I’m going to speculate here. With the lockdowns still underway and likely to continue for some time… it appears that self care is going to become a persistent trend.

People are stuck at home, not travelling and not spending money on eating out. They are however spending money on making themselves a better version of them, from home

The rise of Peloton and Lulu buying Mirror, definitely highlights that trend.

Now time to speculate, I’ll bet that Hims, Manscaped and Uqora are all having record revenue. People stuck at home with their beloved may be getting bored with streaming and could be looking for ways to find other forms of entertainment.

If I am correct in this thesis then we may have a baby boom coming in the next 9 – 10 months…

Bye for now.

There is a lot of talk about efficient markets of late. Not 100% what that means exactly…

Somehow the stock market is supposed to be an efficient market where all participants have access to the same information, so therefore there is no ability to make more return than the market.

But how does that explain such great companies, as Shopify, Dexcom, Dominos Pizza, Equinix or Amazon? In theory they shouldn’t exist, so perhaps there is inefficiency in the information about how some companies can build a business that anticipates changes in the future? Maybe people have different ideas about the future?

You typically make the most money in inefficient markets. Where some information about price discovery or future pathways to revenue aren’t clear.

So how do you balance the efficient vs inefficient market as an investor?

We tend to index the efficient markets (large US Blue Chips companies) and seek out active managers in inefficient markets.

There is probably no more inefficient market than early stage venture. We have been investing into early stage venture now for five years, across funds and direct investments.

This has given our clients exposure to companies, such as TearFilm, Alastin, GrayMeta, RobinHood, Retrosense, Bell Weather Coffee and many more.

These have all generated terrific returns for our clients. There have been some problems as well, not all companies make it, but the winners seem to be making up for the losers.

So in the age of people clamoring for efficient markets and price discovery, I say give me the inefficiency – where hopefully skill can overwhelm luck.

Bye for now.

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Before the COVID 19 crises the Federal Budget deficit for 2020 was forecast to be $1.1T, so far $2T of stimulus has been approved with more to come. This has lead to the Federal Debt to explode to $25T with more to come… GDP is around $21T so we are easily over 100% Debt/GDP ratio.

This set of data has led many clients to ask how this will be paid for and will it lead to inflation.

I’ll tackle inflation in a future post, but how do we pay for this debt. I see two ways out – a debt jubilee(unlikely) or increased taxes at some point in the future.

If there is a change in the Senate or the Whitehouse in November then this could definitely lead to increased taxes.

Taxes are applied in three main ways: income, capital gains and estate taxes.

Income – taxed at 37% for married filing joint over $622k (Don’t forget CA + 12.3)

Capital Gains – taxed at 20%.

Estate Tax – 40% on estates over $11.58m.

also there is the Net Investment Income Tax 3.8% on investment income (dividends, cap. gains and interest, when income is >$200k).

As you can see tax rates are high and could be going higher.

So what do we do now?

Plan – what planning can we do to help mitigate the impact of taxes,

Accelerate – can we accelerate gains/income into this year if we think tax rates are going to be higher next year,

Freeze – With Unified Credit at $11.58m we are encouraging clients to look at various gifting strategies to move assets outside their estates today, thus freezing the value of their lifetime gifts.

The next 6 months are going to be noisy so we are trying to act thoughtfully around the noise.

Bye for Now.

I have been on a lot of earnings calls and partnership updates from many of our investments the last week.

Here are some of the notes that I have taken that struck me as interesting.

“Home Depot number of store visitors were down 4%, average order up 11%”

“Online grocery sales up 5X since the crises began”

“Approx 60% of US manufacturing employees are working remotely”

“Online consumer care products are experiencing some of their best months”

“Commercial Office real estate is a bit of a Schrodinger’s cat at the moment – can make the argument that it’s demand will be lower in a post COVID world as people will work from home more. Demand will be higher because more space will be needed per/employee to accommodate social distance in the office”

“20% unemployment is 80% employment.”

I don’t know what the world will look like in the post COVID world, but there are many interesting trends beginning to develop.

Consumer behavior is definitely changing – is the change permanent or just a temporary blip? The integration of technology in the shopping experience is now a permanent fixture. From the shopping experience, to inventory management, payment, fulfillment and delivery is now an integrated system.

I am excited to see how the world will evolve in a post COVID era.

Bye for Now.

Price is important in investing. I think it is important in two occasions – the day you buy and the day you sell. Between those two days a lot can happen. That’s why it’s important to remeber that a stock is a share of a company in an ongoing enterprise (hopefully)

I am trying to stop having debates with myself over the vale of an investment, is now a good time to get in based upon static investment metrics.

The reality of the world we live in is that there is a shortage of good growth opportunites. Broad based GDP is struggling to grow at 3%, inflation can’t get to 2%. So how much are you willing to pay for a company growing well, with good gross margins and a good balance sheet?

I don’t know about broad based valuations metrics, so I am trying to own companies in growing industries- cloud computing, diabetes treatments, genomics, cyber security, enterprise software, entertainment, search, gaming etc.

Maybe we overpay for them today based upon their valuation but I am more interested in how much someone will pay in the future for a company that is bigger and better.

Bye for now.

The global economy is highly complex and integrated. A decision made in isolation can often have wide ranging and “unexpected” consequences.

The current trade and tariff war is just such an example. The US has for a long time trade deficits. These aren’t bad, they are not one country taking advantage of another.

As the US ran a trade deficit with a country such as China, the Chinese received an excess amount of US dollars. These dollars were then turned around and purchased US government bonds. This was the one the mechanisms that allowed the US Government to fund their budget deficits.

It was a wonderfully symbiotic relationship.

Now however it appears that the number of buyers for Treasury bonds is starting to decline. The recent 10 year treasury bid-cover ratio of 2.10 was one of the worst in some time.

https://www.bloomberg.com/opinion/articles/2019-05-08/the-bond-market-just-sent-a-disturbing-message

This may or may not be a big deal but it does show that the 2nd and 3rd order effects of the trade war may be an unintended consequence that nobody has thought about.

Bye for now.