Newsletter XIV - October Issue
Recapping a Month in the Markets
“All I can say is that I have taken more out of alcohol than alcohol has taken out of me.”
This is the second monthly issue of the Hourglass Investing newsletter, where I recap a month of weekly recaps. In this article are all the weekly watchlist stocks, recommended reads, and investor features that I’ve highlighted over the last month. I’ve provided links to the source newsletter for each read, feature, and watchlist stock, so if you want to read a bit more about them, check out the original newsletter for a more in-depth look at them.
Also in this issue, I recap what’s been going on at Hourglass through the month of October, including all research articles and podcast episodes that have been released, to make sure you don’t miss out on anything.
Weekly Watchlist Stocks
Arista Networks - ANET 0.00%↑
Arista Networks is one of the highest conviction positions in my portfolio, one that I’ve covered in both research articles and podcast episodes. In October, I covered it as a weekly watchlist stock as well; a seller of software, network switches, and efficient networking equipment, Arista is a cash-generating machine, with incredible returns on capital, strong revenue and earnings growth, and a fantastic margin profile. To top it all off, Arista also has one of the most aligned and competent management teams of any business I’ve ever analyzed.
I’m incredibly optimistic about Arista Networks for the future, and see them as an important picks and shovels play on cloud, data, and AI/ML into the foreseeable future. Recent quarterly earnings from META 0.00%↑ suggested a cautious outlook for the rest of the year, which subsequently sent Arista shares into a tumble; for a business of this quality, this represents a buying opportunity I’m grabbing with both fists.
Deckers Brands - DECK 0.00%↑
Deckers Brands is a quiet, steady compounder - a collection of outdoor shoe brands, including Ugg’s and Teva’s, Deckers owns a significant market share in outdoor shoe brands While fashion is often considered risky, Deckers has consistently outperformed the market with a >15% CAGR over 30 years.
Deckers is an example for investors to keep it simple and find boring, steadily growing businesses. With fantastic capital efficiency metrics, impressive margins for a fashion company, and some incredible growth over the last few years, Deckers still has potential as a continuing outperformance story for investors.
IonQ - IONQ 0.00%↑
Quantum computing is infinitely more efficient and effective than traditional computing methods. It has the potential to completely upend current computing systems, revolutionize technologies, and usher in a new age of information. IonQ is one of the companies at the forefront of this innovation.
Sitting at $3.5bn in market cap, IonQ has a more than $65bn market cap with massive future growth potential. Revenues are expanding rapidly to match this potential, though the subsequent valuations make the stock nearly unpalatable for value investors - the company trades at 160x EV/S, with negative margins (beyond gross margins) and capital efficiency metrics.
This is the ultimate growth investment - though conventionally expensive, if quantum computing is able to gain considerable market share and IonQ can place itself at the forefront of this market, those valuations will look cheap.
I Will Teach You To Be Rich
I’ll be honest, this book sat on my shelf forever. I couldn’t stand the clickbait-y title and didn’t give it a chance for the longest time after it was gifted to me. Desperation, however, can sometimes work miracles on a procrastinating mind. I ran out of books to read and didn’t have time to head to the bookstore, so I finally picked it up and found myself pleasantly surprised.
I Will Teach You to be Rich is a personal finance-focused book that skips past the usual ‘make coffee from home everyday and be super cheap until you grow old and die rich’ method, as well as the ‘invest it all in crypto and retire by 30’ technique. Sethi instead grounds his approach to personal finance in actually being able to use your money and spend it on the things that matter, while budgeting and saving money in the areas you neither need or want to be spending towards.
It’s a great beginning book for personal finance (despite the title) and should be placed right up there with Rich Dad, Poor Dad for PF classics.
The 5 AM Club
Another sort of clickbait-y title, the 5 AM Club is actually one of the better self-help books I’ve read. I often find this genre of books to be self-indulgent and written with a ‘holier-than-thou’ attitude.
The 5 AM Club, however, felt different; it was very grounded in applicable and grounded approaches to actually making a difference in your life. I’ve genuinely felt better able to seize the start of my days and take advantage of some of my more productive hours while also squeezing more ‘adjacent’ productivity into my day - reading, stretching, language practice, and non-Hourglass writing - activities I often found I didn’t have time for.
Using the schedules and morning routines from the 5 AM Club, though, I now have time to get these things off my ‘to-do’ list early in the day and set myself on a productive path for the rest of the day.
The New Map
Yergin authors a well-rounded read on the modern energy landscape and the associated geopolitical concerns in ‘The New Map’. While not investing specifically, I think this is a must-read for anyone interested in renewable energy investing, or any sort of energy investing for that matter.
Not only does Yergin go into the history and development of energy as a technology and an industry, but he also dives deep into the modern context and how its influenced by various global players and technological innovations. Finally, Yergin also analyzes the future of energy, an even more important consideration for investors.
It was a very nuanced and objective look at an incredibly complex and often political topic - I was a big fan, I can’t recommend it enough, and it’s a book that I’ve thrown onto my ‘re-read’ shelf for another look at later on - there was so much I feel like I couldn’t even properly absorb out of just one read-through.
Savers Value Village: Cracking the Thrift Code - SVV 0.83%↑
Devin LaSarre - Invariant
Savers Value Village is a recent IPO in the markets, but an intriguing one to look at. While I never touch IPOs, this is one I’ve repeatedly been tempted by - the reason being that thrift chain business models can be very attractive. Look at Winmark WINA 0.00%↑ if you need an example of such a success.
Devin LaSarre atwrote a piece diving deep into SVV 0.00%↑ and it’s a great article if you’re interested in the potential of pre-loved brands and the strong returns they can generate for investors off a high margin model.
Greggs Company Write Up - $GGGSF
Sonny - Secret Sauce Investing
This is a great writeup by Sonny atto remind all self-directed investors to take it easy and keep it simple - you don’t have to invest in the next Google or Apple when you can drop your money into a company like Greggs, a British bakery that’s outperformed the market with a >15% CAGR over more than 30 years.
Despite being the leading food chain in the UK, Greggs still has some expansion they’re aiming to eek out of the United Kingdom before starting their international expansion mission - untested waters for the company, but potentially a runway for future market outperformance. Greggs also offers a nice 2.3% yield to investors, and with more than 70% growth in the dividend over the last 3 years, this should be a very attractive proposition to dividend investors. Check out Sonny’s article for a much deeper dive.
Outperforming the Market
Find the ‘Outperforming the Market’ service here.
Simple Investing’s Outperforming the Market service gives self-directed investors personal access to an industry experienced equity analyst and portfolio manager. Investors are able to get incredible value from the service, which includes the ‘Barbell Portfolio’ (balanced between growth, value, and contrarian investments) in addition to earnings updates, intrinsic value reports, and weekly newsletters.
Finding a Balance Between Diversification & Concentration
Diversified or concentrated portfolios? It’s an age-old question, and one that doesn’t really have a specific answer. Each has their place, and each has their risks. For the average investor, diversification is absolutely the way to go. It allows investors to spread their risk across a variety of assets, sectors, and industries to minimize downside.
However, it can also minimize upside. That’s where a concentrated portfolio comes in. While much more risky, investing in a few big winners can create life-changing wealth - so long as investors can choose the right winners. Overconfidence and hubris are the biggest risks with concentration - investors can be very confident in a company’s success, but if they’re wrong then even one big loser can make a major impact on a portfolio’s performance.
For this reason, concentration is really recommended more for experienced investors that are comfortable making big decisions, are sure of their risk tolerances and investment strategies, and know a lot about investing. Diversification is a much safer approach for beginner investors or those who don’t want to dedicate as much time towards a self-directed portfolio.
Personal Finance & Investing
Personal finance is a huge factor in investing success, something I myself am guilty of underappreciating. If an investor’s personal finances are poorly prepared, 10 years of diligent and successful investing can get wiped out by a major illness, accident, or family emergency. Investing may too be hampered by poor saving and budgeting, such as not allocating funds for rainy days and random & unexpected expenses.
Checklists can help keep you balanced, disciplined, and true to your investment strategies. It’s one of the things I recommend to nearly all self-directed investors as a place to start their investing journeys.
My own checklist depends on whether I’m analyzing a mature and boring compounder or a growth-focused young company - all checklists should reflect the investment strategies at their core.
Dividend investors, for example, may focus on strong ROIC and margin profiles, while growth investors may focus on fast-growing revenues and gross margin expansion. Regardless of what the individual items on the checklist are, they serve a great barrier against investors getting caught up in emotions, making irrational decisions, or investing in companies that go against their central investment goals.
What’s New at Hourglass
All research articles dive into:
Industry and market growth
XPEL sells, distributes, and installs paint protection films for vehicles, as well as films for automotive and architectural windows. After a beastly performance over the last decade that delivered incredible results to early shareholders, XPEL is now surrounded by question marks on the company’s ability to survive.
An announcement of Tesla entering the paint protection film space sparked an initial exodus from the stock, dropping more than 30% over the last month. Yet there are larger concerns looming over XPEL’s business model - do they present a buying opportunity, or is there a large red flag waving above the business?
Read the XPEL article here.
SupremeX is a Canadian microcap in a dying industry and coming off a bad quarter. Despite this, the company also has a strong yield on a low payout ratio, a fantastic balance sheet, impressive YoY growth, and a two-pronged growth strategy that could payoff big time for investors that dig deeper to understand the currently depressed prices.
Read the SupremeX article here.
If you missed the announcement in my most recent episode, I rejigged the format of the podcast to focus primarily on company specific episodes. Instead of alternating between investing topics and company specific dives, the podcast will be all company specific episodes while switching between dives into companies in my portfolio, companies on my watchlist, and companies I’m looking at for the first time.
SupremeX - A Peep into My Portfolio
For the first episode specifically diving into a company in my portfolio, I decided to go with a fresh stock that I only started a position in over October, and a recap of the research article I’ve written for SupremeX.
If you don’t have much time for a deep dive, and want to test the SupremeX waters a bit before committing to the research article, then I’d recommend the episode for a brief overview.
Schrödinger - Big Pharma's Little Buddy
Schrödinger is a very interesting company, and a prototype high-risk, high-reward investment opportunity. They license their software out to 20 of the largest global pharmaceutical companies (by revenue) to add value, through saved time and money, to the crucial drug discovery process.
That’s an attractive proposition, but a 2018 business pivot towards in-house drug discovery threw a major wrench in growth models - it has the opportunity to payoff tenfold, but it could also cripple the business with a risky, expensive, and currently unprofitable segment.
Cybersecurity - A Growth Investor’s Dream Industry
My last episode on an investing topic for a while, I dove into cybersecurity, the growth and importance of the industry, and some of the major players operating in it. I think this is a fantastic industry to be in for growth-oriented investors, but also risky in many ways and very fragmented, as well.
Aritzia - Fashion Dud or Stud?
An audio dive into my Aritzia research article (from September), I cover the business model and growth opportunities, as well as the results of the last few quarters, due mostly to macro-economic pressures on the consumer environment, and how they may provide an attractive entry point on a growth thesis that’s still very much intact.
That’s all for the October issue! Enjoy your weekend folks and we’ll see you back here next Friday to crack off November with another weekly recap!
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