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The Great Value Reset of 2022 Will Shock You!

With respect to the church in Ephesus, Revelation Chapter 2 verses 3-4 state, "You have persevered and have endured hardships for my name, and have not grown weary. Yet I hold this against you: You have forsaken the love you had at first."


As a believer in Jesus Christ as Lord and Savior, I have to constantly challenge myself, especially as it is easy to default to going through the motions. My relationship with God is personal and not an exercise of checking boxes to feel good about myself. God has a purpose for my life, and everyone's life, and it is my responsibility to seek Him and serve His kingdom.


When it comes to today's corporate environment, I see a similar forsaking of an initial love in one word - risk. Today's politicians and corporations are more interested in easy street than going through the natural progression of risk taking through innovation and competition through markets. I see this from many companies regardless of sector and industry. I even see it in Big Tech, and very much so in legacy/incumbent peers. Just like I need to make a choice to serve God, I need to understand and be clear on making wise decisions on selecting tomorrow's market leading winners. We're in a paradigm shift, make no mistake.


Markets are in massive correction/recession mode right now. Today's military concerns didn't help as volatility exponentially gyrated across the board. That being said, there has been a lot more talk with respect to the great value reset of 2022. Many have been calling for it as early as late 2020. Here are the top points I'm paying attention to that I think most aren't with respect to what is really going on.


1) The substantial impact from this great value reset has been felt across aggressive growth stocks. The irony here is that it has hit some pretty strong players leading their respective markets, while some companies with not the best prospects, have seemingly maintained stratospheric valuation multiples. For leading aggressive growth winners, think companies like Roku, Inc. (ROKU), Shopify, Inc. (SHOP), MercadoLibre, Inc. (MELI), Coupang, Inc. (CPNG), etc. that will only continue to outperform their competitive peers from a growth perspective. Roku is the easiest to see as it should be trading in a 9-15 times EV/Revenue range and instead is trading in extremes of 5-25 times gyrations. We saw peak extreme valuations in 2020 and early 2021, now we are seeing the complete opposite as many discounted Stock Prices make no sense for growth leaders.


2) Big Government is the cause for all the massive economic problems today. This is pretty easy of a correlation to track. I view the critical time period being the summer of 2020 to present. This period is where governments should have been really helping economies pull out of where we have gone. But instead, politics has continued to drunkenly dictate government shutdowns and enforce severe draconian measures across society. The result? Supply chain disruptions, inflation, increased poverty, reduced healthcare, and a substantial reduction of quality of life standards. Economic demand is muted at best and negative at worst. Today's inflationary talk is delusional as it is all manufactured. The pendulum has swung much too far for centralized government control and until people stand up for their rights and freedom, it will stay there.


3) Innovation is dying - Big Tech/Big Corporations would rather acquire cheaply than compete. I find it very comical when Big Government claims it is looking to break up Big Tech, and low and behold, Microsoft Corporation (MSFT) makes its largest acquisition deal in history with the purchase of Activision Blizzard, Inc. (ATVI). The key underlying themes are that innovation is dying (because of Big Tech/Big Corporations and the politics at play) and that Wallstreet is the invisible hand of market manipulation pushing companies to the brink of selling at bargain-basement discounts. It is pathetic that a company like Apple, Inc. (AAPL) invests around 6% of Revenue into R&D, while it purchases back stock and pays dividends at nearly 30% of Revenue. It's no wonder that the company keeps talking about EVs and does nothing, their EV Capex is buying back stock. If companies like Apple and Big Government can manipulate markets (via Wallstreet) to pressure their competition, then innovation will continue to die further. It's a good thing that there are a good selection of winners to choose from who will buck this trend.


4) Valuation is out the window. We always hear about valuation being out the window when markets are frothy, we rarely hear about it when they are in correction/recession mode. But it's true. The extreme gyrations of the Stock Market the past four years have been pretty alarming. We are in the midst of another December 2018 and March 2020, with January 2022, all being severely discounted time periods where miss-pricings have occurred, especially for aggressive growth market leaders. I find myself resetting my Max APs each day within each week lower and lower, not based on valuation or expected performance over the mid-term, but just to set a price to achieve a 10-20% improvement in my average cost basis. Logic is out the window right now and its's a good thing for those who understand that time will reward patience. Risk/reward opportunities are near some of the best levels that could be hoped for.


5) Longer the reset, higher future returns will be for clear leaders. To be quite honest, I get excited during times like the past couple of months. I have historically always had capital to deploy and this time has been no different, while it has been extremely challenging still. But what I know is that the longer and deeper the correction/recession, the better returns will be for clear leaders. The challenge is that the clear leaders will not be rewarded handsomely until their execution has proven skeptics, naysayers, and risk-averse investors dead wrong. Roku remains one of my favorite opportunities as it is facing competitive pressures from the likes of Apple, Amazon, Inc. (AMZN), Alphabet, Inc. (GOOG), Comcast Corporation (CMCSA), and At&T, Inc. (T), and Smart TV manufacturers like Samsung, and TCL, among others. None of these companies can beat Roku for the simple reason that none of them have Roku's vision, leadership, and human capital talent. I've seen it many times before far too often where the simple question of why can't company X beat company Y because X is bigger lead to terrible results over time.


For me, investing is always about two things, innovation and risk taking. They go hand-in-hand, and are the drivers for any thriving economy with respect to prosperity, sustainability, and freedom. These are the investment companies for aggressive growth that will afford investors the strongest returns over time. It isn't going to come from Big Tech, Big Corporations, legacy/incumbents, or any sectors or industries not taking risk. As the substantial majority of companies today have become risk-averse and intrenched in politics, tomorrow's leaders will thrive as we are on the cusp of a technology/innovation revolution, akin to the industrial revolution in the 1850s. I for one, don't want to miss out on this massive generational opportunity. And I continue to push as much capital into the portfolio as I can each week.




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