#128 - This is What Opportunity Looks Like! Gavin Baker on Software vs. Internet, The EV Revolution and Chargelab to be the Operating System for EV Chargers
In this week's episode of Reformed Millennials, Broc and Joel discuss the recent sell off in Software and Internet companies, the future of EV’s, Gavin Bakers podcast on ILTB and their favorite up and coming company in Canada.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
Once or twice every year the market kicks you in the nuts. BUT, it also rewards us with undeserved riches. If you are an active manager, your approach to the latter will always have an impact on your ability to take advantage of the former.
Those are the rules of engagement.
This is what opportunity looks like
Sell your mistakes and buy quality. Don't wait for it to be made whole.
"All past declines look like an opportunity, all future declines look like a risk."
I know it feels like the world could be coming to an end every time stocks fall but the S&P 500 has had the following corrections since 2009:
-16.0% | -19.4% | -13.3% | -10.2% | -19.8% | -33.9%
The market is up 740% since the Mar 2009 bottom even w/all of these corrections
REMEMBER! Whatever strategy helps KEEP you invested in great companies is the best strategy.
Below is interpreted from Gavin Bakers Interview on Invest Like The Best: highlights ours
An important signal to me that a correction may be nearing its end is when the stocks/groups that had been the epicenter of the weakness start to show some relative strength/stabilization vs. indices along with differentiation within them.
This began to happen last week for the first time in ~3 months. Sub $100b tech names that had led to the downside consistently since Powell's reappointment were in-line(ish) with the indices and those with more FCF valuation support and better fundamentals performed better.
There are now quite a few names at or below their 2018 trough valuations when the 10 year was 50% higher and we were nearly 2.5 years into a hiking cycle.
Yes, inflation is higher now so Fed behavior may be different.
However, many of these stocks have similar growth rates and much higher FCF margins when compared to 2018. Some can be valued on EV/FCF on 2023 numbers.
Given that the economy is slowing rapidly and current leadership stocks are highly GDP sensitive, some of these sub $100b tech stocks with more recurring revenue and secular (i.e.) less GDP sensitive growth are likely on the cusp of positive relative revisions & perf.
There are so many reasons to be afraid right now.
CPI at 40 year highs,
rapidly slowing economy,
investment years ahead for many co's,
upcoming Fed mtg with continuous increase in hawkishness speaker by speaker,
tightening cycle yet to begin,
HOWEVER! What feels safe and good is rarely the way to outperform.
The internet has made education available to all for FREE. Below is some of the best investing lectures and investor can listen to.
The Top 5 Lectures By Fund Managers:
Joel Greenblatt of Gotham Capital - Learn about valuation, special situations, case studies and options
Li Lu of Himalaya Capital - Learn about what to look for in businesses and the mindset of a business owner
Terry Smith of Fundsmith - Learn about investing in high-quality companies
Marcelo Lima of Heller House - Learn about disruption, investing in S-curves, unit economics
💸Reformed Millennials - Post of The Week
A great thread about Crypto Markets. from Corey Hoffstein
These markets are *not* efficient. Smaller, new tokens are explicitly manipulated, and the lack of shorting leads to exponential price moves.
CEX listing events are historically bearish. More liquidity plus shorting pressure invites greater efficiency, which is the killer of exponential moves.
Understand where you are in the information food chain. Unless you have good reason to believe you’re early, assume you’re late. (And, therefore, the exit liquidity.)
(Position) Size matters. For stuff I expect to go exponential, I find selling in line with logarithmic moves a useful framework.
Liquidation cascades are part of the market structure. There’s a ton of leverage in crypto and cross-CEX / DEX margin management is non-trivial. Keep your eyes on open interest and funding rates to understand liquidation risk.
The markets tend to move in seasons. L1 season. Altcoin season. NFT season. You succeed by either front-running the next season or ignoring them entirely.
When you find yourself “mid-season,” sometimes it pays to shut your brain off. There’s no need to get cute during a sentiment frenzy. (But don’t let yourself get caught up either.)
Sentiment matters. Ponzis and pyramid schemes can go on far, far longer than they should.
Airdrops and yield farming rewards are mostly about trying to “buy liquidity.” If the “vampire attack” fails to attract sticky liquidity, the protocol does too.
Think of yield farming as renting your liquidity. But it’s probably safe to assume most farming rewards are going to zero.
Think of AMM/LP positions as an automatically rebalancing 50/50 portfolio. If one of the legs has a risk of going to zero, your whole bag can go to zero. (Uniswap v3 model complicates this)
Smart contract risk is very, very real. This is usually true where APRs are the highest (“duh”). Again, position sizing is key. (Or buy insurance.)
Never share your keys. Ever. And if you’re going to interact with a potentially shady contract, use a hot wallet.
This is a 24/7 market. If you're trading, understand that markets can move against you violently when you're sleeping.
The market evolves at a very, very rapid pace. It can be information overload. Finding trusted curators can be key to separating signal from noise.
VCs and angels are getting token allocations at pennies on the dollar. Understand who owns the token you're buying and when their lockup period ends.
Tradfi quants, market makers / HFTs, and hedge funds are entering the space rapidly. The edge will likely be in the places those firms *can't* operate due to operational, accounting, legal, or liquidity constraints.
NETFLX a story of narratives:
It seems to me that the problems facing all of the assets covered above stem from their own success.
In other words- they are the victims of their own success.
The pandemic has been a poisoned chalice for many stocks as investors now expect growth largely pulled forward through the pandemic to continue… This is very unlikely.
Netflix felt the brunt of this poisoned chalice on Friday as shares fell 20% due to disappointing subscriber growth figures. Like Peloton, Netflix was poised to benefit from the pandemic as people are stuck at home in need of content to consume. Two years into the pandemic, however, most people that would subscriber to Netflix have probably done so by this point.
“Netflix posted its best subscriber growth ever in 2020, when billions of people were stuck at home. But the company has said that pulled from future growth and led to a slow start to 2021.” (Bloomberg)
Bloomberg summarizes this issue perfectly. The problem for growth stocks is that their accelerated growth in this unique WFH environment has “pulled from future growth”. For investors, this inevitably means disappointment going forward unless baseline expectations are reset.Can PTON come back? Is NFLX cheap here?
You decide. Check the tweet thread below and our special links for more information.
Gavin’s focus is on consumer and tech growth investing, which makes him the perfect person to discuss the bloodbath we’ve seen in many growth equities over the past few months. We also cover inflation, semiconductors, and the disconnect between private and public markets. Episode link.
Software — last April thought it was better than first league debt
15x sales that companies that have fcf yield
he likes infrastructure & cybersecurity software co’s
he likes application software companies targeted at smb
Internet - has a COVID hangover
e-commerce, advertisement and subscription businesses (Netflix)
real weakness in this category
🌊 Canadian Companies To Peruse 🌊
Chargelab.co - ChargeLab is the operating system for EV chargers. We connect charging infrastructure everywhere you find electric vehicles in North America. Toronto based company | Raised $4.3m Seed last February | 32 employees
🔮Best Links of The Week🔮
NETFLIX’S MAN OVERBOARD MOMENT - Intrinsic Investing
The Rise of the Crypto Mayors
Walking America - Chris Arnade