Newsletter VI – Return of the Hourglass
Week Recap
First off this week, I wanted to recap what’s been going on at Hourglass before I dive headlong into the week in review, including a recommended read, an investor spotlight, the weekly watchlist stock, and the news (including some very exciting news for a fellow investor, so make sure to read that segment all the way through).
After a very brief hiatus while I put some work into rejigging my format and dedicated some (very needed) extra time into an article, I am happy to say I’m back! My return very happily coincided with my sixth newsletter, which let me make an extremely nerdy Star Wars reference for the title. A happy day all around. Thanks for your patience everyone, and without further ado, let’s hop in.
News
Another Coup… This Time in Gabon
Economic instability, rising consumer prices, and unsustainable costs of living continue to play their part in creating civic unrest in countries. While this can be seen across the globe, some countries, most recently Gabon, are taking a more rogue-ish approach to handling their discontent. Gabon, a coastal mid-western African state, is the most recent African country to undergo a coup, with military figures declaring leadership of the country and the ousting of the former president on August 30th.
I discussed a similar takeover of military officials in Niger several weeks back, and it’s clearly a continued issue for concern as economic conditions slide further and more countries are bolstered by the lack of serious political ramifications against successful coups. However, Niger and Gabon are just the latest episodes in a wider and more concerning series as the entire continent of Africa increasingly turns its back on democratic regimes. From the 1960’s to the 2000’s, there were an average of 40 coups, both successful and unsuccessful, per decade. As large democratic nations increasingly poured their geopolitical influence on the region, the continent became much more stable; from 2000-2010 there were only 22 coup attempts, and just 17 from 2010-2020. This stability brought in greater amounts of investment dollars and the wider opinion was that Africa was quickly becoming an investable market. The three short years of the 2020’s have, unfortunately, witnessed a reversal of this trend, with 14 coups already. It’s a vicious cycle – investment inflow, though not always as beneficial as one might think, can still do a lot of good for building businesses and services within a country, as well as reducing reliance on resources/raw materials. Given these larger trends, it seems investors will have to wait a while longer to truly feel safe planting their money in Africa.
India’s Killing the Game
Speaking of investable spaces, India is quickly establishing itself as one of the more attractive ones among emerging markets. Despite a tumultuous year for climate and weather-related effects and the subsequent effects on agriculture, which remains one of India’s largest industries despite strong growth in other sectors, India was still able to drive an impressive growth clip in GDP.
While tech, service, and textiles companies, as well as polarizing businesses like the Adani Group, garner much of the world’s attention, one of the more interesting spaces I see in India is the renewables market. Despite criticism on their renege for phasing out coal by 2050 (pushing it instead to 2070) during the 2021 COP summit in Glasgow, India has seen impressive growth in the renewables space, led largely by cost efficiencies (the lifecycle cost of solar power in India is lower than that of coal assets) and a private industry boom that plans to invest $50bn in renewable energy infrastructure over the coming years. Adoption has been swift too, with a 50x increase in solar installations over the last decade and 5% of India’s energy consumption coming from renewably-generated sources already. While there are a lot of investable places in India, I view this as one of the largest long-term tailwinds as the country looks to advance from coal-generated power for health and environmental reasons.
Sonny is Getting Married!
Last, but certainly most importantly, I want to extend a huge congratulations to Sonny over atSecret Sauce Investingon his upcoming Big Day – he’s getting married! If his marriage skills are half as good as his research, then his partner is very lucky indeed.
Sonny, all the best to you and your soon-to-be partner in crime!
And if you aren’t already, subscribe to Sonny’s Secret Sauce Investing below so you can receive his first article as a hitched man, a write-up on Nike, in your inbox!
Secret Sauce – Company Write Ups
Weekly Read
Red Notice – Bill Browder
“The sensation of finding a “ten bagger” is the financial equivalent of smoking crack cocaine.”
There’s no tips or investment wisdom to be found on the surface of Bill Browder’s ‘Red Notice’. There is, however, no shortage of suspense as the author takes us inside the world of Russian investment opportunities following the dissolution of the Soviet Union and the privatization of markets. Bill Browder was one of a very few investors that spotted the opportunity in Russian oil early on and built the Hermitage Capital hedge fund to invest in companies that were trading for pennies on the dollar.
The book begins to read more as a thriller when, faced with corruption and the interference of Russian oligarchs, Browder begins to fight back by exposing corrupt officials to promote shareholder rights. His initial efforts were in line with one Vladimir Putin, who you may have heard of; Putin at the time was building up a powerbase by fighting to get Russian oligarchs under his thumb, and Browder’s work to expose them was useful in helping Putin to consolidate power. The dynamic shifts, however, when Browder’s efforts begin to expose members of Putin’s own administration.
The story then takes a gloomier but highly thrilling shift as it begins to follow Browder’s detainment, his fund’s exit from Russia, the imprisonment of his lawyer, and Browder’s subsequent fight for justice. The conflict would ultimately balloon from a petty squabble between a hedge fund manager and a corrupt state to international geopolitical tensions, sanctions between the U.S. and Russia, and the ultimate passing of the Magnitsky Act that continues to have ramifications into the modern day. If you’re looking for a break from your portfolio/research while remaining in the investment sphere, you can’t do much better than ‘Red Notice’.
Investment Tidbit
This is a new segment that I’ll be including in all future newsletters, wherein I cover some fun investment advice/thoughts/concepts that have been running through my mind for the week. For this first iteration, I’d like to talk about the highly personal nature of investing.
Every investor has a near surplus of information available to them; between services like Seeking Alpha and Motley Fool that make recommendations based off short-form content to investors like myself that are producing more long-form oriented content that ranges in quality from eh to fantastic, there is so much information that’s always just a few clicks away.
As a result, it can be easy for investors to become overwhelmed; Billy Bob Joe is telling you that it’s best to run a concentrated portfolio with only 5-10 stocks because Warren Buffett said so one time, while Jane Doe is telling you that diversification is key, and you should hold anywhere from 25-50 stocks for downside protection. Cat Guy Cam is telling you if you aren’t a value investor, you will certainly underperform the market, while Dog Breath Doris says you should only invest in potential 10 baggers and #gotothemoon. It’s a lot, and even for experienced investors the overload of information can be a distraction.
This is why I believe investing is such a personal journey. If a person walks through life simply parroting what other people do, it’s likely that they will never find happiness. Investing is similar. Exclusively borrowing the strategies of others is unlikely to create a successful investor, especially if the ideas that they’re borrowing aren’t compatible with their own nature. While the amount of information we have access to as investors can be a hugely beneficial advantage compared to the individual investors of even 20 years ago, it’s important to have a core portfolio strategy at the foundation of all reading and research. Without this, it becomes easier to be swayed into someone else’s brand of thinking without relating it to one’s own needs and comfort levels.
Whether you invest for growth or value, and whether you run a highly-concentrated or an extremely diversified portfolio – these aren’t really things anyone else can tell you. One must decide for themselves how they will invest, and while learning from the greats and research is certainly helpful and can always help to inform decisions, it is important to add these into one’s personal frameworks, rather than simply parroting the efforts of others. What works for Billy Bob Joe may not work so well for you (and definitely don’t listen to Dog Breath Doris).
I am personally able to avoid getting overwhelmed by taking all information I read with a grain of salt (I often tune out entirely when someone is trying to prescribe specific investment strategies to me without any knowledge of my specific goals or needs) and by referring constantly to my own portfolio strategy. I refer to this as my Constitution – it’s similar in nature to the Constitution of the United States, wherein smaller rules and laws can be changed around it as circumstances change and new information comes to light, but everything must always adhere to the core values, set down in writing, that I consider central to my ability to succeed, both from a financial and a personal happiness standpoint. This Constitution represents my personal journey through life, the things that I have learned about myself, and my approach to investing, and I think this ‘Constitutional framework’ can be useful for other investors to apply in building their own strategies.
Investor Spotlight
“From 0 to 1 in the Stock Market” – Giuliano
From 0 to 1 in the Stock Market is a masterclass in how to perform industry and business analysis through long-form content. You can find inspiration on new companies and compounding stalwarts from their research service, which serves as a great one-stop shop for finding everything you need on businesses you may be interested in (or on ones you don’t know that you’re interested in before reading the article!). Giuliano also publishes earnings reviews as they come up, as well as regular articles on investing concepts that are insightful and introspective. I’ve found these incredibly valuable articles to read as they make me pause and really think, and I truly couldn’t offer higher praise than that to a writer! One of his more recent articles, Compounding Research, was a fantastic read and a perfect example of Giuliano’s writing style and his ability to make you question your own processes (in a good way) – I can’t recommend that article or the service as a whole enough.
On a more personal front, I finally plucked up the courage to ask Giuliano for some feedback on my own research. His response was extremely helpful, kind, and quick despite his busy travel schedule. So major props to “From 0 to 1 in the Stock Market” for being a stand-up research service, and to Giuliano for being a stand-up individual! Make sure you subscribe below to get their in-depth research and investing concepts sent to your inbox as they come out, and you can also find Giuliano on Twitter.
From 0 to 1 in the Stock Market
This Week’s Watchlist
Supremex – Ticker: SXP
Talk about a Peter Lynch special! Supremex is one of the largest manufacturers of shipping labels, packaging, and envelopes in North America. Now, this is about as boring as a company can get, but I love it. It has many of the hallmarks of a Lynch-esque investment; a boring company within a boring industry, but growing at a decent clip (+24% TTM rev growth!), attractive margins, a high return on invested capital, and extremely attractive valuations. It’s certainly underappreciated by the Street (given that it’s around $120m in market cap this is unsurprising), as it’s trading below book & revenue values, and only ~1% of the business is owned by institutions. Insiders are buying back a ton of shares, and they generate a decent amount of free cash flow considering the size of the company.
It’s also facing industry tailwinds and wider secular growth with the rise of e-commerce and the copious packaging that goes along with that. The more I read into this company, the more impressed I am. I will definitely be doing some thorough research into this pronto, as the valuation looks incredibly attractive to me from a brief glance and the stock falls into my focus on small-caps and a more recent shift towards boring companies. Plus, it’s a homegrown Canadian lad!
What’s New at Hourglass
Here’s what’s come out this week:
Episode VI – Mt. Rushmore of Investing
The newest episode of the Hourglass Investing Podcast came out on Wednesday, and in it I talk about the investors I would put on my personal Mt. Rushmore of investing greats; their different investment strategies, their approaches to the market, and how the unique ways they found success. All of the investors I talk about are incredibly intelligent and have a lot of wisdom to offer the self-directed investor. Listen below, and let me know which investing style you most closely follow!
Deep Dive Article – Schrödinger
I finished up one of my most difficult articles yet and published it on Monday. I knew when I started looking at a software that blended computational chemistry/physics and machine-learning methods that I was in for a doozy, and I was not disappointed (though at time a bit overwhelmed). Still, it was a company I couldn’t pass up the chance to do a thorough deep dive on, given the exciting platform they’re creating and the immense possibilities it can help to unlock.
SDGR 0.60%↑ is blending manual science and recent surges in the capabilities of AI and machine learning to reinvent how therapeutics (drugs) and materials are discovered. The discovery process has, historically, been both costly and time-consuming, and often ended in failure. Schrödinger aims to minimize the primary chokepoint in the process for creating life-altering medicines and technology-advancing materials by reducing the need to manually test individual molecules for drug/material candidate suitability. Instead, their software allows the analysis of billions of molecules in a single day, ultimately helping to halve the time companies spend in discovery and providing immense value.
Schrödinger already licenses their software to 20 of the world’s largest pharmaceutical companies (by revenue), but by no means is their continued success or future investment return certain; as a growth company in a cyclical and highly-risky industry with a lot of competitors trying to vie for positioning, Schrödinger has a lot to prove. Read more about the company, its management and balance sheet, and the industry they operate in here.
That’s all for this week, I hope you all have a wonderful weekend with lots of sun and family time. Happy investing folks!