October Investment Update

Dear investors and well-wishers,

The fund contracted -1.1% in September. The Nasdaq dropped -5.7% and the ASX200 Total Return dropped -1.5%, putting us at +52% net for the calendar year-to-date. We’ll be hosting a webinar at 1030am next Monday, please register here and reply to this email with any questions you want us to address.

We took advantage of the volatility in September and were buyers throughout the tech sell-off, which has helped October off to a strong start.

We have now identified quite a few >3x opportunities:

There were other strong performers like Pointsbet (4x) and Appen (9x) which we no longer hold.

Is current market pricing irrational?

This comes up all the time, and there is a strange consensus that the market has got ahead of itself.

We have long maintained that it was the selloff that was irrational. As we wrote at the time and since, the end of March was close to the perfect environment for stocks, with:

– a temporary shock

– 30-40% declines in major indices,

– maximum pessimism, flight to cash, short interest

– cash handouts to companies and citizens

– rate cuts to zero and tens of billions of liquidity.

It’s interesting to see some of the sellers from earlier in the year wading back into the market.

The entire value of global business lies in the future. A weak quarter or even year has a negligible impact on the future of modern industry, which has lasted hundreds of years so far, and will hopefully last many more.


We had an interesting discussion lately where it was suggested our strategy chased operational momentum. There is a lot of truth in that: we want companies that are winning and kicking goals. If a company is doing something truly special, that should be visibly recognised by consumers. If the consumers aren’t buying it, perhaps it’s not so special after all.

The real money was made buying companies visibly accelerating and winning, rather than bottom-feeding the losers.

Interestingly, that was also the correct strategy in the period before the sell-off, and we expect that to hold true in the future too. This strongly informs our sell discipline: we want a portfolio of winners with plenty of competition to make it in. Companies that don’t maintain the highest levels of operational performance will be replaced. Fortunately, we are spoiled for choice.

Momentum is a dirty word in finance. There are hundreds of billions of dollars invested in momentum strategies around the world, most of which have had a very tough time trading the twists and turns of the past couple of years.

We have made many of our best investments (eg Carvana, Pinduoduo) when price momentum was trending down.

Negative price momentum, positive fundamental momentum, is very much a sweet spot for us.


We added to Redbubble, which has built a genuine two-sided marketplace, something of a holy grail in startup-land. In this case, artists upload designs, and shoppers buy them printed on mugs, shirts, face masks, and so on.

94% of the firm’s sales are overseas, and in their last update they grew revenue at over 100%. The firm trades on 2.5x sales and ~23x forward EBITDA, and these numbers were considerably lower at our initial entry price.

A clear peer is Etsy in the United States, which trades on 12x sales, so there is plenty of room to move upwards.

Redbubble has moved up decisively through Amazon’s Alexa rankings, jumping from ~#950 for months ago to the top 500 websites globally. There’s a power law here, so each jump is harder than the one before.

We have noticed quite a few local Australian companies growing at triple digits, trading on fractions of equivalent companies overseas. A handy reversal of the life sciences, where certain Australian companies seem richly priced compared to overseas (not, of course, the ones we invest in!)

We mean it when we say there is a lot of opportunity right now. Software companies may be trading on 40x sales, but we are focusing most of our attention on >100% growers trading at 2x-4x.

Redbubble’s latest results


It’s been a while since we’ve written about Pinduoduo, which is up 4x from the lows last year, and has a market cap of over $90 billion (we were buying in the 20s).

Time spent on the website has continued to accelerate, approaching Alibaba’s. The stock was down >20% from its recent highs to its valuation lows, while traffic data accelerated… long-time readers will know exactly what we do in these situations.

Negative price momentum, positive operational momentum.

Pinduoduo’s total share of time spent on e-commerce sites is up to 34% across all of China.

‘Time spent’ is one of the more interesting metrics in tech investing today. Users were obsessing over platforms like Facebook and TikTok long before their revenues came. As is so often the case, consumer behaviour was an accurate guide to future value.

You can actually track this kind of thing. This is data from Questmobile tracking where people are spending their time on mobile in China. You can see the rapid rise of short-form video, and interesting falls in other places. One of our investments years ago was iQiyi which is like a Chinese Netflix. This one didn’t work out, not least due to the weakness in long form video relative to short form…and other ways of spending time. Best to stick to the winners here, too.

Sadly, the hours in the day are not getting longer* and the world’s 7.8 billion population is only growing modestly. When a new platform takes the world by storm, that grab on attention must come from somewhere else.

There is a broader analogy here.

Many of our portfolio companies are growing organically at over 100% – they are not doing so in a vacuum. In a world of flat to weak GDP growth, that revenue must be coming from somewhere else. Ignoring these companies, or putting them in the ‘too hard’ or ‘too risky’ basket, has its own set of risks, as no doubt many this year can attest.

Many have little to no exposure to the kinds of companies we have built our entire portfolio out of – in fact, given the high short interest, we suspect many are net short these companies.

Tomorrow’s heroes will certainly be different to those of today. But we have a hunch that by sticking with companies with customer love and explosive growth, we’ll have a fighting chance of staying at the forefront of these shifts. Even when the shifts themselves change.

A sincere thank you for placing your trust with us,


*technically days are lengthening at 1.8 milliseconds a century

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