Open Investment Letter
Innovation is everywhere in the world right now but people struggle to picture what it could look like and identify properly the companies pulling that innovation from the future to the present. Seeing what the key drivers are is difficult because much of the time innovation doesn’t look like what it’s supposed to.
The most innovative solar power company is a car maker. The most innovative drone delivery company sells pizza. The most innovative server infrastructure company sells groceries. The largest company in the world is a watch maker, a trend many believed was disappearing. The enabler of AI is an enterprise software dinosaur and so on.
It used to be that to invest successfully companies had only to copy an existing model in different locations and you had only to look where they might move to. Or they could build unassailable distribution moats. But now you need to imagine the different iterations of a business well before they get there. To see everything they could be tomorrow not just what they are today.
Because of this I believe the world is fundamentally mispriced and there’s a divergence between value and price much of the time. But also I think there’s a misalignment of expectations on both value and price. Markets don’t know how to price something whose future is unpredictable. And today prices can move based on sentiment and social change as much as by fundamentals.
Fast growing stocks deserve a price premium on their value but are often cheap in the scale of how big they might get and the value that may materialise. Similarly sometimes expectations are high for the value of a stock to be greater than will materialise but they’re paying the price as if it will. Or a price for a stock is paid for reasons unrelated to the underlying business at all.
This fund is built to maximise on these differences in expectation. To value invest in growth, or growth at a reasonable price (GARP). To make high quality investments in long term positions at good prices to buy growth companies and businesses that are non obvious why they’re exceptional. And to know when to exit positions where price has diverged from value.
To only invest in companies that can grow 2X – 100X at good prices means buying innovative mispriced companies at prices below intrinsic value. Keep our money in the best performers and then ignore market movements. They don't matter if you've done fundamental analysis and they're great businesses.
These are some of the guiding principles and ideas that will be followed. An amalgamation of ideas:
Cathy Wood - "Innovation can't be priced correctly."
Peter Lynch - "Buy companies you like that you can see growing long term by 10X - 100X"
Charlie Munger - "Buy businesses at prices below intrinsic value and only ones you understand."