2021 Talguard Holiday Letter To Investors By Dan H. Chen
by Talguard•Friday, December 17, 2021
Talguard Value Fund LP outperformed all major indices such as the Dow Jones, the S&P500, the Euro Stoxx 600, and the Shanghai Composite. Many major indices have negative returns this year such as the Corporate Bonds Index, High Yield Bonds Index, the Hang Seng Index, and Gold.
Cash Flow Assets:
Cash flow is king. That has been true for investments since the dawn of civilization. This is especially true as we head to a period of fluctuating inflation and rising interest rates. We continue to hold investments in our quality companies which we believe will ride out the main threats of inflation and rising interest rates in the coming years.
Our quality companies have proven most capable time and again to weather economic downturns and more recently, a global health pandemic. We will also take defensive measures when appropriate. We continue to avoid high flying companies that have negative cash flow valued at price to sales and companies that are loaded with debt.
2021 Talguard Annual Letter To Investors By Dan H. Chen
by Talguard•Tuesday, May 4, 2021
Technology:
I am a big fan of technology and the role it plays in improving human standards of living. Tech will also play an integral role in solving problems facing mankind such as resource shortages and global warming effects. As an investor, I look for companies with durable competitive advantages in this sector as I always do for any investment. One drawback for tech, it has a lot of companies with negative cash flow or inconsistent cash flow. Those companies are to be avoided.
I have favored software and financial technology companies (known as “Fin Tech”) in the Technology Industry. Software and Fin Tech companies have shown high returns on equity with lower capital expenditures (“cap-ex”) than pure hardware companies. More importantly, many of these software and fintech companies have subscription based models which I like. Tech hardware is similar to the canvas for artists. In contrast, software is similar to the artist who paints on that canvas and creates the most value in the process of creating a piece of artwork.
2020 Talguard Holiday Letter To Investors By Dan H. Chen
by Talguard•Tuesday, December 22, 2020
I am saddened for all the families and individuals who suffered losses amongst this tragic pandemic. Now, in less than a year, not one but two vaccines received FDA approval. The vaccines are the light at the end of this dark tunnel. Furthermore, we had a Presidential Election with the result contested by the incumbent President. We had Central Banks around the world lower interest rates and commit to long term quantitative easing effectively printing large sums of currency. And to think, the year is not even over yet.
Fiscal Stimulus and Monetary Stimulus:
End of Summer 2020 Talguard Letter To Investors By Dan H. Chen
by Talguard•Friday, September 18, 2020
Our Talguard Fund has done well with a more balanced portfolio unlike the S&P500 which has depended on the tiny group of 5 technology stocks for its rebound. The S&P500 is a market cap weighted index. As it stands, the S&P500 is overly skewed towards the technology sector with a weighting of approximately 30% of the index. If you look at the S&P500 equal weighted index where all 500 companies are represented equally, that is still down (-4.1%) for the year-to-date through September 17, 2020. Our Fund being not dependent on anyone single sector has helped us in the long run.
I am optimistic we will continue to navigate these uncharted waters. Economic activity has continued to pick up and some pockets have surprised on the upside. Unfortunately, many in our country from different walks of life do not take this virus seriously. That is why the U.S. has over 40,000 new cases a day and it will likely get worst this fall as indoor activity picks up and as people get tired of social distancing.
COVID-19 is remarkable because it caused a greater part of the world to shut down than previous health crises. This is the first pandemic that effectively shut down great swaths of economic activity across the globe simultaneously. The 1918 Flu Pandemic and the 1980s HIV Pandemic did not do the vast shutdowns like COVID-19. Unlike recent flu outbreaks, COVID-19 has a longer incubation period once infected of up to 14 days. Worst still, COVD-19 is often asymptomatic. It is also the most deadly cold virus we know of compared to other cold viruses.
Another factor is that the U.S. shutdown was uneven across the country and it was never a full shut down. Every state had their own policy on a shutdown and the issue of wearing masks became a political issue. Now the U.S. has one of the highest numbers of infected people in the world and the highest death count. The fact is we have 5% of the world population but more than 20% of known infections and deaths. Much of this was preventable and it is one of the greatest self inflicted wounds our country has done to itself. It did not have to be this way.
What happened with the Stock Market?
At the start of this pandemic in the first quarter of this year, the U.S. Stock Market experienced one of the fastest asset price drops in history. The Stock Market went down over 30% in 4.5 weeks from February 19, 2020 until March 23, 2020. Many stocks of companies most affected by COVID-19 declined over 70%. The Talguard Value Fund fared much better during that period.
Since the lows of late March, stock prices had a record fast rebound. The Stock Market climbed back to near all time highs within just five months. To give you context, the Stock Market declines for the 2000-2002 and 2007-2009 recessions took 28 months and 18 months, respectively, to decline from peak to trough.