Baron Nathaniel Mayer Rothschild (8 November 1840 – 31 March 1915) was a British banker and politician from the wealthy international Rothschild family. He worked as a partner in the London branch of the family bank, N M Rothschild & Sons, and became head of the bank after his father's death in 1879. He is often credited with saying that "the time to buy is when there's blood in the streets." But of greater interest to me was his other supposed quote: “You can have the top 20% and the bottom 20%, I will take the 80% in the middle.” In investment circles this has become known as The “Rothschild 80/20” Rule. When discussing portfolio management, it is often suggested that you can’t “time the market.” That statement is somewhat correct. It is pretty tough to do that accurately, let alone repetitively. However, adjusting market exposure at times when “risk” outweighs the potential for further “reward” is a cornerstone of our approach. We follow a very simple set of rules which are the core of my portfolio management philosophy which focuses on capital preservation and long-term risk-adjusted return. As a long-term investor, I don’t need to worry about short-term rallies. I only need to worry about the direction of the overall market trends and focus on capturing the positive and avoiding the negative. This is the basis of the 80/20 investment philosophy and the driver behind the risk management process. While you may not beat the market from one year to the next, you will never have to suffer the “time loss” required to “get back to even.” In the long run, you will win. This reduced level of volatility has allowed our investors to emotionally stick to the investing over time. Furthermore, by minimizing the drawdowns, assets are allowed to truly compound over the long-term. No, this is not perfect every time. But no measure of risk management is. But having a discipline to manage risk is better than not having one at all.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(-) Accenture PLC (ACN-US) Despite the headline EPS beat, this was largely driven by below the line items while operating income fell below consensus as margins came in below expectations. Additionally, the company reduced FY guidance as it appears management’s original expectation of a fiscal H2 (FY end August) acceleration may not come to fruition as the global macro backdrop is likely to continue to drag on discretionary spending in the near term, and we look forward to management providing more details on this topic during this morning’s conference call. Longer term, we continue to view Accenture as a beneficiary of the secular growth in global IT spending and view the shares as an attractive alternative for clients seeking defensive growth within the Information Technology sector. Owned in US Portfolio.

(-) Alimentation Couche-Tard (ATD-T) No way to sugar coat this one, ATD missed consensus by a wide margin (adj. EPS $0.65 vs $0.84), with same store sales and volumes weak on the back of tepid traffic and moderating consumer spending, which we do believe could continue in the quarters to come. Of greater focus, however, will be fuel margins, which in the U.S. came in just 1 penny above industry average which doesn’t sound terrible, but ATD usually comes in much higher given its superior procurement and pricing capabilities. On the plus side, opex metrics were excellent, down 1.6%. ATD also raised synergy estimates for the TotalEnergies by 40%. Given the company’s track record, strong FCF profile, reasonable leverage, acquisition opportunities and undemanding valuation, we would leave shares alone. Owned in Core, ESG+ and Cash Flow Portfolios.

(+) Chipotle (CMG-US) Shares rose after the fast-casual Mexican chain announced a 50-to-1 stock split. The change is expected to go into effect in June if approved by shareholders in a vote scheduled for earlier that month. Elsewhere, Deutsche Bank raised its price target on the stock, citing strong growth prospects. Owned in US Portfolio.

(+) Pinduoduo (PDD-US) The parent company of Temu, the app for cheap stuff, has reported revenue of $12.5 billion in the last quarter of 2023, which is up 123% year over year. In the whole year, PDD made 247.64 billion yuan, up 90% year over year, and online marketing services were responsible for 153.54 billion yuan of that. Temu is not exactly a store: It doesn’t own any stores, and rather just uses third-party delivery services to connect vendors to customers, regardless of where the vendor, delivery service or customer might be. Management observed an improving consumer sentiment in China, but investors remain wary. Furthermore, PDD's global business is still in its early stages, and competition is intense domestically and abroad. The Temu platform, offered in dozens of countries, competes against established industry titans, like Amazon and eBay, as well as other big names local to other countries. It is also unclear whether Western shoppers will gravitate toward the social component of online shopping, where users are incentivized to share products and entice friends to join the platform, a vital element of Temu's long-term success. Owned in Opportunity Portfolio.

(new) Reddit (RDDT-US) The social media platform has yet to post an annual profit since its launch in 2005, but Reddit still got applause from investors on Thursday as it achieved a valuation of $9.52 billion at the end of the trading session. Popular investor Cathie Wood's ARK Invest also bought nearly 10,000 shares of the company on Thursday, an email from the asset manager showed. Reddit said its millions of loyal users and moderators pose risks as well as a benefit for the company. Redditors have a historically combative relationship with the site, launching revolts over everything from racism on the platform to executives’ staffing decisions. Thousands of members of the WallStreetBets forum -which boasts around 15 million users and helped popularize meme stocks like GameStop - voted to boost a forum post about shorting Reddit’s stock when it begins trading. Their reasons varied from the company’s lack of profitability to competitive concerns. In any event we took a new small position in the Opportunity Portfolio.

(-) Super Micro Computer (SMCI-US) Shares dropped after it was announced that it was selling 2 million shares of stock that works out to $2 billion or just under 4% of the company’s market cap. Proceeds of roughly $2 billion will be used for the purchase of inventory and other working capital purposes, manufacturing capacity expansion and increased R&D investments. Owned in Opportunity Portfolio.

(new) Talen Energy (TLNE-US) One of the US’s largest nuclear power plants will directly power cloud service provider Amazon Web Services’ new data center. Power provider Talen Energy sold its data center campus, Cumulus Data Assets, to Amazon Web Services for $650 million. Amazon will develop a 960-megawatt (MW) data center in Pennsylvania. The 1,200-acre campus is directly powered by an adjacent 2.5 gigawatt (GW) nuclear power station also owned by Talen Energy. With the power demand for data centers soaring and major companies like Microsoft and Amazon now openly buying nuclear power to meet their needs, we are in the beginning of a new nuclear renaissance. It’s remarkable how many investment themes interact. The rapid growth in Cloud AI has a tremendous demand for energy. That energy will come from nuclear. New position in Opportunity Portfolio.

(-) Tourmaline Bio (TRML-US) shares dropped quite a bit this week after a competitor, Japan's Chugai's Enspryng, an IL-6 blocker, failed to meet expectations in a study on myasthenia gravis. Tourmaline is developing TOUR006, its own IL-6 blocker, for thyroid eye disease and atherosclerotic cardiovascular disease. The company's success is uncertain due to competition in the IL-6 inhibitor market and limited efficacy data for TOUR006. In January this year, Tourmaline Bio, launched its IPO, raising $172.5m via the issuance of 5M shares priced at $32.5 per share. In its 2023 annual report / 10K submission, Tourmaline lists numerous companies it regards as competitors, given they are also advancing IL-6-blocking drugs - and they mentioned Chugai's work. Owned in Opportunity Portfolio.

Weekend Reading

 

Five Reasons to Ignore Magazine Cover Commentary The childishness of it all makes me physically sick. JOSH BROWN

2024 March Madness bracket facts for men's NCAA tournament It's been such an exciting season, one in which we saw top-10 teams lose to unranked opponents at a record rate. Now that the Big Dance is here, why should we expect the upsets to stop? ESPN

The Archive: You Bet! In his 2020 memo You Bet!, Howard Marks explained what it means to “think in bets,” as he discussed the many parallels between investing and games of chance. Now you can listen to You Bet!, the first release from The Memo by Howard Marks: The Archive, an audio library they are creating of the memos Howard has published over the last 34 years. OAKTREE

Why Is Haiti’s Economy So Much Worse Than Its Neighbor’s? The Dominican Republic has made a lot of policy choices over the last four decades that have increased its wealth and stability. BLOOMBERG

Canada’s zero-sum economy is turning society ugly The antidote to another lost decade is an abundance agenda. THE HUB