Newsletter XIX - November Issue
Recapping a Month in the Markets: November
“I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.”
Finally, it’s time for Christmas season! But first, let’s recap what went down through the month November. And what a month it was, what a month.
Inside drama at one of the largest and most influential private companies. The passing away of an investing legend. Some fantastic performances from broader market indexes on the tail of a very strong earnings season. November had a little of everything to offer investors.
Let’s dive in and recap the major events before I go over the big ticket items from every newsletter I put out over November - including the stocks that made it on my watchlist, some books I’ve been recommending, and finally some highlights on the other investors that have put out some great stuff recently!
What did the markets do?
S&P 500: +8.9%
Dow Jones Industrial: +8.9%
Over the span of a week, Sam Altman, CEO of OpenAI was fired by the company’s board of directors, seemingly out of the blue. On threats of resignation from over 90% of the company’s staff if Altman was not reinstated as Chief Exec of the influential AI company, OpenAI’s board initiated talks to re-hire him. Then Satya Nadella and the Microsoft team announced that they had hired Altman on instead. A day later, another surprise came as it was announced that Altman had been re-instated as head of OpenAI. What were the takeaways?
Altman wins. Board loses - in a big way. Almost the entire board of directors will be reconfigured following the loss.
It’s hard to have much say on the running of the company if the employees are so unanimously behind the CEO. This seemingly puts a lot more trust in Altman’s ability to handle the ‘safe implementation’ of AI systems, as the board clearly doesn’t have the power it thought it had to control the speed and manner of AI advancement.
Nadella scores, in a big way. This was a win-win for the Microsoft team. No matter how this situation turned, it was a win for Nadella as the famed exec continues to cement himself as one of the greatest current businessman and capital allocators.
Charlie Munger passed away, age 99, on November 28, 2023. He will be remembered as one of the greatest investors to lace them up, one half of the dynamic duo of capital allocation that built a nearly $800bn empire. But Munger should be remembered for much more than that, too - his wisdom, teachings, and philanthropic endeavors have cemented Charlie Munger as an all-time legend, not just an investing legend.
Now I’ll recap the newsletters I released over November - while I briefly summarize them all here, follow the links above each snippet to read the full thing.
Weekly Watchlist Stocks
Innovative Industrial Properties - IIPR 0.00%↑
A picks and shovels play on the cannabis industry, Innovative Industrial is a REIT with a very attractive dividend yield and growth combination that will continue to profit so long as commercial cannabis is growing.
Avoiding many of the unattractive pitfalls that retail and growing companies face (undifferentiated products, supply/demand fluctuations, inability to brand), Innovative operates an attractive business model leasing commercial growing facilities to other companies that take on these risks.
Total returns since its late 2016 IPO have been handily outperformed the market with a 28% CAGR for early shareholders. The company also sports some fantastic margins and growth in earnings & revenues alongside a nearly 10% dividend yield that should attract growth and income investors alike.
WELL Health - $WELL.TO
WELL was a pandemic darling that’s since cratered in value from its highs. Even after that fall from grace though, WELL has provided a whopping 67% CAGR to early shareholders that bought into this name as a wee Canadian microcap story and held on for dear life. Even now, the company is very much in small cap territory at around $1bn CAD.
But it’s still showing lots of potential. At a relatively cheap valuation considering the rate of growth in revenues and EBITDA, WELL is still Canada’s leading provider of telehealth tools and technologies. Their platform provides a range of benefits for both care providers and patients, such as electronic medical records, apps, referral networks between care providers, patient and doctor portals, and ePharmacies. All of these help to reduce the significant lag times and barriers in Canada’s constrained healthcare industry, a value prop that’s appreciated by pretty much every Canadian that’s ever visited a hospital or gone looking for a personal doctor.
WELL is an interesting business model and very much a small-cap name with lots of potential growth opportunity ahead. However, I’ve been burned by telehealth names before (looking at you Teladoc), so while this one is very high up on the watchlist, I will need to do a lot of extra research into the company to ensure it’s not going down the same sticky route.
Shockwave Medical - SWAV 0.00%↑
Shockwave Medical is a medical device manufacturer that uses soundwaves for cardiovascular disease treatment. This method provides more effective and safer treatments for customers while also being compact and easy to use & integrate into operations for care providers. The perfect value proposition.
Shockwave has been growing at an incredible pace and has delivered some enviable returns for early shareholders. The company has a very strong margin profile that’s expanding rapidly (particularly notable for a manufacturer) and incredible free cash flows to go alongside incredible revenue growth.
The company is already operating internationally, with products sold in more than 60 countries, and is defending their market position with more than 170 patents across their product lines. There’s a lot to like here, but I’ll definitely need to dive further in and find out more about the future growth opportunities for this name.
Global-e Online - GLBE 0.00%↑
Global-e is a high growth business in the ecommerce space with a hugely additive value proposition for its customers. The platform enables ecommerce retailers to go international and expand their operations globally without any of the regulatory, shipping, taxes, or online infrastructure hassles that make it nearly impossible for most small or low-margin online retailers to go global.
The company is growing at an incredible pace on EBITDA and revenue figures, sports strong and growing margins to go with expanding cash flows that should further fuel this growth into the future as well. The name doesn’t come cheap, but the growth & the quality of that growth alongside the unique and sticky value prop for its customers may help to justify an elevated price tag.
Also helping to justify the valuation are the tailwinds to Global-e’s industry - ecommerce is set to continue growing at a blistering pace into the future while eating away at physical retail market share. This tailwind had an especially large effect during the pandemic that led to Global-e shares skyrocketing and since dropping significantly. Over the long-term though, the thesis on ecommerce dominance remains unchanged, and Global-e Online should benefit enormously from that transition.
This is currently the stock at the very top of my watchlist, expect to see this one in a deep dive very soon.
‘The Little Book That Beats the Market’ - Joel Greenblatt
Greenblatt’s ‘Little Book’ makes for a fantastic read for all investors. Within, Greenblatt describes his magic formula approach to making value investing simple and effective. While I don’t follow his investment strategies or goals necessarily, I still got a lot out of the book, and it was from Greenblatt that I got the idea to begin ranking and grading the companies I was researching.
This is one of those ‘textbooks’ of investing that should almost be required reading for beginners, and still has lots to offer experienced investors, too. There are some valid critiques on Greenblatt’s magic formula itself, but his frameworks for analyzing investment opportunities still makes for great learning material.
‘Principles: Life and Work’ by Ray Dalio
I really enjoyed this read from Dalio for its unique approach to the normal self-help book. Rather than focusing on either professional or personal tips for success, he blends the two to give readers a sense of how he’s found success in multiple facets of his life. The book is split into two sections, each addressing either personal or career success.
I’ll be honest, I got a lot more value from the career section, and particularly enjoyed Dalio’s approach to fostering workspaces. But he has something to offer most readers, particularly those looking for a helpful but light & easy read that can be finished in a few nights of relaxed reading.
‘Quiet: The Power of Introverts in a World That Can't Stop Talking’ by Susan Cain
Every consumptive reader will tell you that a lot of books are useless. Some just don’t stick, others are just noise. For myself, I’d guess about 90% of the books I’ve read have fallen under this category. But not this book. By far the best read of this month’s recommendations, Susan Cain’s ‘Quiet’ was one of the 10% that made for a fantastic and memorable read that I will re-visit many times over my life.
Cain analyzes the extroversion-oriented culture of North America and the role that introverts have to play in it. Exploring the nature and needs of introverts in the workplace, she makes the case that introverts are as much responsible for driving effective teams and leadership as extroverts are. Her balanced approach to analyzing introversion was a breath of fresh air amidst a sea of books focused instead on turning introverts into extroverts, rather than embracing what they have to offer.
I cannot recommend this book enough.
7 Deadly Sins of Investing
I cracked off November with an investing tidbit comparing the 7 deadly sins you learned at bible camp to the 7 deadly for investors - instead of a fiery path to hell, though, they lead to below average returns. You decide which is worse.
Greed - Failure to Monitor Risk
Pride - Overconfidence
Wrath - Investing with Emotion
Envy - Comparisons & Social Media
Sloth - Neglecting Research
Gluttony - Focus on Yield
Lust - Get Rich Quick Mentality
Grading System for Portfolio Allocation
I have always used grading systems for every part of my investing process. It helps me to quantify my best ideas while separating out any biases or confirmation bias I may have. It’s kept me rational.
One of the key benefits I get out of grading is a rationalized approach to portfolio allocation. I know many investors, including Chris Mayer, prefer not to try to allocate their portfolio according to any specific qualities. Instead, they choose to rank all of their stocks equally and let diversification and concentration work itself out naturally.
I am not one of these investors. I always allocate according to the ranking that I give my companies. A company I grade as an A+ will get a 5%+ allocation, while an intriguing, growing, but perhaps more risky company that grades a B might only get 2%.
As I run a more diversified portfolio than many investors following an equal-weighted approach, this makes sense to me and, again, helps to keep me rational. It’s saved me from some pretty big downturns at times, and rewarded me handsomely at other times.
Scintillating Seduction of Speculative Stocks
Speculation can be a tempting game to play in investing. It’s also the opposite of the game investors should be playing to drive market-beating returns over the long-haul.
This investing tidbit was a warning against introducing speculative stocks into a portfolio or speculation into research processes. Unfortunately, examples of both are endless - junior miners on the next big ore deposit, whatever Joe Blow product will go commercial in 2032 and is still looking for regulatory approval, the next big tech that will single-handedly solve climate warming.
Common tell-tale signs of a speculative stock are businesses not yet in revenue stage, or management teams that are promoting some huge catalyst that will blast the business into the stratosphere. Investors should avoid these companies, and speculation in any part of the investment process, like it’s the plague. Because it is.
This tidbit was a simple one. In the final stage of my research into an investment opportunity, I zoom out and try to summarize the business and my investment thesis in one or two sentences. If I can do it easily, and basically put it into words a 5-year old would understand, I’ve passed. If I can’t do it, perhaps I need closer to 5 sentences or can’t put it simply enough for a 5-year old to understand, I’ve failed.
It’s a final litmus test for my understanding of a company and know if I’ve really done a thorough job of my research. It’s back to the drawing board if I fail the litmus test, but even if I pass it, there are other benefits. Say a company in my portfolio drops 15% after poor earnings. Having that written down summary of my investment thesis allows me to stay rational after huge drops and remember why I invested in the first place.
- Trung Nguyen
The beginning of November saw a milestone achievement for Trung at Sleep Well Investments, as he hit a significant 1000 subscriber milestone on his newsletter that is still just the beginning for the excellent quality of his work.
Trung gave me a few words on his journey through the investment landscape to arrive where he is today (a talented and insightful investor that shares his thoughts with the lucky 1000 people who subscribe to him).
Tap into the newsletter link above to read a bit about Trung’s evolution as an investor, or listen to this podcast he did around the same time.
You can subscribe to Sleep Well Investments here.
Kevin did a fantastic deep dive into Dino Polska, which I came across and highlighted earlier in November. I’d heard a lot about this company but found that Kevin’s deep dive on his newsletter, Atmos Invest, was by far the best I’d read.
Kevin’s approach to analyzing Dino Polska was unique, a must-read for anyone looking to invest in this company. Even if you’re not interested in a very interesting investment opportunity, Kevin’s approach can still offer self-directed investors an interesting framework to use with their own investments.
- Michael Spencer
Not my usual highlight on an investor article, but I had to highlight what was nonetheless a fantastic deep dive into Microsoft’s Copilot and its (huge) potential to drive value in the Microsoft ecosystem.
I’m incredibly optimistic about this tool being integrated with Microsoft’s suite of tools, not only as a shareholder but as a consumer as well. I see this tool cementing Microsoft’s position as one of the most dominant companies of our time and a portfolio-changing position to hold for years to come.
Michael Spencer did a fantastic deep dive into it, and I’d recommend the read if you are a Microsoft shareholder or are considering becoming one.
Kairos Research produced a fantastic deep dive into one of my all time favourite businesses and a mainstay in my portfolio, Autodesk. It makes for a succinct and easy read that covers the company’s moat, products, and valuation to give readers a great base of understanding on the business. And this is a business I think a lot of investors should have a good understanding of.
Kairos Research has also produced several other decent deep dives into companies I’ve looked at as well, including ENPH 0.00%↑ & STNE 0.00%↑. They make for fantastic reads as well (though I had to give Autodesk the shoutout, no bias whatsoever).
Find the rest of his work here.
What’s New at Hourglass
InMode - A First Look
XPEL ($XPEL) - A Small Cap Love Story Turned Sour
Jamieson Wellness ($JWEL.TO) - Balancing Health & Wealth?
WSP Global ($WSP.TO) - The Quiet Consolidator
Deckers Brands ($DECK) - Still Growing into its Shoes?
Dentalcorp is a Canadian firm rolling up a fragmented but cycle-resilient dental industry in Canada. The company currently trades at a significant discount to both its peers and its historical valuations as the market prices in risks associated with a leveraged balance sheet in a tougher macro-economic environment.
However, dentalcorp is still growing at impressive clips in a (relatively) massive potential growth market, generating steady cash flows, reinvesting back into long-term growth for the business, and actively de-leveraging to maintain a healthy risk profile. This is a company I own shares in and have been consistently adding to over the last year, so I’m excited to share my research into the company with you all.
Dive into the article below and read why I’m optimistic about this company’s future.
That’s all for November folks! Welcome to the Christmas season, I’ll see you back here next week for the regularly scheduled weekly recaps. Until then, enjoy your weekend and happy investing.
If you want all future newsletters, deep dive research, and podcast episodes sent to your inbox, pump your email in below!