Hearts and Minds 2021: Buying is only half the battle

Patrick Poke

Livewire Markets

As Kenny Rogers famously sang, “You got to know when to hold ‘em, know when to fold ‘em”. Rarely has that been more applicable than over the last 12 months.

Each year, the Hearts and Minds conference brings together some of the best investors from Australia and overseas for a day of investment insights and high conviction stock ideas. These stock ideas form the basis of the Conference Portfolio (35% of the overall portfolio) for Hearts and Minds Investments Limited (HM1), an ASX listed investment company.

In addition to maximising long-term returns for shareholders, HM1 also aims to provide vital financial support to leading medical research institutes. To date, the company has donated over $30 million dollars to medical research. This is enabled by the fund managers, service providers, and Board, all of whom act on a pro-bono basis.

Stocks in the Conference Portfolio can be held for up to 12 months, but this is a maximum, rather than a requirement. This year more than ever, knowing when to fold ‘em has been key, as several sales throughout the year have helped to avoid major drawdowns.

With the 2021 Hearts and Minds conference on this Friday – featuring the legendary Charlie Munger, no less – I took the opportunity to review some of last year’s stocks.

Nothing slack about Slack’s returns

  • Picked by: Hamish Corlett, TDM Growth Partners
  • Return: 60%

Slack may not have been the best performer in the portfolio over the last year, but given that the 60% return came in just three weeks, it deserves a special mention.

Just a few weeks after the 2020 conference, Salesforce announced a cash and scrip offer for all the outstanding shares in Slack, valuing the company at over US$27 billion. This allowed HM1 to quickly lock in a gain of just over 60% - if only all investments paid off so quickly!

Salesforce is well known as a serial acquirer, having purchased more than 60 companies in its history, but this was the largest to date. Only time will tell whether Salesforce made the right call, but for Slack investors, it marked the end of a happy road.

Selling at the top

  • Picked by: Beeneet Kothari, Tekne Capital
  • Return: 112%

HM1 is no ‘set and forget’ portfolio. In fact, Chief Investment Officer Rory Lucas actively manages the Conference Portfolio throughout the year, staying in regular contact with the managers to ensure the thesis remains intact.

But even with regular attention, selling at the top is a rare but welcome occurrence. One stock where they nailed the timing was Yeahka, a Hong Kong-listed payments platform servicing mainland China. To say it’s had a wild year would be an understatement. While it’s stock now trades lower than a year ago, HM1 was able to lock in an impressive 112% gain after just three months, avoiding the 65% fall since then.

Don’t forget the Bill(.com)

  • Picked by: Babak Poushanchi, Cota Capital
  • Return: 179%

The biggest winner from the 2020 stock was a US$28 billion SaaS company based in California. But don’t be fooled by the name, they’re not here to facilitate paying your bills. Bill.com offers AI-driven software that aims to automate back-office functions for financial corporations.

The company has experience explosive growth over the last year. While it produced just $46 million in revenue in Q3 2020, by Q3 this year that figure had grown to $116 million – that’s +152% in a year! That incredible revenue growth has been reflected in the share price too, which had gained 179% when HM1 sold the position in August.

Hello Fresh delivers

Delivering groceries sounds like a straightforward and unrewarding business, but as it turns out, neither of those things are true. While meal kits are appearing everywhere these days, Hello Fresh is one of the top operators in every country it services. As Nick told us on The Rules of Investing podcast recently, the appeal is based around convenience rather than price.

And convenient it is! As a loyal Hello Fresh customer, I certainly appreciate the hours of shopping and meal planning that it saves. And the food is tasty to boot.

Target hits the bullseye

  • Picked by: Gavin Baker, Atreides Management
  • Return: 46%

Proving that you don’t have to pick tech stocks to end up at the point end of the list, Target Corporation has had an impressive year for a >$100 billion bricks and mortar department store.

Perhaps the most impressive part of this performance though, is that this was no recovery or turnaround. Target was already at all-time highs leading into last year’s conference.

Nor was this a GameStop-style short squeeze without any fundamental drivers. Even now, the stock trades on a modest PE of 17x.

Fun fact: Despite sharing the same name, logo, and industry. Target Corporation has no relation to its Australian namesake.

DISHing up a decent return

  • Picked by: Josh Resnick, Jericho Capital
  • Return: 11%

Picking a cable TV provider in 2020 was always a bold move, but when it trades on a single-digit PE, the appeal becomes a bit more obvious. At one stage the stock had rallied an impressive 40%. But again, demonstrating the importance of timing, the stock is now trading below the entry price. The good news for HM1 shareholders though is that the company exited the stock with an 11% return.

It might not sound that impressive next to some of the huge number quoted above, but 11% in under a year is certainly nothing to sneeze at.

T-Mobile still searching for coverage

  • Picked by: Josh Resnick, Jericho Capital
  • Return: 0%

Proving the old adage that you can’t get them all right, T-Mobile is the only stock that wasn’t able to lock in a positive return among those already sold.

Closing it out 

As a reminder, the overall Hearts and Minds portfolio is made up 65% by the Core Portfolio, and 35% by the Conference Portfolio. Hearts and Minds does not report the performance of these two portfolios separately. 

The overall portfolio returned 12.6% in the 12 months to 31 October 2021, underperforming its benchmark by 18.7%. Despite the challenging year, the overall portfolio has returned 24.4% per annum from inception to 31 October, outperforming its benchmark by 7.7% per annum. 

Please note that there were seven other stocks in the Conference Portfolio from last year, however due to ASX disclosure rules the performance of these trades was unavailable at the time of writing. Some of these stocks produced a negative return over the last year. 

Don’t miss the 2021 picks, and a presentation from Charlie Munger

Sohn Hearts and Minds returns in 2021, and this year the keynote presentation is by none other than Charlie Munger, Vice Chairman of Berkshire Hathaway. This year’s conference is fully digital, and tickets are still available. All proceeds go to medical research charities, so you can learn a thing or two and feel good about it too.

Livewire readers receive a 20% discount to conference virtual tickets by using the code below at checkout.
 


Discount code:
 
SHM-LIVEWIRE

Checkout: (VIEW LINK)


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Managing Editor
Livewire Markets

Patrick was one of Livewire’s first employees, joining in 2015 after nearly a decade working in insurance, superannuation, and retail banking. He is passionate about investing, with a particular interest in Australian small-caps.

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