#126 - Inflation Kills SAAS, NYT Buys The Athletic, Canadian Economy Booms and How To Monetize Free Products
In this week's episode of Reformed Millennials, Broc and Joel discuss why inflation is killing SAAS, the BOOMING canadian economy and how to monetize free products.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
Good morning, everyone! The market showed signs of strength yesterday, but we’ll keep taking it one day at a time.
The biggest story in markets yesterday was Jerome Powell and the Fed:
1. "We will use our tools to get inflation back"
2. "If we have to raise rates more, we will"
3. "We probably remain in an era of very low interest rates"
4. 'It's a long road to normal' monetary policy
All these statements contradict each other. Which is the point.
Rate hikes have priced in to markets over the last month or so… So let’s move on to where we can make some money!
EM is the best opportunity of 2022
It looks to us like the tech market is nearing a short term low.
Via Bloomberg/Sundial Research. 40% of stocks on the Nasdaq are down 50%+ from their 52 week high. More interesting in the context of the Nasdaq still near ATHs, which hasn’t happened before.
The only other time this many stocks were down so much with the Nasdaq near a high was late 1999. The generals do generally get shot last. The generals are much cheaper, are arguably under-earning, have higher ROICs and are growing faster vs. 1999/2000 - many of them are basically just levered royalties on global GDP.
The superb QDS team at MS showing that their Crowded Longs (CRWD) and Expensive Tech (EVSA) baskets are 85% of the way through their typical downside move during a "rate shock" vs. indices only 40-50% of the way through. Software now approaching 2019 trough valuations.
Combined with extremely light positioning in tech/growth by funds (nearing 5-10 year lows), the set up looks increasingly attractive.
The issue growth stocks have is they are too expensive relative to the underlying growth, so there is no buyer. The only analysis that matters is how much do they need to grow over what time or how low do they need to go before they are attractive.
RM Thesis: Growth is not broken. Far from it.
This is a very healthy reset in QLCF (quality lacking cash flow™️) that will only last as long as big scary inflation headline #s do. When the scary headlines go away, multiples will expand and capital will flow back to the companies that define our future rather than the paint our past. Any 10 year rate below 4% is not going to suck a lot of $capital away from equity so money from everyone is still going to be looking for a home in the market.
I don’t think we see multiples snap back - that party is over for now. However, I’m not paradigm shift where ‘value’ is king for years. Pain should end for best in class SMIDs before yr end but The cohort of “best in class” is always at best 20% of what people think actually belongs
💸Reformed Millennials - Post of The Week
21 Ideas from 2021 from David Parrel.
Our favorites are highlighted.
1. The Mind Creates Reality: The American Psychological Association once invited William James to give a talk on the first 50 years of psychology research.
He simply said: “People by and large become what they think of themselves.”
Then, he left.
2. Make One Person Responsible: If you want to get something done, it’s tempting to put a huge number of people in charge. But often, when too many people are in charge, nobody accepts responsibility.
This saying is illustrative: “A dog with two owners dies of hunger.”
3. Kanye West, on Genius: "If you guys want these crazy ideas, these crazy stages, this crazy music, this crazy way of thinking, there’s a chance it might come from a crazy person.”
4. The Knife Theory of Hiring: When you first start a company, you need Swiss Army Knife people who can do a little bit of everything. Once your company gets big, you need a bunch of kitchen knife people who do one thing very, very well.
5. Sayre’s Law: In a dispute, the level of emotions are inversely related to what’s at stake. That’s why unimportant events can inspire such passionate arguments. In parts of academia, they say: “The battles are so fierce because the problems are so trivial.”
6. Braess’ Paradox: Adding capacity to a system can counterintuitively slow things down. Highways are the classic example. For years, road designers have observed that adding more roads to a network can actually increase congestion and slow the flow of traffic.
7. Current vs. The Wind: Novice sailors focus on the wind. Experienced ones study the currents. Since the winds change every day, the knowledge is ephemeral. But currents are persistent and predictable, even if they’re hard to see. Focus on the currents in life.
8. Akrasia: In theory, we know how to behave. But in practice, we don’t always do it. The Ancient Greeks called this phenomenon “akrasia,” which translates to “weakness of will.” It describes our tragic proclivity to act against our best interests, even when we know what to do.
9. Paradox of Consensus: Under ancient Jewish law, if a suspect was unanimously found guilty, they were deemed innocent. Total agreement signaled a systematic flaw in the judicial process. Often, when everybody is thinking alike, nobody is thinking at all.
10. The Paradox of Weirdness: The weird parts of ourselves are actually the thing that’s normal. People are actually weird. It’s how we’re born. What’s weird is the way social conditioning makes us seem more similar than we really are. - Tyler Cowan
11. Make Uphill Decisions: If you’re split between two decisions and don’t know which one to choose, default to the one that’s more difficult in the short-term. - Naval Ravikant
12. Nullius in Verba: This is Royal Society’s old motto. It translates to “take no one’s word for it.” Be curious. Figure things out for yourself. Move through the world with a posture of productive skepticism and when it comes to truth, do your own investigations.
13. Otium: The Latin word for leisure. But not the lazy kind of leisure where you sit around and do nothing. It’s the Ancient Roman kind where you play sports, contemplate life, and consume great art. This is how I aspire to spend my weekends.
14. Luxury Beliefs: People have always signaled status by buying expensive things. But now they do it by holding certain beliefs, which confer status on upper class people while inflicting costs on lower class ones. - Rob Henderson
15. Pre-Headline vs. Post-Headline People: Pre-headline people know about things before they make it into the news. Post-headline people only know about things after they’re printed and become well-known. Pre-headline people have the edge in life. - Balaji
16. Robustness Principle: A design guideline for software developers that applies to many things in life: “Be conservative in what you do, but liberal in what you accept from others.”
17. Serving vs. Served: Self-sacrificial service is the great paradox of life. The more you give, with no expectation of reciprocity, the happier you will be. In a world of utility-maximizing selfishness, this is counterintuitive and counter cultural. - Brent Beshore
18. Yuck and Yawn: If you want to start a profitable business, look for opportunities that are smelly (like trash collection) or ones that are boring (like niche materials). Avoid sexy industries like the ones prestige-thirsty MBA students tend to pursue. - AUM Energy
19. The Story of Damocles: A man once got to be king for a day and sit on the king’s luxurious throne. From afar, the throne looked peaceful. But to his surprise, a sword hung above it. Immediately, Damocles learned that with great power comes great fear, anxiety, and danger.
20. Planck’s Principle: Scientific knowledge doesn’t change because scientists change their mind. Rather, it changes as old scientists die, new ones are born, and a new generation of scientists gains influence.
21. The Stupid Test: Peter Thiel once said: “As an investor, you want to find things that are so stupid that people are embarrassed to invest in them.“ Often, the best opportunities are the simplest. Unfortunately, people miss them because they think good ideas must be complex.
Last Quarter App Downloads for Meta: $FB
“Instagram had its BEST quarter for downloads since at least 2014, and Q4 2021 was the FIRST time Meta had the top app since Q4 2019.”
🌊 Canadian Companies To Peruse 🌊
Headversity - Calgary based company raises $12.5m CAD Series A - Headversity is a workplace mental health and resilience platform helping workers through mental health issues.
🔮Best Links of The Week🔮
Is $13b for Opensea crazy?
Is Turo an example of a company that can come out of pandemic shining?
Reed Duchscher (Mr Beast’s manager) on the iced coffee hour.
Take Two's acquisition of Zynga - The beginning of content fortresses
Our thing - Sammy The Bull