CIO Insights - 15 November

Hi everyone
 
Here we are, in the back end of November and just 46 days until we sign off 2021 – which, despite the challenges of the pandemic, still seems to have been one of the quickest years yet.
 
Hopefully you saw the more formal October monthly investment report last week, where we give as much transparency about the portfolio as possible, both in terms of core and conference portfolio performance, and changes in stock positioning where we can, as well as any trends we are seeing in the ever-changing investment landscape we find ourselves in. In between the monthlies, I try to use these missives, or Insights as I’ve been calling them, as a less formal/easy to digest piece for our subscribers, to help readers understand what are often complex topics. I’ve seen so many different investment reports over the years, and I’ve often wondered how many of the mums and dads out there even understand what managers write, as they seem to assume a higher level of understanding of industry lingo than actually exists. The greatest compliment I received was when one reader told me that ours was the only investment report she reads because it’s the only one she can actually understand. Thanks again AC!
 
As I mentioned in the monthly last week, we are currently in the process of disposing the remaining 2020 conference recommendations that were purchased in November/December last year. Personally, I think the 11-month (to October 31) investment return of the current conference portfolio of 23% is pretty good, regardless of any benchmarks, given that the historical long run return on equity investments is generally in the 8-10% range. That said, I’m also actually a bit disappointed in how we’ve gone this year. In the previous two conferences of 2018 and 2019, nearly every single stock pitched (and invested in the HM1 portfolio) delivered positive returns. The 2020 series has had a much lower success rate as gauged by the number of individual stocks that have delivered negative returns, despite the rising tide of the global equity market in 2021. It’s no secret that two of the larger losses have been incurred by the tele-health stocks that were presented – Teladoc (US based) and Ping An Good Doctor (Asian based). When I listened to the managers pitch these stocks, I got really excited, and I genuinely thought the concept would become an entrenched way of life. Despite this, the share prices have performed poorly for us this year. There is no escaping this. What it hopefully demonstrates to everyone is that even the best stock pickers don’t get every stock right, and in the shorter-term, great ideas can either play out more quickly than expected, or indeed may take longer to come to fruition, causing short term losses.
 
We’ve seen stocks like Yeahka, Bill.com, and Hello Fresh Group deliver gains way above what we could have possibly expected, just like Tesla, Spotify, and The Trade Desk did for us last year. This year we’ve had Teladoc, Ping An Good Doctor and Twitter deliver losses that were greater than we thought would happen. It’s going to happen, especially in the crazy world we find ourselves in. That’s why I remind you why I believe the overall 2020 conference portfolio return (+23%), which, although lower than the 2019 conference return (+65%) and the 2018 return (+33%), is still satisfactory.
 
Next week I’ll delve into the core portfolio as best I can with the restrictions we have.
 
Last week I spent time with the conference production team, listening to the practice pitches of the 2021 conference speaker line-up, and giving any input I felt might be helpful. As I’m sure you’ve seen, we have an exciting mix of new and returning speakers, all of whom can’t wait to share their wisdom and insights with the audience on December 3, and with the HM1 family over the next 12 months to hopefully deliver another pleasing outcome for our shareholders. These men and women are in the engine rooms of investing, they understand what we need over the next 12 months, given that’s the maximum holding period for the recommendations, and are completely aligned with our risk management guidelines, our beneficiaries, and most importantly, you.
 
On top of all the stock pitches, the audience will get to hear the exclusive Q&A Mark Nelson is having with the one and only Charlie Munger, at 11am on December 3 (put that time in your calendar folks!), as well as what will no doubt be a fascinating presentation by one of the co-founders of Moderna, MIT Institute Professor Robert Langer. We are privileged to have such high-quality keynote speakers, aren’t we?! Reminder that shareholders can access 20% off conference tickets using the discount code: HM1-CONF at the checkout here.
 
Finally, congratulations to the Men’s T20 cricket team, who won the World Cup overnight! It seems like just a few weeks ago the media were slamming them as a team that had no chance of even making the semi-finals, let alone winning the Cup! Talk about responding with action! Well done Justin Langer as coach, and to the entire team, who all played their part in winning this event for the first time!
 
Stay safe

Rory Lucas
Chief Investment Officer
Hearts and Minds Investments Limited

Reminder: these are simply my general views and should not be taken as investment advice

 

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DISCLAIMER: This communication has been prepared by Hearts and Minds Investments Limited (ABN 61 628 753 220). In preparing this document the investment objectives, financial situation or particular needs of an individual have not been considered. You should not rely on the opinions, advice, recommendations and other information contained in this publication alone. This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Past performance is not a reliable indicator of future performance. This document may not be reproduced or copies circulated without prior authority from Hearts and Minds Investments Limited.