GVI Investor January 2022 Video Call

Welcome to this month's video call!

So let's give you an update on the portfolio since I've selected it, and don't forget, I'm looking at a 12-month holding, so a monthly bit of noise here or there doesn't really bother me. It's really about the fundamentals of the company, and it's always good to just have a cool look at how they're doing, any of the news flows.

So let's start off with Shutterstock, as well, in terms of the first one. I think this is one which is going to benefit from the metaverse, and there's a bit of noise out there about that as well. Whilst it's showing some weakness, like I said, I don't worry about that in the short-term. Because, as you might have seen in the press, more generally financials continue looking strong, and that's what's critical for me. Do the financials continue looking strong, and then occasion you get little bits of information that a particular fund or a hedge fund is brought into it. Well, that's nice to know, but really I care about my own analysis, not what others think. And so that's still remains good, no issues there.

Moving forward to the next one, A10 Networks. Again, more recently on this one, and it's going in the right direction, which is always good. But like I said, just as I don't get over-excited if in a month something isn't above water, I don't get excited just because this is doing well in the right directions. And I know returns have been great, been about 170% in the past three years. Going forward, has it still got gas in the tank, as it were? And I'm looking at some of the data and the news flow out of it. Yeah, I continue to like it. There's nothing negative which has happened, and that's one of reasons why it's continued to do well.

Similarly with Skyline Champion. Yeah, it's up. We're making some money, but I'm not going to get overly-excited just yet. Why? Well, because 12 months is a long time and we want to look at it over that period, and we also want to keep calm. Just because we're making money, it doesn't mean we get carried away. So what about this one? Well, in the construction industry, it is outpacing many of its peers. And again, just all good solid news. Nothing negative has come out. Well, obviously, given how it's performing.

What about Molina Healthcare? Well, there's been some profit taking off the back of some of these stocks. Again, is there anything particularly that's changed with this? No, other than a series of upgrades, a series of articles on why to buy. So there's nothing which is particularly worrying me on ... nothing particularly changed on this. They had a fourth quarter year-end 2021 earnings release and conference call dates announced. Well, from what I can see, things are still on track, so I'm pleased with that.

William Sonoma, what about this one? Well, again, a bit of profit taking that happened previously. 12 month holding, fundamentals sound. I think this whole buying the dip is going to assist. Some people end of last year started taking profits from the ones they made the most money on. This would've been one of those where they'd made quite a bit of money and were taking some of it out. Has anything changed on the fundamentals? No. Are we seeing dip buying? Will we see dip buying? Yes. So I am happy with this. Both in terms of the fact that on a value basis, it continues looking attractive, and on a growth basis, that's still there as well.

Axcelis Technologies. Again, good. Yes, we're above water. We're doing well with it. It rose about 20% in December alone. Does it remain a solid choice? Yes, it does. Growth stock, yes, very much so. Bulk solid valuations. All of those things, still ticking boxes there.

Victory Capital Holdings. Again, above water, doing well. Okay, so what do we have with that one? Well, what we're seeing is it's a growth company, still continues being growth. That's why the share price has already started reacting to the upside. But on evaluation basis, you've got an argument there as well to say the current price is not reflecting full valuation. Any negative news? Anything that might have hit us from the sides and blindsided us? No, nothing that I'm seeing on the news flow on that one, and I do check these news items, that makes me think, oh, this has completely changed anything. So I'll continue doing those things for you. I'll keep an eye out on things.

Then the rest is in the hands of the gods of value, growth, income, cash flow. But it's about putting ourselves in a position where we can benefit from these things. And I think with these stocks, we're doing that because it goes through a very, very rigorous process. I always joke it's harder to get into my portfolio than it is to get into Oxford University.

I also want to show you what I'm seeing in the markets and the most important things, and as you know, I scour the markets each month. As a hedge fund manager, you all know me, Alpesh Patel is a hedge fund manager, I get a lot of data and I like to filter through for you what I think is the most important of all.

Here's something interesting. Somebody had sent me this a while back when they were at an Indian airport and they happened to see me on TV. I thought that was nice. Well, we're not traveling anytime soon in large numbers by the looks of it, I'm afraid.

Anyway, more interesting in terms of data than me on TV was this. This is January statistics from 1950 to 2021, and it relates to the S&P 500. It's just put things into a bit of a context. The number of up months for the S&P and the NASDAQ and the Dow. You can see the number of down months. The average percent changes, you can see as well. So you're more likely to be up than down in January. It's more likely to be a positive month. It's just thought it was interesting. It doesn't mean I'm going to make some big investment decisions based on that information alone.

I also wanted just share this with you and just some of the asset classes. These are words you're going to be hearing a lot, particularly, obviously you keep hearing about Bitcoin and so on, but just putting things into context. Yes, when we look at stocks, you might not get the crazy outsized returns that you might in some of the cryptos. However, it's about volatility and stability as well.

But I just thought it was interesting in terms of what had moved, what hadn't over the course of the year. And whilst oil, we're feeling the pains of that in terms of inflation, was one of the gainers, and I don't think, of course, it'll see a similar gain this coming year. Interesting to note how small caps lagged behind some of the big caps and how well Far Eastern stocks, European, Australian, basically non-US, didn't actually do that fantastic. And emerging markets were actually down. And surprisingly for many, gold was down, given all this talk of inflation.

For me, it's about picking the right stocks, not trying to gamble on which sector or which asset class is going to do well in the year ahead. And the reason I don't like gambling on sectors or geographies, like emerging markets or any of those kinds of things, is because you're adding an extra complicated you don't need. It's all about a return, buying low, selling high. And given that it's all about a return, why don't you just go to the source? And the source is we're going to buy a stock at a certain price and exit at a higher price. Going the long way round and saying, "Let's try and not just pick the right stock, but try and go to the right country in the right sector during the right timeframe."

That seems a very convoluted way when you could just look at the numbers, which is what we do in terms of the profitability of the company, profit growth, revenue growth, dividend deals, and the like. So whilst this is interesting, do not be fooled into thinking that we're suddenly going to start trying to gamble on which is going to have a great year in the year ahead. I will to the issue of inflation in a moment.

So I asked a group of my followers this question, "Will the S&P 500 close 2022 higher or lower given the statistics about January, given what happened in 2021?" Well, the vast majority of them felt it'll actually be up 10 to 20%. A minority felt it would be up only over 20% and 32%. Again, pretty similar to the numbers who think it'll be up 10 to 20%. They thought it would be up zero to 10, as you can see there. Very few of you thought, or very few of the people who ... the 681 who voted thought it would be down. Doesn't mean they're any more accurate. Doesn't mean it's the wisdom of crowds and you should go in the opposite direction or go in the same direction. I just thought it was interesting how many are bullish at the moment.

One warning I want to give you for 2022, and it's already started happening and concerning me, is the number of fad words. And there's going to be people who are going to try and excite you into this and that and pull you in one area or into another. Look, the kinds of stocks that I look to pick should already be benefiting from some of these things, like Web3, metaverse, NFTs, crypto, obviously.

The reason I mentioned that is this, a very, very wealthy investor into my hedge fund asked me. He says, "Alpesh, I'm looking at the next big thing, and I hear about NFTs, okay, non-fungible tokens." And I said, "Do you know what? It's not just about trying to gamble on which company and getting in early and being an early doors investor in something and hoping it'll blow up in the right direction."

I said, "It's about the volatility and the risk that comes with it. And it's the business of the kinds of companies that I'm picking based on their valuations, earnings growth, cash flow, dividend deals, track record, consistency of profits. That the clever people working within those will also be aware of all these issues and will be looking to how to make money out of it, and that will benefit us."

So if you take Meta, Facebook, in other words, of course they're looking at this and looking to drive it. Alphabet's looking to drive this. Okay? Microsoft is, Amazon is, of course the big giant. But there's a whole bunch of smaller companies which will come across our radar, which are also going to be looking at this.

Now, they can't all do it. For instance, I might pick, I don't know, a digital healthcare company. It's not going to necessarily do anything with NFTs, so be it. So you might say, "Well, wait a minute, they can't do everything with all of these factors. Why don't we just pick a concentrated brand new one?"

Well, the reason is if it doesn't have a track record, doesn't have consistency or cash flow, doesn't have good revenues, then you are gambling. You're speculating. Now it's fine to speculate. You can go to Vegas and speculate, but at least when you're in Vegas, you know you are speculating. You are not deluded. Those who think, "Let's get into Web3, metaverse, into some company we've never heard of with no track record, no history." If they're pretending they're not at Vegas, but they're pretending they're suddenly finding the next Amazon, then they're diluting themselves. Okay?

So we're going to be very responsible in how we look at those stocks and we are not going to feel that we've got this FOMO, this fear of missing, because we know the kind of companies we're picking will be looking at these errors and benefit from them. Okay? So that's what I wanted to say about that particular area. And especially because in 2022, you're going to keep hearing a lot more about these things. Okay? So that's one particular area.

I wanted to share with you this. Now this is really telling. These are the various analysts at the major banks. You got Morgan Stanley, Wells Fargo. The Global Head of Communications at Wells Fargo, by the way, was my assistant. She's now working there in charge of Communications. Goldman Sachs. And you can see where they think the market might close the S&P 500 by the end of 2022.

Now, I'll tell you why this is telling. When I pick stocks, I don't care what these banks might be saying. Hey, I'll take note of it. I read a lot of things. It's my job to read a lot of things and to share the things that I read with you, that's fine. All the most important parts of them. But consider the fact that there is a 25% gap between Wells Fargo's forecast and Morgan Stanley's. 25% gap is huge.

Given that most of the people working in these banks will have gone to the same universities, will offer often have worked at each other's banks. You think to yourself, why is there such a gap? And one of the reasons there's often such a gap is they're all just throwing darts at a dart board and taking a wild guess.

Don't forget, the research department who will come out with these numbers within a bank, they're not put anywhere near an investment floor or trading floor or making investment decisions themselves. They're the boffins in the back office. And again, you got to ask yourself, why are they separated? Why are the boffins who come up with these numbers not allowed to invest? And the reason is, would you trust them with your money? Well, the banks certainly wouldn't.

So whilst you might see these kinds of figures, that's fine. We put it in. We mull it around, and that's what I do. But it does concern me that yes, you could say, "Well, wait a minute. All but two have pretty consistent forecasts." Yeah, that's good news. It's good news because we'll get a tailwind for the picks we have, but we want to do better than the index. That's why you're with me. That's why you're part of all of this. So what we're going to do in picking our stocks is say, "Look, hopefully there's a tailwind."

Think of it like a flight from New York to London. If there's a tailwind, you get your end-goal sooner. In other words, with investing, if there's a tailwind, you make more. If there's a headwind, guess what? Like a market crash, you're not going to make as much, but at least you'll be in the kinds of stocks I pick, which are resilient to falls. Doesn't mean they're never going to fall, but resilient and more likely rebound upwards.

Anyway, I wanted to show you this to give you that knowledge, give you that know how, give you that insight that I have on the market so that you start thinking in the same way. You have that independence of thought yourself as well developed.

Inflation keeps coming up. Now this is from Bloomberg and Robert Shiller of Yale University. It's the S&P 500 changed during past inflation environments, from 1945 to 2021. It was a really good study. Historically, the S&P has been a good hedge against inflation. People keep asking me, "Oh, what should I invest it?"

Well, and we don't just mean the S&P. What I mean here is the individual stocks I'm going to be giving you are going to be a good hedge against an inflation because stocks generally are. Okay? But only to a point is the S&P, that's why we need to be stock pickers, not just index trackers, right? "Underscoring what's at stake when it comes to central bank policy in 2022."

Now, if you look at that, what that says is, if the ensuing 12 month period change, inflation range is under 2%, which it won't be, then you can see what happens in the index as a whole. If inflation goes up, the index does drop back a bit, 6.3%, 12 month price change is only 6.3% if inflation's higher, and so on. So the point is, you're still getting a return. And if you think inflation's going to be 3% to 4%, you might even think it's be more than 4%. You've still got a bit of a tailwind. Not as good as if there's next to no inflation, I grant you, but there's still a tailwind.

Now, if I've got a tailwind, it's better than a headwind. And if I know stocks generally are still going to be going up, then I know if I pick and cherry pick, and that's my job and research all this, read all this, materials that I got surrounded by around me on my desk and share that with you, then I should be expecting to get an index beating, a market beating return, and that's what we're here for.

So again, I just wanted to give you that slight insight into the way in which I think about these things so that hopefully you also start thinking in a similar way. What I want with my newsletter that I'm producing for you is not just that you simply take the fish and the goodies and then go away. But I'd really love it if it also ended up educating you more about the markets and the world around you, that's really what I'm about. It's why all those books that I've written over my shoulder, you can see, were written. It's because I want people to be educated, not just entitled and fed and just given the goodies, but I'll give you the goodies. But hopefully this has been a good educational tour of how I think and that you found it helpful. So thank you all very much, and once again, happy new year.