CIO Insights - 15 February

Hi everyone 

So, Donald Trump won’t be impeached, COVID-19 clearly isn’t going away anytime soon, there are just 2 weeks left of the Australian summer, local companies are reporting on their latest 6 month performance, and the Chinese are celebrating their New Year, meaning their markets are closed for a week or so. 

Last week marked a proud moment for the HM1 family. On Friday, the Australian Financial Review reported on the Top 50 Corporate Philanthropists in Australia. We made the list in our first full year of operation, having donated $9.2m in the year to June 2020 to various medical research institutes around Australia. For the record we were #32, and the way this year is tracking, hopefully we can jump into the top 20 for 2021. If you have an AFR subscription, you can read about it here.  

Today’s NTA numbers were $4.66 (pre-tax); $4.34 (post current tax) and $4.11 (post all tax). We started the month at $4.28; $4.00; and $3.84. The change in pre-tax NTA is a fairly good proxy for investment performance, and so you can see we have started the month with some solid gains. Pleasingly, this has been in both parts of the portfolio (core and conference). Much of this has come from share price moves after the companies concerned have reported full or half year earnings. As you know, our portfolio consists of the highest conviction stock selections from our select group of managers, who have conducted countless hours of deeply analytical research into the fundamentals of the company they recommend, as well as the sectors the stocks are in. Many of my previous updates have gone into various examples of this, with the most publicised one obviously being the opportunities that existed in the electric vehicle sector, and why Tesla was best placed to benefit from this. This is fundamental research at its core, and it is how our portfolio is constructed. Our expert managers find sectors they believe are set to change the way we live, and what our expert managers believe are the best stocks to be invested in to benefit from such changes. 

This is completely different to what we saw from the retail investors in GameStop (and others) recently. They almost certainly did not conduct research into the fundamentals of the companies in which they bought shares. As I explained in my last investor update, these people bought them collectively, in an attempt to trigger stop losses by short sellers. In many individual cases, people did profit from this strategy. But many have also lost a lot of money. My point is that there are many reasons people buy and sell shares. My own view is that I want to be invested in fundamentally sound businesses, and not just in the hope that someone might be forced to pay a higher price giving me an opportunity to profit. To me that is ‘un-calculated risk’. Give me calculated risk anytime. 

Last week we saw another reason why people buy shares. Two of the stocks pitched at last November’s conference were Teladoc Health (by Cathie Wood, of Tesla fame); and Ping An Good Doctor (pitched by one of our new speakers, David Halpert, from Prince Street Capital Management). Both stocks are in the tele-medicine sector, with Teladoc focused on the US market, while Ping An Good Doctor (PAGD) is focused on the Chinese market. I thought both presentations were excellent, with very compelling reasons to believe the sector was going to be a game changer in the world we live in. 

Fast forward three months to last week, and Teladoc was up some 60%, while PAGD was flat.  

So, what happened last week? It was reported that Cathie’s fund (ARK Invest) had recently purchased a stake in PAGD. I reckon you can work what happened next – yep - a whole lot of people who have seen (and perhaps enjoyed) the fruits of Cathie’s labour (her deep analytical research into disruptive technology sectors/companies) followed her actions, and also bought the stock.  

Last week PAGD was up 20%, and David’s own thesis on PAGD has I guess been somewhat validated.  

Is this behaviour any better than what we saw with GameStop and co?  

To me, the investors that followed Cathie have followed the actions of someone (an expert no less) who has conducted a thorough analysis into a company, which not many GameStoppers (is that a word?!) likely did. If Cathie buys a stock, we know that there has been an awful lot of work done on the future viability of the company she buys into, as is the case with every investment in the HM1 portfolio. 

An old adage I was once taught was that “wise people know what they don’t know, and know people who know about those things they don’t know about themselves”.  

Think about that – it makes a lot of sense. 

 

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.