Good Sunday morning everyone.
Today I have a lot to share and weave together as the markets are speaking very loudly.
I am hoping to test COVID negative this morning so I can leave the wonderful Bahamas and head home.
In the meantime, the staff at The Rosewood Hotel are taking great care of me. I can’t leave the room so everything in and around the Rosewood is brought to me. I could get used to this.
Onwards…
Back in the real world, at least the one I participate in, the markets are destroying the ill prepared.
When the markets get like this I read less and shrink my reading and call lists to the people that have been through nasty market cycles before.
I am paying close attention to the S&P 200 day moving average which we are now trading BELOW.
We are in a bear market. Doing less is important to me. Trade less, transact less, watch for new leadership.
The one bright spot I see across all markets is that private equity is FLUSH with cash.
I chose one article and one podcast to help readers here get caught up on the private equity I am talking about.
The article is titled ‘Apollo Rising‘ by Marc Rubinstein (he was recently on my podcast). On my podcast Marc said something that I have been telling seed stage founders for the last year re their valuation expectations…
Private investment should be driven by the IPO market, yet right now the opposite seems to be true. You would have expected the private markets to react much quicker to the IPO meltdowns and reprice. In fact, and this could obviously change tomorrow, the private market valuations have kept going up. This begs the question of what’s the point of being in the private market if they’re not recognizing the valuations in the public markets? Why take the risk? You can buy great growth companies at 10x sales in the public markets and have liquidity.
I could not agree with Marc more and his Apollo read was a fantastic education for me.
The podcast is from Patrick O’Shaughnessy and Orlando Bravo titled’ The Art Of Software Buyouts‘ (here on Spotify)
My friend Jeff Richards, a software growth investor, who I have had on my podcast many times had this to say:
As for the public markets right now…
I generally leave my market discussions to my Monday (Momentum Monday) posts, but this one chart is really important to keep an eye on in the months ahead – thank Josh Brown for sharing it and the quote below:
The S&P 500 broke below its 200-day simple moving average at the beginning of March, spent the whole month rallying back, got above, failed, broke down again and now it’s a shitshow. We’re finishing the calendar month below the 200-day for the first time in two years.
What’s the significance of a clear downtrend for the S&P 500 and a monthly finish below this simple moving average? Well, higher volatility – in both directions – is going to become the new normal. We ran the numbers. The fifty best and worst one-day returns for the S&P 500 in stock market history – 47 of those 50 best and worst days have happened while the S&P 500 was below the 200-day.
This is where the drama takes place.
I have been saying so on Momentum Monday since November, but Defense has been the name of the game in public markets and so high cash levels are my best defense and cash is not trash. This will not last forever of course.
As for the Venture markets…
If you read me you know I think prices have been out of whack for 12-18 months. I don’t care whose fault it is. My job is to find great founders that appreciate what we can do for them to grow their startups and invest at reasonable prices.
In 2008, Sequoia shared the now famous deck ‘RIP Good Times‘ which is still a good read today.
If I were to share a deck with VC’s and founders right now it would be titled ‘Wake The F@*k Up’.
I am no Bill Gurley fan boy, but like I wrote earlier, in brutal markets I focus on following people that have invested through nasty cycles before. Bill tweeted this yesterday:
Hope this helps.
