Monday, June 6, 2022
HomeValue InvestingSoooo, 2020…What A Crazy Year!?

Soooo, 2020…What A Crazy Year!?

‘It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.’

A Happy (& Safe) New Year to my readers & fellow investors!

This time last year – or even last April – we had little/no idea of the #COVID challenge still ahead, but we’ve made it this far…and doubtless, after surviving 2020, we can surely look forward (America willing) to a far better 2021! If not, perhaps, in terms of superlative returns…but hey, that’s a hedge I think we can all accept.

Let’s try skip the #pandemic itself – I leave that to countless articles (The Plague Year) & a library of books to come – but obviously its consequences will reverberate here (& for us all). I must say though: I’ve been awed & inspired by the incredible effort & sacrifice humanity’s made to save lives, help those directly & indirectly impacted by COVID & come up with multiple vaccines at such an accelerated pace. But equally saddened – by comparison – to reflect on the fraction of preparation, effort, ingenuity & most of all expense that was perhaps required to prevent the worst ravages of COVID, let alone reduce or even eliminate some of the major health & social issues we endure (or scarcely even notice) today. Above all, great investors will focus on the character of management…it’s time we realize we need to assess the character of countries & their leaders too. And in both cases:

‘Luck is what happens when preparation meets opportunity.’

Or not…

So let’s dive in – as a reminder, here’s a mid-year snapshot of my benchmark:

With such a sudden collapse in Feb/March & then such a savage recovery, I suspect many investors have already forgotten how poorly the indices were still doing as of end-June. The Irish, UK & European markets were actually down (16.2)%, on average…but as usual, despite an actual (& astonishing!) S&P loss, US outperformance flattered my overall (13.2)% benchmark loss

Fortunately, crypto & tech saved the day – I out-performed my benchmark by a massive +10.0% – though I still felt alternately frustrated & relieved to end up with an actual (3.2)% loss:

You can read more about it here:

H1-2020 Wexboy Portfolio Performance

But moving on to sunnier uplands, the indices obviously continued to recover aggressively in H2 & finally claw their way back to…well, a rather lonely & pathetic +0.1% FY-2020 benchmark gain:

And first off, let me say again, I make no apologies for this benchmark. [Which I should highlight I’ve used consistently for years]. Yes, I’m well aware it may perplex the vast majority of #FinTwit investors who apparently live in a world of blockbuster returns…and believe a single country, or even sector, is all that matters. Well, except maybe for visits to FAAMG-Land, or Planet Tesla… Can you even accuse such people of home bias, if they don’t even recognize the bias?!

But I can’t (& won’t) approach investing like that – nor would any sensible investor, I believe – for me, return of principal matters just as much as return on principal! And once you can eliminate the major investing errors & disasters, diversification is the best way of ensuring that! Now, that doesn’t imply slavishly diversifying (& index-hugging) just for the sake of it – there’s a world of sectors, investment themes, countries & asset classes to cherry pick from, but you still gotta get out there & actually cherry pick the world! And I benchmark against those four major indices, because they consistently represent a majority of my own diversified portfolio…and quite obviously, a significant percentage of my readers too (like attracts like). I’d happily add an emerging markets index, but at this point it seems like such an extraordinary exposure for the average investor, it makes more sense to evaluate such a pioneering departure & allocation vs. my default/closer-to-home benchmark.

I also won’t indulge in any further macro analysis here – there’s plenty in my H1-2020 post, and we’ve all had enough 2020 macro at this point. And anyway, it all simply & inevitably boils down to value vs. tech/growth: Look at the poor old FTSE 100, bogged down with banks, oils, travel & retail, etc. – and finally facing a (stronger) sterling headwind – what a beating it’s taken! [FTSE 250 was also down (6.4)%, whereas the AIM-All Share caught some US risk on/stock fever with an impressive +20.7% gain]. Frankly, the ISEQ & Bloomberg Euro 500 were lucky to average close to zero. While the S&P 500 ended up somewhere in the middle – if that’s how you can describe a return double the average index return – benefiting from a relentless tech tailwind that saw the Nasdaq enjoy an astonishing +43.6% gain. 

Which leads us to my own Wexboy FY-2020 Portfolio Performance, in terms of individual winners & losers:

[All gains based on average stake size – effectively unchanged from year-end 2019 allocations – and end-2020 vs. end-2019 share prices. All dividends & FX gains/losses are excluded!]

And ranked by size of individual portfolio holdings:

And again, merging the two together – in terms of individual portfolio return:

So yeah, in the end…I chalked up a +56.4% portfolio gain for the year!

[And, of course, my relative out-performance was nearly identical!]

Wow, even in my young & foolish (i.e. lucky) days, I’m not sure I ever enjoyed such an incredible FY return – but I’m quite certain I’ve never clocked an astonishing 61%+ gain in just six months! And believe me, it is utterly astonishing to me…this may surprise (& terrify) you, but while I obviously track my individual stocks closely, I strenuously avoid tracking my overall portfolio return most of the time. [And I hope to talk more about the logic of this soon]. I literally don’t even tot up my performance ’til after year-end, let alone think about writing this post…which is why I’m often towards the back end of the queue in terms of year-end performance & posts!

But do I think it’s luck? Well, of course not…I’d call it accelerated gains!

I’ve spent the last couple of years re-orienting my portfolio toward high-quality growth stocks, esp. those with fortress balance sheets & run by owner-operators. [Check the portfolio breakdown in my H1 post]. I saw no ultimate reason to panic because of the pandemic…and regardless, I could sleep easy with the portfolio of companies I owned:

‘…who remembers the 2014 Ebola ‘outbreak’ now? Maybe, just maybe, there’s a lesson to be learned there…need I say more?! So stand firm, don’t panic, and just make sure you’re holding great stocks…and if the market does reverse, try & swap/buy into even better high quality growth stocks!’

And of course, the killer app in my portfolio was #tech (which inc. #crypto). And again, that’s not luck: I feel incredibly blessed to have both witnessed the effective dawn & to now live slap bang in the midst of a Digital Revolution – equal in scale & impact (at the very least) to the Agricultural & Industrial Revolutions (read your Harari & Kurzweil again) – where technology’s disrupting almost every business sector AND every aspect of our lives, and COVID’s proved to be another unexpected accelerant of that change. And conversely, if you didn’t already have a major tech allocation in your portfolio last year, or at least try cherry-pick tech companies at value prices, or even just study tech to assess its current/potential disruption on the companies & portfolio you do actually own…alas, I really wouldn’t describe that as bad luck. 

And I certainly won’t excuse KR1’s extraordinary gain to my overall portfolio return. Crypto has/will continue to be volatile, and over the last few years my portfolio’s unavoidably lived & died based on how KR1 & crypto have performed each half-year & full year! So yeah, I’ll take that victory lap here too…on an investment I fully expected to be a multi-bagger from day one (& from here too)! And even excluding KR1, I’d still be more than happy with my absolute & relative out-performance last year. Not to mention, in the real world, my actual (disclosed & undisclosed) portfolio also delivered a 50%+ gain – even though KR1’s impact was somewhat diluted in my overall portfolio:

i) I had the opportunity to buy new holdings at bargain prices, ii) my Texas Hedge of increasing emerging market (actually, Asian) exposure (MSCI Emerging Markets Index up +18.3%) & a short dollar position (highlighted in my H1 post…€/$ gained +9% in H2) worked out, iii) I enjoyed two takeover offers within 5 weeks, iv) my best brokerage a/c was up +108% for the year, and v) while KR1 was a 5.5-BAGGER last year, another (undisclosed*) 5-BAGGER was a spectacular (& rather terrifying) 14-BAGGER off its 2020 low, while my (undisclosed*) top-performing 6-BAGGER is actually an 11-BAGGER today! [*But both were still mentioned in my H1 post]. 

So now, let’s take advantage of this yearly opportunity to drill down into my (disclosed) portfolio:

a) Cpl Resources (CPL:ID)

FY-2020 +45% Gain.

I couldn’t write a more perfect takeover story if I tried:

‘Cpl Resources…A Most Talented Company!’

Cpl was my last new investment thesis (a Dec-2019 post). [Apologies…a pandemic hasn’t encouraged me to embark on new theses here.] The shares subsequently rallied +25% in just 6 weeks, to reach a new all-time high…unfortunately, to be more than reversed in the March COVID-crash. But then the stock began to steadily recover & was back trading near its highs by September – something the doubters would never have predicted of a mere recruitment firm in a full-blown pandemic. Guess investors finally got the memo: In reality, Cpl boasted a cash-rich balance sheet, a business that had gradually pivoted to a recurring revenue Talent-as-a-Service enterprise & an owner-operator CEO who’d already been battle-tested in recession.

In fact, I’d focused on the CEO, noting: ‘Heraty turns 60 in a few months…I don’t doubt she’s got the energy to run Cpl for another 20 years, but milestones encourage people to re-evaluate their priorities’. And as with many of the best investments, it’s the qualitative analysis that matters – turns out, in March, as she hit that milestone & faced the potential existential threat of a pandemic, Heraty started takeover discussions with OUTSOURCING Inc. That culminated in an early-Nov €11.25/share recommended cash offer – it’s testament to Cpl the deal still went ahead in 2020! And considering the circumstances, I view the +54% premium vs. the 90 day VWAP as the true takeover  premium – similar to my overall +59% gain vs. my write-up a year ago & a fantastic investment/return given an unprecedented year. I know I’ll probably look back & consider this a cheap takeover multiple, but with the founder finally ready to sell – in the midst of a pandemic – I can respect & defer to her decision. The deal completes by end-Jan, so I’m excluding Cpl from my disclosed portfolio in 2021.

b) Applegreen (APGN:ID)

FY-2020 +2% Gain.

Applegreen was my second takeover, in early-Dec…not that you’d know it, unfortunately, from my FY gain! I published my original thesis in May-2017, which helped lift the stock out of its post-IPO doldrums & refocus investors’ attention on its unique float-driven business model & long-term growth trajectory/opportunity ahead. The shares gained +27% in the following 5 months & eventually proceeded to new highs in H1-2018.

Alas, the Welcome Break acquisition that summer heralded a new period of consolidation as investors proved wary of the significant debt taken on for the first time…generally, there was a lack of appreciation that the Applegreen team avoided an auction situation, retained a private equity partner, issued equity near all-time highs & ensured a majority of the debt was on a subsidiary/non-recourse level, to seal the deal on a once-in-lifetime acquisition of a unique motorway service area portfolio. This was all the more frustrating as it coincided with a new bull market in North American operators (like Couche-Tard, Casey’s General Stores & Murphy USA). [Not forgetting the deal appetite of trade/private equity buyers]. Then, unfortunately, the pandemic hit…and Applegreen was savagely devalued, despite being an essential retailer & continuing to pay down debt.

But it remained an easy hold for me – because of its owner-operator team, who still owned over 41% of the company. So I was confident they wouldn’t make any foolish short-term decisions, or significantly dilute existing shareholders. But again, facing the existential threat of a pandemic, it’s no surprise CEO Bob Etchingham (who turned 67 last year) was open to a takeover offer. And investors should have expected it as almost inevitable…I’d already flagged Applegreen’s evolution towards a more capital-light/operator model & I suspect the takeover offer originated from discussions to fund Applegreen’s US expansion. But Etchingham’s COO & CFO are much younger, COO Joe Barrett’s uniquely integral to the operating model, and there’s huge growth/white space opportunity ahead (with dry powder now on tap), so a Blackstone-funded MBO makes more sense here. In the end, the +64% premium vs. 90 day VWAP is again the most appropriate premium to reference. But still, a (normalized) 9.0 EV/EBITDA deal multiple barely matches the average US C-Store multiple – despite the generous premium – which tells you it’s a great deal for Blackstone & the Applegreen team. But investors still have to wake up each day with a mark-to-market mentality & clearly that’s a premium to grab given the circumstances.

And so, inc. dividends & a significant sale along the way to reduce position size, it’s not a great return…but not a bad return either, in terms of long-term market returns. [I have a funny/related story to tell management (& readers) when this is done/dusted]. And there’s still maybe a tiny/fleeting window for a new bidder to appear – as problematic as that might be for the Applegreen team – but stranger things have happened, look at the recent Codemasters saga. So I’m happy for the moment (deal should close in March) to hold the shares as dry powder in my portfolio…but overall, it makes sense to also exclude Applegreen from my disclosed portfolio in 2021.

But it begs a question:

If you believe you own a true long-term compounder – which can be incredibly difficult to actually buy & hold – what happens when management really stretches the business operationally & financially (as will inevitably happen at some point) to pursue a transformational investment/acquisition?

Do you walk away & hope for an eventual fresh re-entry opportunity…or grit your teeth & stick with it despite the elevated price & business risk?

And so, pressing on with the rest of my disclosed portfolio…

[NB: I did highlight buying some new holdings in March…but please note I also added substantial new funds to my portfolio last year. It would be perfect to say this also happened in March, but in reality I freed up the money last summer from an outside investment (i.e. outside my disclosed/undisclosed portfolio here). But hey, who’s complaining…I actually realized an approx. +50% one year gain (vs. mid-2019), and H2-2020 was obviously my best half-year ever! I highlight this as many of my year-end portfolio allocations are significantly lower now, as noted below, due to the impact of these new funds (also devoted to building/adding new holdings) & bigger gains/multi-baggers elsewhere in my portfolio.]

i) Saga Furs (SAGCV:FH)

FY-2020 +9% Gain. Year-End 1.5% Portfolio Holding.

After a +34% gain in 2019, the pandemic inflicted a brutal 50% share price decline for most of the year. But in November, Saga Furs ended up last man standing…with North American Fur Auctions going bust a year ago, and breeders/shareholders of Kopenhagen Fur choosing a wind-down (a good reminder of Saga Furs’ asset backing) after a government decision to mass-cull Denmark’s mink population. As the only global fur auction house, this should obviously change the economics of its business model – aided by a recent significant pandemic-related restructuring. Not surprisingly, the shares doubled, delivering a decent +9% gain in 2020. 

Looking back over the last 5 FYs, Saga suffered three bad years – limited its loss to an average €(0.43) – and boasted two good years of €2.05+ EPS. Post-pandemic, it’s reasonable to assume it can re-attain the latter run-rate. [More sustainably, assisted by a boost in auction prices & even volumes, due to Danish/Kopenhagen Fur situation]. So Saga may still be a deep value bargain today, trading on a prospective low single-digit P/E. Or even a potential multi-bagger, noting it earned up to €6.00 EPS pa back in the 2010s – but that will depend entirely on China, whose cheaper/lower quality producers have eviscerated European market prices in recent years. However, even though Kopenhagen’s no longer a potential deal partner, the odds of an (emerging market) acquirer showing up are perhaps better than ever now…it’s notable both houses may also have significant intangible/luxury brand value, with Kopenhagen’s CEO highlighting potential Chinese buyers of its brand for up to 1 billion DKK ($163 million)! But for now, Saga Furs remains a stock I’d potentially buy (more of) on good news, not a bad price…

ii) Tetragon Financial Group (TFG:NA)

FY-2020 (22)% Loss. Year-End 1.8% Portfolio Holding.

Tetragon’s my only loser of the year, with a (22)% loss leaving the shares flat for 8 years now. [Albeit, it pays a generous 4.2% dividend (previously, a 7.9% yield)]. Deservedly so, its long-time haters will insist! But as with any deep value stock, the value gap’s somewhat irrelevant – even though its NAV discount’s a massive 60% – as one never knows when it finally gets reduced/eliminated. What matters is whether intrinsic value’s actually growing, stagnant, or being destroyed… And excusing a flat 2020 due to the pandemic, Tetragon actually boasts 8.9% pa 5 year NAV growth (despite 2020). And Tetragon Asset Management AUM‘s almost doubled in the last 5 years, reaching $28 billion. Because Tetragon’s an alternative asset manager today, and new investors are buying a stake in those asset management businesses (plus net cash), with everything else essentially thrown in for free. 

But that’s not the narrative you’ll hear – because negative sentiment ultimately exists because of a bad price chart & disgruntled investors. And that’s management’s fault & only they can address it… Some years back, I suggested they needed some crypto pixie-dust – I did NOT intend for it to be a $150 million stake in Ripple Labs! Which looks a bit foolish with the SEC launching a shake-down suit…albeit the nay-sayers are  choosing to ignore XRP’s gains since Tetragon invested a year ago, AND since the SEC lawsuit! [And the Ripple deal never helped the share price…there’s no reason its current malaise should affect TFG now!?] Not to mention, the last tender offer was a mere $25 million & the long-promised asset management spin-off/IPO‘s a distant memory now (despite peer IPOs & an alternative asset manager bull market in more recent years).

As with any reputable (& capital-conscious) asset manager, required seed capital should be pretty minimal (& get recycled regularly). There’s NO possible justification for most of Tetragon’s portfolio – let alone its event-driven equity investments – when shareholders endure a sustained 40-60% NAV discount. While management hasn’t screwed over shareholders since – as it did notoriously, post-GFC – they’re obviously content here to collect Tetragon’s management/performance fees, on a contract external to Tetragon itself. So while upside potential’s substantial – in terms of underlying NAV & continued NAV/AUM growth – it can only be realized & released by management, either via a (semi-) liquidation of Tetragon, or a deal. [And that only occurs with management’s endorsement, likely dependent on a minimal non-compete, or being acqui-hired]. Again, one to maybe buy on good news, but not on a bad price…

iii) Donegal Investment Group (DQ7A:ID)

FY-2020 +4% Gain. Year-End 1.9% Portfolio Holding.

After a +16% gain in 2018 & a huge +49% gain in 2019, Donegal settled into a holding pattern last year, with a mere +4% gain. This reflects another welcome (but not unexpected) redemption offer – at €12.50/share, for 22.3% of o/s shares – but was offset by a pandemic hit to its speciality dairy business, NOMADIC. On a FY basis, the division was profitable, but sales dropped sharply in H2 (to end-Aug) due to losses in its food-to-go channel sales. But noting the brand equity here (NOMADIC surpassed Muller in FY-2019 as number one yogurt brand in the GB Convenience & Impulse channel) & a history of double-digit/20%+ revenue growth, we can have confidence NOMADIC will ultimately regain its prior €18 million run-rate & surpass €20 million in revenue, attracting more potential trade buyers. As for seed potatoes, revenue growth remains elusive, but the business appears to be far more robust today & delivering more consistent/near-peak margins.

So Donegal’s a waiting game for now, but also a cheap & economically insensitive special situation you can rest easy owning. I still anticipate it will surpass my original €16.51 fair value target (& ultimately, €20.00/share)…looking back, it’s astonishing I published my original write-up at €3.63/share & my +355% upside potential was predicated entirely on a special situation (i.e. a slow liquidation) that’s unfolded almost precisely (but not as quickly) as expected. The end-game should come with the next divisional sale – presumably, NOMADIC. At that point, Donegal will be too small & make little sense as a public company – an MBO/formal sale provides an exit. My only complaint is a sorely reduced holding size today – for reasons I highlighted above – new holdings have been my primary focus, but I’d like to rebuild my position here also…

iv) VinaCapital Vietnam Opportunity Fund (VOF:LN)

FY-2020 +26% Gain. Year-End 3.7% Portfolio Holding.

After two years of treading water, amidst local market consolidation & contracting market multiples, VOF came up trumps in 2020 with a +26% gain. COVID was an obvious driver, with Vietnam another embarrassing example (for the West) of how Asia’s dealt with/moved past the pandemic. Trump’s escalating anti-China rhetoric helped, though this may well get toned down/walked back now by Biden (at least initially). But longer-term, for both economic and/or political reasons, we can expect to see robust FDI inflows & a continued diversion of global/China supply chain into Vietnam, now one of the most globalized/export-focused economies in the world. Which reflects its young, cheap & well educated work-force – who’ve been stepping up & attracting higher-value jobs/industry – Vietnam’s now one of the largest smartphone manufacturers globally.

In the wake of the pandemic, it’s now enjoying a Goldilocks scenario of falling inflation (at 1.5%) & accelerating economic growth, which we can expect to regain its consistent 6-7% GDP growth trajectory (noting also a stable dong). And with its population now approaching 100 million, we’re seeing (just like the rest of Asia) a fast-emerging/growing middle class also fueling a domestic consumption boom. Even being branded a currency manipulator by the US has been shrugged off by the market! [And maybe rightfully so – in reality, it’s not clear how severe a political stick this is & it may be reversed by Biden’s administration anyway]. And the VNI’s technicals are also timely & compelling here – once 1,000-40 broke, a quick rally to 1,200 was inevitable. If this level breaks (a triple top for a dozen+ years) we may have a MONSTER rally on our hands. So while a near-4% holding’s acceptable for a single country/frontier market fund (esp. with a sub-10% NAV discount), I’m keen to average up if/when that 1,200 level breaks decisively. I’ve considered Veil Enterprise Investments (VEIL:LN) as an incremental buy, but on balance I still prefer VOF for its multi-asset approach, its superior long-term NAV performance & not least its valued (albeit, under-the-radar) multi-bagger status over the years!

v) Record (REC:LN)

FY-2020 +24% Gain. Year-End 5.5% Portfolio Holding.

Record’s repeated its 2019 performance with a +24% gain in 2020. This is well deserved: No portfolio holding reminds me more of Applegreen & Cpl Resources…it’s also been somewhat misunderstood* & consistently undervalued over the years, and is still headed by founder Chairman Neil Record (who turns 68 this year) & owns 29%+ of the company. It also boasts an unappreciated & over-capitalized balance sheet that’s begging for another tender offer (Record doesn’t pursue acquisitions). 

[Biggest misconception is that Record’s a slow/no-growth company, with its best years behind it. In reality, its high-fee currency for return business was basically destroyed by coordinated post-GFC global central bank action…I mean, can you even name a surviving (let alone, successful) FX/macro fund since then?! In response, Record’s spent over a decade re-focusing/rebuilding AUME via its recurring revenue passive FX hedging business – which at 3 bps pa is a fraction of its currency for return fee & required Record to totally replace & rebuild its revenue/P&L.]

Now all the heavy lifting’s done, Neil Record obviously wants an accelerated growth trajectory – and we can presume he’ll ultimately trigger an eventual sale process here, whether this new growth strategy delivers or not (obviously the former implies a drastically higher enterprise/sale value!). To that end, the former CEO was replaced in Feb by Leslie Hill (former Head of Client Team & a long-term stakeholder…Record’s pension clients value continuity) & an external hire Sally Francis-Cole as Global Head of Sales. Since then, despite the pandemic & long lead times, they’ve actually delivered one of/if not the biggest win in Record’s history – an $8 billion dynamic hedging mandate in Sep, which will scale up/fully impact the FY-2022 P&L (from April)!

Again, it’s actually a dynamic hedging mandate, which would normally attract an approx. 16 bps pa fee (i.e. $13 million pa in new revenue, vs. current FY revenue of £25.6 million & £7.6 million operating profitbut one should presume a fee discount for scale). And like any asset management business (with sufficient AUM), Record requires negligible incremental expense & investment to service this mandate – so after the usual 25-35% group profit share, this new revenue stream essentially drops straight to the bottom line! Today, Record trades on a sub-15 P/E multiple (an 11.3 P/E, ex-net cash/investments), so even with some level of incremental/up-front investment to pursue/win other new mandates, we can expect a substantial up-lift in FY-2022 EPS (which arguably is significantly under-estimated in consensus estimates), a re-rating of Record’s valuation & share price, plus an eventual sale. Meanwhile, Record offers a 6.0% yield & the possibility of a pre-emptive takeover offer – the far higher enterprise multiples & market caps of Alpha FX (AFX:LN) & Argentex (AGFX:LN) (despite their relative immaturity & stumbles to date) are a nice reminder of Record’s valuation/M&A potential here (esp. noting its superior recurring revenue model). Technicals are once again a critical piece of the puzzle…a decisive break of long-term resistance at 50p/share would herald a 75p+ & even a triple-digit share price!

vi) Alphabet (GOOGL:US)

FY-2020 +31% Gain. Year-End 8.4% Portfolio Holding.

I’m often quiet & have nothing new to write about Alphabet, despite it being (one of) my largest holdings over the last few years. But this is high praise indeed…Alphabet’s a highly dependable growth juggernaut & a core portfolio investment that allows me to sleep easy! And while its growth is certainly not incremental, its business & operating strategy is deliberate & inevitably incremental – they keep beta-testing/iterating & can afford to delay monetization as long as it helps accelerate long-term adoption/growth (this is how you end with multiple billion user products!), and don’t hesitate to keep pouring an incredible amount of research & investment into improving products even as well-established & dominant as Google Search (which, of course, we all take for granted). [And realistically, this also helps mitigate some of the recurring anti-trust scrutiny]. This is how, as an investor, you know everything can still keep moving up & to the right…

Granted, anti-trust risk will remain (semi-permanent) headline noise, but possible fines/penalties present no meaningful financial/valuation risk, any attempt to restrict or control the business itself would appear fruitless (& anti-consumer), while any effort to spin-off/break up units should frankly be greeted with open arms by investors. All in all, this is all about political posturing & billion-dollar shakedowns – and let’s not forget the risks Facebook faces, for example, are infinitely greater than Alphabet/YouTube, noting the current levels of political & social polarization in the US.  On the other hand, succession issues are now taken care of, with Pichai & Porat firmly in the driving seat – this should assure us of a more likely path to spin-offs, sales/co-investments, share buybacks, etc. going forward, but it may happen later rather than sooner, as long as Alphabet continues delivering this kind of growth. However, revenue growth did hit an air pocket early in the pandemic, reflecting an initial/abrupt halt in many ad budgets & then a more deliberate/selective approach in corporate marketing/CAC strategies – but underlying revenue growth’s already bounced back to +15% yoy in Q3 & looks all set to regain Alphabet’s average 20% growth rate as marketing spend normalizes & continues to migrate online (primarily to Alphabet & Facebook). And considering the quality of Alphabet’s historic & near/medium revenue & earnings growth trajectory, a sub-28 P/E for FY-2021 still looks extraordinarily good value, esp. within the overall context of many other tech sector valuations.

And from a Sum-of-the-Parts perspective, Alphabet looks as compelling as ever: Enterprise Value’s around $1,055 billion today. YouTube is on a $24 billion+ revenue run-rate (inc. a likely $4 billion+ of non-ad subscription revenue), Google Cloud‘s running at about $14 billion & both boast 30-40%+ revenue growth rates…apply some relevant market/IPO/SPAC multiples & that’s a massive chunk of the current EV accounted for right there. Then there’s Verily, DeepMind (how do you put a valuation on that?), Waze & Google Maps (just getting started now, in terms of monetization…and finally, Waymo itself, whose prospective blue-sky valuation’s oscillated up to $175 billion & back down to $30 billion in the last couple of years (but what’s it worth today, noting Tesla‘s more recent trajectory?!). And I’m still very comfortable that capitalizing Alphabet’s $(4.4) billion in Other Bets’ annual operating losses is justified & will ultimately pay off. Play around with the numbers any way you like…but regardless, it’s easy to see the core Google Search business is still just as cheap & compelling today as when I first wrote it up almost 4 years ago, even though $GOOGL’s gained 100%+ since! 

vii) KR1 (KR1:PZ)

FY-2020 +447% Gain. Year-End 13.8% Portfolio Holding.

‘KR1 plc…The #Crypto #Alpha Bet!’ 

And last, but certainly not least, it’s KR1 plc…what do you write about a 5.5-BAGGER stock?! Might as well just crack open another bottle of bubbly & raise a glass! And surely I covered all the angles in my KR1 magnum opus back in November? Which begs the question: If I’m arguing ‘we’ve now reached a point where a modest 3-5% crypto allocation arguably makes sense in any portfolio’, why on earth’s my KR1 holding a colossal 13.8% of my portfolio? Well, mostly because it’s an actual 5.5-bagger…but I do think there’s a greater truth (& perspective) to be shared. I know it’s been frustrating for shareholders to see certain garbage/promotional crypto stocks (none of which boast a remotely similar track record) out-perform KR1’s share price by an absurd multi-bagger margin recently, simply because they happen to be in the right place at the right time (& KR1’s still stuck on the Aquis Stock Exchange)! I can empathize…BUT it doesn’t stop me celebrating, OR sleeping at night.

Because I know it’s a particularly virulent & misleading form of hindsight. And for me, it’s all about beta & alpha risk – in reality, there was little chance I’d buy any of KR1’s peers last year (or ever…don’t forget, rejecting them is how I discovered KR1 in the first place!). And if I did, my perception of their beta (& alpha generating abilities) would have severely restricted my holding size (to a fraction of my KR1 holding). And as potential multi-baggers, it’s unlikely I’d ever have hung on to ’em with the kinda strong hands I have for KR1. As always, don’t agonize & waste time over hypothetical woulda/coulda/shouldas…devote your time & energy to auditing & making better buys. And that’s what KR1 is – read my post again, it’s a once-in-a-lifetime chance to invest in a unique team, a unique portfolio & a unique crypto opportunity – and accordingly, that’s how I’ve hung on to an ever-increasing position & enjoyed a +447% gain last year…which has since turned into a 9-BAGGER today! 

But clearly, the team’s delivered four & a half years of incredible +120% pa NAV returns, I feel like I’ve played my part in eliminating what was a pretty consistent 20-40% NAV discount last year, and as we look ahead today there’s obvious levers the team can pull to create more value in the stock price/valuation itself. These were my specific recommendations:

But since then, we’ve already seen steady progress: KR1 joined the Apex segment of Aquis, it’s appointed Rhys Davies (with a decade & a half of activism & value creation behind him) as an NED, invested in 4 new projects, given a fresh update on the scale & value of its Polkadot staking activities, realized multi-bagger gains from its FunFair holding, and most recently confirmed the majority of the team’s 2020 bonus will be paid out in new KR1 shares, to be issued at a price equal to the year-end audited NAV…now there’s the (additional) #skininthegame shareholders were hoping & looking for! And we all know incentives drive behaviour, so we’re assured the team’s in full alignment here to enhance KR1’s reputation & track record as a leading digital asset investment company globally, and to deliver & maximize long-term value for all shareholders.

Meanwhile, KR1 gained +25% yesterday…and today it boasts a new all-time high in its portfolio & NAV, so a new share price all-time high would be no surprise ahead of the weekend. But the most important (& perhaps most unappreciated) development is seeing my estimate of KR1’s #proofofstake profit now surpassing a $7.0 million pa run-rate…that’s triple my Nov estimate & well on the way to the $1 million/month staking forecast Keld van Schreven offered here! Apply a similar multiple to what the #cryptominers are currently trading on – ignoring the fact that staking profits are obviously superior to mining profits – and it’s astonishing how undervalued KR1 still remains, when you factor in/adjust its portfolio to also reflect its staking operation! 

And so, I raise my glass & wish you a Happy New Year – 2021 only gets better!

But I obviously won’t forget the unprecedented year we’ve had, or my unprecedented +56.4% portfolio gain…everything I’ve written above is mere history now, so I hope to revert soon & examine what I’ve actually learned from my 2020 experience.

As always, that’s hopefully where the real value lies…



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