Time to have a good time – we made it by way of the #pandemic!
Vaccine roll-outs proceed, some quick some gradual, 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 manage the narrative. On one facet, we’ve the #antivaxx nutters & their ever-expanding conspiracy idea advanced to debate – you could 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 acquired the #Delta nutters who apparently don’t consider in vaccines both – like them, they’d choose all of us keep masked up & locked down ceaselessly, 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 because the 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 might need stated:
‘It’s tough to get a person to know vaccine efficacy, when his comfortable new working-from-home white-collar profession is determined by his not understanding it.’
However hey, contact wooden, we’re nonetheless virtually dwelling free! And whereas it could be laborious to consider proper now, historical past’s confirmed it time & once more…we’re gonna transfer on simply as rapidly, with little motive 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 developments – each optimistic & adverse – together with America’s heroic fiscal & financial stimulus, and its disproportionate impression on the S&P 500. What number of traders have forgotten (or by no means even seen) its +16.3% achieve final yr was truly a complete outlier – my 2020 index benchmark, for instance, was nonetheless flat regardless:
2021 has been much more democratic although, with most indices chalking up not less than a great yr’s value of positive factors (albeit led by the S&P, as at all times!) in H1 – no actual shock, as traders 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 normal, my H1-2021 Benchmark Return (a +11.7% achieve) is an easy common of the 4 primary 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 highway of fiscal & financial debasement that may in the end finish in tears…however in the meantime, it’s gonna be one hell of a trip! In fact, you possibly can’t essentially anticipate all of the turns alongside the best way – 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 simple zero-rate fee plan):
Once more, I have to bewail my main thesis error…not being extra aggressive! However that’s OK, my portfolio’s at all times been an odd 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 just a little post-partum bout of melancholy or two within the subsequent yr, as regular post-pandemic life & actuality is re-established – some extra-frothy sectors/shares already acquired a style of this, with important losses since Feb/March. However as normal, I don’t really feel sufficiently prescient or certified to try to commerce round this…and in the long run, the market’s simply gonna arrange the Fed (& authorities) for failure once more. A take a look at they’ve been failing for years (& even a long time) now, which has in the end normalized a lot the identical behaviour in all the key 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 all of the sudden resolve sooner or later to get fiscal faith, flip off the cash spigots, and embrace the agony of full-blown chilly turkey?!
Yeah, after all 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 may be raised, it appears very apparent that adverse actual rates of interest & monetary repression will stay as deliberate coverage for a few years to return – Russell Napier offers some nice perspective right here.
And ultimately, if/as this continues to evolve into a standard social/market consensus, I’ll most likely 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 comprehend it:
‘We’re over a decade now into what’s absolutely probably the most unprecedented fiscal & financial experiment within the historical past of mankind…is it so loopy to ask/wonder if this in the end results in probably the most unprecedented funding bubble in historical past too?’
In the meantime, I’m positively 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, when it comes to 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 – when it comes to 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 adverse (a 4% loss), as its seed potato enterprise continues to ship enhancing margins, however the pandemic lockdowns considerably dented (on-the-go) gross sales in Nomadic Dairy (albeit, it remained worthwhile). Sadly, this unit most likely 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 anticipate 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 as we speak – because it continues to compound NAV at 10%+ pa within the medium/long-term. However potential traders nonetheless mistrust administration, whereas long-suffering shareholders stay pissed off 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 yr), a a lot larger 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 payment construction.
VinaCapital Vietnam Alternative Fund (VOF:LN) gained +13%, which maybe understates the significance of the VNI lastly breaking a 14 yr 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, relatively than a commerce accomplice. And whereas VOF could also be anticipated to lag its rival – Vietnam Enterprise Investments (VEIL:LN) – in a bull market, its multi-asset strategy continues to supply substantial personal fairness IPO positive factors to return & best-in-class long-term purchase & maintain returns. Its present 19% NAV low cost can be compelling for brand new traders.
As for Alphabet (GOOGL:US)…a lot for turning into a trillion greenback behemoth, it nonetheless managed to ship a +39% achieve! In its most current quarter, Google Search income development got here in at +30%, whereas each YouTube Adverts & Google Cloud grew virtually +50% yoy…once more, the pandemic accelerated present developments, with Alphabet & Fb capturing the lion’s share of continued digital advertising and marketing development, the diversion of outdated 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 web money/securities & the capitalized worth of its Different Bets, Alphabet: i) boasts an (impregnable) core search enterprise that also gives a lot the identical valuation & danger/reward as after I first wrote it up 4 years in the past, and ii) potential upside from anti-trust motion, regardless that it clearly presents far much less social & political danger than Fb for traders.
Saga Furs (SAGCV:FH) gained +80%, capitalizing on the ending of final yr’s patrons’ strike and the demise of its two primary world rivals (NAFA went bankrupt & Kopenhagen Fur selected to wind-down). Nevertheless it’s astonishing how low-cost it nonetheless stays, regardless of this yr’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 supply 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 gives loads of upside as public sale information, outcomes & a radically decrease P/E filter by way of & extra traders uncover it…although a longer-term a number of re-rating will once more depend upon how Chinese language producers select to benefit from this new supply-demand state of affairs.
Report (REC:LN) was a double in H1, gaining +99%. The roots of this lie in founder/main stakeholder Neil Report appointing Leslie Hill (ex-Head of Consumer Workforce) as CEO 18 months in the past, to deal with 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 motive, the rally solely kicked off a few months later. I notice this ‘cos Report’s an exquisite instance of an affordable & uncared for inventory that lastly & considerably inexplicably begins to re-rate. Since then the inventory’s climbed relentlessly, as extra & extra traders 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 & traders have probably famous Report’s anticipated to ship virtually 80% EPS development this yr & nonetheless trades on an ex-cash sub-17 P/E! The CEO’s even carried out three investor movies (inc. right here & right here) in the previous couple of months – an enormous improvement for what was beforehand a basic (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 yr!
And once more, KR1 (KR1:PZ) is the pièce de résistance…it delivered near a 450% achieve final yr & was a complete monster once more this yr, 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 in case you’ve adopted my #KR1 journey on Twitter & the weblog for any size of time, you’ll know I’ve at all times considered it as a novel once-in-a-lifetime play on what continues to be an rising foundational expertise. And whereas my unique (4.125p/share) entry worth & Honest Worth goal(s) have been a small fraction of as we speak’s share worth, my NAV course of, FV a number of & funding thesis basically stay the identical as we speak. And yeah, I’ll take a number of the credit score for KR1’s re-rating since my Nov put up – on common, it constantly traded round a 0.7 P/B final yr & about double that a number of year-to-date – that’s what occurs if you resolve to turn out to be a suggestivist vs. activist investor! However noting new & untapped multibagger alternatives in its portfolio, the $8.5 million+ pa in web 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 common crypto inventory, and its 5 yr 150%+ NAV/share CAGR observe document, I nonetheless consider KR1 deserves (not less than) a 2.5 P/B Honest Worth a number of as we speak. It’s now Chairman Rhys Davies‘ job to make sure the required construction, course of & IR perform to continue to grow KR1 into Europe’s main digital asset funding firm, whereas the crew deal with what actually issues…the compounding! In the meantime, Raoul Pal of Actual Imaginative and prescient has simply shared the KR1 story & launched the crew to an entire new universe of potential traders.
[*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 could by no means see returns remotely like this ever once more, allow me the posh of additionally going again, measuring & setting my present one yr return in stone. Let’s begin with my 2020 printed returns:
My H1-2020 portfolio return was a (3.2)% loss, so that will suggest 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 yr/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 yr/LTM return would nonetheless have been a +69.8% achieve, positively 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 need 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 strategy the vaccine end line, it lastly is smart to deal with this & hopefully get ’spherical to writing one thing which may show helpful.
So keep tuned for that…and as at all times, be happy to AMA about my portfolio/investing right here & on Twitter.