In the 2nd quarter, the S&P 500 returned 4.3%, the Aggregate Bond Index returned 0.3%, and our Compound Kings strategy declined -4.6%.
Size Matters
If you are one of the biggest companies in the world, your stock price went up. And if you are not, not much has happened this year.
One odd feature of these these seven large companies is that they have become more capital intensive as they have grown. Capital intensity is a drag on investors’ eventual return, and we are closely monitoring the sustainability of these spending levels.
Always Investing
Of the many small companies with slow share prices this year, our favorite is Adyen. Payments is a complicated, regulated industry. Adyen is an all-in-one provider for end-to-end payments, enabling merchants to accept payments anywhere in the world. Their technology has consolidated many positions in the market:
A running list of remarkable achievements for a business founded less than 20 years ago:
They processed more than $1 trillion last year
They serve huge companies: McDonald’s, Nike, Facebook, Microsoft
80% of their growth comes from existing clients and they churn less than 1% every year
15 cents of every new $1 getting charged on credit cards is being processed by Adyen
They might be the largest company to never acquire another company on its journey
They are protective of their capital stock: they average <1% per year of dilution
They convert 50 cents of every revenue dollar into free cash flow for shareholders
Adyen will soon process more than $3 trillion and you still may never hear about them.
Social Impact
Furthering wealth inequality is one of the unintended effects of managing a successful investment program. This quarter, we supported Jump$tart, an organization dedicated to improving the availability of financial literacy in school programs.
Robert
Disclaimer
This letter is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be unsuitable for some investors. Speak with your financial adviser before investing. Upholdings cannot guarantee investment results. All investing involves risk, including the complete loss of invested principal.