Lise Buyer, Partner, Class V Group 
Gene Munster, Managing Partner, Loup Funds 
Moderator: Terri Burns, GV


Brainstorm Tech 2022: Making Sense Of The Market

Conferences

Brainstorm Tech 2022: Making Sense Of The Market


jean. Please welcome. We're excited to have you here today. It's delightful to be here. Can we have class outside next time next time? Um Let's just jump straight in. I'm curious to hear what is the state of the market today? What is it gonna look like tomorrow? Gene you recently said in the press that we're halfway through this bear market curious if if you still think that's true. Uh At least when R. I. P. O. Is going to happen again, what is the state of the market? The words that pop to mind are probably not appropriate for a fortune. Uh We've got some were in aspen. So the market was I would argue way over its skis and we hit if you will to torture this analogy a snow snake did a huge honkin face plant and now we're still wallowing around in the snow. And I think with with time and time in my opinion is not measured in weeks, we'll get back up. Um But what's the state of the IPO market? I'm going to have a really nice calm summer because there's no action in the I. P. O. Market right now. And the reason um is that money managers are, let's say the market is unpredictable but it's not irrational. And um having been a former fund manager when you hit a rugged market period like this, the first thing you worry about is am I gonna have to give money back to my investors And generally speaking the the terms of your mutual fund don't allow you to have a lot of cash. So if I'm gonna have to give money back I'm gonna have to figure out what am I gonna sell. And so you stack rank everything in your portfolio. What am I absolutely not gonna sell And you know what's gonna get the boot And the things that usually get the boot first are the riskiest investments. And that would be as you can see looking at the market all the 2021 I. P. O. S. Because younger public companies are just by definition riskier than those that have been public for a while. And I'll stop this answer very soon. But anyway so first you you rank things then you sell off the riskier investments. Then you begin to look around when we hit a low point in the market and say are there any companies that I wish I had purchased earlier that are pretty tried and true and those are the ones that will come back first when we get there. That's I don't know is that Microsoft is it into it? Is it lassie? And it's the companies that don't miss And only when you've purchased you've added to the positions in those. You begin to go risk on. Do you begin to think about newer companies that will give you bigger returns as opposed to fear of something dreadful happening. And only then do you begin to look at things like I. P. O. S. My bet is 2023. 2023. Okay. Good to know Jean. So when I think the concept is, what's the state of the market? Right. Sure. Yeah. State of the market. I think the better question is what's the state of the market early in 2023? And the lens of the market obviously has forward looking six months and I'm going to make a prediction that the who knows what's coming out tomorrow morning economic data, C. P. I. Number uh raise of hands. If you've given the C. P. I. Number any thought Shocking, I would have guessed that two thirds of the people would have thought of that CPR numbers. So I expect it to be a big number. The market expects it to be a big number. The takeaway is gonna be. The Feds are gonna need to do more work on July 27. I think the actual market goes up on that. I think at this point the market has moved beyond concerned about inflation and interest rates. That is the a topic that's the vortex. But I actually think the market is going further down and starting to think about length and depth of the recession. And I suspect that we will see during this earnings period, negative commentary from companies. And so we'll we will probably get a boost in the market on Wednesday. I think we're gonna see some essentially retreat Uh that that gains throughout this earnings period. And ultimately to answer your question, talk about this bear market view that I've had were more than 50% in cash, we were 60% in cash a few weeks ago. So we were starting to kind of invest in what we call is forming the bottom. And I just want to propose one thought when we think about the market, is that there is whenever someone talks about the market, they'll say, but it's impossible to pick the bottom Actually. It is possible. I'm not saying I'm gonna do it. It is possible. The reason why it's possible is that you have to have a view of what's gonna mark, it's gonna look like in six months. You can be wrong. And my sense is in six months from now, investors are going to be more confident that the growth rate is actually going to be better in 23 than they were 22 and I suspect that over the next three months we're gonna be forming a bottom. And so I've been negative for the past year. It was painful When we were 50, in cash last year. Imagine the conversations with our LPS about what you're missing, it's moved back into our favor here and we're excited to be deploying cash. What we think is going to be a pretty ugly earning. And remember the market leads the economy. So when the market's been down, it makes perfect sense that it's been down ahead of the recession and I would argue that the market has priced in the likelihood of a recession at 98%. Whereas a bunch of economists are like, yeah, probably, but not so sure. So I'm gonna agree with you that I think the path ahead is more optimistic but not starting tomorrow. Absolutely. I want to get some questions from the audience in just a second. So start prepping those. I'm curious to know given these assessments and and sort of predictions. I really appreciate that that concrete prediction gene um, how should institutional and or retail players act accordingly? How are each of you, the institutions are in the audience, Let's ask them. Um, uh, you know, I think it's a great warren Buffett's statement. I'm probably gonna butcher it. Exactly. But it's something along the lines of be scared when others are greedy, be greedy when others are scared. Well others are scared. And so, um, I think if you have patience, there's an opportunity to maybe pick and choose and you know, stick a toe in the water. And particularly frankly with crypto my sense is that we can use an analogy of companies and stocks are like investors, Children kind of thing, investors think their Children are more beautiful than they actually are. And I think that we're gonna see some of that. Um, I guess that kind of that gray side here in the next few weeks. So my recommendation is first just don't fall in love with your companies and recognize that there can be some Pullbacks and the concrete example I would give is, uh, probably 1/7 grader and an investment course could tell us this, but it's true. This is a dollar cost. Just to say the market can be priced in a lot of negativity. Now, maybe it jumps up, but maybe our kids aren't as beautiful as we think they are and they're gonna go down even further. But I still love them and I'll still own those And it just kind of, we were framing it as this next three months. We're just going to be patient, judicious and um, and, and deploy, uh, as a waiting average. Any questions from the audience. Yeah. Let me ask a question for the honor. If I may before I said, I asked if people cared about the CPN, that actually doesn't even matter anymore. I think the market, even though You read every headline, everyone's gonna be focused exactly at 8:30 PM tomorrow morning. What that number is. Um, does anybody have a view that the number is 8.6? That's what it was last month. Uh, the expectation was, it would be 8.3. It ran a little bit hotter. And even though you may not have been thinking about it, I would just love a show of hands. This is actually doing research right now, by the way. Um, I would love a show of hands of who thinks the number is going to be greater than 8.6%? Who's kind of bracing for something that's ugly. Okay. And the number of people, yeah, got it. Okay. And there's probably some people that don't want to vote. So maybe by that measure, maybe half of the group thinks that it's going to be below it. There is this piece to like, I think it's gonna be a hot number. But there's a piece of me that says, oh, I saw those gas prices go down and actually, maybe maybe it's gonna be good. That needs that feeling inside you that says, uh, this is fully priced. It needs to be eradicated before we really hit the bottom. And so at the point where everyone hands goes up and says it's gonna be 9%, 9.5 That everyone's hand went up there. I would say, go, everybody take a break here, go back and buy some stocks. But we're still not there yet. We're still at a point where there's still debate. And I think some optimism around, um, how this is gonna play out one. Yeah. One, I want to jump in right here for just a second. I'm glad that you, you mentioned gas prices because we were, we were talking about this earlier. Um, there's a lot of factors at play in general. And of course, in the market in particular right now and, and in history, what are the factors that both of you think most greatly have impacted where the market is today? So let's think, Covid, let's think of international relations, uh, back explosion is something that you, you know, I know you have thoughts on lease, when you think about some of the factors that have, have played into the market today. What do you think have been the most influential? It's all of them. We we had an economy where, right, when Covid first hit, we pumped a huge amount of funds into the economy at the same time, that people weren't working. And then we have the supply chain issues we've heard about. So what's the economics one? Oh, one definition of inflation. Too much money chasing too few goods. You know, that got people's attention add to that gas prices, add to that uncertainty about the economy and to that we've got an interesting election coming up. Um, I think, and, and add to that the fact that valuations were crazy, right? I mean, there was just more optimism than was justifiable. Eventually. Eventually stock prices reflect the discounted stream of future earnings. They just do, it takes a time for them to get there. But we were paying massive amounts for companies that are a little unproven might be, mine is housing. I think that, uh, like this is really bad. What's going out there? We all know that we probably, this group doesn't feel it as much as everybody feels it. But going, we won't go through the numbers with the recent spike in interest rates and what it's been over the past few years. But if I'm the Fed, you gotta take down the spike in housing actually to bring housing prices down. And that only happened once over the last 30 years after whatever that was 2000 and 2009 From peak to trough, it went down 28%, something like that. It's pretty rare that housing uh goes down. But the Fed needs to tackle that because that has an incredibly Wearing a fact on people. Imagine if you're in your mid-20s, you're trying to think about owning a home. It just seems like a dream, literally a dream. And so I think that um and you can kind of look at riffs on the housing and see how that plays out. Look at, you can look at lumber futures for example, and they call it 6 700. Right now before pandemic there, 400, I think they got to go down to 300. You think I'm crazy. But the Fed needs to just keep cranking rates to get housing under control to make people feel that at least there's a sense of stability about their future. Absolutely. And least you, you mentioned in your answer as well, valuations, both of you and your roles in various capacities have have had this intersection between both public and private markets. I'm curious how you think about the relationship between the two and how both the private and public markets influence each other. I keep going first. Alright well fine. Um had you asked me a month ago or six weeks ago, I would have said the difference in valuation is as large as I've ever seen it because we've obviously seen what happened to public stocks, But a lot of private companies raised money last year at very high valuations and they've hit their numbers, they've done what they said, they would do and there's this belief that I did what I said, I would do, I was worth $6 billion December. I should be worth $8 billion dollars now, not correlating that at all to the fact that institutional investors will take a look at what the multiples are on existing companies. So the bid ask if you will was The spread was enormous. Um you know, you can't miss what happened with Karna earlier this week, the biggest car coming back together for those who haven't looked the most recent raise is about 86% below where the last raise was. So we're not there yet. And I think a number of private companies are still optimistically assuming that their valuations will be close to what they were earlier and not so much. Not for right now. So coming closer, not there yet. I actually want you to answer that question, given your view and a tv and just what you're seeing in the private market, we're a hybrid fund, but I think you probably have a better insight. Yeah, I think that there's definitely, you know, obviously a very close correlation. I think sometimes it's easy to think in private markets that there's more upstream impact, right? Like you price a company or value a company at a certain amount and therefore hope that the public markets understand that, believe that and price it accordingly. Um, but we've seen that, that's not necessarily always the case, Right? And when you look at public markets, I think that there's been a more downstream impact versus upstream where we're paying a little bit closer attention to what is happening in public and having that in some cases impacts the way we think about pricing are, are private companies from a venture standpoint, So very close correlation, how we think about what comes first kind of chicken or the egg? Uh, it varies depending on the market conditions. Let me ask you this three years ago, do you think you'd be looking at the public market? Um, I would say yes, absolutely. Um, at least in my vantage point. Um, but I don't know if that's the case across the board when it comes to private, remember how do you think about this? Well, we were, we had our first fund was a venture fund and like I didn't even know what the market was doing. Like I was totally clueless. It's like we're doing venture investing warning for the long haul and now we're a hybrid funds. So we we look at both public and private, but I think that if I was just doing straight venture today, I would be paying a lot of attention in the public markets. Yeah, I think I agree with that trend across the board. More people are sort of paying attention to that private investors and I would say sometimes that looking upstream in a risk on market is called the greater fool theory. Whatever I'm gonna pay the next guy is going to pay more. Yeah, absolutely. Alright. Final question. We have just a little bit of time here. So so quickly this of course is fortune brainstorm tech. And so I want to talk about tech really quickly when we think about the tech darlings. Um, to some they are no more or perhaps on their way out. Uh, final thoughts from each of you, is there something there? Technology is going to be important? I would hope so, yeah. Um, if you're asking me to pick which stocks are going to be the big winners a year and a half hour, I can't possibly do it. No idea. Let's see who, let's see who weather is a difficult economic period. Well, let's see who spends their a lot of companies raised a lot of money over the last couple of years and now let's see how they put it to work and and obviously the market has shifted its attention from growth to profitability. Let's take a look at that. Yeah, not investment advice. The apple iron ores, they're gonna get in the car eventually. They're gonna do something. They're uh, they're going to be something more with carplay or actual car. Don't know, Huge impact to publicize their business, Amazon another Big one. You get the retail business for free right now. Uh, Toy Department, I got 18 seconds. Toy Department means this is money you can lose. You don't care if you lose it. Uh, Peloton offer pad, open door. Uh, they're either going to zero or going to a hunter. Don't know. Alright, love it, gene. Please thank you so much.