Stocks

Interesting, and often contrarian, Snippets on individual companies and the stock market.

Stocks

Social Media and Efficient Markets

  • Does Twitter make sell-side analysts better?
  • The answer, according to a new study, is yes.
  • Analysts are generally overly optimistic when presenting earnings forecasts (largely due to incentives).
  • As information technology has proliferated, the competition for information production has increased.
  • Negative and positive information are treated differently by human psychology – the former being valued more highly.
  • Analysts looking at Twitter succumb to this asymmetry, biasing their forecasts downwards i.e. negating their over optimism.
  • These are fascinating results (there a few others in the article).
Stocks

EV and Gas Stations

  • The electrification of cars will have a big impact on gasoline stations.
  • This was a nice piece analysing this impact.
  • It is from Harding Loevner, using Circle K (owned by Alimentation Couche-Tarde) in Norway (which has electrified faster than other countries) as their case study.
  • Positives – charging takes a lot longer = higher conversion to spending customer + longer in store.
  • “About 15% of gasoline customers venture inside to make additional purchases during their car’s few minutes at a Circle K pump, while 40% of EV drivers do so during the 20–30 minutes their vehicle is charging.“
  • Negatives – three quarters of charging is done at home.
Stocks

Mega-Cap Tech Growth

  • It may seem simple but often the main thing that makes stocks go up is defying the fade in forecasts.
  • This is true of mega-cap tech stocks.
  • Despite consistent forecast for deceleration they have maintained 20-30% growth for over a decade now.
  • NB solid line is actual revenue growth average for AMZN, AAPL, CRM, FB, GOOG, MSFT, NFLX and the dotted lines are average sell-side forward forecasts at those points in time.
  • Source.
Stocks

ETF Performance Post Launch

  • Ben-David et al. (2021) tried to ask a simple question.
  • How did the model portfolios on which ETFs are built fare five years after launch when compared to three years before? measured relative to the benchmark selected by the managers themselves.
  • The results aren’t pretty.
  • Thematic strategies that added 3-5% a year pre-launch, lost 4-5% a year in the five years after.
  • It seems that hype in various areas, leads to a launch of ETFs which then don’t add any alpha.
  • So be careful when you invest in the next hot thing via ETF.
  • Note this is just the model portfolio performance (e.g. index) and NOT the ETF itself (though it should track very closely after costs).
Stocks

Elliott’s Changing Nature

  • If taking a minority public stake and pushing an activist agenda doesn’t work? … why not just take the company private.
  • This is the transition that has been going on at Elliott, the famous hedge fund, over the past several years.
  • Apart from Citrix and Athenahealth (the recent sale made them $5bn of profit) they have done a bunch of other deals (see table).
  • Interestingly, this is all being done out of one fund. The lines between private and public markets continue to blur.
Stocks

History of Semiconductor Cycles

  • Semis are notoriously cyclical and it pays to study historic cycles.
  • This is exactly what this post does – looking at the 1980s and trying to draw lessons about the industry.
  • A key thread is probably how strong domestic support tips a geopolitical in-balance (Japan vs. US then). Something eerily similar is happening today.
Stocks

Biotech Bearishness

  • Fundamentals have been bad in biotech land, something that is reflecting in share prices and IPO performance (XBI has halved since peak).
  • Positive news flow among small and mid-cap biotechs, which hit 60% in 2020, has just fallen below 30%.
  • “But it’s not just small caps, it’s across the sector: Jefferies’ Michael Yee said of 45 major clinical readouts from large and small players, only 20% were positive.”
  • Clinical holds have also spiked – 2022 is off to a bad start (13 holds in 8 weeks) and could surpass the already bad 2021 (>50 vs. 30 average historically.
  • The full article offers some explanations of what is going on.
Stocks

Venture Landscape

  • Thoughtful analysis of the venture landscape given the current state of public markets from Redpoint ventures.
  • The background is – public high performing SaaS firm valuations have fallen below their 10 year average now (see chart).
  • Past public market corrections led to 10 quarters of decline in venture dollars invested of varying severity. The great recession, for example, saw a 30% fall.
  • “Currently many companies in private markets (particularly at late stage) are in “price discover” mode in fundraises with everyone trying to figure out market price – rounds are taking longer to get done and “willingness to pay” spreads are wide“
Stocks

Terry Smith

  • Long profile of Terry Smith of FundSmith.
  • The fund is having a tough start to 2022, but as he says himself.
  • “The analogy I use is that of the Tour de France, no cyclist has won every stage and they never will. You can’t be a sprinter and win the time trial, they require different physiques. Several times the overall race has been won by someone who didn’t win any of the individual stages. You need to be the best overall, and that’s what we are trying to achieve.“
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