In the 3rd quarter, the S&P 500 returned 5.9%, the Aggregate Bond Index returned 4.8%, and our Compound Kings strategy returned 10.5%.
Why We Write
Our letters reveal investment performance and provide context to the results. As our client base grows, so does our experience with new types of transactions. Lately, we’ve been helping clients reduce their stakes in private equity funds. If you’ve got an asset that you’re not sure how to exit, try us at wealth@upholdings.com.
Dollar Distortion
The volume of money has changed drastically within the last 5 years, creating many price distortions. Just a couple of years ago, used cars seemed absurdly expensive. But in recent months, they’ve looked like a bargain again.
In reality, used cars were never expensive, nor are they cheap now. Instead, as one of the more liquid assets, used cars are a reflection of the amount of money slushing around the economy.
Valuing stocks during periods of price distortions is doubly challenging because every unit of measure in corporate accounting statements is linked to dollars.
Valuing a Monopoly
In August, the Department of Justice found Google guilty of antitrust regarding its search engine dominance. This ruling reminded many of the June 2000 order for Microsoft to be broken up into two separate companies. While the Microsoft ruling was overturned a short year later, the company’s stock price would go on to perform at or worse than the S&P 500 for the ensuing ten years.
One way to understand the strength of Google’s competitive position is in their prices:
Thus far in 2024, Google has grown its cost per impression in spite of money supply remaining tight. The ability to extract further value, no matter the economy, is a surefire sign of a strong competitive position. At present, Google trades at a 15% cheaper multiple to the average S&P company, despite growing twice as quickly. We added to our Google position in the quarter.
Social Impact
Expansion of education is one of the strongest forces to improve economic inequality. However, donating to existing educational institutions only furthers inequality if those institutions do not expand the number of educated. More than 145 million learners, many college aged, now use Khan Academy for at least one or more courses. This quarter, we supported Khan Academy.
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.