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Printed: 08 December 2022 12:44 AM


28 Jan 2022 - What can you make of highs & lows?
By: Frazis Capital Partners

What can you make of highs & lows?

Frazis Capital Partners

January 2022

Portfolio Manager Michael Frazis gives a perspective on what could be driving sell-offs 

We are in the middle of one of those extraordinary periods where valuations collapse and investor time frames have shortened from years to days. Long term plans are forgotten and the whole market is focusing on where prices will land tomorrow. 

At periods like this extraordinary transfers of wealth take place. As with similar shocks in March 2020, Dec 2018, and 2008/2009, those liquidating shares will realize sharp short term losses, while the immense long term wealth created by fast-growing technology companies over the coming years will flow to those who hold or buy.

A number of indications suggest things have reached the kinds of extremes that lead to buying opportunities.

Over 40% of the Nasdaq is now down more than 50% from one-year highs, which includes many of the best companies in the world, and many of those likely to generate the highest returns over the coming years. 

The rolling quarterly new lows in technology is now as high as it has been since Lehman collapsed in 2008, a generational buying opportunity.  

The performance of technology over the following decade was phenomenal, painful though it was for everyone holding tech shares at the time. Tech bottomed several months before the rest of the market, and then pushed to significant new highs. We saw this dynamic in March 2020, when our fund sold off well before the market - and much harder too - only to recover long before the indices and push to major new highs. 


Life sciences saw the worst of it, with a number of companies selling down to below cash levels. Multi-year projects are out of favour right now, to put it mildly. Some of this was deserved - but multiples are now at extremes that marked or exceed previous lows. 


Fortunately, many of these companies raised money or IPOd recently, so we can all be grateful that scientific progress will continue. 

There's a narrative around rates and quantitative tightening causing the sell-off. There is some truth to this, but a better explanation is that institutions, as they did in March 2020 and 2008/2009, have rushed to the exit, swinging from max overweight to max underweight technology (as measured by data above).

Goldman Sachs reported the heaviest tech selling in over five years and that was earlier on in the sell-off. 

This institutional shift, combined with rising short selling and no doubt some level of retail panic (data on that is harder to come by) is both causing the current volatility and creating opportunity for longer term investors to take the other side. 

Of course, the most important thing is not to participate in mass selling, and where possible, take advantage. 

All the gains from the growth in life sciences, software, fintech, and e-commerce will flow to those who end up with the shares being dumped on the market now.

The most important thing to know is that our companies are still performing exceptionally well.

Many of them are internet-based so we can track real-time data, and they have made substantial progress since the sell-off began, and most certainly since the highs of early 2021. Strikingly, this sell-off has not been triggered by any operational issues. For example:


In November only two long months ago, Sea reported: 
•    122% year-on-year organic revenue growth 
•    148% growth in gross profit 
•    GMV at a $67 billion run-rate, a 1.3x Sea's enterprise value
•    A $2.9 billion EBITDA run rate for gaming, though growth here has moderated to 29% year-on-year
•    120% growth in users of Sea's payment app, up to 39 million mostly young emerging market users,
•    And in addition, Sea entered India, and was the most downloaded app in South America, and entered Europe through Poland, Portugal, France, and Spain. 

So far, indicators suggest Sea's e-commerce app Shopee is doing even better in India than it was in Brazil, where it quickly became the most downloaded app and already accounts for ~8% of Sea's GMV. 

After their October launch, Shopee is already the third largest shopping app in India by daily active users.

Despite these results, the stock dropped 55% since November, which is why we see this as a positioning/valuation unwind rather than any fundamental issue.

The main negative news was that Tencent, a major shareholder, sold a small portion of its holding below 10%. But even this has a silver lining - as it allows Sea to avoid foreign ownership restrictions in India.

In September, Sea raised $6 billion of capital at $318/share (currently $167) leaving the business with $11 billion of cash and a current enterprise value of $88 billion. 

If you separate the two businesses, and value payments at zero, this is one of the cheapest e-commerce companies around, as well as the fastest growing and most dominant at this scale. As with many of our companies, Sea is truly an apex predator, entering new markets and rapidly taking share, forcing competitors to react. 

Throughout the sell-off, estimates have been consistently revised upwards:

This mix of expanding TAM, >100% organic growth, market dominance, upgraded guidance, and a >50% sell-off is a compelling recipe and we have added to the position over recent weeks.

The difference between serious losses and returning multiples of your capital depends entirely on whether you are a buyer or a seller at times like this, which always feel like an eternity when you're in them.

Our fast growing companies may be both the worst place to be during the sell-off, and the best place to be after markets put in a low. This happens well before people expect, and we are starting to reach consensus bearishness reminiscent of those times, as well as a level of seller exhaustion.

In previous sell-offs, reporting season marked a turn as investors refocused on the substantial progress our companies had made, often growing 10-20% over the prior three months with improving economics. 

There is a very good reason to be invested in these kinds of companies. The bulk of investment returns over the next five to ten years will come from these sectors, and accrue to the companies growing and taking market share - the apex predators. We will be fully invested throughout and catch them in their entirety. 

For the full report and more company analysis, go to Frazis Profile Page.

Written By Michael Frazis

Funds operated by this manager:

Frazis Fund


The information in this note has been prepared and issued by Frazis Capital Partners Pty Ltd ABN 16 625 521 986 as a corporate authorised representative (CAR No. 1263393) of Frazis Capital Management Pty Ltd ABN 91 638 965 910 AFSL 521445. The Frazis Fund is open to wholesale investors only, as defined in the Corporations Act 2001 (Cth). The Company is not authorised to provide financial product advice to retail clients and information provided does not constitute financial product advice to retail clients.

The information provided is for general information purposes only, and does not take into account the personal circumstances or needs of investors. The Company and its directors or employees or associates will use their endeavours to ensure that the information is accurate as at the time of its publication. Notwithstanding this, the Company excludes any representation or warranty as to the accuracy, reliability, or completeness of the information contained on the company website and published documents.​

The past results of the Company's investment strategy do not necessarily guarantee the future performance or profitability of any investment strategies devised or suggested by the Company.​

The Company, and its directors or employees or associates, do not guarantee the performance of any financial product or investment decision made in reliance of any material in this document. The Company does not accept any loss or liability which may be suffered by a reader of this document.


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