Investor, founder of Coatue Management, from seed to public, lifecycle investing, 7 year predictions. Anything outdoors. No investment advice. Views are my own.
New York, USA
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1/ How do you build long term performance? Warren buffet is 90. Half of his net worth was accumulated in the first 60 years and another half in the last 10. So stay healthy because the last 10 years matter! But what are the super long term skills every investor needs to master?
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To be a good public investor, you don’t need to be a genius or own a crystal ball but you do have to make a few big calls.
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PS/ Meanwhile here are my two favorite books about growth investing. The first is obvious. The second one is a total gem and maybe my favorite investing book of all time.
Mindset by C. Dweck
Engines that move markets by A. Nairn
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I’d like to share a story about the benefits of investing in the private and public markets and how the private market mindset can help public equity investors.
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Fun fact: Only 10pct of s&p companies grow 20pct or more. They have 100B of cash. Meanwhile the other 90pct have 1.8T in net debt. All the growth companies have the cash, the old companies the debt. Good luck competing against the innovators!
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7/ In 2007 apple traded at 30x EPS but only 3x 5 years out. The art of growth investing is realizing a stock that appears expensive today can be dirt cheap 5-7 years later. Multi baggers are the source of most outperformance and hide many mistakes.
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10/ What has worked for me is focusing on TAM (market size), earnings, growth and the corresponding P/E multiple 5-7 years out. That means I’m a very mediocre macro and cyclical investor though I need to be reminded of that more than I care to admit.
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2/ I’m a big fan of growth investing over value. Growth is about predicting the future, value is usually about fixing the past. Thinking about the future is more creative and uncertain thus higher payouts if you are right.
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10/ I used to think it was all stock picking. Truth is, risk mgt is half the battle. Portfolio mgt is like poker, you don’t always get perfect cards and you need to manage your stack. My risk mgt is broken down between rules I never break and principles that reinforce good habits
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9/ Conc: Imagination is the skill. Uncertainty is the opportunity. Data is important but so is the story. Patience is way underrated.
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6/ To be a growth investor, you need a growth mindset: stay curious and flexible. I try to invest 5-10pct in areas i’m not comfortable in. The corollary is less obvious. It’s hard to sell winners but a portfolio is like a sports team and you need to refresh the superstars.
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3 Thoughts for 2021. What are yours?
1) Will Bitcoin decouple from the nasdaq?
2) what happens to secular growth post vaccine when cyclical growth kicks in? What has changed for good and what reverts?
3) is “ESG” the next internet/Saas?
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8/ Disclaimer: Growth investing is not momentum investing. The best growth investors find new trends and extraordinary founders but still think of business models and valuation. And they are disciplined risk managers.
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7/ The best way to get energized about new trends is to meet incredible founders. Many times I can’t understand new technologies but if the founder is so engaged that it feels “magical” then I try to invest anyway. Once money is on the line, the learning always happens faster!
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9/ When you look at filings of money managers, many own the same stocks but end the year very differently. Why? Not everyone knows what to do when things go wrong. And that’s when major alpha can get created or destroyed.
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4/ Time is your friend and leverage is your enemy. A typical growth investment might work for a decade or more so you compound unrealized gains for many years. In value investing, what do you do once the thesis works if there are no secular tailwinds?
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3/ I only made 2 big calls in the first 10 years or so but those were enough. If 90pct of your book goes up 8pct/year (historical public returns) and 10pct doubles, then you are up twice as much as the market and that’s a big number as it compounds.
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6/ But I did go see Steve Job on stage present the new iPhone and I knew it immediately. Listening to your instincts (and sleeping on them for a few days to double check) that was it. Nothing very clever.
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3/ Younger/Newer companies are opening up new markets and it’s easy to undersize size the TAM. Is Uber or Lyft replacing taxis or reinventing car ownership?
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8/Private investing is about imagining the future as there is less data to analyze than as a public company, and that foresight usually compounds the variant perception with time.
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5/ Older companies usually take on debt to goose up returns buying shares back and juicing the dividend when growth abates. They invest less in the future and when things change, they can’t react quick enough because they need to maintain their debt ratings and pay dividends.
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5/What’s the learning? In the private markets, the focus -FIRST- is TAM (size of market), then second everything else. And the stock price is static unless there is a new round. So you have time to develop your thesis.
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8/ Once you find a multi bagger it’s time to peel the onion. Who was going to draft or collide with all this value creation? Apple had many implications for incumbents like Nokia and Blackberry but also created powerful new semiconductor companies.
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9/ Public investors are not always as imaginative as private investors. But they dispose of a large library of good and business models and can quickly zero in on the key metrics that matter. Not all growth is created equal and not every projection is to be accepted.
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4/ My first big call was recognizing the bubble in 2000. It took me 12 months but I was ready for 2001/2 once I understood how the excessive financing of dot.coms would eventually affect hardware and semiconductor companies. Seeing how the cobweb ties all the players was helpful.
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7/Patience, and confidence in the 7-10 year story (how many orders per day can Meituan generate if every urban household orders 2 meals per week...) will drive the stock so much higher than one can process during painful stock fluctuations!
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Maybe today you have 3 categories: old economy, established new economy (many large caps) and contenders/big TAM. One difference is that today Microsoft, Facebook, Apple, Google, Alibaba etc... trade at 1/3 to 1/2 of the 2000 P/E multiples.
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6/In the public markets, lots of things can affect the stock price over the short run, and one can make mistakes by overestimating data about temporary problems.
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5/ I missed the rally post 2003 but then stumbled on Apple computer in 2007. At the time I was very annoyed because I had dismissed the iPod and the stock had moved from $25 to $100 (or $1 to $4 post 28-1 splits)
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10/Question: How many daily orders will Meituan generate in 7-10 years? ( today it’s already >30m/day)
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2/ In my case, I started in January of 2000, was up 20pct after the first month, and thinking this was pretty easy. Then the nasdaq dropped from 5000 to below 1000. That was a proper wake up call!
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4/At the time we were locked up so there was nothing we could do. Today the stock is at almost 300 and $250B market cap. I fear what we might have done if not subjected to the lock up!
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As the left bars start shrinking, the right bars will grow from yearly increases in energy demand and substitution will kick in too. A lot of new companies are going to benefit from this massive trend!
Given Lazard's global data on LCOE, the IEA prediction for EU's energy mix in 2030 and 2050 seems not irrelevant.
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2/A few years ago we invested in a private company called Meituan (3690 HK). Meituan is like doordash or Uber eats and we thought in China, with over 100 cities >1m pop, this would be a huge market. The other competitor was owned by Alibaba.
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New Years resolution number 1: have as many followers as @DanielSLoeb1! Anyone guess how long that might take?
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@CathieDWood is setting the example. New year resolution 2: join as many of her Friday brainstorms.
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Offshoot: How many stocks with high dividend yield to “protect” the stock price end up working out? And usually these companies are highly levered so the equity yield is high but not the FV unlevered yield! I guess we are growth investors?!
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3/The company went public less than two years later at 70. We were ecstatic! Then the stock rapidly plunged to 40 based on renewed fears of competition with Ele.ma (Alibaba)
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Old today is cheaper than back in 2000. “Value is more value”. On the other hand, Established new is not as expensive. “GAARP” is Ok. The debate is around the high growth “momentum”?
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Recurring revenues certainly help. Cable companies, Amazon prime, software. High frequency apps.
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There are around but maybe it’s a different business model in a different industry. That’s what’s hard to stay flexible and curious.
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In this case, we felt 2 players for such a large opportunity was worth the risk. Also sometimes it’s easier for the pure play to execute rather than the larger player.
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