Is Cash Trash?
The Fed believes being predictable is more important than being reactive.
I know a guy who for 20 years stashed cash in a safe in his basement.
A family friend, he made it a point at social gatherings to let everyone know how smart he was and how there was *no risk*.
One year, a pipe bursts and his basement is completely flooded.
The stacks of cash were *completely ruined* -no bank would take his money.
Life savings completely wiped out.
No insurance on the cash.
While there is a special US agency that deals with situations like these, there is no assurance of recovery and the process takes years of bureaucratic red tape.
As a high earner, he was able to bounce back. But it wasn’t easy.
In the 2nd half of his career he was working 2x as hard as everyone else. No vacations, missed sporting events, head down, grind mode.
Guess what he buys now?
Gold Bars.
Even the most ironclad investment plan has unforeseeable risk, which is a part of investing and life.
General Comments
This week, there were no changes to current portfolio holdings. We maintain a total return in the Fundamental Value Equity Portfolio of +9% YTD, despite the selloff last week. The overall market and the S&P 500 Total Return benchmark is down -15%. Check out last week’s post for our most up-to-date holdings here.
We continue to be overweight companies we believe will succeed in an inflationary environment.
We believe this is a conservative positioning.
Based on our analysis, we believe the market is discounting the Fed’s resolve towards higher interest rates.
Some investors expect the Federal Reserve to shift course and stop raising interest rates because the probability of a recession has increased.
We disagree.
While the probability of a recession has increased, the Federal Reserve has historically been behind the curve in raising interest rates. For a recent example, look to the 2000’s:
On April 14, 2000, the Nasdaq plunged 9.7% in a single day.
32 days later, on May 16, 2000, the Fed maintained their stated policy and hiked another +50 basis points to bring the target rate to 6.5%.
The inflation rate in 2000 was 3.36%
The Fed believes being predictable is more important than being reactive.
This notion will continue to create a Fed policy that is behind the curve and creates opportunity for investors that can think outside the 60/40 portfolio.
We consider the Fundamental Value Portfolio to be appropriate for conservative investors because we cannot tolerate the risk tradeoff of a bond allocation in a rising interest rate environment.
Positive Contributors
$CPB, Campbell Soup Co.: +1.77% Past 5 Days, +16% YTD $50.55 is slightly off its 52-week high ($51.94).
The processed food and snack company continues to be used as a risk-off consumer defensive company with stable cashflows and supportive margins. This is the “defense” in our equity allocation.
Negative Contributors
$MAXR, Maxar Technologies: -9.4% Past 5 Days, -1.22% YTD.
A bad week for the stock. On earnings, we learned that there is a delay to the WorldView Legion constellation, pushing out to Fall 2022.
We anticipated this to be the greatest risk to the company outlined in our write up here.
The cost of the delay is another $50m in negative FCF this quarter.
Despite the delayed launch, Maxar management did not adjust overall 2022 guidance of total revenue between $1.8 billion to $1.9 billion.
We believe this is possible because of the > $1B of backlogged orders is still in play and the growth prospects of this company still have the upside potential we like in our “offensive” stock picks.
The temporary cash hit from the delay could be made up quickly and the stock could rebound if the team executes well going into the end of the year.
Last Word: Time is on our side
When it comes to win probability, time remaining is more important than score difference.
I cannot emphasize this enough. Take a playbook from the recent NBA playoff picture:
When there is more time on the clock, the chances of coming back from a deficiet increase.
Keep in mind we are outperforming the S&P 500 index by +/-24% YTD.
We will stay hungry and humble and play offense and defense and continue to invest in our inflationary macro backdrop.
We are only in round 10/12 of the China trade war and month 5 of 12 of the investing year. Plenty of time on the clock.
There will be plenty of upside potential to be gained from investing at Tuttle Ventures, as our shopping list in May continues to grow, stay tuned.
P.S. I’m on another podcast with Brandon from the Sunday Scaries Stock Talk:
How the Pros look at the Macro with Darin Tuttle - SSST Ep. 14
Thank you for reading and I am grateful and humbled to be able to learn, grow and invest alongside you at Tuttle Ventures.
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Check out the website or some other work here.
Best,
NOTE - This is not investment advice. Do your own due diligence. I make no representation, warranty or undertaking, express or implied, as to the accuracy, reliability, completeness, or reasonableness of the information contained in this report. Any assumptions, opinions and estimates expressed in this report constitute my judgment as of the date thereof and is subject to change without notice. Any projections contained in the report are based on a number of assumptions as to market conditions. There is no guarantee that projected outcomes will be achieved. Unless there is a signed Investment Management or Financial Planning Agreement by both parties, Tuttle Ventures is not acting as your financial advisor or in any fiduciary capacity.