Twelve stocks from two investor letters

Bryce: [00:00:15] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. Whether you're an absolute beginner or approaching a Warren Buffett status, our aim is to help you break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:33] Why are you laughing? 

Bryce: [00:00:34] I just kind of threw in an extra word in there that threw me off a little bit. You didn't notice? It didn't. 

Alec: [00:00:39] Well, to be honest, I wasn't listening. That's the type. Oh, good, good, good. Well, that's. 

Bryce: [00:00:45] The first time that you haven't started by saying you're really excited for this episode.

Alec: [00:00:49] Well, I am excited. I am. I am always excited. Take it as a given. But this should be a good one, obviously. It's it can feel tough to get excited about investing. If you look at your portfolio at the moment, there's a lot of red by yourself. 

Bryce: [00:01:03] I'm still very much in the green, but that's okay. 

Alec: [00:01:07] You've probably had no gains over the past three years. 

Bryce: [00:01:11] Just short positions. 

Alec: [00:01:15] But I think the the exciting thing for me and for us and hopefully for everyone listening, is that if we look back in history, these were the opportunities. These were the moments where people made money. 2000, 2008, 2020. When things go on sale, it's when there's an everything must go 50% off. The manager's crazy. And we're selling the store fire sale. And there's some great opportunities and some great bargains that come along. So I'm reminding myself of that, that I have decades of investing ahead of me. And these moments are the moments where you can really supercharge your returns. So that is the mindset that I'm taking to my investing. And along with that, we've started writing some investor letters. We're starting to look at some individual stocks, we're starting to do our research, and we've pulled out to invest two letters that cover 12 companies that we're going to talk about today. 

Bryce: [00:02:12] That's it. And we I even think back on the drop that happened in March 2020 with COVID and the missed opportunities in there getting the Afterpay at $9. I did jump on Macquarie, I've been happy with that one. But you know, seeing some of those stocks that were just on absolute fire sale and and missing those opportunities, all good investors learn from their mistakes, reflect on what happened. 

Alec: [00:02:36] Even average ones do is what you want. 

Bryce: [00:02:38] Us to do like us. And you're right, we're in a moment at the time that can feel chaotic and can feel quite daunting and overwhelming. But if you look at it through the right lens, it's an exciting opportunity. So yeah, you're right. We've got two letters that we're going to look at today and 12 stocks to have a chat about. But before we do very briefly, don't forget that there's plenty of content in the Equity Mates Media Network. We've got The Dive, our newest show, which is our take on business news, coming at you three times a week to help you stay informed and up to date with what's going on. We do a deep dive on one really interesting business topic each episode. And of course we've got Canadian V Economist, which would be very timely at the moment, giving the macro events that are happening. You're in good company. Get started, invest in crypto curious. Talk money to me and make pay love wherever you are on your investing journey, whatever your interests are. We've got you covered. So head to Equity Mates dot com to to learn more about those shows. 

Alec: [00:03:35] Yeah. So let's get into the episode today. The two investor letters that we've pulled out. The first is from Greenlight. Many people may have heard of David Einhorn and then we've pulled out Rowan's straight capital. The reason that we've chosen these two companies is they give us a great spread. So these two investor letters is they give us a great spread of companies to talk about green light. Talk about a number of companies that I hadn't heard of before. And I'm going to hazard a guess a lot of people haven't heard of before. Green Brick Partners, Brighthouse Financial International Seaways. Ryanair, Southwest Energy. Weatherford International How many of those have you heard of? 

Bryce: [00:04:16] Price None of them. 

Alec: [00:04:18] Surely running, right? Right. Yeah. So the Irish Discount Airline, so that's six companies that were sort of new and a little bit out of the, I guess the main frame of reference here at Equity Mates. And then Rowan Street Capital. They also talked about six companies that are very much in the frame of reference. They're the beaten down tech growth stocks. So we thought we'd also talk about this letter. They've mentioned Spotify, met our trade desk, DocuSign, Shopify and Netflix. So we're going to talk about these two letters. And in doing so, talk about those 12 companies. Let's start with green light. So, David Einhorn, famous investor, do you remember Elon Musk and his interaction? Yeah, the short shorts. Short shorts guy. Yeah. 

Bryce: [00:05:03] Einhorn took out a short position on Tesla. 

Alec: [00:05:06] Yeah. 

Bryce: [00:05:06] And to counteract that or to have a crack, Elon Musk made incredibly small satin red shorts. 

Alec: [00:05:13] Yeah, yeah, yeah. Like. And send them to it and send them to classic. No one shorting Tesla has done well over the years. Einhorn did not do well. I think he closed out his short position a couple of years ago. So Q1, the letter that they're covering here, Greenlight made for four and a half percent while the S&P declined four and a half percent. So a decent portfolio there. So the structure of the letter, a lot of macro economic chart at the top that would just cover off quickly. And then we'll introduce some of these companies into and talk about them. But Einhorn's got jokes. He does have jokes. Yeah, yeah, yeah, yeah. 

Bryce: [00:05:53] You always get a bit of personality rating these letters this. 

Alec: [00:05:55] I often think you don't get much personality rating. I feel I. 

Bryce: [00:05:59] Get a good sense of. 

Alec: [00:06:00] It. I reckon who they are, it's characters. Who are those?

Bryce: [00:06:03] Invest Einhorn's a bit of a joker. So he said in here a lot happened this quarter, culminating in an unexpected bout of violence, which frankly we thought society had evolved beyond and we would not witness again in our lifetimes. Millions are focussed on analysing what Will Smith did. Of course you're reading it, you thinking about Ukraine.

Alec: [00:06:26] Russia, war. 

Bryce: [00:06:27] And then he ends with the worst of it. So well done. Einhorn Way too great. Great way to start. But you're right, Ren, let's start with the macro. Both letters actually have a bit of a chat about macro, but super interesting to get inside on how some of the best investors in the world are thinking about things. And he starts with, of course, what's on everyone's lips at the moment, and that is inflation and what the Reserve Bank are doing over in the States. A lot of people have suggested that the rate at which the Reserve Bank are raising interest rates could lead to demand destruction and then push us into a recession. Einhorn's argument, though, is that inflation is already doing that job for us. By prices going up and destroying demand, we're essentially slowing down the economy. We're spending less on discretionary stuff, and as an impact of that, we're seeing a destruction of demand itself. 

Alec: [00:07:15] So yeah. And then they move on to say that basically what the Fed's doing isn't enough. And they have this quote, that the endless debate about raising interest rates by a quarter percent or a half percent with the federal funds target rate still at 0.25% to 0.5%, still feels like trying to figure out whether it's best to clear a foot of snow from your driveway with a soup ladle or an ice cream scooper. This certainly isn't doing whatever it takes. So they look at the Fed presented something to Congress in February 2021, and it had a had a number of, I guess, inputs, a number of rules around different levels in the economy, inflation, unemployment, stuff like that. And basically said what an appropriate funds rate would be. And green light have looked at that and they said that an appropriate rate given the rate of unemployment, the rate of inflation, all of that stuff at the moment, 7%. 

Bryce: [00:08:11] Yeah, it's crazy. 

Alec: [00:08:12] Because you imagine interest rates are 7% at the moment. Our stock our stock portfolios would be I'd say it would. 

Bryce: [00:08:22] Be, but man wise term deposits would be.

Alec: [00:08:24] Killer. Yeah, yeah, yeah, yeah, yeah. It would probably break the back of Australia's housing market. Yeah. Interest rates were back at 7%. 

Bryce: [00:08:33] It would. 

Alec: [00:08:33] Yeah. 

Bryce: [00:08:34] Whether or not the Reserve Bank do everything and do what it takes to get to that point is still, I guess causing so much uncertainty at the moment. 

Alec: [00:08:43] I'm going to very confidently say in the next 18 months we're not getting the 7%. No. Well. 

Bryce: [00:08:50] Bold prediction for 2023. 

Alec: [00:08:53] Meek prediction. 

Bryce: [00:08:55] They going to talk about some of the goods that are really seeing a dramatic increase in increase in prices used cars were one but they're already starting to see a decline. They're projecting that inflation over the next year is going to be what, 5.3% and then following year three and a bit percent, three and a half percent. 

Alec: [00:09:14] Yeah. So that's not what they're predicting. That's what the market is predicting. The inflation swap market. Yeah. Not a market that I tried. No. And then final thing about the macro environment before we get to individual companies, there's a lot of conversations right now around like a super profits windfall tax or super profit windfall tax. Do you say BHP's results? Yeah. Over in the UK, yeah. Something like $9 billion profit in a quarter like three export it was a year ago so. Yeah. Like that. Yeah. And so there's a lot of conversation about how the government's tax those windfall profits greenlight criticised that they say windfall profits are how you get more participants in an industry. So in the oil industry those profits will incentivise more like, you know, more drilling more more oil being produced, which will actually then help reduce prices because. Supply and demand. So. It's a really interesting macro conversation. We probably haven't done it justice, but let's move on to the main event, which is the individual stocks main event. So they start by talking about their biggest loser for the quarter. It's related to housing. So we figured that's where we should start because everyone loves talking about housing. Greenberg Partners Ticker J are Big. 

Bryce: [00:10:35] Job, a company that I've never heard of, but one that was pretty interesting. It fell from $30.33 to $19.76 in the quarter. They were talking about the home building market and a lot of the stocks have been D rated because there's fear of a pending collapse in housing over in the states. 

Alec: [00:10:59] The American housing market is hot. 

Bryce: [00:11:01] Saying it's. 

Alec: [00:11:01] Not Australia hot like they're still their rookie numbers compared to Australia where like 15 times average income, they're like I think six times average income. 

Bryce: [00:11:10] I think that's pretty similar here, isn't it. 

Alec: [00:11:12] I think while we. 

Bryce: [00:11:13] I thought banks only lend to six. 

Alec: [00:11:16] I have no idea. Yeah. Anyway. Well, no, no, no. Yeah they might, but the average income, the average house price could still be different to what, you know, what banks are lending to. Yeah. That's why none of us can afford houses anyway. 

Bryce: [00:11:28] Anyway, why is there fear of a pending housing collapse? Well, we know that house prices have risen drastically over in the States. Interest rates are going up. Therefore, there's going to be impact on mortgage rates. Sales and new housing starts or building is slowing and there's an inventory build up and also cancellations of what I assume to be new building starts is also on the rise. This supposedly means that there's going to be a collapse in housing. 

Alec: [00:11:56] Yeah. And that's why a lot of home builders have sold off in the US. But Green Light have a contrarian view. They think that all the comparisons to 2008 are wrong and they compare 2006, which was sort of peak housing bubble and 2022. So existing homes for sale in 2006, three and a half million today, 870,000. The 30 year mortgage rate pretty similar, 6.4% then 5% now.

Bryce: [00:12:24] Higher than I thought it would be. 

Alec: [00:12:26] Really. Yeah. Because of the cash rate. So yeah. Yeah. 

Bryce: [00:12:30] Anyway, shows what I know about housing.

Alec: [00:12:32] True. We know nothing and now we're still going to talk about it. But they say that the key difference is so in 2006, there were incredibly loose underwriting standards. If you've seen the big short when they go to Miami and they speak to those mortgage brokers down there, have you seen the Big Short? Yeah, ages ago. Yeah, it's good. Maybe is what I was saying, but also that homebuilders were building homes for second homes and a lot for just outright speculation. Whereas in 2022, because of the Great Recession, America has massively under built housing. There's apparently a shortage of around 2 million units at the moment, just like there's not enough houses for people. There's tight underwriting standards. There's minimal speculation that in 2006 green light think of that was a speculative bubble. In 2022, it's a supply and it's a supply shortage that's causing prices to run up. So they say it a bit different. But interestingly, also, they talk about inventory building up on homebuilders balance sheets. And this is, you know, quarter over quarter, you see more and more value sitting on that balance sheet, which means that there are homes that aren't being sold. Well, that's that's what the market is assuming, but it's actually about Americans inability to build houses in the moment. And it's basically because supply chains are just cooked and continue to be cooked. And the labour market is so tight. And so what it's what Greenlight is saying is that a lot of houses are getting started, but they're not quite getting finished. You know, you can't sell a house if you're still waiting for glass. Window panes.

Bryce: [00:14:08] For kitchen. 

Alec: [00:14:08] Sink. Exactly. Yeah, yeah, yeah. So like all this building, a lot of this build-up of inventory isn't finished. Houses that can't get sold. Yeah, it's houses that just can't get Phoenix. 

Bryce: [00:14:19] Can't get it, can't get across the. 

Alec: [00:14:20] Lawn, which I think is like a really interesting, you know, the market and green light are looking at the same numbers on a balance sheet, but doing different work and coming to a very different conclusion. Yeah, yeah. 

Bryce: [00:14:30] Love it. Love to see it. All right. Well, let's move on to we've spoken a lot about interest rates and a company that green light believe will benefit from rising interest rates is brighthouse financial. BHF There are paragraph opens when they're speaking about this paragraph opens with speaking of rising interest rates, it is difficult to find a company that we think benefits more from rising rates than Brighthouse Financial. Now Brighthouse is a life insurer and have a bunch of annuity products from memory. Unless I've got that wrong. 

Alec: [00:15:06] Yeah. I googled it.

Bryce: [00:15:07] On the walk into work this. 

Alec: [00:15:08] Morning. Yeah. Largest provider of annuities and life insurance. Yes. 219 billion and total assets. 

Bryce: [00:15:14] Yeah. Great. So I'm a big life insurer and the company has been really beaten down by the low interest rate environment of the past decade. I've got a quote here from Goldman Sachs. Well, from the letter Goldman Sachs estimate that the interest rate increase just through the end of March will add $2 billion to BHF distributable earnings over the next five years. That would seem significant compared to BHF, the entire equity market cap of 4 billion. $2 billion would equate to about $26 per share. So yeah, if you're thinking about companies that are going to do well, green light obviously believe that Brighthouse Financial is right in that sweet spot to be able to take advantage of rising interest rates.

Alec: [00:15:56] Yeah. Yeah. So a few other companies that we'll just touch on quickly that we thought were interesting in the letter for different reasons. Green Light wrote about International Seaways. I know you owner and operator of oil tankers and product carriers. Now, there's just some interesting dynamics here. So demand for oil fell during the pandemic. You remember when oil went negative? Yeah, it feels like so long ago. Now oil companies are reaping record profits. Yeah. JS Mr. Stress, it would be a stressful work environment being in a being an oil executive, I reckon. 

Bryce: [00:16:33] Yeah, constant, up and down, constant. 

Alec: [00:16:35] Anyway, so because of demand for oil falling off a cliff, there was a prolonged period of low charter rates for tankers. If no one wanted to buy oil, nominated to charter tankers to move oil makes sense. And that just meant that tankers weren't being built. But now oil is absolutely ripping. It is. The price is so high, there are no shipyard slots available for construction of new tankers for several years into the future. So because they are under built, there is now such a backlog that just getting oil to consumers, there's not enough. 

Bryce: [00:17:12] Capacity. Yeah, I found this really interesting. I love thinking about all this, the dynamics between everything being so interrelated. 

Alec: [00:17:18] It's just it fascinates me that like for a couple of years, because of the pandemic, we didn't build anything and now we've created a backlog of several years. It just shows how, like, bottlenecks work. Yeah, yeah. You know, when we have like just in time inventory and we're building things and then all of a sudden that gets disrupted, you go on a few, like a few months delay can lead to a few years. Yeah. Yeah, well, a few months shutdown can lead to a few years delayed business opportunity. 

Bryce: [00:17:45] Go out and create a couple of shipyards. Ryanair holdings discount. 

Alec: [00:17:56] Irish. 

Bryce: [00:17:57] The Irish discount Irish Airline. We've all flown it. If we've been to Europe, I would imagine. 

Alec: [00:18:03] I haven't been to Europe. We haven't been to Europe. But Ryan and I hear a lot about gets. 

Bryce: [00:18:07] You from one country to another. If for a few euros it is the largest low price European airline. And during the pandemic they really expanded on its low cost industry leading position by taking the opportunity to upgrade planes, improving fuel efficiency and reducing a lot of the costs that it experiences at airport level. 

Alec: [00:18:29] And another thing they've done so, Dave, according to Green Light, they've created a competitive advantage by hedging near-term fuel prices. And I found that interesting because we spoke to Adam Dawes for ASX about a week ago now and in his by holding cell episode he was speaking about Qantas and how a lot of their hedging runs out on the 30th of June. Yeah. 

Bryce: [00:18:52] About to. 

Alec: [00:18:53] Come on. Yeah. Yeah. And he thinks that that's going to have an impact on their share price and on their profits and all of that. And it's just such an important thing. Obviously, oil prices are incredibly high. The the airlines that have properly hedged higher prices have protected themselves from higher prices, are just going to have such an advantage going forward. 

Bryce: [00:19:14] Yeah, it's I'd love to spend the day in the part of the organisation that looks after all of that because it'd be it'd be fascinating. You talk about the stress of an oil executive. Well, saying what's going on in, in, in the hedging department of quantum. 

Alec: [00:19:29] Yeah yeah. I mean so calls we had like oh it wasn't on the same level at all. But you know, like every business, every business that consumes a lot of electricity is looking at electricity prices and thinking about what's our exposure to the spot market, how do we buy forward, how do we hedge? It is a fascinating world to be a part of. Yeah. 

Bryce: [00:19:50] All right. Well, we'll keep moving Southwest and energy. The ticker is S.W.. And now we know there's so much going on in the energy market at the moment, given what is happening over in Russia, in the Ukraine, south western energy is the second largest producer of natural gas in the US. Now why is this an appealing stock? We know that Europe now intends to reduce its reliance on Russian. Gass We've actually done an episode on the dive, if you want to go and listen to that in more detail. And by nature of that, it's looking to increase its use of the US LNG. And this is where Southwestern energy comes into play. 

Alec: [00:20:28] And I think for me the the conversation around gas is such a conversation around infrastructure because the European gas story is a story of pipelines mainly at the moment. And Germany, for example, has a number of pipelines that pipe gas into the country. It has been really difficult for them to substitute because they don't have any LNG terminals in the country. They're building some now, but LNG is liquefied natural gas. It's how the Americans export a lot of their gas. It's how Australia exports a lot of its gas. It's how is it Qatar in the Middle East, which is a bit yeah. So but Russia uses pipelines because they're on continental Europe with a lot of the consumers. So Russia obviously has some LNG, but now Germany to take this LNG is building terminals and so green light are looking at the infrastructure being built and saying an opportunity for us gas producers. So another interesting one, just a really interesting I guess infrastructure story that goes along with these producers. It's not like I guess oil you still pipeline or ship like it's not that different. 

Bryce: [00:21:41] No, no. It's just, you know. 

Alec: [00:21:43] Yeah. Maybe need more specialised infrastructure to.

Bryce: [00:21:46] LNG.

Alec: [00:21:46] But I actually don't know if you know I heard. Nice. 

Bryce: [00:21:50] All right. Well speaking of oil ran the final one for green fields Weatherford International Green. 

Alec: [00:21:56] Light. 

Bryce: [00:21:57] Criminalise. 

Alec: [00:21:58] Greenfields. 

Bryce: [00:22:00] Weatherford International WEF Day is the ticker now there in the picks and shovels of the oil industry and they provide drilling tools and other products and services required to produce oil and gas. Interestingly, they went bust in 2019. They went bankrupt, but they've since restructured, got better management, reduced a lot of their debt, increasing their cash flow and become an attractive investment opportunity. 

Alec: [00:22:28] Bankruptcy is never the end. You can always restructure your way out of it. And that's what I've done. 

Bryce: [00:22:33] I was going to say it's the end for the directors, though, isn't it? If you're a director, you can't run a company for like here in Australia anyway.

Alec: [00:22:39] If you go bankrupt, pretty. 

Bryce: [00:22:40] Sure if you declared bankruptcy you're out. You I could be here. And confusing things that feels like personal bankruptcy. I don't know. 

Alec: [00:22:47] Yeah, personal bankruptcy makes more sense because I feel like we should be encouraging entrepreneurship.

Bryce: [00:22:53] We should be encouraging people to go bankrupt. 

Alec: [00:22:55] We should be encouraging people to take risk knowing that not every risk will pay off. Yeah. So if it's like, are you a director of a Start-Up and you failed and went bankrupt, therefore you can't be a director of another company for five years that like from a policy design point of view that doesn't make sense. 

Bryce: [00:23:11] So it must be personal because if you're currently bankrupt, you're not legally allowed to direct a company. 

Alec: [00:23:16] Okay? If you're currently bankrupt. 

Bryce: [00:23:18] So it must be personal. 

Alec: [00:23:19] Must be it. Yeah. Yeah. And if it's not, that's going to be an issue that we're going to take it out. Oh, well, I mean, seriously, anyway, let's keep going. Let's get back to green light. So there's six companies that I wrote about in the letter, and if you guys want to read the letter will include it in the shownotes. And we're also going to try and find a way to house more of these on our website. That's that might not be something that we have up and running by the time this episode is out. But it's a priority for us to try and share this stuff with more of the Equity Mates community. But my overall takeaways no tech stocks. Number one, he can make money outside of the most spoken about area of the market. That's probably an important reminder for the two of us as well. A lot of energy focus. So Tyler, an operator of oil tankers, natural gas producer, a global oilfield services company and an airline that is in its best has hedged its oil exposure. So that energy price story is really shines through in a lot of what green light writing about and watching and thinking about investing in what about you? Any key takeaways? 

Bryce: [00:24:29] I'd probably just expand on the energy. It's it's very clear that they've put in some thought and they're really trying to take advantage of some structural tailwinds here. And and and that is certainly in energy prices. It's a lot of a lot to do with what's going on with inflation and all of the geopolitics, I would say. So, yeah, obviously active investors and putting a lot of work into understanding these. Like if you think about what they did with the housing market and coming up with that contrarian view as well, it is a good reminder that we should definitely look more broadly be on tech stocks, which the about to have a chatter again. 

Alec: [00:25:05] So as we always like to say, investor loyalties are a great place to start your research. They uncover companies that other people have done. To work on to add to your watch list. And there's six there. Obviously, this is the start of your research process rather than the end of it. Green Light aren't going to write us a letter and tell us when they're selling or when that phases of has changed. So give the letter a red great place to start your research and then eventually come to your own decisions and your own views about these companies. But Bryce, let's take a quick break and then talk about six companies where everyone seems to have a view because they're companies that we use all the time, Spotify, Medha, etc., etc.. But before then, quick break to hear from our sponsors.

Bryce: [00:25:50] Alright. You mentioned Spotify matter, etc. etc.. So let's have a crack at unpacking Rowan Strait's Q1 2022 Investor Letter. 

Alec: [00:26:01] And before we do, Spotify fell another 10% overnight overnight and chill out. Did you know Phil. 

Bryce: [00:26:07] And I'm getting burnt on Spotify? 

Alec: [00:26:10] Did you hear that mathematically? Spotify could fall 10% every day for the rest of time. Yeah, well, it's just like, you see, if you fall 10% every day, you never get to zero. Yeah, that's just maths. Yeah, it was just a joke. 

Bryce: [00:26:26] I know. Anyway, Rowan Strait, they're a growth fund. They are. They open the letter firstly with a quote that I really think we should remind ourselves. And they say, remember, we are not in the game of minimising volatility. We are not traders, we're not hedges, we're not market timers or renters of stock. We are strictly business owners and compounders of capital. And just like that, Jeff Bezos, Reed Hastings, Mark Zuckerberg or Elon Musk have never sold when the stock of Amazon, Netflix, Facebook or Tesla has declined by 25 or 50% and have always focussed exclusively on the long term fundamentals of their businesses. You should expect us to do the same without portfolio companies. I think that's just a great way of summarising how we should be thinking about the opportunities ahead of us. 

Alec: [00:27:15] Nice. Yes. 

Bryce: [00:27:16] But anyway, they also talk about the fact that their stock in their fund in 2019 was up 28% and in 2020 it was up 65%. 

Alec: [00:27:26] We're going to get this is a long run up to the budget, but we all know the budget is coming, so get that. 

Bryce: [00:27:32] But then in 2019 the Nasdaq was up 39%. So they did. 

Alec: [00:27:37] Oh, that's a good. 

Bryce: [00:27:39] Shot. They didn't outperform the market despite having a concentrated fund of growth stocks. So they underperformed by 11% in 2019. They did outperform in 2020, 65% versus the Nasdaq 46%. But I feel like you always just got to remind yourself when they put these numbers up, you just got to check where that sits relative, because these letters at the same time are a bit of a a sell. 

Alec: [00:28:04] It's a up. It's a sell. Yeah, yeah, yeah. So and also you've got to ask before phase or after phase. Yeah, exactly. 

Bryce: [00:28:10] Exactly. So just keep that in mind. Anyway, the other reason is that they're down 28% at the moment. 

Alec: [00:28:16] There we go. That's the big but. Yeah, and look, I agree, the quote is great and the past couple of years have been great performers. But every growth manager who talks about finding unbelievable growth stocks and compounding their capital over a long period of time is having to front up into their investors with a big budget at the moment. And it it just reminds me how lucky we are as retail investors. That way you don't have to report to anyone and we have no risk of you know, we have no career risk because we underperform for a quarter or two. We're not going to get promoted or get a bonus or anything that doesn't matter. And we have no redemption risk. We don't have wealthy investors knocking on our door and saying, Why are you underperforming? We're going to pull our money away from you, us as retail investors. The one advantage we have is that we can be long term in a way, even long term professional investors can't be. 

Bryce: [00:29:12] Yeah, well, I mean, they say they're long term capital compounders and yet their time horizon is 3 to 5 years. 

Alec: [00:29:19] Yeah. And they have to report quarterly. Yeah. So because their investors expect that from them. Yeah. Whereas we can shut out computers and go outside and not look at the market. Yeah. Yeah. 

Bryce: [00:29:31] So again, despite being down 28% from the beginning of the year, they think they are in a stronger position than they have ever been before since its inception seven years ago. So pretty bold claim there. Their philosophy for investing very, very concentrated portfolio. Only ten companies and I would have expected to see something there that I hadn't heard before. But we're going to go through go through them. And a lot of them we have and we've already spoken about their focus on long term compound is being business owners that sort of Buffett mentality not worrying about trying to reduce the short term volatility of markets. Yeah, like the short game. 

Alec: [00:30:11] And I think the current valuations for a number of their positions will quote prove to be silly over time. So, you know, they think that the market may have overreacted. The point of the letter, the thing that really shone through for me and that we're going to talk about with a lot of these companies is the position of the these growth stocks today relative to where they were at the start of Cozad, because all of them had an incredible run from like during COVID. You know, we saw that with growth stocks, but it's interesting to compare them pre-COVID to now what their share price is and then what their business metrics are.

Bryce: [00:30:50] Yeah. Yeah. Well, let's start with one reason that I'm a shareholder of not let's. 

Alec: [00:30:56] Going to fall 10% a day for the rest time. 

Bryce: [00:30:58] Falling 10% a day for the rest of time. Spotify Ticker ESP OTI. What's the.

Alec: [00:31:04] Deal? The Spotify stock price today is below its January 20 stock price. In January 2020, it was trading at 152 a share. What's it at today? 

Bryce: [00:31:16] Oh, less than that, 94.

Alec: [00:31:19] So meaningfully less than where it was in January 2020. But here's a look at the business metrics. January 2020, 271 million users, 6.1 billion in revenue today, 471 million users up 74% and 13.7 billion in revenue 2.2 times where they were in January 2020. I guess what they're saying is the share price today is lower than it was in January 2020, but the business is so much stronger. There are two conclusions that you can draw from that. The first one that they're drawing is that the stock's undervalued today. The second one, which you could also draw, is the stock was overvalued in 2020. Yeah, yeah, yeah. 

Bryce: [00:32:05] It's it's pretty fascinating focussing on the fundamentals they are. So yeah. Look I'm I like to say it that it's come down a lot. It was up at 350 at one stage. Seriously come down anyway. 

Alec: [00:32:21] I mean that's, that's going to be a recurring theme. Yeah. So we haven't found a way to publish this data yet. We pulled out a bunch of data from our listener survey and a really interesting finding was we broke down where people listen to podcasts and broke it down by age group Spotify. As market share grows, as you get younger in every age group so you know 60 and over it was about a third listened on Spotify and then as you went down each age bracket Spotify a Spotify share got bigger yeah and I been to my house mind about it. I was like, it's really interesting. And I think one of the things is Spotify is just so entrenched in like tick tock culture and stuff like that. If you find like an artist on Tik-tok the never like here's my SoundCloud. Yeah, it's always here's my Spotify even like, you know independent up and coming artists. 

Bryce: [00:33:11] Not even here's my Apple Music. 

Alec: [00:33:13] No it's always what's is Spotify is this on Spotify? We need it on Spotify. I don't know if it's going to be a good investment, but I find that really interesting, just how entrenched Spotify is with younger users. And we know how important younger users are in the music industry. Yeah.

Bryce: [00:33:29] Yeah. Well, we've certainly had some pretty bullish experts come on to chat about Spotify over the past couple of years. 

Alec: [00:33:34] Surely it gets acquired. Yeah, like if I was Apple, I'd be like SOC, apple music. Like, just integrate that into Spotify. By Spotify, I'd be huge. 

Bryce: [00:33:43] Yeah, yeah. Let's move on. So the second big name is Meta Ticker FB, formerly known as Facebook. Similar story ran trading at its pre-COVID levels despite growing earnings per share and operating profits by two times and growing cash flow by 60% over the last two years. To put some numbers to it, users in 20th January 2020. Pre-COVID 2.89 billion. End of last year. Users 3.59 billion, an increase of 24%. Sales up from 70 billion to 118 billion. That's a 67% increase in sales and they've increased cash flow by 60% as well. So some great fundamental growth there for Spotify again had a pretty significant run up. 

Alec: [00:34:29] In metal sorry. 

Bryce: [00:34:30] Metal had a pretty significant run up and is now off about 40% from its highs in late 2021. They're very much long term believers of of what matter are doing. We know when you and I have a bit of a debate here as to the direction and long term performance of matter, time will only tell. 

Alec: [00:34:52] Yeah, yeah, yeah. But I think, you know, like looking at those numbers, so users are up 24%, revenue per user is up 32%. And that obviously flows through to total revenue being up 67%. I mean, that's a good story. The meta story is not about it's social platforms. Like if you're investing in matter today, yeah, you believe. 

Bryce: [00:35:14] You're buying in the metaverse. 

Alec: [00:35:15] You believe in where they're investing a lot of their money. Yeah. So next one, trade desk. Yes. I feel like we've had a few experts. I think when we're doing a lot more video, there were a few experts that spoke to us about this trade desk. I mean, similar story. This story is going to get pretty old as we keep telling it, but that's really the point of this letter. And it's just a really interesting thing to look at the stock price compared to the business. So Trade Desk from the start of COVID, it ran up almost 300% and then it's fallen back about 40% from the its price to sales got to 41 times. Chase I mean, that's getting obvious. JS So it's now it's, you know, now it's still trading at 20 times price to sales, which is still high compared to the historic average. But looking at the company, so pre-COVID, 661 million in sales and 60 million in free cash flow. Now 13.7 billion in sales and 380 million in free cash flow. Hmm.

Bryce: [00:36:14] Same story. 

Alec: [00:36:15] Same story. Although their share price is actually up from where they started, Clover haven't fallen down as much as some of the others. 

Bryce: [00:36:22] Down from peak, but certainly up from pre-COVID. 

Alec: [00:36:24] Yeah. 

Bryce: [00:36:26] So those are the current positions. They did add new positions, so one of which was DocuSign. The ticker is D.O.C.. You most of us would have used DocuSign throughout the COVID period. It allows you to do electronic electronic signing of documents. Now it's given up all of its post-COVID gains, despite doubling its customers and more than doubling revenues, gross profits and growing cash flows by four and a half per cent since 2020. Controversial. I'm not so sure about this one Ren. 

Alec: [00:36:57] I'm not a lawyer like we used to. Like you sign. I don't know. I like I have no idea. 

Bryce: [00:37:02] Yeah. I just think more and more people are going back into the offices and I, it's. 

Alec: [00:37:06] Still, it's not still easier to just digitally sign something though. You don't have to print. 

Bryce: [00:37:10] Yeah I'm just saying I don't know if the it they they'll, they'll sustain this going forward. 

Alec: [00:37:16] Yeah. I guess my big question is around the if everyone just gets like free digital signatures from Apple or Adobe and stuff like that. 

Bryce: [00:37:24] Yeah, that's well, yeah, exactly. I actually use Adobe over. 

Alec: [00:37:27] DocuSign anyway so like I have no idea. Does it also depend on what the law is like, what you're allowed to digitally sign? Because I vaguely have an idea that our lawyers were telling us that during COVID a bunch more stuff was allowed to be signed digitally, but that's going to go back.

Bryce: [00:37:45] But it hasn't.

Alec: [00:37:46] So you know that. 

Bryce: [00:37:47] Yeah, well, we spoke to the lawyers the other day and they're like, it's all good or good on the docket on Friday. 

Alec: [00:37:52] But I think that yeah, anyway, this is just like too incredibly uninformed anyway. But I think that that would be my big question about DocuSign. It's like, what can it be used for going forward? And then are the free alternatives. Like I could very much say Apple just saying if you use an Apple product, here's a free digital signature tool. Yeah, yeah, yeah, yeah. All right. Now the two that they've added that we'll talk about briefly because they've been spoken about a lot in financial media, but Shopify, Shopify has been punished. It's only now slightly above where it was pre-pandemic, despite its business growing three X in that time and cash flow growing seven X in that time, that's not bad. Yeah. Yeah. And there's a lot of reasons why people are a little bit reluctant around Shopify at the moment. Shopify is very tied in with Facebook advertising. A lot of smaller Shopify users have relied on Facebook advertising to target customers. And because of Apple's iOS changes, Facebook's targeting isn't as effective, which people are worried about, what the effects for Shopify it will be on that. And then also just generally, you know, reopening PayPal, moving back from online to offline retail. Full disclosure, I own Shopify. I've written it down two thirds as it's fallen. But also, did you say the Shopify CEO on Twitter? But he was basically saying he was asking, does anyone keep a record of analysts, not expectations. Analyst forecasts was basically insinuating that, you know, if a CEO is not insinuating, he said, like, if a CEO misses, we get punished. But if an analyst misses, nothing happens. Yeah. And so he's obviously not too happy with the investment community at the moment. Fair call back all. 

Bryce: [00:39:42] Then to close out new positions. They got in on Netflix. Similar story at the time they bought the stock, it had reverted sort of back to similar pre-COVID levels, despite growing profits by three times and earnings per share by three and a half. Now, they do call out. 

Alec: [00:39:59] That they have been whacked. 

Bryce: [00:40:00] Yeah, they do call out that they bought the stock at $360 a share at the time of recording. It's currently trading at 173, so they've lost over half of their value. It would be interesting to get an update from the guys on what they currently think I did. 

Alec: [00:40:19] I reached out to them. I sent them an email on nice say that I would be interested in coming on. Yeah, brutal. But I mean, that's the story I reckon. Actually, if we look at Shopify, it's probably done something similar. So they bought when it was around 600 and it's now 340. Yeah. Wow. Yeah. 

Bryce: [00:40:35] So that 28% down for the quarter is probably looking a lot more for this coming. 

Alec: [00:40:40] Yeah. You know you're on ST we could actually probably do that for all these companies but DocuSign so let's get let's keep DocuSign they bought at 100. And it's now at 68. 

Bryce: [00:40:51] Yes. Story of everyone's life at the moment. 

Alec: [00:40:53] Yeah, yeah, yeah. [00:40:54][0.9]

Bryce: [00:40:54] But if look if if the long term capital compound is in, they're pretty confident that these companies were a buy at those prices. Then I can I could probably guess what their answer is going to be if we ask them how they're feeling about these companies now. 

Alec: [00:41:08] And I think the as again, as retail investors, we don't have mandates to deploy all of our capital and be fully invested. We can be tactical about how we invest and how much we invest. And for me, this is a story of why dollar cost averaging into a position makes a lot of sense. Unless you're really confident that the price you're paying out today is the best price, you're going to get it up for a while. There is nothing wrong with putting a little bit in Whiting, putting a little bit more in and building up a position slowly. 

Bryce: [00:41:37] All right. Well, to close out, it's worth chatting about some of the companies that they've sold as well, just equally as important as to understanding what they've bought. They had a couple of Chinese positions, Alibaba and Tencent, both of which they exited and.

Alec: [00:41:53] Both of which haven't done too well. Tencent down 25% year to date. Alibaba don't make a guess while I look it up for. 

Bryce: [00:42:00] 435. 

Alec: [00:42:01] 25% as. 

Bryce: [00:42:02] Well. Nice. Second was Zillow. So they've owned that stock since 2009 when they sold the entire position because their business model, they believe, materially changed. And the vision for the company was was changed as well. And I guess that broker had broke their thesis in the original reason that they bought into the company. So they sold down all of their position in Zillow and then left Uber's competitor. Left is the ticker. They sold down those positions after realising a gain of approximately 50% to use the proceeds to essentially reinvest back in companies that are a better opportunity. Something that I often forget about but should remind myself to think about more is is of the investments I've got in there at the moment. Could I be doing better elsewhere? So a good, good reminder for me. 

Alec: [00:42:49] To reckon Lyft will ever come to Australia. 

Bryce: [00:42:52] Not sure. Probably not. 

Alec: [00:42:54] It's weird that it hasn't. 

Bryce: [00:42:55] Anyway, Ren, it's always great to unpack these letters. We will endeavour to do our best to provide the links in the show notes and b see if we can get some of it up on our website because they're absolutely fascinating. But if you're interested to take a look outside of those two areas, head to Reddit, which is where we find them. And it's stock analysis.

Alec: [00:43:14] Security and. 

Bryce: [00:43:15] Security analysis. Sorry, is the is the on subreddit. So there's always a thread with many of these investor letters uploaded. 

Alec: [00:43:23] So I think closing thoughts. We should just remind everyone that these are the starting points for raise for our research. They're not the endpoint, but a really interesting look at six companies that we probably didn't know a lot about and then six companies we've heard way too much about. But just a really interesting look at the scratching the surface of all of the investment opportunities out there. And right now, as we see a sea of red in our portfolios, we need to remind ourselves that it's not a scary moment. It's an exciting and opportune moment. 

Bryce: [00:43:56] That's it. And yeah, it's always a great reminder. Hard to act on sometimes, but and I can empathise with a lot of the investors out there who are feeling overwhelmed and like, what the hell is going on? But, you know, we can only learn from these opportunities. So it's always great to chat stocks with Iran. Make sure you're signing up to invest as well. Equity Mates dot com slash fin fest will have some news about that shortly, but otherwise we'll be back next week. 

Alec: [00:44:21] Yeah, hopefully the market's recovered by Fin Fest. Otherwise attendance may be low or otherwise.

Bryce: [00:44:27] We just do straight music festival speak next week.