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Nathan Worden's avatar
$320.4m follower assets
You're raising cash to buy a house, what stocks do you sell?
The market has dropped a lot, it's a bummer to sell into weakness, but you'll have enough to achieve one of your biggest financial goals. But you have to choose which parts of your portfolio to sell.
Asking for a friend 😆
Which stock should you sell?
61%Teledoc (TDOC)
25%Tesla (TSLA)
1%The Trade Desk (TTD)
11%Twilio (TWLO)
52 VotesPoll ended on: 07/01/22
Before seeing the options I was gonna say $PTON, but not quite sure how much capital that would actually free up 🥲😭😆
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Strat Becker's avatar
$13.5m follower assets
Internship Update
Tomorrow marks the half way point of my first internship in a full time capacity for an investment management firm.

Best thing about the experience? Just getting to learn from so many kind people.

Most underrated part? Being able to talk in person about the markets and new knowledge with other people that have different opinions.
Conor Mac's avatar
$327.3m follower assets
10 Questions: Interview, Ayesha Tariq CFA
Author of Banking on the Market, Macro Specialist, Corporate Banker, and an 18-Year Industry Veteran

Good morning,

Today I gladly share a conversation I had with @ayeshatariq a tenured corporate banker with over 18 years in the industry, a macro specialist, and author of Banking on the Market. After beginning her career in corporate banking in Bangladesh, Ayesha migrated to the UAE circa 2006 to continue her career in the sector, later adopting the role of head of treasury for a $1B+ family office and also consulting for banks in relation to syndications.

Ayesha is someone I had the pleasure of meeting a few years back and is a highly intelligent, kind and curious person, who views the investment landscape from the eyes of both a lender and a macroeconomist. In today’s discussion, we talk about her history in corporate banking, viewing companies from the eyes of a lender, why macro is so important in one’s process, the current macro environment, and women’s voices in finance. I hope you enjoy it.

Conor: Hello Ayesha, welcome, and thanks for taking the time to answer some of my questions today. Many of the readers may know you as the author of Banking on the Market, a weekly newsletter which covers what is going on in financial markets from macro, to industry fundamentals, to individual companies. To your audience, you describe yourself as a “mother, daughter, and banker” with a passion for coffee, reading and rain. I relate to that last section, apart from the rain part, as we have enough of that in Scotland.

Unbeknownst to some, you started off your career as a corporate banker for Standard Chartered operating as a lender and working with multi-billion dollar entities. From there, you ended up in the UAE where you have worked in regional banks, acted as a head of treasury and investments for a family office with a $1B+ multi-asset portfolio and now are a consultant working with banks in relation to syndications. Phew.

As I take a breath, I was wondering if you could provide the readers with a synopsis of how that long road came to fruition. What sparked the interest in corporate banking, what drew you to the UAE, and so on?

Ayesha: Before I begin, let me take a moment to thank you for this interview. You’re a smart person and a good friend. I’m so excited to do this. Let’s go back to a day I had in college. A professor asked everyone in class what their ideal job would be. A good majority said banking and when my turn came, he rolled his eyes with a sigh and said, and you? My answer was: Anything but banking!

I thought banking and finance were terribly boring. I was all set to have a fabulous career in marketing and advertising. I was the creative sort. I used to paint, design and play a lot of sports, which helped me become an extrovert. But once I graduated, Standard Chartered was one of the few places that were recruiting without the need for nepotism. They had a special program called the International Graduate Program, which was solely based on merit. I got through and was assigned to corporate banking. I wasn’t thrilled, at first. But, I began to realise that the job wasn’t all about boring numbers but rather the relationships you build with entrepreneurs, helping them grow their business and learning about companies in every possible industry. Needless to say, I fell in love.

I fell in love with studying companies - learning how they grow and what they can do better. Guess what? 18 years and thousands of balance sheets later… I’m still in love! Turning to the UAE. Again, it wasn’t a choice I consciously made. I wanted to work outside the country for a while. I come from Dhaka, Bangladesh and I really wanted to gain some international exposure. There was a job opening here and I took it, because of the proximity to my home country. I am an only child and I didn’t want to be far away from my mother. Since then, however, I’ve fixed the problem and she lives with me and my daughter now!

Conor: Love that.

When you come to the UAE, you come with the idea that you’ll work 4-5 years, make some tax-free income and leave. Somehow, the years have just rolled by and I’m still here 15 years later. I love the UAE! I’ve been privileged enough to see the growth the country has experienced and in a small way, be part of that growth story.

Conor: I want to hone in on your experience as a lender for a second. I remember we briefly talked about this when we first met last year, but the lens through which a company’s fundamentals are viewed from the eyes of a lender tends to differ slightly from that of a traditional bottom-up equity analyst. The former tends to lay more emphasis on liquidity, the balance sheet, and solvency. Could you possibly paint us a picture of how those two fundamental approaches may differ, and where the value in assessing a company from a lender’s perspective may be most material? Also, I would love to know if this mindset, or process, has stuck with you throughout the years?

Ayesha: Let me answer your second question first - yes it has stuck with me. I spent the first 14 years of my career only in Corporate Banking so it’s very hard to unsee things from that perspective. I still work debt deals so I still have my corporate banker hat on for the most part of my day. And those skills are definitely transferable when it comes to equity analysis. So let me tell you how the DD is slightly different. As a corporate banker, you are concerned with whether your client can repay your debt, so it’s all about cash flows. We look at the cash flow first, income statement second and balance sheet third. You’re constantly scanning for risks first and then possible mitigants.

This is why I use the tagline - “There’s always a story behind the numbers” - because most bankers see the numbers first and forget the stories. And I’ve always tried to balance both. Most people think that bankers scrutinise companies more than equity analysts. Perhaps that’s true but that should never be the case. Always bear in mind that bankers get paid first and equity holders last. So if anything, equity analysis should be even more thorough because your money is at more risk than any other party.

Conor: I have had the pleasure of listening to you pitch at the Commonstock Market Game a couple of times, one time for Unity, and the other for Disney. There, I got a glimpse into how you think about individual stock selection.

But to add some colour, how would you describe your investment approach on the whole?

Ayesha: In corporate banking, we usually have industry segmentation. I have been fortunate enough to work across almost every industry except technology. So, I guess I approach my investing that way too. I look at industries and find stocks within the industry. Of course, the macro influences industries and that’s how I rotate a portion of my portfolio. I used to be more of a bottom-up investor, choosing individual stocks I came across or read about and I still have many of those in my LT portfolio, like Disney, Nike, Apple, and Berkshire. But, that wasn’t a great screening process. So I have a more top-down approach now, let’s say for the last 4 years or so. When I worked in the family office, we were mostly focused on real estate and hospitality so there was a lot of work to be done in terms of macroeconomic demographics etc. But, macro became even more important as most of our loans and equities were in dollars and the Fed had started to raise interest rates at the time. So, that has sort of always stayed with me.

Conor: In my mind, your tagline is your recurring statement that “there’s always a story behind the numbers”. So often we see analysts taking numbers at face value, perhaps ignoring the qualitative side of the argument, or relying on multiples with no context. How do you divvy up the time you spend between quantitative and qualitative reasoning, which do you oft lay more emphasis on (if at all), and can you think of any specific examples in your career that really highlights the fact that there is always a story behind the numbers?

Ayesha: I love that you ask me that. I already sort of gave you a preview of why I say this. I do think it’s very important to understand the story and the larger picture. Otherwise, numbers on a spreadsheet look all the same and could probably mean nothing. The stories. I’d say I always start with the stories and then the numbers and then perhaps the price chart. I’m kidding. I probably will look at the chart a bit earlier in the process. Although it’s been known to happen that I’ve traded without a chart at all.

I never wanted to be a banker. But I fell in love with corporate banking because of the stories. The way a company operates, how it was built, the nuances of industry practices - they all just appeal to me. One of my first clients as a manager had a balance sheet that most other banks wouldn’t touch. But, because they were one of my first clients, I took a special interest in them and took the time to really understand their business. Turns out the numbers really were telling us the whole story and we ended up structuring a great deal for him. And, although he’s no longer a client, we still remain friends. And that’s one other thing I’d add. Corporate banking taught me the power of relationships. When you have a great relationship with your client, you can learn so much. And I think that’s helped me immensely in my career and in my life.

Conor: Moving on, I have always associated your own output with macro. You discuss it a lot on Twitter, in Spaces, and write a fair bit about the topic in Banking on the Market. As we saw in 2018 during the China trade tension, and in 2020 at the onset of covid, and now once again in 2022, as the impact of inflation and supply chain disruption lingers, there is a strong divergence between the options volumes in ETFs and individual stocks, suggesting a macro-led market.

As someone who actively creates content matter related to macro data and commentary thereof, have you noticed an uptick in demand for your analysis? And then secondly, what are your two cents on the current macro situation across the world?

Ayesha: Yes, I’ve definitely noticed an uptick in demand for macro and to be fair my supply has also pivoted towards that quite a bit. (A bit of economics humour there!)

Conor: There is perpetual demand for good economics humour from me, greatly appreciated.

It is a function of the times we’re living in. With inflation and the Fed and policies, everyone wants to understand what’s going on. I also think this last bull run during the pandemic brought forth a lot of first-time investors to the market and they suddenly realise that investing and trading has become more challenging this year. So they need to learn more. I love that people are more interested in the macroeconomic environment. I think it’s like an umbrella over your investing or trading. The current macro situation is like nothing we’ve ever experienced before. I know people like to draw parallels to various times in history but, I would say it’s a mash-up of those times and then some. We have to remember that government balance sheets have ballooned to unprecedented levels and with zero-bound rates.

This cannot be sustained and we’re seeing the resultant inflation, which has been exacerbated by supply chain issues. I think the Fed will do what it takes to bring down inflation, even if that means an increase in unemployment to a certain extent. I don’t think they are too concerned with the stock market because inflation remains a bigger threat. In fact, I believe the Fed may even want to pop that bubble and that of the housing market. However, the problem is that inflation cannot be tamed with Fed policies alone because we still have supply-side issues. And as long as China remains closed and Europe's geopolitical issue persists, we will continue to see that persist.

I cannot predict what will happen from here. If I could, I would be very rich by now! But, realistically speaking, all signs point towards a longer, protracted bear market for stocks and a global recession.

Conor: I was an economics student for five years. It is what initially got me hooked on the world of business, global trade, corporations, and the psychology behind consumption decisions. Eventually, I discovered that I was more passionate about the stock market, but the two are certainly related.

For those looking to get a stronger grasp of economics, perhaps specifically macro, what advice would you give to them?

Ayesha: Well, it’s the advice that I used myself - read everything you can get your hands on, even if you don’t always understand it at first. Many of these concepts are quite confusing and I found that the only way to properly make some sense of them was through repetition. We’re very fortunate to have information at our fingertips now. It wasn’t always that easy for me growing up and we definitely had to look up books a lot. That’s perhaps the reason I have so many books.

I would definitely say if you can get your hands on Paul Samuelson’s Economics, that would give you a good grasp of the basics. The Fed’s Press Conferences are great to listen to and they’re available on YouTube now. Reuters is free online and they have plenty of macro resources. Following the economic data is also a good way to understand what’s going on. Trading Economics gives you free access and some background on the data.

Finally, I’d say you could also subscribe to my free newsletter and my website where I do write about the macroeconomic environment and try to break down concepts for everyone to understand.

Conor: I jestingly said, the other week, that “on the way up, they are investors. On the way down, they become economists''. Said in jest because although generalists tend to pay more attention to macro when it causes disturbance in the stock market, there is this ever-long debate about whether one should or should not pay attention to macro. Buffett, Lynch, and others have long said that interest rates are impossible to predict. Some argue that it should be ignored entirely. But anything macro eventually affects everything micro, and henceforth, it affects the stock market.

That’s an oversimplification, but I am not here to argue whether it should or should not be ignored. I know your position in the matter. Setting the precedent that I, nor you, nor anybody can accurately predict where the economy is going to be in 5-Years’ time, what do you think is the best way to incorporate macro into one’s investment process? As an added bonus, if you’d like to spice things up, I’d be interested to hear your rebuttal to those who say macro should be ignored outright.

Ayesha: I love Buffett and Lynch and I understand the point that they are making by saying that interest rates cannot be predicted but, having said that they can destroy businesses. Buffet doesn’t really invest in speculative companies and his time horizon is long enough for any mistakes to be forgiven and forgotten. I am a Buffett superfan but I couldn’t necessarily invest the way he does. So even if you don’t want to look at macro-based investing or rotation strategies, I think it’s still important to understand how the macroenvironment might affect your particular company.

Take retail stocks, for example. We see that demand may be coming down and more inventories will build up. This is a cause for concern. Or how a shortage of workers leads to higher costs and if your company is heavily dependent on a large workforce they will be hit much harder. So I really believe that it all fits into the part of learning about your company thoroughly and making sure you account for all the possible risks that could affect the company, and that includes macro. So for anyone who says, that macro doesn’t matter. Take a look around you. It’s the macro that is driving the stock market down. Each company on its own may not be terrible but the rise in interest rates coupled with a reduction in liquidity has forced a great number of stocks to crash.

Conor: I have alluded to it a couple of times now, your newsletter. I believe this is the reason I first reached out to you way back when. You have been writing Banking on the Market for nearly 2 years now. What incentivised you to start sharing publicly, what was the original goal for the newsletter, and what have been some of the highlights from those two years?

Ayesha: I love writing. I’ve always loved writing and literature. I’m an avid reader as anyone who’s seen me on video can tell from my bookshelves in the background :)
I’ve been writing on and off since school. I’ve been published in local newspapers as well. But more importantly, writing gives me comfort. It’s cathartic. However, when you work in banking or finance full time, there’s little time for anything else. So, in 2020 as we spent more time at home during the pandemic, I got back on Twitter and started writing again. At first, I just wrote random articles on Medium about starting a business, and mental health. Just odd pieces here and there. But, then I noticed people on Twitter writing about finance. After all the years I’d spent in finance, I felt that I had something to share.

When I started my newsletter, my goal was to help one person. Just one. I thought to myself that if I could just help one person understand the world of finance a little better and the right way, my mission would be accomplished. My goal has always been and will always be to share my knowledge. The greatest achievement that I would take away from my career would be all the people I’ve taught and trained along the way. It fills my heart with joy to see them successful in their own right, today. To have played even a small part in that success makes it all worth it. That’s what I want with my newsletter as well - to help people. I can completely understand that the world of finance can be daunting and a little boring. So, I try my best to break things down as easily as I can and make them palatable enough for people to consume.

Conor: After two years, I noticed that you are now (rightfully so) launching a paid tier to Banking on the Market, keeping the Weekend Edition that everybody loves free. I would love to hear what the plans are for Banking on the Market looking ahead with a paid tier, and why you decided that now is the time to go ahead with that plan.

Ayesha: I’ve told you why I decided to start my newsletter. It was to share my knowledge, everything I already knew. So the newsletter was more a by-product of everything I was watching or learning for my own use. But, now I would like to do more. I’ve decided to pivot from a simple newsletter subscription service to a full-fledged website, so that I can continue to expand it with more in-depth posts and eventually learning modules, as well. The website is just my full name ayeshatariq.com.

I really would like to build it out to be more useful and share more researched information. I would also like to spend a lot more time bringing that content to people. Finally, I am an opinionated person and I feel more comfortable sharing my views with the exclusive few who would value them. So, I’ve decided to actually build out my own website and start charging a nominal fee of $10 per month or $100 per year. And I plan to add not just macro content but also, more research on stocks and trade ideas. I think with everything going on in the world, people need knowledge more than ever and I would like to help more with that.

Conor: You conducted an interview back in September 2021, and at the beginning of that discussion the conversation centred around women in the industry, and you shared some great insight into the difficulties, that still persists today, for women in finance. So, thanks for sharing that, readers can find it here. You talked about the fact that there are so few women, self-perpetuating that fact because other women see that, and feel that they can do little to change it. For me, as someone who actively works in this space, reaching out to creators in the investment field, it feels like only 5% (maybe less) of people putting content out there, like yourself, are female when I think about the collective. You and folks like Kyla Scanlon do great work there.

I actually see there being more of a niche of personal finance female creators as opposed to investment or macro. Do you think the factors that you alluded to in that interview translate to lower participation rates of women in the creator space, as they do in the workplace?

Ayesha: I smiled when I read this question. It certainly has been an interesting journey, and it isn’t over. It’s as I said on my podcast - women have to fight the good fight every day. As much as we would like to think that we’ve shattered the glass ceiling - we have not. This topic is very close to my heart. I want more women in finance and in fact, I want more people to take an interest in finance and the economy. There are a couple of factors that probably deter women from high finance and consequently being vocal content creators.
The world of investment, macro and even certain spheres of banking involves making big decisions and bold calls. It often requires people to take big risks. It’s not always easy to be responsible and when you’re dealing with money matters, you have to be. I think in many ways women are raised to believe that we are the weaker sex. While perhaps true physically, it certainly isn’t the case mentally. There’s no difference in ability - just attitude. So, I think many women are conditioned to think that they can’t succeed in high-stress jobs. I would translate that into content creation as well. They shy away from being vocal because they are worried about how people will take it.

The other thing I spoke about was finance being a boy’s club. And it still certainly is. Not just in the workplace but even in the home. We’ve grown up thinking that money matters should always be taken care of by the man and therefore, we leave the finance up to men. Without going into stories, let me just say, it still stands true to this day. I still think it’s more of a challenge for people to accept complicated financial explanations coming from a woman. And I’m not saying that the world is not changing but, after 18 years in this world, I have some authority to say that this is still the case. I think women have a great place in finance and as content creators - well any profession for that matter. We bring a certain balance to the workplace and to jobs. And that balance can certainly be translated into content creation. We need to recognize that as our strength, not our weakness.

I will end this answer with something I said on that podcast:

My daughter said to me, “Being a woman has never stopped you from doing what you’ve wanted”, and it just filled my heart with joy. That’s the world I want, where people are just people. Not a gender, a race or a nationality.

Conor: Beautifully said.

Conor: Well I’d like to thank you once more Ayesha, it’s always a pleasure chatting with you, and I think that more people should benefit from reading your work. Before we break off, where can readers find you and your work, and do you have any concluding items you’d like to say?

Ayesha: Yes… I’d like to leave everyone with a few words - always be learning, always be questioning. My curiosity to always find out more, and never take anything at face value has always served me well in life. I would also like to say that being kind can be a superpower. Please be kind!
You can find me on Twitter, LinkedIn, Commonstock, Substack and now, my Website. All the same handle - ayeshatariq.

Thanks for reading.

Conor,

Author of Investment Talk
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Beaver Capital's avatar
$13.6m follower assets
June'22 - Growth Portfolio Update
Sells: None

I was on vacation most of the month, but made a few recent adds. Eyeing up some $MELI in the low 600's here.

YTD return: -42.2%
  • Tough month, but I am LT focused and believe adding on price weakness when the business metrics are improving is a prudent strategy.
  • Will deplete most of cash position in this weakness along with new cash coming in.

*can't link portfolio on CS currently due to not being in US.
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Edmund Simms's avatar
$17.7m follower assets
Is it just me?
Is it just me, or has it become mainstream to slam central bankers? It seems like everywhere I turn, people are bashing the monetary policy.
When someone else has (perceived) power over you, it is therapeutic to thrash in their general direction 😄
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Christian's avatar
$11.5m follower assets
PayPal
Someone wanna tell me when PayPal is done being taken to the slaughterhouse. I mean cmon the takes I’m seeing everywhere is crazy. People acting like they going outta business. Venmo is still a top app and they aren’t done investing in themselves and growing. $PYPL
Don’t blame Mr Market for being irrational. Take advantage
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"Fear of Crashing"
This is Thursday's complete write-up ("Fear of Crashing"), exclusively for Commonstock readers

For access to all of my research, please subscribe to the TSOH Investment Research service


In September 1995, legendary fund manager Peter Lynch wrote an article (“Fear of Crashing”) where he addressed the two questions that people ask incessantly during every bull market: Is a sell-off on the horizon? And if there is, what should I do about it? This was Lynch’s primary takeaway:

“The Dow’s passing 4,700 has brought new worries about a nasty correction. The worrying started as soon as we recovered from the last nasty correction, in 1990… Let me go on record with [my] prediction: Another big correction is on the way… Assuming you agree with my forecast, how can we prepare? Mostly by doing nothing. This is where a market calamity is different from a meteorological calamity. Since we’ve learned to take action to protect ourselves from snowstorms and hurricanes, it’s only natural that we would try to prepare ourselves for corrections, even though this is one case where being prepared like a Boy Scout can be ruinous. Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.”

Lynch’s discussion feels timely. Much like in the 1990’s, we’ve lived through an enjoyable and extended run for equity investors; but with heightened market volatility over the past 6-12 months (a fancy way of saying “stocks have gone down”), there’s great angst that the party is finally over. With a seemingly endless list of macroeconomic and geopolitical concerns, market participants are now questioning whether stocks will trade even lower in the coming quarters. (The one difference between when Lynch addressed this question back in 1995 and today is that, in our case, the “crashing” has already begun.) The key question asked in “Fear of Crashing” seems applicable: for long-term investors, how can we intelligently navigate difficult stock market environments – particularly at a time when many have concluded that even more severe macroeconomic headwinds lie ahead?

The first response most people have is a desire to do something; the problem, as Lynch explains, is that most of the prescribed solutions (when “something” is translated into concrete decision-making) are just a variation of market timing – an activity that has proven time and time again to be a net negative for the vast majority of people who engage in it. (“Recently, Forbes published its hit parade of the richest people in the world, and I was reminded that there's never been a market timer on the list. If it were truly possible to predict corrections, you'd think somebody would’ve made billions doing it.”)

If you take that answer off the table, what are we left with? While I agree with Lynch that there’s not much to be done once you’re in the storm, I do think there’s a lot of value in preparing for these tough times before they arrive.

First and foremost, we need to start with a discussion on asset allocation.

As discussed in “Mo’ Money, Mo’ Problems”, I personally advocate for a structural asset allocation. Determining the proper allocation is a financial planning decision that is reflective of one’s personal financial situation (age, income level, expected contribution / withdrawal rate over the next 5-10 years, etc.), as well as your ability and willingness to bear risk. In my mind, the outcome from that exercise should drive all future asset allocation changes (through periodic rebalancing). Naturally, during a period where equities are generating mid-teens annualized returns, as they did in the decade through year-end 2021, that would mean you are a net seller of stocks. On the flip side of the coin, when we go through a period like the past six months, you will be allocating additional dollars to stocks. This is a simple, yet effective, approach for navigating volatility over the long run. By the way, there is a market timing component as part of this strategy (on the margin); the difference is that the decision isn’t at the discretion of the individual – it’s dictated by the “rules” of the allocation, which pushes you to be “fearful when others are greedy and greedy when others are fearful”.

As a byproduct of a structural asset allocation, security selection within a given asset class is an exercise in opportunity costs; personally, I’ve found this acts as a forcing function that leads to more thoughtful and deliberate decision-making. With a structural allocation, you can’t just buy ABC because it’s cheap or sell XYZ because it’s expensive; the need for funding (to buy a new stock) or reallocation (after selling a current position) within a given asset class frames the decision through a different lens (as Sid Cottle once said, investing is “the discipline of relative selection”). In summary, I view a structural allocation as the least bad alternative – and unless you’re willing to engage in market timing, which I’m not, it’s effectively your only option.

On individual security selection, my North Star is unchanged: the goal is to own high-quality businesses with sustainable competitive advantages operating in attractive end markets with strong balance sheets and best-in-class management teams, in addition to ensuring the equity trades at a reasonable valuation (likely to deliver attractive long-term returns). The one asterisk I’d include, as discussed in “Volatility and Portfolio Construction”, relates to diversification: while I’ll always remain cognizant of the standalone merits of an investment, with the goal of owning large positions priced for attractive forward returns, that isn’t my sole focus. The companies I’ve invested in, along with their weightings, will be considered in the context of the overall portfolio. A notable current example is Dollar General, which I’d expect to continue reporting strong underlying business results if the U.S. economy faced short-term macro headwinds. It may not offer expected IRR’s that rival my favorite ideas, but it’s additive to the portfolio on other attributes (counter cyclicality); that’s played out as expected as of late, with DG outperforming the S&P 500 by ~2,500 basis points year to date.

The solution I’ve outlined above isn’t a bear market playbook; it’s the framework that I look to employ across all market environments.

What this will hopefully position me to do, regardless of whether the S&P 500 is making record highs or is down 30%, is to ensure that the next decision I make is both thoughtful / unemotional and consistent with my investment philosophy and long-term portfolio objectives. Admittedly, even when starting from a strong foundation, that’s still difficult to do. Currently, I’m uninterested in selling names like Meta, Spotify, or Netflix (which are all down 40%+ YTD). On the other hand, I continue to believe I should be very thoughtful about pulling capital from companies like DG, Markel, or Berkshire, which provide the diversification benefits discussed above (but also look more expensive on a relative basis), to keep reallocating to the other names in the portfolio. It’s a conundrum for which I do not have a great solution.

As with many things in investing, there isn’t a one-size-fits-all answer to these questions. I think the most important thing that an investor can do is to ensure they’ve implemented an approach that will allow them to remain committed to a thoughtful, long-term investment strategy regardless of what the economy and / or Mr. Market throws at you over next three months (or three years).

For me, a concentrated portfolio consisting of a few high-quality companies that I believe are positioned to weather any storm and meaningfully increase their per share intrinsic value over the next 5-10 years passes that test.

The unease that overcomes many investors when experiencing a difficult market environment reflects an inability to honestly answer that question (to find an approach that they’re committed to throughout a full market cycle). The shock and fear that they feel - and react to - as a result of stock price and business volatility is simply at odds with any reasonable idea of what it truly means to be a long-term investor. As a result, they ultimately live and die by the daily swings of stock prices, not their own independent assessment of the long-term value of a business. (“I’m amazed how many people own stocks where they wouldn’t be able to tell you why they own it… If you really pressed them, they’d say ‘this suckers going up’, and that’s the only reason they own it.”) To paraphrase John Maynard Keynes, these people are speculating (“forecasting the psychology of the market”), not investing (“the activity of forecasting the prospective yield of assets over their whole life”).

Conclusion

Risk management, as I define it, is ensuring that investment decisions are made in consideration of one’s ability and willingness to bear risk. With stocks, that means accepting the uncertainty of sizable and long-lasting drawdowns. As Lynch noted, one’s ability to bear risk is inextricably linked to their time horizon (by the way, since “Fear of Crashing” was published, the S&P 500 and the Dow have both more than sextupled, before dividends):

“In telling you this, I'm assuming you're in stocks for the long haul. Never invest money in stocks if you are going to need it for some other purpose in the foreseeable future. Twenty years is a reasonable horizon for investing… As soon as you realize you can afford to wait out any correction, the calamity also becomes an opportunity to pick up bargains.”

The key question to answer in this bear market, and the ones that will undoubtedly follow it in the decades ahead, is whether you’re truly a long-term investor; can you accept the fact that stocks will periodically decline by 20%, 30%, or more? If you can, the answer is to structure your portfolio accordingly (to survive whatever tomorrow brings). And when those tough times inevitably arise, it’s worthwhile to remind yourself that the good times will come again. This too shall pass. (“Over the 13 years I ran Magellan, the market went down nine times by 10% or more. Every time it went down, the fund went down more. So, I just didn't worry about it.”)

But if you simply cannot accept the vicissitudes of the stock market, I only see one effective solution: you should greatly limit your equity exposure, if you own any stocks at all. This current bout of volatility will offer an important lesson for another class of Mr. Market’s “students”: if you don’t come to that conclusion on your own, he will happily teach it to you.

NOTE - This is not investment advice. Do your own due diligence. I make no representation, warranty or undertaking, express or implied, as to the accuracy, reliability, completeness, or reasonableness of the information contained in this report. Any assumptions, opinions and estimates expressed in this report constitute my judgment as of the date thereof and is subject to change without notice. Any projections contained in the report are based on a number of assumptions as to market conditions. There is no guarantee that projected outcomes will be achieved. The TSOH Investment Research Service is not acting as your financial advisor or in any fiduciary capacity.
"As with many things in investing, there isn’t a one-size-fits-all answer to these questions."

Once again, amazing writing! This quote really stuck with me as investing is a lot about risk tolerance and management (as you said). Everyone has a different appetite for risk and that means all the difference when constructing a portfolio.
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Very refreshing take, always enjoy reading contrarian points of view, regardless of whether or not I have any strong view on the matter. Thanks sir
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TikTok got huge in no time. It kind of kills the whole Facebook-is-a-monopoly agenda by US & EU regulators. They should focus their attention on China-sponsored data harvesting apps instead.
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Peter Offringa's avatar
$57.8m follower assets
Implications of Walmart's Cloud Native Platform
The theme of cloud repatriation has been getting some attention lately. While this has implications for software infrastructure companies, the effect will be varied. Mega-retailer Walmart has been on a journey over the last few years to modernize their technology stack. Their CTO unveiled another milestone in its cloud platform journey last week. They now claim to run one of the largest hybrid clouds in existence. This provides us with a good example of a company choosing to run some part of their cloud infrastructure themselves.

For their latest milestone, the CTO introduced Walmart's "Triplet Model", which represents three regional cloud deployments (West, Central, East) connected to 10,000 edge cloud nodes located in their facilities. This model brings computational power and data closer to customers and associates, resulting in better application performance and low latency. It also offers additional capacity for periods of peak consumer demand. Finally, Walmart claims they were able to reduce cloud costs by 10-18% annually using this model.

Within the Triplet Model, Walmart can deploy applications to both public and private clouds and seamlessly redirect traffic between them. This is enabled by an intelligent routing layer called Traffic Management, an open source cloud management platform called OneOps and the Walmart Cloud Native Platform (WCNP), which provides a cloud abstraction layer. WCNP currently manages a huge deployment of 545k pods on over 93k nodes.

Walmart's modernization initiative was introduced in February 2020 during their Investment Community Meeting by the CEO and CTO. Walmart leadership acknowledged that the cloud was becoming central to a modern software operation, but they didn't want to just "lift and shift" all of their existing applications to the cloud. Rather, they preferred to take advantage of what the cloud has to offer. They liked the idea of making all their applications cloud native, but maintain a control plane that determines where the applications actually run. The runtimes are distributed between three hosting models:

  • Their large private cloud running in their own data centers (using OpenStack).
  • Public cloud partners, specifically Azure and GCP (AWS is excluded presumably for competitive reasons)
  • Edge locations hosted within their stores, bringing applications closer to customers and employees

Walmart anticipates three operational advantages to this model:

  • Capacity management. They can accommodate temporary high traffic periods by spinning up more workloads on the public cloud.
  • Use of best technologies. For each type of workload, they can harness the optimal solution available. In some cases, these are on the public clouds. Processing big data sets and training machine learning models represent one example. They also run much of their IoT data collection infrastructure through Azure.
  • Improve performance by deploying some applications at their edge locations (generally within stores).

A question often raised by investors is whether this kind of use of hybrid cloud with a large private data center component represents a risk to software infrastructure companies. Like anything, it depends, and can't be treated with a blanket assumption that it reduces demand. The distinction lies in the layer of the software stack and how much commoditization exists there. Also, the level of difficulty in running that software layer internally versus outsourcing the operation to system experts is a consideration. Let's break this down into some examples.

First, I think that the lower in the software infrastructure stack a component exists, the easier it would be to duplicate in a private data center. This encompasses infrastructure like the physical space, server hardware, network connectivity, operating systems and storage. At a large size, Walmart should be able to duplicate the compute, raw storage and network capabilities in their private data centers that could be provisioned from the public cloud providers. OpenStack helps Walmart with this.

For the layers higher in the software stack, like application servers, message systems, search indexes, caching and databases, the enterprise will likely choose an open source package, perhaps nginx, node.js, RabbitMQ, PostgreSQL, Elasticsearch, Kafka, Redis, etc. Where a commercial offering exists with a paid enterprise version that provides incrementally better functionality than the open source community version, the enterprise will likely license that for their private data centers. Examples of software services that have both a commercial and open source community option (incidentally usually maintained by the same company) are MongoDB, Confluent, Elastic, Redis Labs, etc.

For these components, the deployment in a private data center doesn't represent much impact. The enterprise would still be inclined to license a commercial version of the open source software package and install it in their data center. They will also likely purchase some sort of support contract, so that they have access to the expertise of the commercial vendor and project maintainer. This is the same decision whether they use a public or private cloud. Additionally, the same open source packages generally offer a cloud-hosted version of their software on the major public cloud providers. Since the programming interface is the same, the enterprise doesn't need to make any changes to their application in order to use either self-hosted or public cloud-hosted configurations.

For external services that the enterprise chooses not to duplicate themselves, the deployment in a hybrid model would have little to no impact. This applies to externally managed software services that would not have a self-hosted model and sit outside the data center by default. Examples of these types of services are observability (Datadog), CPaaS (Twilio), endpoint security (Crowdstrike), identity (Okta), CDN/DDOS (Cloudflare), ITSM (ServiceNow). Unless the enterprise is planning to shift this functionality to some in-house solution (whether through open source or their own custom software), these providers would experience minimal impact by a hybrid model. For Walmart's use of stores as edge locations, that is somewhat unique to their use case. In a general sense, it promotes the advantages of deploying applications to the edge, benefiting edge compute providers.

Finally, Walmart recognizes the special case that large data processing and AI/ML represent. They are willing to outsource that function, acknowledging that it would be very costly and complex to duplicate in their own private data center.

All in all, the example from Walmart is instructive for investors because it provides a concrete example of a major enterprise's cloud journey and where they expect to gain operational leverage. Aside from the low-level software infrastructure services (like compute, storage and network), an enterprise's choice to run some or even most of their application workloads on their private data centers does not automatically result in less utilization of commercial software infrastructure packages and services. That utilization would likely remain comparable to a full deployment on the public clouds. Savings realized from running their own compute, storage and network hardware might even be redeployed into new high-value digital initiatives like new customer applications, more automation or better harnessing of big data through analytics and machine learning.
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Conor's avatar
$13.2m follower assets
Not a Market Timer? Just Buy $VOO
Pretty much any asset you buy is a form of market timing. For example, if you are buying a value tilted ETF such as $AVUV, you are timing that value will out perform the market in the future time period you will be owning $AVUV. This same principle goes for most secruities. If you buy $META, you are timing that $META will out perform the market in the time period you hold Meta for.

Since we all know how hard market timing is, why not just dollar cost average DCA into $VOO (or equivalent S&P500, total market, total international index fund)?

In the past year Value has outperformed the market

In the past 5 years Growth has outperformed the market

However, you can see in both time periods the market will always be right smack in the middle. Of course, if you invested in growth you would have been lucky and considered yourself a great market timer (until this year), and vice versa if you bought value this year.

My point is don't rely on luck. Just buy the market!
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Agree with this. Especially for someone who does not always have the time to track and precisely time the market, ETFs such as $VOO are great assets.
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Stocks on sale
So in my initial post I mentioned that my current process is dca on payday (well, I at least deposit on payday lol). It had been a busy week, so I didn't get to buy much until today, which turned out to be a good thing with how crappy the week has been in the market!

I suppose an argument can be made for making larger bets in fewer companies, but considering that I'm holding bags in a lot of my positions, I like to spread the wealth lol.

I have not seen any posts here on $SAIA, so I'm looking forward to sharing my thesis there, and I'm excited to add them to my buy list! They have similar historic returns as $ODFL, without the dividend or the size, but I like what I've read so far and will try to share in a separate post.

Comment below if you have questions or opinions (especially bearish ones) on any of these, I love hearing the other side of the argument and who knows, you may be right and may save me some money 🤣

I like $DOCN because they're giving startups affordable cloud computing services. Hearing many startups complain about the high AWS bills adds more conviction to DigitalOcean.
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Neil's avatar
$26.9m follower assets
Nvidia Keeps Dropping
  • Fears of history repeating itself for Nvidia and its gaming segment might be one of the reasons the stock is down.
  • Last quarter, Nvidia said that it expects to take a $500 million hit in Q2 because of Chinese lockdowns and the termination of selling to Russia, which represented 2% of the company's revenue.
  • TSMC will hike the prices of certain chips by 6% in 2023.
  • A hacker group has claimed to have more than 450GB of data from AMD.
i haven't been following $NVDA closely these days but it's been the consensus AI/ML/Gaming/AutonomousVehicle play for years nows. any weakness in the shares would seem to be an opportunity to average in. what would concern me:
  • the CEO retires
  • $AMD or $INTC do a technology roadmap leapfrog
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Neil's avatar
$26.9m follower assets
$QCOM had an amazing few years as the smartphone market exploded and then they got their ass handed to them (legally speaking).

ip businesses are pure cash flow but it's easy to get greedy and/or rest on your laurels and just cash the checks versus investing in R&D. $QCOM did the former and was capturing so much of the smartphone bill of materials that eventually their customers went nuclear.

i imagine the company's culture has changed a lot during these bad years and they've had to rebuild their credibility with investors at the same time. does make sense as a dividend growth play.
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Paul Cerro's avatar
$27.4m follower assets
Made in America
  • Currently, 12.5 million people work in US factories, up from 11.5 million in 2010, but still far below the 17 million that worked in the US 25 years ago, per The New York Times.

  • The pandemic (and the supply chain issues it brought along) caused companies to rethink manufacturing locations, Rick Burke, managing director at Deloitte, told The New York Times. “The pandemic has sent a shock wave through organizations. It’s no longer a discussion about cost but about supply-chain resiliency.”

  • Over one-third (37%) of US businesses plan to bring production back home, and 33% are looking to nearshore (bringing operations closer but not to the US), per an ABB survey. The Lego Group, for example, will invest more than $1 billion over the next 10 years on its first factory in Virginia.

  • Companies are considering Mexico as a reshoring possibility, Theresa Wagler, CFO at Steel Dynamics, told The New York Times. Research from Kearney echoes this: 70% of CEOs have planned, are considering, or expect to move manufacturing to Mexico, though only 17% have already done so.

Why we care: Nearly all (90%) shoppers have a favorable or somewhat favorable view of products labeled “Made in the USA,” per Kelley Drye & Warren, meaning that moving production to the US makes good marketing sense.

But perhaps more importantly, moving manufacturing closer to home helps strengthen the supply chain at a crucial time when both retailers and consumers are being hit with unpredictability and inflation.
Hey @paulcerro, was there more to this? It cuts off at "a crucial time when both retailers and"...
I agree that products Made in the USA have a real appeal. Almost like a luxury good! There's an idea marketers love, as you allude to, that cheap, breakable pieces of crap are Made in China while things Made in the USA are well-crafted. I don't know if it's true though. Anyway, my sense if that people think the supply chain issues we're seeing are temporary. As long as that idea is out there I'm not sure there will be a major interest in investing in US production?
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Bradley Freeman's avatar
$138.1m follower assets
$LULU New Position
This is section one of Tomorrow's News of the Week Post. Thought I'd give Commonstock a lil sneak peak! I'll link the trade when it gets entered.

This week, I started a position in Lululemon and it will be the topic of my next deep dive after PayPal is published. For this issue, I wanted to provide a condensed (I promise) view of what I see in the company that excites me as well as my path for building the position. For my Shopify overview, there was pushback for how long it turned out to be. I’m going to do my absolute best to keep this overview short, sweet and still packed with information.

a) Basics

Lululemon is an athleisure apparel company with roots in Canada. The vast majority of its sales come from direct to consumer e-commerce and owned-stores which both serve up key company benefits for the firm such as holistic access to its 1st party user data to help guide product releases. In my now biased view, Lulu has a chance to join Nike and Adidas in terms of ubiquitous global clout and presence. And while there’s a several years-long way to go to get there, it’s that process playing out which would provide immense potential shareholder value.

b) Performance

I view this company as a high probability 15% revenue compounder for the long term -- which is where its team has guided revenue growth for the period 2021-2026. In 2018, Lulu offered long term 5-year targets that it eclipsed ahead of schedule across the board by several quarters to give an idea of its ability to overdeliver. And the runway is quite long. Lulu estimates its total global addressable market opportunity at $650 billion with its 2021 annual revenue representing around 1% of that. Since 2019, it has shown a keen ability to take more incremental market share within adult active apparel than any other company. So the opportunity is immense and Lulu has taken advantage since its inception.

The Canadian firm has broad unaided brand awareness across North America, but carries very little clout internationally. Still, it has compounded international sales comfortably above 30% for the last several years with roughly 30% annualized growth expected to continue through 2026 as it gains brisk traction. There’s a large cohort of customers especially in Europe and China that should naturally be drawn to a brand like this -- so far, so good with much more work to be done.

In terms of margins, performance here has been largely positive as well. The company’s selling channels are inherently higher-margin than wholesale endeavors, and so it boasts a lofty gross margin for a retailer. Specifically, this metric eclipsed 58% during the heat of pandemic tailwinds but has since cooled back off towards 53% -- still strong and better than most in its space. Just 11% of its sales are via “other” vectors which include lower margin wholesale.

Since Lulu’s 2018 analyst day where it offered the targets it easily beat, the company has compounded earnings and revenue at 27% and 24% respectively. As a result, margins have gone up with operating margin specifically reaching a robust 22% -- and expansion is expected to continue through 2026. Interestingly, the company’s owned stores boast its best margins out of any selling channel as its complete vertical integration allows it to command a larger chunk of the profit pie. These owned stores possess an operating margin pushing 26%, and as brick and mortar shopping returns, that could push unit economics higher with owned-stores becoming a larger chunk of total sales. Impressively, comparable store sales soared 24% YoY last quarter on the heels of some difficult comps with store productivity re-surpassing pre-pandemic levels. That was wildly impressive to me especially considering it’s despite China -- representing 15% of its total stores -- shuttered during the period.

Furthermore, in-store and e-commerce shopping both effectively raise a customer’s engagement with the other Lulu selling avenue. For example, its e-commerce conversion rate has risen 10% over the last few years with credit given to its omni-channel proliferation. This engagement juicing also comes without more customer acquisition cost making it an inherent margin tailwind as well. I’d just like to point out here that Lulu’s margins are already comparatively excellent. There may be a tad more margin expansion to come, but it will be subtle and that’s entirely fine with me as long as compression doesn’t become an issue.

In terms of capitalization, the balance sheet is a strength for Lululemon. It has $1.3 billion in cash with another $400 million in current liquid assets plus zero debt. It bought back $813 million, or a little over 2%, of its shares in 2021 which represents a doubling pace vs. the previous 3 years. It’s leaning in here as its stock gets shellacked.

c) Future Opportunities

  1. Global expansion where brand awareness leaves ample room to run.
  2. Expansion into sports like Tennis. It recently signed the 15th ranked Female tennis player in the world (Canadian Leylah Fernandez) as its first ambassador for the sport. Intimate partnerships with the Canadian Olympic Committee helps here as well.
  3. Experiential stores & pop-up shops creating service-oriented use cases. This contributes to the added benefit of juicing revenue per user by 15% when they sweat more.
  4. Membership programs which launched in fall 2021 to drive loyalty and engagement. For example, its Pinnacle membership involving “MIRROR” offers access to bountiful on-demand remote fitness content and early access to new gear.
  5. Footwear!
  6. Collaborations with iconic brands like the University of Michigan to create a dedicated apparel line for its half-million living alumni and 100,000+ students. Go Blue.
  7. Differentiation through new material creation. Its “Science of Feel” platform is a key focus for creating utility building, proprietary fabrics for its apparel. Depending on the legitimacy of these claims, this could provide rare differentiation within a commoditized industry. For example, its air support bra is the culmination of 5 years of research to help women with their yoga poses.

d) Leadership and Hiring Trends

The company’s founder is no longer involved with Lululemon and has a somewhat colorful history. I’ll cover that in the deep dive but for the sake of brevity will focus on current leaders here.
  1. CEO Calvin McDonald: Disney Board member; Former Sephora and Sears Canada President; 85% Glassdoor rating.
  2. CFO Megan Frank: Sachs Board Member; Former Finance VP at Ross and J Crew.
  3. CTO Julie Averill: Former CIO at REI; Former VP at Nordstrom.

Hiring Trends Via LinkedIn
  1. Headcount is up 25% over the last 2 years with engineering headcount growth leading the pack by a wide margin at 32% growth.
  2. It has hired around 2,000 new employees since the start of the year but headcount growth has recently slowed.
  3. Average tenure is 2.5 years -- not great or terrible.

e) Risks

The main risk for Lululemon is shorter term macroeconomic volatility. Today’s economic cocktail of record low consumer confidence, generational high inflation and tanking savings rates will all inevitably weigh on discretionary spending. For a firm like this one which caters to a generally affluent shopper, it will be somewhat insulated from this pain, but certainly not immune. Macro creating more fragile customers also could present another possible issue: Shoppers flocking to cheaper brands. There are countless companies playing in Lulu’s space and most come at a lower price point. So as wallets are stretched, those fringe customers who can just afford a Lulu shirt may gravitate to a Gymshark shirt at half the price. I think Lulu’s superior quality will allow them to be somewhat resistant to that phenomenon, but we’ll see.

We also must consider hectic supply chains as a risk for retailers most effectively matching supply and demand. Many of the largest have struggled to do so, but Lululemon’s vertical integration surely provides timely support here. Again, it’s resistant here, but not immune.

This team has also not done all that well with M&A. The MIRROR acquisition could very well eventually be written all the way down as it jumped into a faddish trend at the heat of the pandemic. Thank goodness it didn’t try to buy Peloton. I still think MIRROR can enhance Lulu’s overall omni-channel value proposition but this deal is not off to a great start and it surely overpaid when playing Monday Morning Quarterback with the luxury of hindsight.

Finally, athleisure got a somewhat large boost from stay-at-home orders. No longer did employees have to wear a suit to work, and many embraced Lulu’s apparel niche as a result. Was that the reason it was able to reach its long term targets so soon? Or will the momentum be more sustainable than that? Work from home is not totally going away and Lulu had been compounding long before Covid-19 entered society’s vocabulary -- so I’m optimistic, but time will tell.

f) Expectations and Plan

At 26.8X NTM earnings, Lulu trades right at its 5-year earnings multiple average of 27X. At these prices, I think a few things are true. The deal is compelling enough to start a position and there could also very well be more downside ahead. Specifically, 21X forward earnings looks like it will offer Lulu’s stock with significant support and I’ll use the 21X to 27X multiple range as a guide to filling out my position. With this in mind, I started VERY small with just 18% of a full position. It’s always a marathon and never a sprint, but today that may be even more true.

Furthermore, the earnings estimates for Lulu and public companies could be coming down over the year as the economy weakens. I would point out that Lulu has a wonderfully consistent track record of beat and raise, just boosted its own estimates last month and has seen analyst estimates rise accordingly, but these are unprecedented times.

Based on my preliminary research into the company and historical results, I think the following 5 scenarios encapsulate where Lulu could be in the next 5 years. I would point out that estimates like these include several rough projections making accuracy a rarity. Please take this with a large grain of salt. Results could surely vary and I do try to lean pessimistic whenever possible when building these models.

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Don’t forget the fashion risk. What if athlesiure isn’t cool to wear in 5 years and lulu can’t successfully pivot to whatever is. That is what has held me back from starting a position, despite my wife’s insistence, to our detriment so far
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Commonstock is a social network that amplifies the knowledge of the best investors, verified by actual track records for signal over noise. Community members can link their existing brokerage accounts and share their real time portfolio, performance and trades (by percent only, dollar amounts never shared). Commonstock is not a brokerage, but a social layer on top of existing brokerages helping to create more engaged and informed investors.