For my own accountability and clarity of thinking, I am writing this quickly on the night of March 16, 2020. The S&P closed at 2,386, down 12% on the day.

Somehow, someway I am bullish on the market at these levels with a bias towards aggressive positioning on incremental investments from here.

I have zero idea if this a bottom. Zero idea.

That said, here are some very recent views I that have helped me arrive at a constructive outlook:

And generally this entire thread from WexBoy:

While I am mixed on whether these specific China COVID-19 read-throughs are right (said another way, “I HAVE NO IDEA ABOUT VIRUSES“), the graphics alone are worth highlighting:

As an aside, I have gotten a tremendous amount of value out of FinTwit the last few years. Thank you all.

I keep a curated list of ~100 accounts here that I encourage you to follow.

THE THESIS

So the themes of my upside thesis:

• Upward margin reset – a partial replay of the long term overall corporate profit margin reset coming out of 2008. Even a short downturn will show S&P500 sized companies where they can get by with less (or more automation) and also as a HR “kitchen sink” for clearing out the bottom of the employee base.
• TINA (“There is No Alternative”) and low rates. If I had to guess, I will err on the side of global rates remaining lowish. Rates can be a good bit higher than today’s and still offer equity support and an upward P/E re-rating.
• Little long-term demand destruction. There are few sectors I see COVID-19 materially changing long-term demand. When I was diligencing short positions on the cruise lines (RCL, CCL, NCLH) a week ago (feels like an eternity), I visited Reddit’s r/cruising subreddit. While there is a selection bias toward dies hard cruise fanatics there, I was shocked by the number of comments where a modest discount would get these people to book a cruise now! In a “LOL, Nothing Matters” world, enough people are not going to change their behavior 12 months from now because of COVID-19.
• Size and speed of stimulus relative to an economy that has been pretty good on an LTM basis. If we truly adapt massive stimulus consistent with a war-time mentality (see Olivier Blanchard above) combined with an aggressive Fed, the rebound could be quite strong. And a thank you to Andrew Yang for moving the Overton Window towards direct cash transfers.
• Good black swan -> something goes right. Not counting on it….but a novel treatment or vaccine….or something unexpected goes right.

Where do I think this thesis adds up to? A melt-up market, yielding an S&P500 of ~3,500 to ~4,000 within 36 months.

I think that risk-reward is interesting but not phenomenal.

This post will probably get push back along the lines of “SPX 3,500 is not worth the chance we go down to [INSERT VARIOUS BOTTOM PREDICTIONS HERE].”

And that is entirely fair. We likely will go lower from SPX 2,400! And I hope to keep adding to these names down there if needed.

SOME RISKS

A non-exhaustive list of what could go wrong:

• Bad print after bad print. Q2 GDP comes in 11% down, not 5% down. Shockingly low PMI readings. And so on. Investors capitulate, multiples contract.
• COVID-19 lockdown lasts into August or September.
• Socially unpalatable financial institution failure. More specifically, an international bank (strictly theoretically, Deutsche Bank) and/or large “hedge fund” (strictly theoretically, Citadel or Bridgewater) collapses where coordinating a rescue would be so socially and politically toxic to be unworkable.
• Prominent growth story blows up. I have real concerns about the market reaction in the event of Tesla collapse.
• COVID returns in the fall or flares up in other regions.
• Acts of war break out
• Accounting frauds revealed – further contributes to multiple contraction
• Significant natural disaster
• US political gridlock prevents sufficient stimulus

MY POSITIONS

Long-term holdings I am comfortable adding to incrementally at these levels:

• Sharpspring (SHSP)
• Xero (XRO / XROLF)
• New Relic (NEWR)
• Floor & Decor (FND)
• TPI Composites (TPIC)
• RCM (RCM)
• Envestnet (ENV)
• LiveChat (LVC on Polish Exchange)

Speculative “aggressive basket” names I am buying (with an important preface that many of these are low conviction

• TripAdvisor (TRIP) and Liberty TripAdvisor (LTRPA)
• Millicom (TIGO)
• Anheuser-Busch (BUD)
• US Foods (USFD) (warning: probably too early here)
• Sky Champion (SKY) (via @RandolphDuke7 (fka @ValueTrap) flagging during 2018 downturn)
• Aspen Group (ASPU)
• Trex (TREX) (via @EddyElfenbein)
• Re/Max (RMAX) (via good Value Investor Club idea)
• WestRock (another good Value Investor Club idea)
• Sensata (ST)
• Home Depot Supply (HDS)
• Beacon Roofing (BECN)
• Jeld-Wen (JELD)
• Douglas Dynamics (PLOW)
• Recro Pharma REPH (via a good Value Investor Club write-up and some fund letter on Seeking Alpha)
• Wells Fargo (WFC)
• Ulta Beauty (ULTA)
• Names next on the watchlist (no positions yet):
  • Univar (UNVR)
  • Endurance International (EIGI)

SaaS names I am adding to :

• ZenDesk (ZEN)
• Medallia (MDLA)
• PagerDuty (PD)
• BlackLine (BL)
• SurveyMonkey (SVMK)
• Sprout Social (SPT)
• Alteryx (AYX)
• Speculative name on near-term watch list
  • Nitro Software – recent small cap IPO in Australia – thesis as cheap PDF and e-signature software that enables “digital transformation” for more price-sensitive enterprises. Morgan Stanley underwrote IPO and has coverage.

Longer-term holdings I probably will just hold with low conviction (and I take into account my low-basis in certain of these that might otherwise change my view):

• Brookfield Renewable (BEP)
• Match Group (MTCH)
• Air Products (APD)
• LiveRamp (RAMP)
• LGI Homes (LGIH)

And in full transparency, here are some regrettable holdings that I have no idea what to do with:

• Burford Capital (BUR) – key lesson learned: don’t piggyback write-ups. I was told this is the Blackstone of litigation finance. Ugh.
• PAR Technology (PAR) – again, following a write-up and I don’t know the underlying details well enough. Ugh. Probably good upside from here though.
• Zuora (ZUO) – a pre-IPO investment. No idea if the public markets will ever like them.
• Elastic (ESTC) – another following other investors mistake. Maybe good upside from here, maybe not.
• Nutanix (NTNX) and TeraData (TDC) – Ugh. Not a good time for re-rating stories.

To quote @NonGaap, I might have to go “Donner Party” on these regrettable holdings.

Final disclosures: I have smallish and pre-existing short positions on:

• Tesla (TSLA)
• Royal Caribbean (RCL) – thank you @Keubiko!
• Country ETFs (Canada – EWC, Australia – EWA, and India – INDA)

Good luck to all.

Image Credit: Photo by NOAA on Unsplash. My rationale: captures “Snow in the Desert” – I experienced desert snow for the first time this fall on a trail run in Red Rock Canyon. I can’t quite articulate it, but that temporary and strange set-up reminds me of today. Memorable no matter what happens from here.

For a person consistently behind and playing catch up, the case for a personal blog is very questionable.

Especially so when I have a backlog of fully researched, partially written articles for APPEALIE which are still unpublished, roughly 10 months behind schedule.

I am a painfully slow writer. I would like this to change.

I also need to improve as a writer and communicator to realize my goals.

I recently made a first attempt at implementing Amazon’s “meeting by memo” to layout my business vision for 2019. I found writing this memo helpful for:

• Refining my overall business vision, especially for SEAL Awards, and – with a prompt from Scott Belsky’s “Messy Middle” – actually communicating that vision to my team.
• The thinking required by writing caused me to revisit and grade past decisions in a way I would not have otherwise. Evaluating past decisions as showed me that making ambitious bets – like including environmental journalism awards from Day 1 as a pillar of SEAL – generally were the right choices. 
• The writing process also caused me to concretely express a more aspirational goal for SEAL – “To create an unconstrained, entrepreneurial, creative platform that is uniquely capable of pursuing and realizing our own environmental impact and activism campaigns” – relative to our initial awards-driven approach.
• A secondary benefit: Creating a written record to point back to. To highlight the necessity of compounding incremental efforts for the SEAL organization to realize its goals over a 50-year plus horizon, writing a memo caused me to actually do the fucking work of showing how a believable application of compounding math – basically getting 44% better each year – translates into phenomenal results (see Footnotes for more). Over time I would like to create my own version of Matt Mochary’s “The Great CEO Within” – an excellent and open-sourced founder’s playbook you will find frequently re-shared on Hacker News – that I can point to.

Writing my vision memo has crossed over into a branding binge.

I cannot recommend Michael Johnson’s “Branding In Five And A Half Steps” highly enough. Seriously, buy his book.

The book lays out critical questions for any brand to answer:

Why are we here?
What do we do and how do we do it?
What makes us different?
What are we here for?
What do we value most?
What’s our personality?

If I am a poor and slow writer, I am likely to avoid doing the actual fucking work of actually answering these strategic questions.

With enough practice – like writing this blog – I will at least become marginally faster and a more relaxed writer where I can at least generate more iterations of these brand answers, increasing my chances of something sticking.

Other rationales for writing this blog:

• I want SEAL to be a public platform that ambitious, talented and creative environmental advocates use to make an impact. I have a theory that transparently sharing my thinking here might help motivate action-oriented advocates to reach out.
• SEAL’s activism work requires excellent communication. Our 2019 impact initiatives will involve asking massive companies to change. A poorly made case will be quickly dismissed and ineffective.
• I need to hire writers for both APPEALIE and SEAL. Doing my own writing – no matter how bad – should help me understand what really goes into producing a 600-word article or how to identify writers with real skills unlike me.

A Plea For Your Referrals:

Environmental Advocates: We want SEAL to be a platform that makes environmental impact ideas come to life. If you know of an environmental advocate that would benefit from our platform – like our media relationships, financial resources, and campaign execution skills – please email us at operations@sealawards.com with “Advocate Referral” in the subject line.

SaaS Writers: If you know any freelance writers with a track record writing about SaaS, please email us at operations@appealie.com with “Writer Referral” in the subject line. If we develop an ongoing relationship with that writer, we will pay you a meaningful cash referral bonus.

Footnotes:

The compounding example from my 2019 Vision Memo: