While the second quarter results appear quiet on the surface, we observed significant underlying volatility as the world attempts to digest the impacts of COVID-19, government-mandated economic shutdown, trade wars, cold wars, potential COVID-19 therapeutics and vaccines, spiking unemployment, economic reopening, civil unrest, a resurgence of COVID-19 cases, unprecedented fiscal and monetary stimulus and the U.S. presidential election. Despite the noise and chaos, we remain focused on the long-term fundamental economics that determine intrinsic asset value. In my experience, trying to predict the magnitude and timing of volatility is a futile exercise and can lead to short-term decisions that are destructive to long-term investment returns.
We remain true to our long-term mandate, that is: to grow real economic wealth with capital preservation as a primary consideration regardless of market cycles; and doing so with a diversified, liquid portfolio and a conservative balance sheet.
The following thematic highlights from the second quarter speak to the robust fundamental trajectory of our Long investments (structural winners) and the significant headwinds facing our Short portfolio (structural losers):
- eCommerce:
- FedEx Corp June 30th, 2020 Earnings Call (please note: FedEx is not in our portfolio but the company is a significant participant in the eCommerce ecosystem):
- “Here in the United States, the COVID pandemic has accelerated e-commerce adoption, while detrimentally affecting the business-to-business segment. Several years of retail share gains have been compressed into a few months in the United States with e-commerce as a percentage of U.S. retail increasing from 16% in calendar year ’19 to 27% in April 2020. The growth rate of e-commerce in April was partially a result of the shrinking denominator as total retail contracted. We anticipate e-commerce as a percentage of retail will stay elevated. This shift has left an indelible mark on the retail industry, causing the bankruptcy of some chains that have been around for decades, while helping those retailers with a strong omnichannel strategy flourish.”
- FedEx Corp June 30th, 2020 Earnings Call (please note: FedEx is not in our portfolio but the company is a significant participant in the eCommerce ecosystem):
- Software & Enterprise Computing
- Microsoft Corp April 29th, 2020 Earnings Call:
- “We delivered double-digit topline and bottom-line growth once again this quarter, driven by the strength of our commercial cloud. As COVID-19 impacts every aspect of our work and life, we have seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security, we are working alongside customers every day to help them stay open for business in a world of remote everything. There is both immediate surge demand, and systemic, structural changes across all of our solution areas that will define the way we live and work going forward. Our diverse portfolio, durable business models and differentiated technology stack across the cloud and the edge position us well for what’s ahead”
- Microsoft Corp April 29th, 2020 Earnings Call:
Thank you for your trust and support. I believe our partnership’s patient focus on the long-term is one of our most significant strategic advantages – thank you for making this possible. I remain fully invested alongside you and thrilled about the outlook of our partnership. Please feel free to reach out anytime.
Your partner and fiduciary,
Faris Jafar, Chief Executive Officer
Phone: (734) 678-8562