Tech IPOs continue to demonstrate market’s appetite for speculation

CHEWY and Fiverr had tremendously popular IPOs this week, continuing the streak of cashflow negative companies achieving massive valuations.  Its starting to feel like 1999 all over again where earnings don’t matter as long as a company can express a vision of how the future should be.

Well, in reality, earnings do matter.  Eventually the cashflows get returned to shareholders in the form of earnings growth or directly through dividends.  In times like this, I think it is extremely important to not engage in style drift.

In other words, value isn’t working but we are going to stick with value.

The worst thing one can do is to switch away from their investment style right as it is most out of favor.  Eventually value will come back into favor as it has been shown to do through decades of stock market history.  While we wait for what I believe is a substantially positive mean reversion in terms of market pricing, there are good things that are happening that are keeping the portfolio returns healthy.

Dividend flows naturally push us ahead each and every quarter and have gone a long way to counteract the momentum happy market.  Individual companies have performed well fundamentally to an extent that allowed them to break through the anti-value malaise.

This is essentially the engine on which 2CHYP runs.  When value is out of favor dividend flows, and opportunistic trading help keep us in-line with the market and when value comes back into favor we can spring ahead.  Your guess is as good as mine as to when value will come back into favor, but I can say with confidence that eventually it will.

While we wait, let us continue to opportunistically build the dividend stream.  STAG’s price appreciation took the dividend yield down to 4.6%.  There are plenty of high quality REITs with yields far higher than that and we are considering a few options to put the capital back to work.

2CHYP Portfolio Snap Shot

6/13/19 2CHYP Performance since inception

2CHYP Weekly Trade Confirmation Report