1/ Thread: Upside-down markets

@Jesse_Livermore recently wrote an intriguing piece on "upside-down markets. It's essentially a book (94 pages).

What is the upside-down market?

It is when good news works as bad news, and bad news works as good news for the market.
2/ In monetary policy context, if bad news lets central banks lower interest rate and if it is lowered more than the severity of the situation at hand, overall impact on market can be positive.

But rate cuts usually don't outweigh the situation at hand.
3/ Fiscal policy, on the other hand, is the "cheat code".

As long as you are willing to tolerate inflation risk, if you are motivated enough, you can achieve any level of nominal growth you want.
4/ When both monetary+fiscal policy have "whatever it takes" approach, you have foundation for the upside-down market.

Let's run through what happened in the virus hit economy to explain further.
5/ Fed cuts interest rate to zero. Your cash/bonds earn almost or literally nothing. Stocks appear more attractive.

Ungodly amount of govt securities is issued to fund spending. Relative supply of equities in the broader investment basket appears scarce.
6/ Virus also gives good excuse for companies to cut fat and improve productivity. So margins improve.

The lost income from household gets replenished from the govt through stimulus.

Overall, if you are an equity investor, it's a bonanza!
7/ At the end of 2019, investor allocation to equities was 46.2% of total portfolio wealth.

After $7.5 Tn issuance of zero yielding bonds, this allocation dropped by 4% to 42.2%.
8/ If investors want to have the same portfolio exposure to equity, $SPY has to reach 3900 assuming no equity issuance.

In a ZIRP world, the logic of TINA is sound, but not without inherent limitations.
9/ TINA makes life difficult for both bulls and bears as bulls fear the music might stop anytime whereas bears suffer from FOMO.

The whole thing makes sensitive to new information.

More explanation in the images here.
End/ If you want to read the whole thing, you can go here: osam.com/Commentary/ups…

All my twitter threads: mbi-deepdives.com/twitter-thread…

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More from @borrowed_ideas

20 Sep
1/ Notes from @rorysutherland episode at @InvestLikeBest

This episode was a reminder of Munger's latticework of mental models, and how much knowledge from other fields can actually be transferable to the world of investing.
2/ "you can double the conversion rate of a call center if you're asking people to choose between three options of subscription, and you simply add the sentence, "Most people choose B."

This reminded me of NZS capital's complexity investing framework.

static1.squarespace.com/static/5ca38f3… Image
3/ "Apple was the first to wonder about what it felt like while you were doing it. Which is a second-order consideration, which is actually much closer to being customer-centric than asking what functions you can perform for people."

Image
Read 12 tweets
18 Sep
1/ Thread: The role of intangibles in valuation

I feel like a broken record, but @mjmauboussin and Dan Callahan recently published another intriguing piece titled "One Job".

What is "One Job"?

To take advantage of gaps between expectations and fundamentals.

But first a quiz.
2/ Which of the following stocks you want to own?

Stock A: it's profitable for last 15 years. Both sales and net profit CAGR 40%. Dividend initiated in year 3 and grew at 50% CAGR.

Stock B: Negative FCF for last 15 years. Debt grew at 34% CAGR. Cash was 2.5% of sales in yr 0...
3/ ...and it came down to 2.0% in yr 15.

Of course, it's a trick question. Stock A and B are actually the same company. It's $WMT.

If you hated stock B, well, here's a shocker. The stock had 29% CAGR return during this 15-yr period vs 11% for $SPY.
Read 25 tweets
17 Sep
1/5 Thread: Frank Slootman

$SNOW CEO Frank Slootman is an absolute beast!

He joined Data Domain at pre-revenue stage in 2003, grew revenue from zero to $600 mn in 6 years, IPO’ed in 2007 and eventually sold it to Dell for $2.1 Bn.
2/5 He later became CEO of $NOW in 2011 when it had $75 mn revenue.

In 2012, $NOW came to IPO and in just 6 years, revenue grew to ~$1.5 Bn.

$NOW market cap at IPO was ~$2 Bn. When Slootman left, it was ~$20 Bn.
3/5 $SNOW former CEO Bob Muglia raised $450 mn at $3.5 Bn valuation in late 2018. Then Slootman happened.

In less than two years since he joined, $SNOW became one of the most anticipated IPOs of recent times and market cap exceeded $70 Bn yesterday.
Read 5 tweets
14 Sep
1/ Notes from @mwseibel episode at @InvestLikeBest

It's the BEST episode I have listened to in 2020.

Just read the notes to get a sense why I am saying that, but better yet, just give it a listen to get the whole thing, not just the tidbits.
2/ Seibel is "The man who gets to see the future".

So what does he see?

Today's Founders are braver. They want to attack problems that have deeper and more positive impact on society.
3/ More and more founders are coming from outside the US.

I know it in my bones that talent is far from centralized in any particular region of the world. It's everywhere.

It's inevitable capitalism will find its way to get to them. It may be slow, but inevitable.
Read 18 tweets
10 Sep
1/ Thread: $UBER follow-up

After publishing my $UBER deep dive yesterday, I received one gentle push back from a shareholder and we had a nice back and forth.

I am sharing our conversation which I believe will be additive to the write-up.

Color code
Blue= Shareholder
Black= Me
2/ Point on consolidation and decreasing competition
3/ My counter argument

$LYFT
Read 6 tweets
6 Sep
1/ Notes from @mjmauboussin episode at @InvestLikeBest

Anyone who has been following me for a while knows I'm a big Mauboussin fan.

In this episode, they mainly discuss about his recent report: "Public to Private Market Equity in the United States: A Long-Term Look"
2/ I have a detailed thread on the paper discussed in the episode. (linked to the final tweet of the thread)

This thread is additive to my earlier threads on this paper, so will skip many important bits from the podcast not to repeat too much.
3/ $FB + $AAPL + $AMZN + $MSFT + $GOOG gains in the first 7 months in 2020 = $1.8 Trillion.

GAINS.

The gains itself is higher than the whole US buyout industry and 4x of VC industry.

Staggering numbers.
Read 20 tweets

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