TLDR - Ouch! We didn’t see this coming and got crushed! It almost ruined our summer on Nantucket! The market probably has more legs down, driven by earnings reductions. We focus on finding good names to buy when we come out of this.
(I only agree with Netflix and DataDog so far, but we’ll see. My take on this is that it’s very weird that someone with all their research assets did not see this coming. Maybe when you are getting paid $1.6B+ per year (as the head of Coatue does), you take your eye off the ball?)
Some “Learnings”
Coutue is one of those “elite” investment funds that rely on its proprietary research. They got slammed in the recent market shift. A few things from their recent deck are worth reflecting on. They are human, after all. Here are some of their “attribution” edited for grammar and clarity.
We underestimated the magnitude and speed of the drawdown.
It’s hard to manage volatility.
Difficult for an organization to adapt to significant regime change.
It’s not easy to short stocks already down 50%.
After such a long bull market, they conclude that “Tech is not 100% Secular!” They define their job now as “to figure out when & how to start playing offense.”
Bear Market Rally
The challenge for many is deciding if we are at a turning point (FOMO) or just having a bear market rally. These are typical, and this one does feel like it’s following the script. We get a decline in stocks before earnings revisions which makes things look “cheap,” but then we get more downward revisions that drive more declines. These two charts tell the story from a historical standpoint.
After Q2 reports are done, we’ll see where earnings estimates settle. I suspect they will go down but not enough. (my commentary)
Last year was about “over earning” driven by artificially high revenue growth and margins. Revenues need to come down, and margins need to get to “trend,” which suggests a real decline in 2022 and 2023 numbers close to 2018/19. (again my commentary)
What do they like?
There is a “throwing the baby out with the bathwater” notion, so they point out a few names they think stand out, like PayPal PYPL 0.00%↑ , Block SQ 0.00%↑ , SnapChat SNAP 0.00%↑ , Shopify SHOP 0.00%↑ , Doordash DASH 0.00%↑ , Netflix NFLX 0.00%↑ , Tesla TSLA 0.00%↑ , DataDog DDOG 0.00%↑ , and NVidia NVDA 0.00%↑ .
They probably wish they left SnapChat off the list, but they have a rationale for these. So far, we’re on board with Netflix and DataDog. This isn’t a time to jump into anything, but both of those are profitable. I’m personally still short Tesla.
The names they share are not very imaginative, but they claim to have a “Top 80,” which I would have loved to see.
Alas, I probably don’t meet their $10M minimum. I probably wouldn’t invest anyway….