GreenWood Investors Fourth Quarter 2021 Letter

GreenWood Investors Fourth Quarter 2021 Letter

Written by Summary

GreenWood Investors is a mostly-long, deep value investment firm focused on areas of extreme pessimism, structural inefficiencies and low competition.

Our fourth quarter performance reflected a worldwide capitulation away from nearly everything except the large tech companies.

We want to be optimized for both the short, medium and long-term, and seek rare investments that look attractive from all perspectives.

We’ve given significant consideration to owning the big tech monopolies since 2012.

We’ve been finding highly compelling short opportunities in addition to maintaining a high sense of urgency in sifting through the wreckage brought on by the most recent market turmoil.

Avalon_Studio/E+ via Getty Images Dear GreenWood Investor: The Acceleration Of Time

“In winter, I plot and plan. In spring, I move.” -Henry Rollins We’re all living through the most unusual times. This letter has faced repeated delays due to global circumstances changing on a near daily basis. We’re not only in an age of accelerated timelines, but one in which we’re all starting to understand Einstein’s theory of the relativity a bit more. The difference in relative timelines of companies, investors, nations and cultures, has been stark, with recent days feeling like entire seasons.

This winter of reduced publishing from us has been offset by a significant amount of action taken on both the portfolio and with our portfolio companies. Emerging from winter, it’s encouraging to note that those who weather the icy storms typically emerge with stronger roots. We think this volatile season in the markets is being used wisely by our companies and fundamentals remain resilient, if not thriving throughout. Those that have broken down at the slightest sign of adverse conditions have been exited. Many, including our first coinvestment, have launched share repurchases while simultaneously investing in their growth opportunities. We’re emulating this opportunistic approach for our portfolio as well, by adding a few new positions in the current market volatility.

Our fourth quarter performance reflected a worldwide capitulation away from nearly everything except the large tech companies. Data has shown that the largest tech companies have been responsible for the lion’s share of index performance since Covid. The large monopolies seemingly sucked the air out of the room, and by the end of the year, nearly half of the Nasdaq’s companies were down by over 50%. This deepened in the first quarter of 2022, though large tech has joined the correction. We think this could be only the beginning for the change in market leadership.

Our fourth quarter performance was impacted along with most other stocks, -12.3% for the Global Micro Fund and -10.9% for the euro-denominated Luxembourg Global Fund. Both funds were up 13.0% and 24.2% respectively for the year, highlighting the impact of our unhedged currency position that we believe is transitory. These returns frustratingly compare poorly to the MSCI ACWI benchmark returns of +6.0% in the quarter and +18.2% YTD (+16.6% and +27.2% respectively in euro-denominations).

The Covinestment I fund, driven by CTT, was -2.8% in the quarter, but up 79.3% in the year net of all fees and expenses. We’ve decided to keep Covinestment II performance confidential until we publicly unveil the fund’s target. Our perception is that the market has still under-appreciated many pivotal announcements we’ve been waiting for on both companies, and we view these misperceptions as wonderful opportunities for future performance. We believe 2022 will be pivotal transformation years for both, and I’ve poured a healthy portion of my time this winter into ensuring we over-deliver.

We measure the progress of the transformations we’ve invested in over a period of multiple years, not in quarters. The arbitrary and volatile nature of time, particularly in our recent history, makes the reporting of short-term results important, but also sometimes not as informative as over the longer-term. Even still, we want to be optimized for both the short, medium and long-term, and seek rare investments that look attractive from all perspectives. And while that meant last year we underperformed big tech monopolies, our results so far this year have completely reversed the underperformance of last year, as our portfolio returns remain around flat for the current year to date. This is despite sizable losses incurred by most markets where our main exposures are, namely Europe. Fighting The Finite

“In the last five years, probably Apple has made more money than we have. But in the last thirteen years, I bet we’ve made more money than almost anybody on the planet. And that, frankly, is a great source of pride to me.” Steve Ballmer […]

source GreenWood Investors Fourth Quarter 2021 Letter

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