Great quick read for this weekend. 2020 Q4 HF Letters in attachment.
Though I do think it’s also equally important and helpful to read Q1 2020 and Q2 2020 Hedge Fund letters to truly understand how capital deployers function, think, deploy and adjust under extreme stress…planning to read a handful of them this Sunday.
Takeaways from Sequoia Fund Q4 2020 Letter
TSMC delivered 25% CAGR over the past 10 years and ~18% CAGR over the past 25 years excluding an average 2.75-3.0% dividend yield.
I think semiconductor manufacturing can be characterized as a massive zero-sum game, one that requires high capital expenditure (i.e. TSMC is expected to spend $25-28 Billion in capex this year..and I cannot think of more than a small handful of 5-10 companies on this earth that can do this except pseudo-government sponsored entities like Samsung Semiconductor and “pseudo-government investment” is often done by the national government extending massive loans at 0% interest rate in order to build up the long-term ‘competitiveness’ of the country). The winner almost always takes substantial/all market shares but it’s also with great risks massive capital investment could result in years of nothing in return, and worse yet, competitors pull ahead of you, and that $25-28 Billion is almost going down the drain.
Takeaways from Sequoia Fund Q4 2020 Letter
I do wonder how the perhaps incoming proliferation of semi and/or fully AV will impact auto insurance industries and subsequently, insurance companies with high exposure to auto (i.e. Progressive Insurance as mentioned in the investor letter). Will AV decrease the likeliness of accidents?
And furthermore, how will this impact the thousands of mom and pop auto shops that cannot and/or does not have the investment capital to convert to repair electric and/or autonomous vehicles which are obviously very technical-heavy with radars and sensors.
Will the incoming proliferation of AV and EV change the supply chain of aftermarket auto parts?
Takeaways from Fundsmith UK Q4 2020 Letter
The growth of intangible assets on the balance sheet over the decades is worth noting. The founder of Fundsmith (UK), which btw, is one of the hedge fund investors who can invest well and write concisely, has put forth the question whether this has changed the traditional model of investment analysis of a company in that, to quote, Sir John Templeton, “This time is different” or is the sign of exuberance before the market capitalization?
Takeaways from NZS Capital Q4 2020 Letter
Takeaways from Wedgewood Partners Q4 2020 Letter
Will the massive injection of M2 money supply be followed by the respective increase in money velocity? The market consensus is currently heavily tilted towards incoming inflation. How will the market adjust to this and which industries will benefit from? There has been chatter about another commodities boom cycle that’s similar to the 1975-1980 and 2002-2008 commodities cycle boom! I don’t think we are ready for $120/barrel oil price and $4.50/gallon oil price at the pump.
Takeaways from Miller Value Q4 2020 Letter
Barron Real Estate Q4 2020 Letter
Demographic trend is there given our generation is starting to enter into the family formation stage of our life (age 27-35) and also noted, there is a high level of current homeowners who are delinquent (mortgage payment put on hold since April 2020) so we might see an influx of supply but demand is also equally as strong so absorption rate could/should be high, but not sure how many years can we sustain 15% YoY growth in property price.
Though it’s worth noting inflation is great for housing in the medium term but bad in the short term as that shutters interest rate (cost of borrowing for mortgages) for a few years before other real estate variables (such as rental price inflation) catch up to inflation.
Takeaways from Lux Q4 2020 Letter
- The natural corrective to bad ideas is criticism. And the natural source of criticism comes from people with a disposition to think differently, who take comfort in standing out from the consensus of the crowd, who take pleasure in speaking truth to power. This is the ilk of investigative journalists, short sellers, scientists, heretics who say “wait a second” and help societies slow the rate of runaway falsehoods and trend to truth.
Of course hate and heat follow heretics, yet heretics often follow truth. It’s unpopular, even irrational, to go against the crowd, especially when in group status or power are at risk. While any individual may act rationally or irrationally at times––and we each have an entire Confidential & Trade Secret 5 catalogue of biases courtesy of Lux’s friend Danny Kahneman––whose existence is proof that humans (namely scientists) have enough rationality to discover these heuristics and biases in the first place. - Meanwhile there is a lot of cash on the sidelines. The prior record was during the 2009 crisis at a level of $3.8 trillion. Last month there was $5 trillion on the sidelines. With the pandemic, the normal U.S. savings rate (which might be around 7%) went to over 30% with $2 trillion in bank accounts. Much of that cash came from white collar workers with nothing to spend on, some came from an older generation selling stocks, some from the last stimulus package which gave $1,200 to people who made less than $75,000.
- The upshot of loose central bank policy and speculatively charged markets is more widespread participation in the “creative” half of Schumpeter’s expression. Indeed SPAC listings on markets can partly be viewed as vehicles where demand for venture meets supply, resulting in a boon for many of our portfolio companies.
But it also means that many of these speculative funds are capitalizing otherwise low quality businesses letting them survive in the present, limiting the “destruction” half of Schumpeter’s expression. If productivity and growth is what we all want, then honest price signals and rational capital allocation today ought hasten their decline. An abundance of creation now, portends much destruction later. - Thrive Earlier Detection in an acquisition by Exact Sciences worth up to $2.2 billion
––focused on blood based tests that can detect multiple types of cancer. We don’t know how economists measure progress. Surely the very early detection and treatment of life-threatening diseases.
-Jerry
Intersection notepad 