Private Equity is coming for Software (NOTW#104)
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Indices were up this week in what we could consider a relatively calm week (for once). I talk about the software industry this week as there was some “relevant” news for the entire industry. There was also some interesting company-specific news and I also made some movements in the portfolio.
Without further ado, let’s get on with it.
Articles of the week
I published three articles this week, all earnings digests. I thought my earnings season was finally coming to an end but just realized that two positions report next week!
The first article of the week was the earnings digest of the latest addition to the portfolio (paid subscribers can read the in-depth report here).
(NEW REPORT) Proprietary monopolistic data that matters
Over the years, five names have shown up in Best Anchor Stocks that had one thing in common: cyclicality taking hold of the narrative despite the business’ long-term secularity.
The company reported stronger-than-expected earnings and rose significantly, likely driven by somewhat of a short-squeeze. The stock eventually gave up a good chunk of these gains as the short squeeze faded and I decided to add to my position.
The second article of the week was Nintendo’s earnings digest.
The numbers don’t tell the full story
(I had been waiting for Nintendo’s Q&A transcript before publishing this article, but as that is taking longer than anticipated, I have decided to publish it and will bring any updates of the Q&A in …
The company reported okay numbers, but these are considerably better once one digs deeper and fully understands them. Touch wood, but the stock seems to be doing better lately and seems to have managed to break its correlation with the memory trade.
The third and final article of the week was Constellation’s earnings update.
Food for the bears and bulls
Constellation reported this week one of the most “controversial” quarters that I can remember as a shareholder. Investors either thought the quarter was outstanding, or that it was “mid,” and althoug…
Similarly to Nintendo, Constellation reported a “controversial” quarter in which the headline numbers left some doubts. I believe there was food for the bears and for the bulls, but maybe more for the latter (albeit I am biased).
Tiendas 3B (TBBB) also reported outstanding earnings this week, with the stock enjoying a significant pop.
I am working on an article that I will most likely publish on Monday. In the meantime you can refresh the investment thesis by reading the in-depth report. The stock is up considerably since I published it, but growth has been spectacular and therefore it hasn’t necessarily become more expensive (more on this on Monday’s article).
Without further ado, let’s see what the markets did this week.
Market Overview
Both indices were up this week, although the Nasdaq clearly outpaced the S&P 500:
We had a pretty calm week…maybe too much? Trump was silent, we got no incremental news from Hormuz…feels suspicious. Now, what we did get post-market close on Friday was a bunch of 13Fs fueling people’s confirmation bias. I will never not find it funny how much people directly and indirectly focus on 13Fs. These might be a good source of ideas, but that’s about it. One never knows…
Why someone bought/sold their position
If they continue to hold it at the 13F date
Still, a lot of people use the 13Fs to gain a false confidence in that they have made the right decision, which seems like something terrible to do. I’ve even seen newsletter writers (I am pretty sure some even mean it) claiming that “superinvestors” are reading their content and copying their ideas. While this might be true in some cases, I’d say that it’s definitely not true 99% of the time. Anyways, all this to say that the moment to mute the word “13F” has come!
In other relevant news…Silver Lake is supposedly in talks with Workday to make one of the largest tech buyouts in history. Workday’s shares rose almost 20% on the news and lifted the entire software industry with it. One might think that these news portray that software is not worth $0, but evidently the following day the IGV dropped more than 1% and most software companies lost what they had gained the day before. Is software more/less valuable due to the Silver Lake news? I believe not, but it might be great news for sentiment that the private markets are finding publicly traded companies appealing (i.e., there’s a safety net). What’s interesting about this time around is that it’s also going the other way: publicly traded software serial acquirers are also taking advantage of software valuations in private markets coming down to earth (finally):
This is great news for many companies, especially for those that don’t issue shares to acquire others as they would have to issue shares at depressed valuations.
The industry map was the definition of mixed this week:
The fear and greed index improved somewhat and remained in greed territory:
Some portfolio moves this week: one sell, two buys
I made some portfolio moves this week. I sold a third of one of my core holdings (as I added significantly during this year’s drawdown) and added to two other positions that I believe are poised to deliver >15% returns over the coming years. I have updated the Best Anchor Stock portfolio management tool (including the expected IRRs of all of the companies in the portfolio). This means you can see the updated matrix in the tool (available if you are a paid sub). Here are the transactions: