The third quarter of 2020 is in the books. And this just in… 2020 still not great!
In this quarterly recap, here’s what we’ll cover and what you can expect:
Brief Broad Markets Discussion
Brief Mazwood Portfolio Discussion
Recap of New Projects & Experiments
New Tool I’m Crazy About
Some Podcasts, Articles & Threads to Share
1. Let’s First Look at the Broad Markets
After, shall we say a rocky first half of the year, the third quarter felt kind of nice? I think single digit growth was all we could take!
Looking back, September was the S&P 500’s first down month after five consecutive positive months, four of which were 4% or higher!
Are the markets finally stabilizing?
We have another macro event approaching… The Election!
I’m not here to say what a Trump or Biden win might do for the markets. Nobody knows. What’s interesting here is the history. Take a look at this Forbes piece, “We Looked At How The Stock Market Performed Under Every U.S. President Since Truman — And The Results Will Surprise You.”
The most important takeaway was from Jeremy Siegel, the Russell E. Palmer Professor of Finance at Wharton, discussing how the markets perform better in Democratic Administrations:
“That’s a well-known fact, but it does not imply cause and effect… Bull markets and bear markets come and go, and it’s more to do with business cycles than president.”
The article shows the S&P returns under each President going back to the end of WWII. Again, not necessarily cause and effect, but the article points out that “from 1952 through June 2020, annualized real stock market returns under Democrats have been 10.6% compared with 4.8% for Republicans.”
The article’s tagline sums up how my strategy will change based on election results.
2. Portfolio Action
In the Mazwood Portfolio, we kept busy in Q3 with plenty of new buys.
Brief thoughts on each:
$ROKU (First bought in Q2): Just a great quarter from these guys. Hard to not be enamored with Roku as the OS of TV right now.
$RDFN: This name still confounds me.
$SE: I talked about Sea in a Weekly Review when I first purchased in July. This feels like a rocketship in the making.
$PTON: In retrospect, missing the March through August run on this just feels dumb. Sure, you can say that about a lot names (oh hindsight, you). But here, it feels particularly dumb. Fool me once!
$PINS: I bought some $PINS in a smaller account on 6/11 at $20.53. Let’s just say this account got jealous.
$TWLO: I spoke about Twilio in the same Weekly Review mentioned above from July.
Here, we’ve got a founder-led business, literally off-the-charts net dollar retention.. a product made more necessary by Covid (cloud communications tools for companies to add messaging, voice, and video to web/mobile applications).
$SNAP: Here’s our (very bullish) Deep Dive from 7/14.
Turner Novak’s line stuck with me: “A platform (Apple) with content (Disney) and advertising (Google).”
$LULU: With heavy tech exposure, I was looking for a modicum of diversification.Picked up some $LULU at $319.68. Starter position. Down 20% off last week's high. Have some thoughts, which I'll get to you.
Adam Keesling also had a very interesting piece in Napkin Nath on Lululemon’s acquisition of Mirror from earlier this summer.
$OKTA: Here’s our Deep Dive from 8/19. I mean…
$VEEV: Took me long enough!
Veeva has all the makings of a really strong company, that I want to develop into a core position, and just watch it compound over time.
$MELI: Here’s our Deep Dive from 9/16.
The investment opportunity for $MELI could be great. There’s a ton to love in the story, the products, the market, the leadership. But some off-putting numbers and the wildly unknown geopolitical risk make it hard for $MELI to be a core position.
A quick word on valuation:
While there isn’t a one-size-fits-all valuation metric, it’s always vital to have a sense of how your names are priced. Price to Sales is my favorite. Like all metrics, it too has its problems, however, at least it can be somewhat standardized. To make better sense of it when looking at diverse names and industries, I like to look at the percentage change in P/S.
To simplify the charts, I divided the names into two cohorts, with 60% increase in P/S over the past year as our cut-off.
It’s difficult to make any sweeping declarations here. I just want to be mindful of the data. Buying into great companies is the first order of business. But don’t ignore the price you pay.
3. A Recap of Projects to Come Out of Mazwood
There are a few projects we experimented with in the past quarter. In no particular order:
My hope is to do these for all portfolio companies over the next quarter.
In addition to writing here, I also love following other Substacks.
It seems like every week I come across another Substack that is intelligent and insightful—and then my afternoon is lost reading everything that author has written.
But how could I keep track of the Substacks I liked (aside from overloading my email)? How could I find new and interesting Substacks focused on topics I care about? Was there a central database of the Substacks I found interesting?
It turns out, there wasn’t.
So I built it.
I hope you find something you like at Discover Substacks!
C. Oral History of The Trade Desk
The Trade Desk has been on my radar since 2017. It’s a company I like, with founders I admire. So I thought it would be fun to do an Oral History!
Other than dates to provide chronological context, there was no additional commentary. All comments were made by the players themselves. I conducted no interviews for this oral history, but rather found other interviews and quotes (that are cited). My job here was merely to research and collect the quotes, condense for brevity and continuity, and arrange them to build an interesting story.
I hope you enjoy and learn something new in our first Oral History!
D. An “Unbook” Review of Morgan Housel's The Psychology of Money
This is not a typical finance or investing book, although it includes both themes. It’s also a psychology book (duh), a history book, an economics book, and more. This is a book of bedtime stories for the curious and engaged.
Each chapter covers a different topic, using history and anecdotes as a guide. In my “unbook” review, I share my favorite lines from each chapter. Enjoy!
4. New Tool I’m Crazy About
Let me give you some quotes from the Twitterverse:
“One of the most powerful pieces of software I've found in recent years. I've found it life changing.” (Link.)
“A visionary product that I’ll use for the rest of my life. (Link.)
Should I keep going?
“My life is changed. I'm not kidding. The single best piece of software I have ever used.” (Link.)
“I was not expecting this, but it's completely changed my interactions with the entire *world*.” (Link.)
I’ll have more to say as I continue to use it… but this is how I’m setting mine up.
If anyone is using Roam for building personal knowledge or your investing process, I’d love to connect. Comment/email/DMs are open!
Special shoutout to Kyle Harrison who took the time to share how he uses Roam.
Kyle Harrison @kwharrison13I've had over 25 Roam Tour's in the last 3 months. Not because I'm good at using Roam, but because I'm bad at it. I'm here to show you what a 2 / 10 can do with something as powerful as Roam. #RoamTour https://t.co/T1OuOYWXyq
Bonus: For those already familiar with Roam, I thought this piece by Nathan Baschez in Divinations on the business case of Roam was excellent.
5. Recommendation Corner
Three months is a long time. I’m not here to tell you every great thing I read, watched, or listened to. Here are just a few things that have stayed with me:
A. Following All This TikTok Craziness
Business, investing, technology, politics, China, etc. This story has it all!
Two articles really stood out above the rest:
TikTok and the Sorting Hat by Eugene Wei — (Background/history of TikTok)
The TikTok War in Statechery — (Geopolitical discussion, dated before the forced “sale”)
B. Gems on Personal Investing From Some Really Smart People
If you aim to be a serious and thoughtful investor, read @StockNovice. These two pieces are a great place to start:
And two threads:
One from from Christopher Seifel on his investing framework.
And one from Christian Reshoeft on why he owns individual stocks.
C. Thread on IPOs via @FromValue
With the bump in IPOs over the last few weeks…
… I thought this thread from @FromValue was a solid reminder for everyone to relax.
D. Matthew Ball on Invest like the Best
Honestly, it’s hard to pick one Invest like the Best podcast. They are all A+ conversations. This entire recommendation section could be called Just Please Listen to Patrick O’Shaughnessy. But if I had to choose one:
Patrick OShaughnessy @patrick_oshagMy convo with @ballmatthew on the future of media: - creating and managing intellectual property - trans media storytelling - the Metaverse - Movies, music, tv, gaming... I’m not sure it’s possible to pack more ideas and information into <2 hours Whoa https://t.co/5OZDsZME6q https://t.co/XuH1BEWPrw
Anything Matthew writes (media, streaming, gaming, etc.) is a must read. See all his work at http://matthewball.vc.
E. Morgan Housel (Again, I Know!) on Risk
This was personal, heartfelt and unlike any article on “investing” I’d ever read.
In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk – like pandemics, and depressions – are what make the pages of history books. They’re all that matter. They’re all you should focus on. We spent the last decade debating whether economic risk meant the Federal Reserve set interest rates at 0.25% or 0.5%. Then 36 million people lost their jobs in two months because of a virus. It’s absurd.
Tail-end events are all that matter.
I hope you enjoyed our first Quarterly Recap! Please let us know what you think—Comments/email/DMs are open!
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