PARTICIPANTS
Mark Brisley
Managing Director and Head of Dynamic Funds
Noah Blackstein
Vice President & Senior Portfolio Manager
Mark Brisley: You're listening to On The Money With Dynamic Funds, the podcast series that delivers access, insights, and perspective from some of the industry's most respected active managers and thought leaders. From market commentaries and economic analysis to personal finance investing and beyond. On the Money, covers it all because when it comes to your money, we're on it.
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Mark: Welcome to another edition of On The Money. I'm your host, Mark Brisley. My conversation today is with veteran growth manager Noah Blackstein, who manages over 8 billion in US and global growth mandates for us here at Dynamic Funds. Pure growth managers are actually few and far between, and in particular here in Canada and even fewer have employed the same commitment to the bottom-up growth investment process that has been the core of Noah's long-term track record for more than 24 years. I last had Noah on this podcast back in November.
While broadly speaking, markets have been positive year to date, the day-to-day volatility definitely continues, and market breadth is narrow. I want to share a direct quote from one of Noah's recent commentaries. "While the market moves and fits and starts based on macro positioning, secular growth stocks which have been pressured by the most aggressive rate hikes in 40 years now exit the bear market with better prospects and potential upside than before." The headwinds for growth stocks in 2022, where for many of those companies, their quality fundamentals and earnings were ignored by the markets, has created what Noah believes is a generational opportunity over the next five years.
He has consistently sought out companies over his career that have become next-generation leadership that can eventually take the place of today's mega-cap companies. Some examples of these would be Apple, which Noah first bought back in 2002, or Google Alphabet, which he bought in 2004 or Meta Facebook, which he purchased in 2013.
Noah, it's great to have you here and I remember a commentary that you wrote in late 2016, maybe early 2017, in which you discussed the opportunity ahead for true stock pickers. While in your role, I'm sure there's always an opportunity, it's certainly not every year that you're discussing those types of opportunities or conditions and certainly not that it's a generational opportunity for growth stocks, but this seems to be one of those times
Noah: 2022 really from November of '21 actually, where the Federal Reserve decided to suggest that within a two-week period went from inflation as transitory to becoming the next Paul Volcker 1970, early '80s Federal Reserve on inflation and interest rates. The market as a whole has been under pressure, but certainly growth stocks in particular have been under tremendous pressure. Some of the things that we saw last year were really just the highest correlation between growth stocks that we've ever seen in history.
It was really as if the whole universe of companies that were growing began to trade as a single entity and were pushed down very hard versus the overall market last year as macro traders put on some stagflation trade last year. I set the S&P down substantially for the year for sure but growth stocks in particular took the brunt of it. For the most part though, when you're trading everything the same way, it doesn't allow for any differentiation amongst those growth stocks and there are clearly babies thrown out with the bathwater.
Our main focus through the course of last year and into this year, was focusing on our discipline, focusing on our process and finding those next generation leaders that we think have substantial upside over the next five years. That's really what we do. We can't predict when the turn in the markets happens, but I would say, last year around June after the liquidation of some very large growth-oriented hedge funds, inflation peaked in June at about 9%. We continue to see lower and lower inflation numbers. We can debate whether we're in a recession or not.
What it's actually had led to more recently, is wider dispersion amongst stocks and significantly less correlation, which is all we're really asking for is long-term investors that you can really see the trees for the forest and that's begun to happen now, which is exciting.
Mark: There seems to be a pervasive thought out there by a lot of investors that when that happens an extended interest rate hiking cycle, that the returns in particular those in the S&P 500 are going to be challenged or negative during that period of time. Historically that hasn't been the case.
Noah: No, and it hasn't actually. In fact, on average, stocks are up during the period of time that the Federal Reserve is raising interest rates. I believe on average by about 9% during the tightening cycle because typically what's happening is the economy is growing fairly rapidly. The Federal Reserve is raising interest rates alongside the economic growth. You've had years where '87 to '89, '58 to '59, even in the periods where Paul Volker was raising interest rates from '80 to '81 and '83 to '84, those saw gains in the market from the beginning of the hiking cycle to the end, of roughly around 9%. The market last year was down close to 20 % or even more from peak to trough. That was actually the worst performance on record for equities during the Fed hiking cycle.
In the eclipse, Steve in 1973, and '73, there's a whole bunch of other things going on, including the oil embargo, the end of the Vietnam War, but more importantly, the end of the Bretton Woods system, monetary system. This was actually worse than that. The reason why that was because of how fast the Federal Reserve raised interest rates, we went from zero in March of 2022 to now today, we're at 35, and 525, whatever you want to call that on Fed funds. It was very rapid. Equities really took the brunt of that hit.
The question becomes, obviously, where are we now, where are things going, but for a whole host of reasons, 2022 was a very, very unique year. Informed I think, by the previous years, where there's so much stimulus going on because of the pandemic, that we're in such a very strange period of time, there's almost no analogies, the only analogy you can probably come up with is the post-World War II period, after all those stimulus in the war, out of the slowdown, post that and what was going on there but it's very difficult to find any analogies to what we just went through, given how much stimulus was sought out the economy during the pandemic, and then how fast the Federal Reserve pivoted toward rate hikes. It was a very unique period of time.
Mark: You've argued for years and I've always said been very consistent, one of your biggest concerns is policy or by the Fed by US policy reserve. When you look back now, are we in a position where you can say they made mistakes?
Noah: Clearly, they made mistakes. They made mistakes about underwriting that 2021 stimulus and not raising rates earlier in 2021 clearly. It was six days after the reappointment of Powell that they decided to become serious about inflation. You can look at the regional bank situation today, in terms of assets, the failure of Silicon Valley Bank, the failure Signature Bank in New York, the failure of First Republic Bank, these are some massive institutions that equity and bonds were wiped out because of the Federal Reserve's actions of jacking short term rates, while long rates have completely collapsed and inverting the yield curve.
While you can say that was the fault of the banks, not every bank has a trading desk and a derivative desk to lay off risk for sure, but the Federal Reserve is also responsible for regulating those entities as well. Before they undertook this policy of raising rates, we've had that instance, and that's why I think that this Federal Reserve pause, where we're actually having a contraction a little bit in credit conditions now, because of what's gone on the regional banks, the Federal Reserve has stopped in inflation for the last two numbers is clearly coming down.
I think the error was, obviously, you wiped out three enormous regional banks. Most people would consider that to be a bit of a mistake. The funny thing about economics is it's arithmetic. Inflation is this will raise interest rates by this, deflation's that were raised by this, it's a little bit more of arithmetic. Credit is exponential. Credit is something very different. The longer-term ramifications of what's happened in terms of credit conditions, we'll have to find out but on the bright side, we've had many anecdotal pieces of evidence that those deposits have nearly gone to the larger banks. It wasn't like oh, you're money good on your deposits. You've sort of said, these number of banks are too big to fail, and these deposits are money goods.
Money's gone over to JP Morgan was a huge beneficiary, the big banks have been big beneficiaries. It's not like mortgage is being wiped out, or this cash going to come out of the ATM. It's certainly not that type of crisis but clearly, the collapse of those regional banks, which we're still living with today has had an impact, and the longer-term ramifications of-- when we said after the pandemic, that the world would be different we weren't kidding.
If you look at the commercial real estate portfolios today, which have a lot of office space, every morning we walk in, and we hear about another investor walking away from mortgages in the office place because people haven't returned to work in many places and offices are 40%, 50% full and rents are falling. I think that there are some issues in commercial real estate where regional banks have been large lenders and stuff like that. We're past the point of that mistake. Clearly, that's happened.
Clearly, they pivoted, they began to take US Treasuries. The Federal Reserve says you can give us those US Treasuries, and we'll accept them at par versus mark to market. I think a lot of that situation has clearly been addressed but what we've really passed, which is important for investors is we passed peak illiquidity. We have QT, we have rate hikes and then we have this period of time where banks can barely lend anything because of the inversion of the yield curve and also have huge losses in bonds.
That illiquidity that the Fed has been driving in tightness and financial conditions, we've passed its peak. Inflation peaked in June at 9%, illiquidity probably peaked in March. If you're thinking macro-wise, I think those are two very important factors, because both those things have been weighing very heavily on equities over the last year.
Mark: You brought up the regional bank crisis in the US. A good example there is you don't own any US or global banks but from a macro perspective, how does this shape your view and why and how are you watching it in the context of what does it mean for you as an investor and to your portfolios?
Noah: Well, we have a discipline and process that we follow for almost the last 30 years. Not one where that's been theoretical or back tested, but one we've actually been running funds. I started here in '97. I've been running the Power American funds since 1998, Power Global since 2001. That's a lot of decades under the belt. I'm not sure how many people have been doing the same thing at the same job. That discipline and process leads us to these growth companies that we find that populate our portfolios. 2022 was a strange year because nothing in the growth space at all was working because they're all trading together. I think what you saw last year was a lot of people pivot, a lot of growth managers just bragging about dumping everything in the technology space for example.
Just they own energy, they own financials and a lot of the financials that they love have been wiped out. Energy peaked in the Russian invasion of the Ukraine, fertilizer as well. If you're a manager that you're managing by, "Hey what's on the new high list? Let me buy that." That's not a discipline and process it's a momentum strategy. Which is fine. There are people who can do that, but that's really not what we do. Growth stocks sure they can fall 30%, 50% but it takes a value stock like a financial to fall 100 overnight.
Despite the pressure to, "Oh maybe you should buy some banks or maybe you should buy some energy companies," which if you can think of the hit which mostly occurred in the March to June timeframe of last year then to have rotated into that stuff, right for that stuff to fall off the face of the earth over the last little while, that's just how you end up digging the hole deeper.
I think the lessons that people learn which we've learned over our long career is you have a discipline and a process. It's not going to work every year but if you stick to it over time which is the key variable, you'll outperform over longer periods of time. That's coming from nearly 30 years of doing this. That I think is really important. Will there be ramifications? Will there be credit tightness? For sure there'll be ramifications and credit tightness. Will this be a beneficiary to all the new FinTech companies? What's most important is that the big macro pressure on the market and the illiquidity that was driving a lot of these thematic trades as for now anyway, backed off.
Mark: Let's pivot that then to things that do end up in your portfolios. You like to look at a group called the Big Growers. Can you talk a little bit about first of all what that group is and why it's important?
Noah: It's a group of stocks that our friends at Empirical Research in New York put together goes back I believe to the late 1950s using a database. There's no survivorship bias in that database and what it looks at is the top 750 stocks within the US but within that the top 10%, the top 75 names which are the highest in terms of revenue growth, earnings growth, return on invested capital and a whole host of other things. A lot of the Barra and Russell indexes, S&P Barra and Russell really aren't growth versus value. They're expensive versus cheap. I don't think they're very good indicators of what growth stocks are. This is a much better list, and it goes back pretty far. The reason why we like to look at it it's because we like to see where growth stocks are as a whole and it does a good snapshot of that and certainly over time.
Last year we saw the Big Growers within that growth stock cohort hit the highest correlation that we've seen in history going all the way back to the early 1950s. We saw their relative price-to-sales ratio versus the overall market hit a low in the spring of last year June period where inflation peaked relative to the market that was the lowest in history. Similarly, we've never had a period of time whereas a group, the Big Growers within that stock universe where so few have outperformed the market. Typically, about half are outperforming the market you may have periods of time in the late '70s where 40% are outperforming, or you may have periods of times where 70% or 80% are outperforming like in the '90s. Last year around this time that number hit the lowest in record. I think it got down to 18% of growth stocks had been outperforming the market over the previous 12 months.
There's nobody in the history of the market who's ever seen correlations of growth stocks so high. Valuations hit such a secular low in the spring of last year and so few outperforming that we saw last year. That's why I said I think it's a generational opportunity. Not for all the stocks certainly, but in terms of what we do, real revenue, real earnings, real opportunity to be significantly larger companies. That was the overall opportunity.
Mark: If we look at the start of 2023 to the end of April, the returns of the market have been narrow. Wanted to just ask you, what's been driving these returns so far this year and how do you see this playing out over the next little while?
Noah: I think to the end of April the big seven names in the index so Apple, Microsoft, Meta were up about 47% on a year-to-date basis versus the overall Market-X the Big Seven, which were to the end of April down about 3.5%. There are people who say, "Oh narrow Brett, that's a bad sign." It's not necessarily a bad sign. Typically, when Brett narrows in there's fewer and fewer stocks outperforming, after a long bull market is typically a sign that this is coming to an end. Think 2000 and think 2007, but actually what usually happens is the market broadens out and more stocks begin to participate. That's been to 60% of the time. If you actually take away the long bull markets that occurred and then when Brett started to fall off and you look at where we are now, which is coming out of a bear market, it's about 75% probability that a lot of those companies begin to catch up.
There are people who are mad at this or point to it as a sign of further weakness ahead. I think from our perspective, I take it as a positive sign. We're not usually in the mega mega-cap companies but if you look at some of those companies, whether it's NVIDIA and their next-generation GPU chips for AI workloads. Whether it's Microsoft with their investment in OpenAI, ChatGPT, that at the end of March, I think hit 100 million users. I've been doing this a long time. I've looked at technology for a long time, I've never seen that go to 100 million users that fast ever in history before.
Just having that AI background that both AI plus Azure or plus Copilot seems to be at a period of time where Microsoft seems to be gaining share from Amazon, for example, in the cloud business, it feels that way anyway.
Actually, the earnings for these companies as they've come out, haven't been bad. There are reasons why these companies have gone up, not all necessarily all of them. In the case of Meta, Mark Zuckerberg, who took over the company. He came back to the helm; he laid off a ton of people and really using a lot of machine learning and AI reinvigorated the advertising business. They took a hit clearly from the economy, but their big hit obviously came from Apple and their privacy change was a huge hit to Facebook. I think there are reasons why this happened. It's not happening in a vacuum but if you believe in AI and you believe in machine learning and you believe all these things are going on the recovery of the ad business, that will broaden out to other players and I think as people think through things more, this is the first move and then there's other moves.
Some of this also, of this big move was positioning. Last year, if you talked about technology companies, you weren't invited to the party anymore, you had to talk about fertilizer and banks and oil, if you wanted to go to a party and clients were like, "Oh, why don't you just own energy stocks?" A lot of growth managers did that. They dumped everything and then that's all they owned, even though they weren't really growing, they were trying to make the stagflation, macro call which didn't work out.
When the banks collapsed in March, all of these investors just started running back into their underweight positions and buying them back and that really drove some of the biggest names in the index. I'm not saying whether it's good or bad or anything like that, but I think what's been driving those stocks and started to drive a lot of other stocks and I think it's got legs.
Mark: I wanted to go back, given your history and exposure to tech. In one of your commentaries, where you talked about this continued move to Cloud with specific investments in artificial intelligence, automation, and machine learning. It's now firmly in the driver's seat of spend. What does AI mean to you as a portfolio manager going forward? I also want to ask you; it's also got people concerned and some people are freaked out and scared by it.
Noah: I think the CEO of IBM last week was talking about how IBM has 26,000 employees in the back office, and they think over the next five years, they'll all be gone. That's through both AI and automation. There are repetitive commoditized tasks that will begin to fade over time, for sure and you've seen the benefit of AI in things like what Meta has been able to do in advertising, learning better, making better suggestions, and other things like that.
I think you need to think of AI and automation a little bit together. McDonald's has a fully automated McDonald's with no person in it. Walmart has talked about 65% to 75% of warehouses being fully automated but there's a degree of artificial intelligence that goes into that and machine learning. When I talked a lot about Cloud and Cloud workloads and other things like that, which had been under some pressure from some of the startups. The thing about going to the Cloud is companies realize they can tune their usage.
If I look at our office today, I look at the PCs and the software, if things slowed down, we can't tune our usage. We've bought the personal computer, or we have the software licenses, what are we going to do? We have to wait a few years until we're up for renewal and stuff like that but in real-time, you can tune your costs. Your tech went from a capital expenditure to an operating expense and now to a variable expense. When we went to subscriptions and now, we can tune in the cloud. 90% of that on-premises technology spin which is in the cloud, was our view was going to continue to the cloud.
Moving AI to the cloud though, just the data intensity, the size of the workloads, the computer power, and the costs. If this was this time last year, I didn't have this in my model for some of the companies we own, I didn't. It was coming gradually, and it would help build it up but so much has happened so fast. I'm not sure everyone is necessarily caught up to it. We all have ChatGPT, but there's a company Chegg which is an online tutorial company and that company's stock was cut in half on the day of earnings. You'd have to subscribe and do their online tutorials for different courses and things like that. Stock was cut in half because students are using ChatGPT to answer questions and other things like that, let alone all the other plug-ins that it is. There are businesses where it's going to have a real impact.
We're moving to a world of 0P in 1P, apple ended 3P. 3P was where, let's say we're doing a marketing campaign, a lot of the data we would get would be from Apple phones and location data and other stuff like that. Apple closed the law of that off. Now you have 0P, which is what do you share with Walmart, for example? Now you have 1P, which is, what does Walmart know about your purchasing habits? A lot of these large corporations, what they're doing is the value in mining that, the value in their existing customers and upselling those customers, understanding those customers better. The enhancements through AI was theoretical and gradual, but the games changed and changed very, very quickly. If people aren't on top of it, then I think it's going to be a problem longer term.
Mark: This whole subject of AI, it hasn't happened overnight either. I was reading an article, talked about the concept of a chatbot goes back to the '60s.
Noah: There are many companies with AI chatbots today, but I think OpenAI and ChatGPT and the large language networks in the cloud and stuff like that are changing the game a little bit on these chatbots. They might be commoditizing some of them, you could probably set one up fairly quickly. The ability to get the data, not just like you pre-program it with like, "Oh, my cable box doesn't work." Oh, you just reboot it. There are standard questions that they teach these things, but now if it can learn in real-time, so if you have a cloud-based chatbot for your cable company that's learning in real-time through data streaming, that's updating the large language model in real-time, it can immediately realize that there's an outage in your area without going through 300 things and pressing zero and eventually getting it.
The speed and the customer service of that are very different. It's like comparing Ask Jeeves to Google. Where the technology is, it's much different. It's just happened very, very quickly and Microsoft's investment has been very, very smart.
Mark: Would it be fair to say though, as an investor, you're really interested in what you're looking at is what's going to be the new technology architecture and who's that next generation of company that's adopting? Is that what you're searching for? Looking at?
Noah: At the end of the day, we're looking for companies generating high revenue growth, high earnings growth, high teens are better. The ones who are hurt will be in their numbers. The ones who are benefit will be in their numbers. The market will shake that out. The results will show that. You don't have to go to the top of a mountain and take heavy doses of peyote or something and have the symbols come to you in your head or anything like that. You don't have to have an ivory tower top-down type of approach. You could just actually look at the fundamentals. I think what it's reinforced for me is I don't really want to be involved in seat-based software, for example. I think we're just going to need less employees going forward.
Whereas I think consumption-based, cloud-based, consumption-based where you're paying by usage and by data, is a much more attractive business model over the next 10 to 15 to 20 years. Versus seats, for example, in terms of how many people you need, how many people are using the software, and how many licenses you buy. I think on the fringes, it's changing things longer-term, but we're starting to see that in the results. A lot happened from November of 2022 to March of 2023.
From November of '21 to March of '22, we had the Federal Reserve go completely bonkers then throughout 2022. From November of '22 to March of '23, we've really had this explosion of AI, which I think is hyped in the short-term, but it's significantly underestimated in the long-term. Because there's a lot of stocks that will be two to three times higher than where they're trading today if people figured out what this meant over the longer-term.
Mark: You've talked through your recent commentaries as well and other conversations like this. You've been talking about other areas outside of AI and the cloud too for new emerging leadership or opportunities within your process, consumer healthcare.
Noah: I think that the larger theme of cloud and AI is certainly driving tech spend and where things are going and making us smarter people. I think when you come to healthcare or you come to the consumer, it's much more idiosyncratic or stock specific. You can't make a case, for example, of the whole space. You can look and you can see that in healthcare, we've had investments and still have investments and two of the largest unmet needs from a pharmaceutical standpoint today are in obesity and in Alzheimer's today. We're on the cusp of those drugs being launched, obviously, Ozempic is on the market today from Novo Nordisk and Lilly's approval for their weight loss drugs approved in the United States, not necessarily global, mounjaro. You have these drugs that are coming in to deal with obesity, which is significant market around the world. Then you have these new drugs for dementia, for Alzheimer's as well in terms of both Biogen Idec and Eli Lilly, Eli Lilly is the name we own.
From our perspective that's the only a little bit thematic thing that we would talk about in healthcare. Otherwise, it's certain medical devices in certain areas of cardiology or in other places like that are constant glucose monitors and other things like that. I would say though that in the consumer space certainly we like the brands that have survived and thrived that have a combination of both online and physical stores for the experiential part.
I think back to the restaurant business for a second and I think obviously there's a lot of people and healthcare workers that went through difficult times. Just thinking of it aside from that it must have been impossible to run a restaurant over the last three years. If you think about it you had this complete shutdown of the restaurant business and then you had this pivot toward digital where you had to get on Uber Eats, get on DoorDash, get on Skip, get on everything platform to try and survive in your business and everything that came with that.
Then you had to reopen, and you had to close and you had to reopen. Oh, and by the way during that period of time, I don't know if you remember the pictures of the beginning of the pandemic, we were all sitting at home in our onesies watching TV and ordering food. There was a scene if people remember of people dumping milk. There were two supply chains there was a restaurant supply chain, there was a grocery supply chain.
Many of the restaurant companies had to pivot to the grocery supply chain because basically, the restaurant supply chain collapsed during the pandemic it just went on. You have no supply chain, you have no customers. I think that what we've seen emerge here of the restaurant companies that have survived the pandemic, that have this digital footprint is like you can make the case that there's a little bit less competition and the resiliency of these businesses is significantly higher than before these are just much better management teams.
The experience that they have just gone through over the last three years of struggling with high food costs, high labor costs, shutting the restaurants down it's been literally impossible. There's been a few in that space that have done well for us who also have the ability to open significantly more restaurants. I think are just going to be viewed differently on a go-forward basis because I think the management experience and quality and resiliency is just much, much better than it was before.
Mark: Do you pay attention to labor numbers for example you talked about supply chain, human supply chain was a big problem for restaurants as you mentioned coming of the pandemic, is that a metric you look at?
Noah: For sure. I think and what we're hearing more recently is that labor availability is okay, wage prices and stuff are where they are, but food prices have come down and in some cases come down a lot. Some of those inflationary pressures are certainly beginning to ease for these restaurant companies who have dealt with a lot. Listen there are going to be follows from AI for sure, the Fed has raised interest rates in the short term because they're worried about what I think is debunked but keeps coming up which is the wage-price spiral of low unemployment and wages going higher.
The longer-term trend on the labor force really becomes what's the impact of AI and artificial intelligence.
Goldman's had some numbers like 25% of US jobs could be at risk which I think is way too high of a number to talk about but there's going to be an impact for sure. I think the tightness of the labor market is in the rearview mirror along with the illiquidity.
Mark: Another question for you specific to where you invest sector and company-wise your comments on M&A activity more robust going forward or is it really dependent on the sector?
Noah: It depends, I think probably not-- this administration has really put a damper on a lot of acquisitions from large public companies buying smaller rivals. However, what I would say though is that one of the things for a lot of the growth stocks that is better now than before is that for years they were competing against venture-funded private companies that had just unlimited amounts of money.
They would try to get some multiple of sales for their IPO, didn't matter if they were profitable or not they could have gone public and they would just be blank check funded by venture capitalists and private equity to the moon. That game is over. A lot of those companies which have been making huge losses and things like that now have to show profitability. For the public companies which are trading in some cases at a quarter of the valuation of where private equity still has some of these companies valued there's just much less price competition on a whole bunch of areas.
There are public companies because they're so cheap which are being bought and being bought by private equity and so a lot of those private equity what we're seeing is corporate buyers of a lot of companies. There's a period of time there where almost every day another software company was being taken private. I think that goes more to the fact of just how cheap public markets are especially for long-lived assets like software and other things like that. We continue to see even this morning I saw another large software acquisition through private equity.
When you look at the profitability of a lot of these public companies, some of these investment portfolios are with unprofitable companies there's a case to be made for slapping some things together before trying to take them public. The compelling valuations in the public market, I think is more testament to that in terms of larger companies buying smaller companies for competitive reasons. I hate that. I get angry when that happens. Because you have some of these mid-cap $5 billion revenue companies who get bought by this huge conglomerate.
No, I thought that was going from $5 billion to $25 or $50 billion and now it's going to do that within company XYZ and I don't get to benefit from that as much. For me, I actually appreciate that a little bit more. Then all these other companies being taken out by private equity, I think is positive as well and a signal about how cheap some places in the public market have been.
Mark: Two final thoughts. In the context of building diversified portfolios and the place for growth in those portfolios, what can you leave our listeners with?
Noah: It's hard to find an example, what I would describe 2022 as. There's a scene in the movie Caddyshack where there's a fouling of the swimming pool and everybody jumps out of the swimming pool, only for Bill Murray's character to discover it's just a chocolate bar
Mark: [laughs]
Noah: I feel like 2022 was this huge macro trade that everyone jumped out of the pool on secular growth names because of, "Oh, I don't know. Well, the discount rate's going up so they're worth less or-- when rates are going up, you don't want to own growth stocks. Whatever the macro narrative was, we saw an all-time historic valuation low in the spring of last year. We saw correlations that we've never seen before.
For me, I think that the whole thing in 2022 was very different from 2000 to 2002, it was very different to 2008, where there was real pressure on companies where earnings were collapsing, and the business was collapsing. Was there hesitation in deals closing? Sure. Was there corporate CEOs going, "I don't know what's going on. I'm not sure what we should do." 100%, there was that. From a corporate perspective, I think for a lot of our secular growth names, they've showed amazing resiliency through that period of time.
A lot of the big caps now, the mega-caps that people have flocked into have also shown some pretty good earnings that we moved into 2023. When we moved into our new offices, I found a DVD of my first appearance on CNBC, which was on Kudlow and Cramer in 2003. I was talking about internet stocks at the time. I believe eBay had tripled during 2003. Their business was on fire. In fact, it was on fire throughout most of that '01/'02 period of time.
If you talked about internet stocks to people in 2003, 2004 you would've been shown out the door and you could eat next to the dumpster for dinner if you'd like. The reality was Google came public a year later and so those companies didn't come back. The trends that we're talking about, really in staying close to that situation benefited Google. This for me, is analogous to kind of that, not the financial crisis. In that, there are so many companies that are so well positioned with consumption-based data models, with analytics, with everything that you're going to need for this next generation of a technology stack for that 90% to move off-prem to the cloud for AI and ML workloads to come on.
That we look at it and we say to ourselves, and certainly in that space, it's very much a situation where people have left the pool. They believe that there's a problem with the pool. Sometimes people let price dictate their emotions. Well, it's down so there must be something wrong with the company. It's down, that should be an opportunity if there's nothing wrong with the company. We feel like for a number of our companies, that's the situation, and that's what makes us so excited. We just really want to be there for the next 5 years.
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Mark: Noah, it's always insightful and great conversation. I appreciate your insights and thanks for being with us today.
Noah: Thanks for having me.
Mark: To all of our listeners, thank you for joining us. You've been listening to another edition of On the Money With Dynamic Funds. For more information on Dynamic and our complete lineup of actively managed funds, contact your financial advisor or visit our website at dynamic.ca. Thanks for joining us.
Voiceover: This audio has been prepared by 1832 Asset Management LP and is provided for information purposes only. Views expressed regarding a particular investment economy, industry, or market sector should not be considered an indication of the trading intent of any of the mutual funds managed by 1832 Asset Management LP. These views are not to be relied upon as investment advice, nor should they be considered a recommendation to buy or sell. These views are subject to change at any time based upon markets and other conditions, and we disclaim any responsibility to update such views.
To the extent this audio contains information or data obtained from third-party sources, it is believed to be accurate and reliable as of the date of publication but 1832 Asset Management LP does not guarantee its accuracy or reliability. Nothing in this document is or should be relied upon as a promise or representation as to the future. Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing.
The indicated rates of return are the historical annual compound total returns, including changes in unit values. Reinvestment of all distributions does not take into account sales redemption or option changes or income taxes payable by any security holder that would've reduced returns. Mutual funds are not guaranteed. Their values change frequently and past performance may not be repeated.
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