Timing Purchases of Mark’s Funds

• Mark annualizes 200-250% turnover
• Has been running Special Situations for 14 years
  • On a rolling 1 year basis, 153 periods, 80% were positive
  • On a rolling 2 year basis, 100% were positive
• No matter when you bought Special Situations, even at the height of the market before the 08 crash, you wouldn’t have lost money with a 2 year time horizon
• The fund you own today is different than the fund you bought 12 months ago, and the fund you buy today won’t be the fund you own 12 months from now
  • Mark’s high turnover means you haven’t ‘missed out’

 

Investment Style - Playing in the Tails

• Mark manages 3 funds for Fidelity
  • Canadian Growth Company: a battleship he tweaks around, least active of all funds, lowest risk (medium)
  • Special Situations: small/mid cap fund he’s run for 14 years, designed for more risk, more cyclical
  • Global Innovators: limitless capacity, global go-anywhere
• Investment time horizon
  • Mark typically buys securities with a 3 year time horizon
• Style of ‘positive change investing’
  • Looks for changes in fundamentals, industry structure, etc. “what is changing for the better?”
• Looking at what’s changing in the world, what’s getting better and what’s getting worse to lead investment decisions
• Owned Zoom & Cruise Lines at the same time
  • One is getting worse really quickly, one is getting better really quickly
  • Own cruise lines when they get better, don’t own Zoom when it gets worse
• Innovative/Newer Companies
  • Most change is occurring in any given industry in this space
  • Think of all the IPOs over the last 5 years - most of his portfolio didn’t exist 5 years ago
  • Environmental Stocks - Solar in particular is a great example right now
  • So much of what is new happens in Silicon Valley, part of reason Mark moved there
• Low Valuation - ‘bad companies getting better’
  • Canada is a value investor’s dream
  • Travel stocks in 2020, Regional Banks in 09/10
• Style hasn’t changed in 14 years, running $25 Billion now and hasn’t had any capacity issues
• Mark’s biggest mentors are Neil Miller and Will Danoff, both legendary Fidelity PMs

 

Sell Discipline

• Sell stocks when the story changes for the worst
• Process: buy a company, stock does really well, then rate of change slows down, start reducing position but don’t sell completely
  • Puts stocks in a holding pattern
  • Example - Etsy: continues to work (has owned for 6 years), rate of change isn’t as high so has reduced position size, but hasn’t sold it completely
• Also may sell a stock to buy a better idea
• “The worst thing you can do is sell a stock because it made you money”
  • Mark bought Tesla at $35, sold it after 100% return
  • Rebought Tesla 18 months ago and hasn’t sold it even though it’s returned a ton in that time frame
  • Maybe wouldn’t buy Tesla now, but also wouldn’t sell it
• Own stocks that are working for as long as you possibly can
  • It’s the 3-4-5 baggers that make up for all of your mistakes
• Batting average: 30%
  • The 30% that he owns are really great
  • Very quick to sell the 70% he’s getting wrong
  • Avg. 200-250% turnover

 

Q&A

Risks, Tech Bubble

• Believes Amazon changed the way investors view stocks
  • Traditional investing believes you need to have earnings to work - Amazon changed this
  • If you can see the business model and future growth, eventually you will earn the money
  • Tesla could be the same thing. Have a superior product, investors willing to give them market cap upfront to enable them to get what they need
• Mark thinks markets move faster than they used to; we have more info, make decisions faster, more stimulus, no inflation, high productivity
• On traditional metrics the market is expensive, but does not think it’s a bubble
• Microsoft - 22x earnings, not that expensive relative to what it’s providing us - we are using their services every day

 

Right Tail Investing Theme Today - Global Warming

• Problem now is global warming - market is screaming this at us and governments are behind it
• As we move to a carbon neutral future, we need to spend a ton of money on tech that may not be proven today
• Market is screaming at investors that we need more of this
  • Seeing that with Tesla, Solar, Hydrogen, Wind
• Market is screaming at humanity to invest more and fix this problem
• Mark is on calls with a lot of alternate energy companies, public & private
• Green energy is a huge focus
• Gotten to the point where renewables are cheaper than oil, so why not use it
  • It is an engineering problem - how to we deploy it, how do we use it and fit it all together efficiently
• Thinks the ‘hydrogen economy’ is real and can see in 20 years never using oil again
  • Not good for Canada
  • We need to figure out how to deal with a Canadian economy that’s tied to oil
  • Economic activity is still driven by oil despite lower weight on TSX

 

Left Tail Investing Theme Today - Commodities

• Own commodities
• With stimulus there are a lot of parts of the market he thinks will work
• Many commodities are actually green or will be seen to be green
  • Agriculture: bio-diesel in airplanes; you need corn and soybeans
  • Copper: will need more copper in an electrified world
  • Aluminum: will need more lightweight aluminum in an electrified world
  • Thinks most commodities will work with the exception of oil
    • We could see a catch up with everything else (rising tides lift all boats). Thinks that would be a good time to sell all your oil stocks
  • Democrats controlling both the House and Senate will be able to spend a lot of $

 

Macro in Process

• Mark’s portfolio has taken off since the Georgia run-off elections
  • Thinks a lot of their green energy agenda will get pushed forward
  • Still tight enough that they won’t be able to raise taxes a ton
• Didn’t have a blue wave and the green stocks still work
  • Shows it is a really important trend. The market is screaming it, listen to the market

 

Digital Payments Area

• Thinks banks are secular losers
• Startup bank in the UK (Starling) run by a woman who’s been in banking tech for last 30 years
  • Banks have a huge tech budget and it’s just spent on keeping the business running, not innovating
  • Hard to transform the business because there is so much legacy
  • Starling spent $300M and have 1000 employees and they’re crushing everyone in England - products are better, costs are cheaper, everything is better
• Believes that fintech will figure banking out, but we need banking vet’s to teach them how
• Financial sector is ripe for disintermediation
• Canada may be different - the banks basically own the country

 

Crypto & Blockchain

• Avoiding crypto - very hard to invest in right now
• Mark has lost more money in crypto than any other asset class
• No application yet - it’s just a store of value
  • As a store of value, do you want to own something that is so volatile?
• Taking some of gold’s thunder
• No one knows how to make blockchain work, lots of ideas but never seems to gel
• Square is the best public way to own/play bitcoin
  • Square is Global Innovators top holding as of Dec 31, 2020

 

Biotech & Healthcare Innovation

• Big pharma not that exciting - they buy revenue which is why their multiples never go up
• Biotech has been a great market over the last 10 years, so much innovation
• The fact we got vaccines out in 9 months is a miracle
• Mark owns companies who provide the tools to allow this innovation to happen
• Health care delivery is a problem and health care cost is a problem
  • Innovation in these spaces is high and Mark owns a few great names
• Health care is a great ‘default’ sector
  • There is always something to invest in no matter what’s going on in the world

 

Private companies

• Used to do a ton of small Canadian privates, can’t do that anymore - it won’t generate enough returns based on his large asset size now
• Doing more large near term private investing - recent example of Airbnb
  • Looks for larger privates going public within the next 12 months
  • Will do in larger chunks - ~$25M or more
• A lot of activity in private markets now in sectors he likes
• Good IPO market allows companies who need money to get money
• Has made tons of money buying IPOs over the last 5 years and thinks it’s a great part of the market

 

Special Purpose Acquisition Company (SPACs)

• Thinks SPACs are very dangerous
• We get 3 or 4 every single day, so many are for electric vehicles
• Lots of people who failed as investors and went to go raise SPACs, go out and blow money on things that don’t work
• Wouldn’t own any of them
• One benefit is they provide an underlying bid to the market
• ‘They are another form of capital chasing dreams’

 

Fidelity U.S.

• Yesterday Mark had 13 meetings he could choose from at 8am
• We have a meeting every 10 seconds
• Pandemic has allowed info to flow even faster

 

Rapid-Fire Sector Thoughts

• Gaming - will work, finding ideas
• Cannabis - no, any business that grows things is a terrible business (crop issues, distribution issues, etc.)
• Cyber security - no
• Credit cards - not yet
• DocuSign - yes, solves a difficult problem in an elegant fashion
• Travel - coming back and soon