| Sep 30, 2021 Good Riddance, September Hi Savio, Well, that was a month worth forgetting. The stock market ended a sloppy September on a mixed note, with the Dow and S&P 500 falling as value stocks lagged, and the Nasdaq gaining as growth stocks powered higher on the back of yields moving slightly lower. Our take? Goodbye September. Now, let’s move on. The reality is that the market had a bad month because the 10-year Treasury yield surged, and we don’t pay too much attention to this surge because we do not believe it will impact the fundamentals underlying our stocks today or in the future. There are really three big things here… One, as outlined in previous issues, we’re firm believers that the long-term trajectory of yields will be lower-for-longer in the big picture. That’s because technology provides enormous deflationary forces by making everything more productive, cheaper, and faster – and ever since technology started taking over the world circa 1990, core inflation in the U.S. has struggled to top 2% (excluding this year, where inflation is roaring due to Covid-19). We’re very confident that, once Covid-19 impacts phase out in 2022 and beyond, we will return to a sub-2% inflation environment because the deflationary impact of technology will only grow as automation, artificial intelligence (AI), hybrid work, and cloud computing become ubiquitous. On that assumption, our models say that a “fair” 10-year Treasury yield is about 2% for the next several years. Two, our valuation models are already benchmarked to a 2% 10-year Treasury yield. That is, we value our stocks using robust five- to 10-year discounted cash flow models, and the discount rate we use in those valuation models is benchmarked to a 2% 10-year Treasury yield. Therefore, our calculus on how much our stocks are worth will not change unless yields shoot above 2% – and even then, the change will be minor, unless yields approach 4% or higher. At that point, our valuation models would meaningfully change. But we are very confident that will not happen. Three, we’re making multi-year investments, and the multi-year outlooks for our stocks continue to improve, as evidenced by strengthening industry and business fundamentals. Today, for example, Honda announced plans to build an eVTOL (electric vertical takeoff and landing) aircraft in a sign that most automakers are investing in building the flying car of the future. At the same time: - An Oregon battery company by the name of ESS is claiming to have created a new battery technology built on top of iron (not lithium) that can store renewable energy for longer.
- Electric Last Mile rolled its first electric van off the assembly line – the same assembly line that used to make Hummers.
- A synthetic DNA startup by the name of Catalog raised $35 million to speed up its computation platform.
- Augmented reality glasses maker Nreal unveiled its next-gen Nreal Air glasses, which are very small, lightweight, and designed to stream TV shows and play mobile games.
- Aurora showcased its Aurora Driver autonomous technology at an event.
Folks… innovation is happening all around us. Market prices don’t reflect this reality right now, and that’s OK. Because this is your opportunity. From current prices, our vigorous valuation models imply that many of our stocks that are underwater today have 100%+ fundamentally-supported upside potential. So, goodbye September. Hello future. It’s very bright. On that note, let’s dive into today’s Daily Notes on our portfolio: - CEVA (CEVA) partners with Beken Corporation and VisiSonics to create a 3D audio reference design. With audio, and especially spatial audio, being as in-demand as ever, this reference design is a nice accomplishment for CEVA. Spatial audio will be a significant driver of metaverse immersiveness, so we see this company being on the ball with this development.
- Businesses are so keen on using Matterport’s (MTTR) platform that the company is expanding its U.S. footprint. Matterport just announced it would be launching its On-Demand capture service in 13 more cities across the U.S. in order to help even more companies digitize physical locations. We love what Matterport is doing, and so does its customer base. Many customers are already repeat customers, in fact. And that’s a great leading indicator of future business success.
- Teladoc Health (TDOC) gets ranked #1 by J.D. Power. Among direct-to-consumer providers in the U.S., Teladoc not only received the highest overall satisfaction score, it also performed better than competitors in all subcategories. This is clearly the leader in telehealth. But, again, we remain concerned by AI-powered, non-video competition. And that keeps us tepid for now.
- Canoo (GOEV) partners with automotive development company AVL to create Advanced Driver Assistance Systems for Canoo’s Lifestyle Vehicle. Canoo’s decision to outsource the creation of this technology is a good one. It also helps that AVL is the largest independent development and testing company in the automotive industry. Canoo wins in this instance because it gets to focus more of its attention on building a proprietary vehicle platform and architecture, and AVL can focus solely on the innovative software side of things. Platform sharing is a smart way to build cars, and we’re happy to see Canoo, one of our new buys from yesterday, embracing this model.
- Volta (VLTA) tanks on PIPE lock-up expiry. The timing here kind of stinks for us, since we also just bought this stock yesterday , but trust us, this is non-news. We’ve seen this rodeo happen many times before with other SPACs. All that’s happening here is that the folks who bought into Volta stock in the PIPE (or Private Investment in Public Equity) at $10 per share and the insiders who have owned equity since this was a tiny startup can now sell their shares. On fear that they will do that, you’re seeing new shareholders sell in droves. This has happened to multiple other stocks once they de-SPAC. It’s par for the course. The market always freaks out. Then, the stocks rebound. We’re confident the same thing will happen here. And it’s important to note: There’s no evidence that the insiders here are selling, and this has no bearing on the company’s long-term fundamental value. We still see this as the smartest electric vehicle charging company in the world, and think the stock can boom from here. The time to load up is now.
Enjoy the rest of your evening. I’ll be back in touch tomorrow. Sincerely, 
Luke Lango
Editor, Early Stage Investor
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