Great article Matt. Thanks. It is a concern that search engines are self-appointed censors now on information, and society censors any views that are not "woke" or politically correct or against the party lines. That in itself may be an inflection point (societal) which the Wuhan Flu has highlighted. ?? Bitcoin was a recent example perhaps - I was checking out the maths behind it when it was $60 and thought nice... Wasn't thinking inflection ! Your approach and comments here are gold.
Thanks Matt, glad you enjoyed it! There are some very legitimate concerns around censoring. To me the most pernicious part of the filter bubble though is that it is mostly voluntary. People click the links that they agree with, and those get reinforced. This pushes people to both political extremes on both ends. I am not sure what the solution is, but it's a big challenge. Great to hear you enjoyed the inflection point article too!
Thanks for the article Matt. Hard to argue against reasoning away from analogy and the pack in regards to picking winners! :) I do want to address the cruise industry though. It's one thing for them to eventually say "we're back" and it's now"business as usual World!". For the cruise industry, the romance and the travel bug people have to participate has not gone, and justifies hope on ticket sales. People will want to cruise, certainly. But when can the rest of the world actually safely join in? While Australia sails through the crisis relatively well, many parts of the rest of the world are only starting the cycle now (Africa/Russia et al.). Can we really see cruises that go from port to port, country to country across Europe, Asia and the States, starting again within 6 months? What about 12? When those businesses do eventually reboot, how much accumulated COVID debt are they going to be carrying? What sort of PE's do we realistically think these companies can achieve anymore? Are they a good business at all based on the regular checks and balances we normally apply? I would think the dour (and I think rather accurate) forecast for the cruise industry was built on those lousy fundamentals (no cash flow, huge refunds), rather than the belief that people won't find the idea attractive any longer?
Hi Jon, Thanks for the great questions. To be clear, cruise ships are not good businesses in the best of times. They are asset-intensive, cyclical, with low returns on invested capital. I have never invested in a cruise ship business and it's likely I never will. I am specifically talking about people that were speculating that the cruise ship industry was over permanently. There were a few people calling this on twitter, and it was a different sentiment than say the airline industry. Airlines are a similarly terribly industry, however nobody speculated that airlines would disappear. Part of the reason for that might be because we all fly on airlines, so we have first hand experience and know that we will personally travel again once this is over. It's worthwhile figuring out if an industry will exist even if we will never invest in it directly. First, it helps calibrate our view of the world for forecasting other industries. Second, there are always some parts of an industry value chain that are attractive - hypothetically if we were reviewing a travel reservation software business, it would be useful to understand. I'd expect that much like the airlines there will be waves of bankruptcies among cruise ships, and (unfortunately in my view) some bailouts, then due to the strong underlying demand, the industry will return again on the other side. I would change my view if there were signs that demand was disappearing permanently for some reason (which we haven't seen any signs of thus far). This is where gathering a wide range of independent data comes in :)
Hi Matt. As you likely know IVC' annual results on 26 Feb were well received versus consensus expectations. Thus its share price bucked the trend to peak on 27 Feb 2020, rather than 21 Feb with the wider market. From 27 Feb peak for IVC, it was only south for its price and market thereafter to 23-25 March 2020 on a closing basis. At 27 February, few if any COVID specific themes/factors were being priced in anywhere. Flightcentre was $31 by way of example. Qantas was $5.65. Both being two of the most COVID sensitive stocks. They had yet to make any large moves, as the market had yet to appreciate or focus specifically on the COVID issues. Twitter / other platforms you use to digest news-flow may have been alluding to "buy IVC for a rise in funerals" (your analogy), but the pricing tape and chronology for IVC does not reflect this. IVC did not rise 15% in March. IVC fell through March. Both before and after its capital-raising. Notably Propel Funerals Group had exact same peak on 27th Feb being the day of its HY results. It also had exact same fall throughout March with the market and IVC (no rallies for any false rise in funerals theme). Although no broker coverage for Propel Funerals, it delivered HY growth of 21-22% on Revenue&EPS, and conveyed positive outlook statements unrelated to COVID (because COVID thematic moves/commentary were yet to occur at 27 Feb). PFP, like IVC, supporting the 27th Feb share price peak being legitimate and due to stock-specific results. RE: Cruiseline Industry, think US Corporate Debt Markets retaining an Investment Grade rating on Carnival and Royal Caribbean speaks to the confidence they have for repayment, despite the PITCH Black near-term sales-outlook. In this instance trust your call that Cruiseline Industry will survive, supported by Bondholders steadfastness in the most trying conditions. (Given, if no one finances it, and it blows up, and I agree margins are slim, the industry may disappear in spite of demand. Thankfully no Chapter-11's imminent).
Hi Matt, Thanks for your feedback. "At 27 February, few if any COVID specific themes/factors were being priced in anywhere." I respectfully disagree with this. Disagreement is what makes a market of course :) The first signs of the sell-off started Friday afternoon on the 21st of Feb, and really got underway on the 24th of Feb onwards. Flight Centre was trading at ~$30 by the 26th of Feb before results, but that was down ~15% from $35 on the morning of Feb 21st. Flight Centre then continued to fall, and that is what we would expect from an information cascade. The weekend of the 22nd and 23rd was when it became clear that the virus was not contained to China. Not everyone becomes aware of that conversation at the same time however, so you see pricing reflect this as the information moves from being a variant perspective held by a few of us, to common knowledge held by everyone. Webjet shares fell 27% from the morning of the 21st to the 27th of Feb. Although it was certainly true that *most* of the market hadn't fully processed the information cascade yet, I would disagree that it wasn't being priced in anywhere at 27 Feb. Here's an update from the 26th of Feb in the AFR https://www.afr.com/markets/equity-markets/pandemic-fears... Invocare shares rallied 16% from the 24th of Feb to the 27th of Feb, after the Covid slide started. Then held on to most of the gains, such that through to the 10th of March were only ~4% below this high, depsite the broader market falling precipitously over the same period. It is a fair point that results were part of this rally. The market is forward looking and so I expect that most investors were thinking about the future outlook, and from the 24th that included COVID. I can also say that from the morning of the 24th onwards I was hearing that funeral services was a defensive play for the reason I outlined. We never know for sure what was in people's minds when they bought. I think the sharp fall when the government announced the restrictions on funerals does indicate that a reasonable chunk of shareholders were not fully appreciating the likelihood of this happening. Thanks again for the feedback Matt.
Matt C - I'd suggest you take a look at what rate Carnival has just had to issue debt to ensure its survival, for the moment. The ratings agencies are behind the ball, as usual, and the Fed's intervention has been its saviour.
Great article and thought provoking. I have learned though, that it also pays to be mindful even when hearing, reading or possibly even seeing something. Sometimes it just isn't so. I have high doubts about the positive view of the Cruise Industry going forward and not sure that a few select pieces of data tells the story. You have to question the basis and integrity of the data.
Thanks Brett! You are spot on - it is crucial to constantly verify your assumptions with multiple different data sets.