A Tale of Two Markets

Disclaimer: This is not investment advice, nor is it a recommendation to buy or sell shares in the company/companies mentioned.

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The information contained herein is accurate to the best of the author’s knowledge, but the material and interpretations contained herein should be independently verified by any party using this information as part of any research, editorial, or decision making process. Any views expressed here represent the author’s opinion only, and as such readers should do their own research and come to their own conclusions if they are using the opinions contained herein as part of any larger due diligence process. The author may have long or short positions in the companies mentioned and may be buying or selling in the market depending on which way the wind is blowing at any given moment. Opinions are subject to change without notice. Prospective resources, predictions, comparisons, financial projections, and extrapolated metrics are, by their nature, subjective and interpretation dependent. The topics covered are highly speculative and involve a high degree of uncertainty and risk. Speculative companies can and do go to zero. By using this site, you agree that the author(s) and Hydra Capital is/are not responsible for any damages incurred by the use of the presented materials. Anyone reading these blog posts should know that they are the author’s thoughts and opinions, which are not to be confused with or construed as research reports.

Disclosure: The following represents my opinions only. I am long AAV.TO, ARX.TO, CJ.TO, CPG.TO, ERF.TO, ERTH.C, NPK.TO, SWN.US, TAO.V, TNZ.V, VET.TO, VLE.TO, and XYZ.V (Image credit to Ivars Krutainis on Unsplash)

It was the best of times, it was the worst of times. For a lot of investors, the market has been nothing but a house of pain for months. When things get frothy and people are paying 35-50+ times earnings (or even higher), talking about “price to sales ratios”, or discussing metrics like “revenue multiples”, you just know that it’s not going to end well. This was particularly true for tech and “growth” stocks where money felt like it had been falling from the sky for long enough that people became comfortable with it. Now, investors can’t go for five minutes without hearing/thinking about inflation, the tech/growth stock bubble has shrivelled, crypto is in the tank, and there are a lot of people wondering how so much money disappeared as if it were a mirage. While it was great on the way up, investor concentration (through ETFs and tech & meme-dominated retail preferences) has shown its ugly side as a lot money is in variations of the same theme, and that theme has been broadly for sale. As a result, the market has not been kind to those who were/are HODLing companies (or digital assets) that they probably had no business HODLing in the first place. Meanwhile, investors with high exposure to “value” (i.e., paying reasonable prices for good companies who generate free cash flow with sustainable/growing earnings and/or dividends) and commodities are more likely to have experienced more of a speed bump rather than a spike strip over the last month or so. This is not to say that energy, value, and commodities stocks are somehow immune from correction (in the worst markets, all stocks are just stocks at the end of the day), but a lot of the stocks in these sectors do show rapidly improving balance sheets, abundant free cash flow, increasing share buybacks, and increasing dividends — is it any wonder that they have held up better than most? Sure, tech might be a little oversold short term, but I suspect the days of “all tech, all the time” are over for now.

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