Les Billets de Monocle

21 Years Ago

27 January 2023

Cette année ça démarre fort. Mais ce n’est rien à côté de 2001.

21 years ago, the Wall Street Journal headline read:

« Aggressive action by the Federal Reserve to slash interest rates has helped to revive the Nasdaq Composite Index, which was up 12.2% in January, one of its best Januarys ever. »

Alan Greenspan, the head of the Federal Reserve, didn't cut rates once, but twice in January.

Microsoft shares, one of the largest market caps at the time, went from $22 on December 31 to over $30 by the end of January, an increase of 40%. Certainly, growth was slowing down—sales were only up 8% compared to the previous year. But after the stock's decline the previous year—it had been divided by three—this increase was more than expected. It was deserved, obviously. A "no-brainer," as the Anglo-Saxons would say.

Admittedly, we shouldn't expect growth as strong as in previous years, but we were still on solid ground. Credit Suisse released an analyst note with a "BUY" recommendation and a target price of $37.

One year later, in January 2002, Microsoft's share was valued at $32.

In January 2003, $28.

In January 2004, $28.

In January 2007, $31...

If you're curious as to when Microsoft's stock finally surpassed the $30 mark, you'd have to wait until 2014.

Thirteen long years to achieve zero growth—and even the small dividends since 2004 couldn't alter this reality.

Now, let's shift our focus to the present day: 

1/ Powell didn't cut rates twice or even once. He didn't say he was going to cut them. The market hopes that he might raise them less than expected.

2/ Microsoft is reporting sales growth of 2% rather than 8%. It has just announced 10,000 layoffs.

And if you want a slightly more technical analysis of Microsoft's growth, here it is: Satya Nadella's stroke of genius when he became CEO in 2014 was transitioning the company from a licensing model to a subscription model. By doing this, you roughly double your revenue per user. This process takes about 5 years. Once your entire customer base has transitioned to the new pricing, this growth engine is extinguished. If you want an image, it's like the Challenger shuttle when the booster shuts off and detaches.

We were at that stage in 2020 when COVID arrived. Everyone started working from home and therefore bought PCs and had no choice - it's a monopoly - but to take the accompanying Microsoft licenses. But all of that is now behind us - Windows sales are down 39% in the last quarter.

As of last night, the PE ratio is above 25. Remember, thirteen years…


Market and portfolio focus

Behaviour:

Over the week (January 18-24), the fund was down -0.3%. In the US, the S&P500 gained 1.8%. The market's enthusiasm despite the so far mediocre results prompts us to exercise a lot of caution.

Lines:

Apple (clôture de la position) Apple (position closed): We have sold our position in Apple after a 10% profit on the line. We remain confident in the company's long-term prospects, but the current environment may indicate underperformance in fourth-quarter results (TSMC announced fewer chip orders for smartphones, Fnac and Logitech reported degraded results).

Meta (currently at 2.2% of the fund): We have sold half of our position. Similarly, we have high confidence in the long-term trend, but the context prompts us to be cautious about the upcoming results.

Nasdaq hedge position (position closed): Following the sales of Apple and Meta, we believe we no longer need coverage for our long positions. The net exposure of the fund is therefore the same as its gross exposure (25%).

Have a great week,
Charles

Disclaimer

This presentation is a promotional document. The content of this document is communicated by and is the property of Monocle Asset Management. Monocle Asset Management is a portfolio management company approved by the Autorité des Marchés Financiers under number GP-20000040 and registered with the ORIAS as an insurance broker under number 10058146. No information contained in this document should be construed as having any contractual value. This document is produced for information purposes only. The prospects mentioned are subject to change and do not constitute a commitment or a guarantee. Access to the products and services presented here may be subject to restrictions for certain persons or countries. Tax treatment depends on individual circumstances. The fund mentioned in this document (Monocle Fund SICAV) is authorized for marketing in France and possibly in other countries where the law permits. Before making any investment, it is advisable to check whether the investor is legally entitled to subscribe to the fund. The risks, costs and recommended investment period of the funds presented are described in the KIDD (key investor information documents) and the prospectus, available free of charge from Monocle Asset Management and on the website. The KIDD must be given to the subscribers before the subscription. Past performances are not a reliable indicator of future performances. Monocle Asset Management cannot be held responsible for any decision taken or not taken on the basis of information contained in this document, nor for the use that could be made by a third party. The investor may lose all or part of the amount of capital invested, as the funds are not capital guaranteed.

To unsubscribe or for any information request, you can email us at monocle@monocle.lu

Fermer

How to invest?

Important to know