly breaking a 14 12 months 1,200 double high in April & printing new 1,400+ all-time highs since. Whereas we’ve seen a subsequent price-reversal in July, shopping for into Vietnam because the New China is a extra compelling thesis than ever…esp. when China itself acts extra & extra like a possible US adversary, moderately than a commerce associate. And whereas VOF could also be anticipated to lag its rival – Vietnam Enterprise Investments (VEIL:LN) – in a bull market, its multi-asset method continues to supply substantial non-public fairness IPO beneficial properties to come back & best-in-class long-term purchase & maintain returns. Its present 19% NAV low cost can be compelling for brand spanking new buyers.
As for Alphabet (GOOGL:US)…a lot for changing into a trillion greenback behemoth, it nonetheless managed to ship a +39% achieve! In its most latest quarter, Google Search income development got here in at +30%, whereas each YouTube Advertisements & Google Cloud grew virtually +50% yoy…once more, the pandemic accelerated present traits, with Alphabet & Fb capturing the lion’s share of continued digital advertising and marketing development, the diversion of previous media spend and a rising re-allocation of different advertising and marketing spend* as e-commerce/D2C penetration additionally speed up. [*A substantial % of FMCG/brand marketing is devoted to other traditional non-ad channels, i.e. coupons, draws & (in-store) promotions, end-caps/POPs/signage, slotting fees, etc.] On a SoTP foundation, permitting for potential YouTube/Google Cloud/Waymo market multiples, the worth of its internet money/securities & the capitalized worth of its Different Bets, Alphabet: i) boasts an (impregnable) core search enterprise that also affords a lot the identical valuation & threat/reward as once I first wrote it up 4 years in the past, and ii) potential upside from anti-trust motion, although it clearly presents far much less social & political threat than Fb for buyers.
Saga Furs (SAGCV:FH) gained +80%, capitalizing on the ending of final 12 months’s patrons’ strike and the demise of its two major world rivals (NAFA went bankrupt & Kopenhagen Fur selected to wind-down). However it’s astonishing how low cost it nonetheless stays, regardless of this 12 months’s rally…an indication of a real deep worth inventory! Its H1-2021 public sale gross sales (to end-April) greater than tripled yoy, delivering €1.73 H1 EPS – annualized, this places Saga Furs buying and selling on a 4.7 P/E. Besides its monster June public sale produced €188 million in gross sales, surpassing each its H1-2021 & FY-2020 gross sales…so now the inventory could even provide a sub-3.5 P/E! [Notably, these pelt/sales/earnings run-rates are entirely feasible & sustainable, in terms of historical results]. Saga Furs nonetheless affords loads of upside as public sale information, outcomes & a radically decrease P/E filter by & extra buyers uncover it…although a longer-term a number of re-rating will once more rely upon how Chinese language producers select to make the most of this new supply-demand scenario.
Document (REC:LN) was a double in H1, gaining +99%. The roots of this lie in founder/main stakeholder Neil Document appointing Leslie Hill (ex-Head of Shopper Workforce) as CEO 18 months in the past, to concentrate on re-igniting development (doubtlessly forward of an eventual sale of the enterprise?!). This led to a game-changing $8 billion dynamic hedging mandate win final September…however for some purpose, the rally solely kicked off a few months later. I observe this ‘cos Document’s an exquisite instance of an inexpensive & uncared for inventory that lastly & considerably inexplicably begins to re-rate. Since then the inventory’s climbed relentlessly, as extra & extra buyers have found it & higher understood the standard of its extremely sticky recurring income enterprise. And now we’ve had FY-2021 outcomes & a Q1 buying and selling replace, consensus FY-2022 EPS estimates have steadily elevated & buyers have likely famous Document’s anticipated to ship virtually 80% EPS development this 12 months & nonetheless trades on an ex-cash sub-17 P/E! The CEO’s even accomplished three investor movies (inc. right here & right here) in the previous few months – an enormous growth for what was beforehand a traditional (low-touch IR) owner-operator – with the icing on the cake being a brand new high-fee $0.8 billion ESG bond fund launch & plans to discover new #crypto/#DeFi yield & funding alternatives later this 12 months!
And once more, KR1 (KR1:PZ) is the pièce de résistance…it delivered near a 450% achieve final 12 months & was a complete monster once more this 12 months, having fun with an unimaginable +360% achieve! Alas, the inevitable begrudgers* will dismiss this as YOLO #crypto luck, however I make no apologies for having fun with it…and should you’ve adopted my #KR1 journey on Twitter & the weblog for any size of time, you’ll know I’ve all the time seen it as a singular once-in-a-lifetime play on what continues to be an rising foundational expertise. And whereas my unique (4.125p/share) entry value & Truthful Worth goal(s) had been a small fraction of at this time’s share value, my NAV course of, FV a number of & funding thesis primarily stay the identical at this time. And yeah, I’ll take a few of the credit score for KR1’s re-rating since my Nov publish – on common, it constantly traded round a 0.7 P/B final 12 months & about double that a number of year-to-date – that’s what occurs while you resolve to change into a suggestivist vs. activist investor! However noting new & untapped multibagger alternatives in its portfolio, the $8.5 million+ pa in internet earnings it now enjoys from its zero-hardware/power proof-of-stake operation, the parachain auctions & rising Polkadot/Kusama ecosystem, its (extremely) low cost valuation vs. the typical crypto inventory, and its 5 12 months 150%+ NAV/share CAGR observe file, I nonetheless imagine KR1 deserves (no less than) a 2.5 P/B Truthful Worth a number of at this time. It’s now Chairman Rhys Davies‘ job to make sure the mandatory construction, course of & IR operate to continue to grow KR1 into Europe’s main digital asset funding firm, whereas the staff concentrate on what actually issues…the compounding! In the meantime, Raoul Pal of Actual Imaginative and prescient has simply shared the KR1 story & launched the staff to a complete new universe of potential buyers.
[*And worth highlighting that excluding KR1, my H1-2021 Portfolio Performance would actually have been a +43.8% gain – still almost four times my benchmark return!]
And now, since I’m painfully conscious I’ll by no means see returns remotely like this ever once more, allow me the posh of additionally going again, measuring & setting my present one 12 months return in stone. Let’s begin with my 2020 printed returns:
My H1-2020 portfolio return was a (3.2)% loss, so that might indicate an approx. +61% achieve in H2-2020 – compound that with my H1-2021 +159% achieve, and we’re a 300%+ LTM return! In actuality, the year-end resizing of positions (& KR1) flattered my return – if we re-calculate correctly, utilizing precise/common mid-2020 place sizes & mid-2021 costs vs. mid-2020 costs, we arrive at an correct portfolio return:
[*As of year-end 2020, note I removed Applegreen & Cpl Resources from my disclosed portfolio, as they were both in the final stages of recommended cash offers (which subsequently completed).]
Yeah, that’s an astonishing +266.6% one 12 months/LTM portfolio return!
And no, I don’t suppose it’s related to hassle evaluating it to a benchmark return… Or dismiss it as some fortunate KR1 phenomenon – once more, excluding KR1, my one 12 months/LTM return would nonetheless have been a +69.8% achieve, undoubtedly NOT a return I’d ever complain about settling for as a substitute!
And sure, I hope to do one thing helpful with this:
What readers clearly wish to know is what I’ve truly realized as an investor, wanting again over the past 18 months & the pandemic – and sure, I promised this as a weblog already – however now, as we method the vaccine end line, it lastly is smart to concentrate on this & hopefully get ’spherical to writing one thing that may show helpful.
So keep tuned for that…and as all the time, be at liberty to AMA about my portfolio/investing right here & on Twitter.
