Sunday Finds + 3 Things I Thought About Last Week
E.W. Scripps and Remitly
3 Things I Thought About Last Week:
E-commerce reverting back to trend. One of the big narratives from last year was the huge bump e-commerce got as a percentage of overall retail sales. “COVID-19 Pandemic Accelerated Shift to E-commerce by 5 Years” was a headline we saw constantly. Turns out those predictions were very wrong. According to the Department of Commerce’s Q3 report, U.S. e-commerce sales (adjusted for seasonality) are pretty much back on trend from 2019, making up only 13% of total retail sales in the United States. Personally, I am very surprised that e-commerce is still such a small portion of retail, as I find Amazon and other sites to be so much better than any in-store experience. However, the data doesn’t lie, and it looks like old habits are still dying hard for many older consumers, even with the temporary disruption in 2020. Does this mean e-commerce still has a decade+ of market share growth ahead of it? Or is the ceiling a lot lower than we have priced in? I have no idea what the answers to those questions are, but for any investor that thinks they do, you’ll have a chance to make a lot of money over the next decade.
Sharp sell-off in COVID/high growth stocks. Even with indices close to or at all-time highs, there has been plenty of carnage under the hood. This is especially true in high growth and COVID-themed stocks, some of which, like Peloton, are down more than 50% in the last few months. And these sell-offs haven’t been pretty, either. It seems like every day one or more stocks are down 20% after reporting quarterly earnings, which can be quite painful for investors to absorb (especially when compared to the index performance this year). This feels reminiscent, although not exactly the same, as stock returns in 2000. At the beginning of that year, the dot-com bubble burst, sending most of the overvalued stocks of that era down sharply. However, in the summer of 2000, the Nasdaq and S&P 500 indices were slightly up on the year, even though we think of the pendulum having been swung in the other direction in March. Why were the indices still up in the summer of 2000? Because the largest stocks of the bubble were the last to break. Cisco, arguably the most overvalued company of the era, was still up in the summer of 2000 before selling off quickly to close out the year, bringing the Nasdaq 100 down with it. By the end of 2002, both the Nasdaq 100 and Cisco were down over 70% from the start of 2000, slowly bleeding out every quarter. Obviously, FAANG stocks are not nearly as egregiously valued as Cisco was in 2000, so the similarities may not be exactly the same for the largest stocks in the U.S. indices. But if there is a sell-off in unprofitable/high-growth/compounder stocks over the next few years, it would seem to be prudent to identify quality companies in advance if/when they get to a valuation where it makes sense to back up the truck.
Unimpressive showing from Bitcoin advocates. There was an interesting tweet from Cameron Winklevoss (Harvard alumnus, made famous by the Social Network, Bitcoin advocate. Yes, that Cameron Winklevoss) last week:
The Dollar Store is raising prices 25%. The vast majority of goods they sell will be priced at $1.25 starting in 2022. If you use the Dollar Store as a proxy for inflation rather than the Consumer Price Index, inflation is closer to 25% than the widely reported 6%. Ouch.Clearly, this was a bit of clickbait, but it is another example of hardcore Bitcoiners saying things that are…pretty dumb? I mean, if Cameron actually believes what he is saying here, he definitely hasn’t taken the time or is unable to process why the Dollar Store raising prices is in no way indicative of what inflation is in this country (if you’re confused yourself, check out the first few replies to the tweet, it should clear things up). We also have the video of Cameron and his brother talking to Dave Portnoy, which, if you haven’t watched, shows again the thought process behind Bitcoin’s richest bunch. I have no views on what the future price of Bitcoin will be, but if all these advocates keep sounding like fools when explaining things that are happening within the real economy, why should I have confidence in the system they have adopted/are building? With so many people like the Winklevoss twins in the Bitcoin/crypto world, the potential Tether Ponzi scheme, and fraudsters as far as the eye can see, I don’t see how any objective person (i.e. with no financial incentive for prices to go up) can be bullish on the longevity of the crypto ecosystem.
See you next week,
Brett
***Our fund, Arch Capital, may own securities discussed in this newsletter. Check our holdings page and read our full disclosure to learn more.***
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