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Giverny Capital Asset Management Highlights
I read Giverny Capital Asset Management's Q1 shareholder letter over the weekend and some quotes were pretty interesting. First, let me give a bit of context on GCAM.

GCAM is a partnership between Canadian investment firm "Giverny Capital" and David Poppe. David Poppe was President and CEO of Ruane, Cunniff & Goldfarb, a RIA that's best known for managing Sequoia fund. GCAM is fairly new as it started in April 1st 2020. Since inception, the company has managed to provide nice returns (32.2% net) although it has not managed to beat the S&P 500 (34.5%). However, the team's prior track record is one of outperformance.

The company tries to invest in high quality companies where founders have significant stakes (of course, this isn't always possible)

Here's a list of GCAM's top 10:

$GOOG 9.1%
$ANET 6.5%
$PGR 6%
$SCHW 5.9%
$KMX 5.9%
$CSU.TO 5.6%
$SSNC 4.7%
$HEI 4.6%
$BRK.B 4.4%
$CACC 4.3%

Let's go with some of the quotes now!

On Q1's performance:

It was a rough quarter. I don't say that because stock prices declined. That happens. Volatility, after all, is what creates occasional dislocations in the market that allow long-term investors to buy great companies at attractive prices.

On commodities or energy cos:

GCAM doesn't own any energy or materials stocks. That's intentional. About 15 years ago, I did a fair amount of work on the emerging Canadian oil sands companies. I learned three lessons from this project that inform my investing at GCAM. First, never bet on any kind of Malthusian thesis about scarcity, as this is essentially a bet against human ingenuity. Second, no one in the oil industry knows what the price of oil will be in a year. Thus, oil companies spend tends of billions of dollars on capital investments with limited visibility into what the future return will be.Third, oil companies are like derivative securities: their success or failure depends more on the price of an underlying asset than it does on their management teams. Are these companies all run by subpar management teams? Of course not. But they are all ultimately hostage to the oil price.

On predictability of returns on capital and management:

What I am trying to do at GCAM is align with fantastic managers who control their own destiny. Or at a minimum, have more control of their own destiny. I would much rather invest in a business that earns predictably high returns and has a clear growth trajectory than in a business that could earn a superior return if a commodity price remains elevated.

My crystal ball is not better than anyone else's but I'd rather invest in obvious structural growers than probable structural decliners.

On Fed's actions:

The Federal Reserve seems reluctant to do its job, but it is clear that interest rates are going to have to rise at a a much faster rate to tame inflation. The next year or two likely will be bumpy.

On the worst performers of the portfolio:

If there is any good news, I don't believe this group suffered material impairments to their long-term earnings trajectory. Rather, relatively small earnings misses or reductions to ST guidance led to large stock declines.

On $FB spend on RL:

I can't say yet that these investments will pay off, but sales of Meta's Oculus headsets are healthy and reviews are enthusiastic. I feel certain that Meta CEO Mark Zuckerberg won't continue to spend so heavily on R&D if it produces no results.

On $FB health on ad market:

I've heard comments from two large advertising agencies recently that their budgets for Meta Platforms' properties are growing by double digit percentages this year, a signal that Meta remains an important advertising vehicle.

Roughly 2.8 billion people log onto a Meta-owned social media site everyday, and they stay for a while. That makes Meta the best advertising vehicle in the digital world.

On $FIVE:

Five Below arguably has the strongest growth profile in bricks-and-mortar retail and the stock is more reasonably priced after the recent correction. We're very confident in this business and expect to own it for a long time.

On $AMZN's vs $FB's capital spend (controversial):

Owning lots of airplanes to support a marginally profitable retail business does not seem as promising to me as trying to build the metaverse.

On portfolio management:

I don't like owning 1% positions as they consume research time and don't add much value to the portfolio when they do well.

On selling Topicus $TOITF:

It was less than 1% in our portfolio and not very liquid, partly because Constellation continues to own 60%. The company had a great first year, trading at a premium to its parent. We didn't think it was more valuable than $CSU.TO so we sold it.

On volatility going forward:

Given the war in Ukraine, soaring inflation, supply shortages and the expectation of sizable rate hikes by the Fed, I expect volatility to continue.

On timing the market:

The war in Ukraine is deeply disturbing, but market timing does not work and geopolitical events rarely create lasting market impacts. In any case, the best defense against economic uncertainty is to own high-quality, productive assets.
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What to watch for the week of 5/2/22.
Are you prepared to take on the markets this week? Here’s a watchlist that I created of some potential catalysts I’ll be keeping an eye on and looking to trade for the week beginning May 2nd. Feel free to save it for reference, share it in your trade groups and repost it on your social media page. Also be sure to follow me. Let me know what you’ll be watching in the comments.

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Upcoming Earnings Calendar (Feb 14th - 18th)
Hey guys! Here's the upcoming earnings calendar! Three of my holdings report next week.

  • $ABNB - The stock has held up pretty well during the market sell-off. The valuation is still high, but with re-openings the company could see a big boost this year.
  • $TTD - They've said Apple IDFA is a non-issue, so their growth should be great. A key indicator of ad spend.
  • $ROKU - The stock is down almost 64% from ATH, but the fundamentals keep improving. I expect great results from the company, with ARPU growing and margins expanding.

If you'd like an easier way to track earnings dates, you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.

MON:


TUE:


WED:


THU:


FRI:
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February earnings
I think upcoming earnings are going to be really important in this volatile market. Companies will likely get punished (further) on even slightly bad results or outlook, and I'm hopeful strong earnings like we saw with $TEAM or $AAPL will buoy the overall market or at least software sector that I'm playing close attention to.

Personally, I have a handful of companies on my buy list including $CRM, $COUP, $ESTC, $SMAR, $POSH, but will only do so once they make it past earnings either scathed (lower price) or unscathed (peace of mind) :)

So we've put together our most anticipated earnings for all of Feb!


Keep an eye out!
3: $AMZN $LLY $MRK $TNX
21: $UIS
28: $JLL TGNA $LAZR $SAIL
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I lean growth, but there's plenty of dividend stocks that can benefit from capital appreciation AND rising dividends.

Ex. We just updated our best dividend stocks ranking and it includes 59 high-scoring ideas, including 8 new ideas vs. a week ago, yielding >1.5%.
Often, I'll find a couple gems in this list. One that jumped out to me this week: $JNPR . If its cloud-pivot is paying off, could it move like $ANET ? Hmmm..
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Upcoming Earnings Calendar! (Nov 1-5)
Hey guys! Here's next week's earnings calendar! Several very interesting companies set to report earnings. Here's the one's I'm most excited about and why:

  • $APPS: any sign of iOS ad dollars shifting to android (Digital Turbine's revenues are mostly from android).
  • $Z: an update on the real estate market and iBuying
  • $LYFT and $UBER: is mobility in the US back to pre-pandemic levels?
  • $COIN metrics on the NFT market.
  • $PENN and $DKNG update on the mobile sports betting market.
  • $ATVI number of Call of Duty Warzone players. The last reported number was 100MM.
  • $CRSR: comments on the supply chain issues they're experiencing.
  • $MELI: update on the Brazilian e-commerce market. Relevant for $SE's expansion.
Comment below which earnings report you are looking forward to the most!
Friendly reminder: you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.

MONDAY

TUESDAY

WEDNESDAY


THURSDAY

FRIDAY
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Investing Lesson: Discount Analyst Estimates
One of the worst performing stocks in my portfolio has been Arista Networks. I wrote a memo about a month ago revisiting the investment thesis and ultimately decided to keep it. (Arista competes with Cisco Systems selling network switching equipment, but the thesis has to do with the enormous data usage of Machine Learning as a long term trend).

Today after hours $ANET is up 10.59% because earnings per share were $2.42, which was higher than the average Wall Street estimates of $2.22 per share. CEO Jayshree Ullal also told analysts that she is confident Arista Networks can meet Wall Street’s expectation that its sales will rise by thirteen to fourteen percent next year.

Oooo yay a beat of estimates- great news right? Not so fast. Remember we're on Commonstock for signal over noise. Part of that is learning to identify what is signal and what is noise, and why.

Here's the important investing lesson to identify here: Earnings estimates are not a good metric to base investment decisions off of.

Ask yourself this: "Why did Arista's stock go up so much today?" Well, it wasn't revenue growth; Covid has been a headwind this year. Fewer companies are spending on networking equipment for office buildings when fewer employees are going into the office. Arista's business performance bears this out: revenue in the three months ended in September declined by 7.5%, year over year.

It's pretty clear the stock went up simply because of the beat of analyst expectations and the pseudo-promise that expectations will be met next year.

This is one of those dynamics in the financial world that you can't see until someone points it out to you, but once you see it, you can't unsee it:

Analysts care more about their reputation than the actual value of the business they cover.



When a company reports, the main thing that the headlines pick up is whether the earnings beat or missed analysts' estimates. This is because the media is using analysts estimates as a quick way to say if the result was good or bad.

Therefore, the estimates game is only about whether the earnings and revenue beat or miss a number that some analysts have picked. But it ignores the question of how well the company is actually doing, and how bad (or good) the revenues and earnings really are.

You should not base your perception of a company on the analyst estimates. They're all just fallible humans just like we are. They're always off by some degree. For example, 26 analysts cover Arista and not a single one of them got the earnings right. And it wasn't like they all danced around the right number and no one hit a bullseye. The highest estimate of all of them was well below what earnings actually came in at.

And yet the price moved because the analysts are the one's telling their employers whether to buy the stock or not. You have to admit, it makes sense that a CEO who tells analysts that they are smart (aka "we think we can hit your estimates for next year") will get their stock upgraded the next day.

This is noise. Refrain from basing your investment thesis on analyst expectations.
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Down But Not Out: Arista Networks
One of the worst performers in my portfolio is Arista Networks $ANET. I bought back in mid-2018, and they are down about 19% since then. A trader would have sold this a while ago. But I think my original thesis is still intact:

Arista does switches and routing solutions that are ideal for data centers that struggle to handle the massive amounts of data that AI and machine learning applications require. It is working on AI-ready infrastructure to bring AI capabilities to companies that otherwise would not be able to handle it.

Data centers need suppliers that can provide affordable and reliable switches and routers, which is what Arista Networks does. Arista Networks is mostly a play on big data rather than AI, but it will directly profit as AI begins to play a larger part in the world's economy.

While the hardware of switches and routers are commoditized, Arista also has a cloud software to run its cloud networking solutions called the Extensible Operating System (EOS). EOS allows Arista's products to be integrated with third-party products and customized for applications. EOS coordinates all the participants within the network so they are optimized. This makes it a more affordable and scalable choice than competitors.

Arista is also a player in AI-ready infrastructure,(AIRI), with Nvidia and Pure Storage. Nvidia's GPUs, Pure Storage's FlashBlade storage and Arista's switches combine to create a AI solution that is ready to provide machine-learning answers "in hours rather than days or weeks".

So far its one of the worst performers in my portfolio (bought in 2018 and is down about 18%), but I think the overall thesis is still intact. And I think the market sees Arista as just another Cisco. There are similarities, but there are also differences that may be harder to spot. That might be the opportunity to be right when others are wrong.
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I just looked through your portfolio, and with that context I would say yes, but probably keep it to about the same allocation size that you have Tencent at (around 1-2%). So pretty small. I think it deserves a spot in your portfolio, but I'm not recommending you go all in.

I would usually say "This is not investing advice"...
But you're my brother. And I just said you should buy. So I guess that is investing advice 😬🙃😁
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