Introduction:

For over 20 years, Monday Night Football had a wonderful lead-in theme song titled “Are You Ready For Some Football”, sung by Hank Williams Jr. Why do we bring up this obscure, but catchy theme song? As we start the 4th quarter of 2020, we wanted to ask, “Are You Ready For Some Volatility?”

How do we prepare for volatility? Well, we own companies that generate significant free cash flow and ones that have sizeable amounts of cash on their balances sheets. Also, many of our holdings dominate their industry and actually have businesses that benefit from this environment of uncertainty. We don’t have a magic 8-ball to guide us, but we do rely on our 25 years of asset management experience and our disciplined strategy, process and investment philosophy.

For years, many investors have simply “bought the dip”, each time the market encounters a rough patch. With the environment today filled with so much uncertainty, we would advocate using some patience and preparing for elevated volatility. We aren’t saying you should rush into cash and hide money in your mattress, but we are attempting to create some downside protection in our FINTECH long/short portfolios.

Today’s News:

Manole Capital’s quarterly newsletters will always focus on the economic side of the equation and we never will enter the political pool. Rest assured, we will not get political now.

As of today, there seems like an unending list of fears impacting the markets, including resurgence of COVID-19, a very “nasty” election, geopolitical tensions with China and stop-and-start news on another fiscal stimulus package. How markets will react to a Democratic sweep or a Republican resurgence? What if we get a contested result? 2020 has already been a tumultuous year, but a presidential election adds another layer of uncertainty. With a pandemic in full swing, unemployment still high and economic growth at a standstill, the stakes are quite high. The two candidates have vastly different visions about the role of government, tax law, trade and regulation. Who wins the election will absolutely affect the stock market and its performance going forward.

The election is only a week or so away. The old adage of people voting with their pocketbook may not be as powerful as prior years. It was James Carville in 1992 that famously said, “it’s the economy, stupid!”, when correlating economic conditions to job approval. Presidents usually win a re-election bid when the economy is doing well in their 4th year in office. From Reagan to Bush to Clinton to G.W. Bush to Obama, a positive economy led to another 4 years in the White House. Since we are in the midst of a global pandemic, more voters just might allow COVID-19 into their decision, not just the economy.

Back To Normal?

The stock market’s V-shaped recovery, since that March 23rd low, has many investors feeling good about our economy. The market climbed back to new highs as the pandemic’s threat to economic growth seemed to moderate. Many investors started looking ahead to a more normalized environment next year, when corporate earnings would recover in earnest. We aren’t ready to concede that things are normalizing just yet. The month of September felt like four straight weeks of declines and many of the technology names that have been leading the market higher came under significant pressure.

COVID-19 has fundamentally altered businesses around the world, and companies are trying to deal with unprecedented amount of volatility and uncertainty. We will attempt to lay out the case how some of our companies are actually benefiting from this challenging environment. We are 8 to 9 months into this pandemic and we are still not truly back to “normal”. As of today, many companies have already figured out how to allow their teams to collaborate and work from home. Employees have adapted and are mostly efficient, except for the occasional dog barking interruption in a Zoom meeting.

Will corporate offices ever return to pre-COVID-19 world? At a recent virtual conference, Larry Fink, the CEO of Blackrock, said, “I don’t believe BlackRock will be ever 100% back in office. I actually believe maybe 60% or 70%, and maybe that’s a rotation of people, but I don’t believe we’ll ever have a full cadre of people in [the] office.” We are slowly coming to the realization that the desirable ol’ days might be a year or two or more away. As you read our note, we’d love to hear your thoughts, especially if you disagree or have a counterpoint.

Just a Little Macro Commentary:

Just a few weeks ago (at the Fed’s annual Jackson Hole, Wyoming event), Fed Chairman Powell said that he does not foresee raising interest rates until 2023. With interest rates likely to stay at their current near zero levels, that really isn’t too much to discuss about the yield curve. That is, until it inverts again or we get negative interest rates. Don’t laugh, that could happen in the US too. As of today, there is an estimated $17 trillion in negative yielding debt securities issued.

In terms of inflation, the Fed recently took away the 2nd aspect of their dual mandate. As a reminder, the Fed’s two mandates are to shoot for full employment and target an inflation rate of 2%. Inflation has been dormant for over a decade and the Fed stated that it is essentially removing the inflation target rate from its policy decisions. Most people do not find “Fed-speak” terribly invigorating (or even interesting), but we found this change to be almost historic. The Fed is now officially untethering itself from a its long-running goal of 2% inflation, as Chairman Powell said this had become “obsolete”.

Both Fed Vice Chair Richard Clarida and Chicago Fed President Charles Evans said that rates will not increase until the labor markets fully recovers. Clarida said, “rates will be at the current level, which is basically zero, until actual observed PCE inflation has reached 2%”. “That’s ‘at least’. We could actually keep rates at this level beyond that”. With comments like this from important Fed members, we think macro expectations (labor, inflation, interest rates, etc.) should not play a major factor in daily stock market moves. Famous last words, right?

Our big macro takeaway is that we envision the Fed keeping its accommodative monetary policy, including additional asset purchases. From our perspective, we believe that the Fed will keep interest rates “lower for longer”. The Fed is leaning toward a little more “art than science”, when it comes to determining when it is time to raise rates and curtail inflation.

As one can see on this Bloomberg dot chart, even without inflation targeting, the next rate hike is a long way off. 17 Fed officials now believe interest rates should stay near zero until the end of 2021, while 13 “kicked the can” to 2023. Considering there’s no inflation and no expected changes to interest rates, we will leave the macro commentary to 1 of 50 expert macro economists out there. With the Fed paused, we want to move on from macro commentary and focus on the fundamentals.

Wall Street vs. Main Street:

On August 5, the stock market was essentially flat. However, if you bothered to read the Wall Street Journal that day (something we still do), the headlines were downright scary. Here are 10 of the top stories in the WSJ that:

  • Disney Posts First Loss Since 2001
  • How Department Stores Lost Flair For Innovation
  • Emerging Markets Gird for Defaults
  • BP Chops Dividend in Half
  • Wynn Resorts Revenue Plunges
  • Bayer Posts $11B Loss Due to Litigation
  • Parent of Kayak and Priceline Cuts Jobs
  • Opioid Maker Weights Chapter 11
  • Coronavirus Squeezes Urban Office Markets
  • AIG’s Results Look Grim

Why is there such a big disconnect between Wall Street and Main Street? The stock market is focused on current earnings, forward guidance and whether or not a second stimulus package will get passed, before the election. The average American is concerned about their job, dealing with COVID-19 and a host of other social issues. Unfortunately, too many Americans are struggling to pay the bills. Fed Chairman Powell recently said that “more fiscal support is likely to be needed,” and that the Fed cannot be alone in rescuing this uncertain economy. Another round of stimulus will be a boost for equity markets, but we feel like it might be like “putting a band-aid on a gunshot wound.” While many in Washington seem to agree that more stimulus is needed and that many Americans need help, some political issues are holding up a deal. Unfortunately, political fighting never seems to end.

Overall, uncertainty seems to be the word “du jour” for describing our economic, political, and social situation. The economy has made strong gains off the bottom, but it remains a long way off from pre-COVID levels. While some of the gains were from stimulus and a strong Fed response, but more will be needed until we get a vaccine. As we sit here today, the economy is recovering, but it isn’t terribly healthy. Some of the tailwinds are starting to fade and the environment is tenuous. The main concept for long-term investors to take away from this environment is that the market always looks forward and moves on expectations (not prior or even the current reality).

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We believe valuations of businesses should reflect a company’s ability to adapt to uncertainty. How will a business survive in 2021 and beyond? Will conditions improve and growth return? Will we experience a 2nd or 3rd wave of infections? When will a vaccine be ready for mass distribution and will people take it? There are no easy answers to these questions, except for us to realize that the stock market is focused on the prospect that the worst of this crisis is behind us. This dynamic of current events (for Main Street) versus forward expectations (for Wall Street) is critical to understand.

The Earnings “Game”:

In July and August, companies reported their 2nd quarter results. Earnings expectations for the S&P 500 were initially expecting a decline (43%), but the actual outcome was much better, down only (32%). Why do we bring this up? Well, as you are reading this, earnings season is in full swing and the “game” has begun. We believe earnings calls are critically important, but our focus is not necessarily on last quarter’s stated GAAP earnings or whether or not a company beats sell-side numbers. Do we want our companies to exceed the estimates Wall Street is expecting? Oh course! However, instead of looking backwards, we strive to look forward and understand the longer-term opportunity.

Why do we spend so much time modeling companies and understanding how they generate free cash flow? We believe that if a company consistently grows free cash flow (and exceeds EPS expectations), its stock price will follow. We emphasise free cash flow, as we believe that its growth is an excellent indicator for future stock prices. This “game” is important to understand, as the market typically moves higher when results exceed expectations. If a company can report better-than-expected earnings, we would anticipate (all else being equal) for the stock to climb higher.

As this FactSet/Bloomberg chart shows, roughly 2/3rd of companies in the S&P 500 typically “beat” EPS estimates.

Just last quarter, 80% of the S&P 500 constituents beat consensus earnings forecasts. Even with revenues down double digits and earnings falling by over 30%, Wall Street was pleased with results. Since sell-side analysts lowered their projections beforehand, companies were able to handily “beat” sell-side estimates. This is the game that typically occurs each and every quarter on Wall Street.

Expectations:

Now that we have discredited the entire earnings process, let’s now look at the soon-to-be reported 3rd quarter. A few months ago, S&P 500 earnings estimates for the 3rd quarter were forecasting a year-over-year decline of (27%). A month later, EPS estimates were guesstimating (24%). As a today, 3rd quarter S&P 500 earnings are expected to decline by (21%) year-over-year. So, expectations are still materially down year-over-year, but they are “less bad” than many were estimating a few months ago. Just like last quarter, companies have hinted at conferences and gotten their sell-side analysts to lower quarterly projections and estimates.

We are slowly emerging from those initial pandemic-driven lockdowns, but each city and state is recovering at a different pace. If one deciphers the market into its 11 GICS (Global Industry Classification Standard) sectors, we can see some big differences between how companies have handled and managed through this global pandemic.

As the IBES chart below shows, only a few sectors are flattish or showing just modest decreases in forecasted earnings. The sectors that are close to returning to growth are Technology (down 1%), Consumer Staples (down 3%), Healthcare (down 2%) and Utilities (down 4%). On the flip side, certain sectors continue to struggle, like Consumer Discretionary (down 34%), Financials (down 18%), Industrials (down 65%) and Energy (down 117%).

Wall Street is modeling in a “bottoming” of overall revenue and earnings in the 3rd quarter of 2020. Looking forward, revenue will turn positive on a year-over-year basis in the 4th quarter of 2020, with expectations for 2021 being up mid-teens. This type of revenue growth has the sell-side looking for earnings growth next year in the +20% range.

As we look to 2021, the extraordinary global monetary and fiscal stimulus, coupled with expectations for a fast-tracked vaccine/COVID-19 therapy, suggest a positive forward outlook. The amount of stimulus is unprecedented and the world is awash with liquidity, with much of that finding its way to global stock markets. However, we believe that equities will need a sustained economic recovery to support these valuations.

Performance:

During 2020, the S&P 500 has been on quite a roller coaster. From January 1st to February 19th, the S&P 500 was up 5%. Once COVID-19 cases began to accelerate in the US, the S&P 500 ended its decade-long bull market. From February 19th until March 23rd, the S&P 500 fell by (34%). Following the significant actions of the government and Fed, the S&P 500 recovered and experienced a V-shaped recovery of over 53%. This was the largest five-month increase in the S&P 500 since 1938. As of today, the S&P 500 is up 6.5% this year, as if there wasn’t a global pandemic still raging across the world. In terms of performance this year, only three sectors of the market are positive: Information Technology up 27%, Consumer Discretionary up +24% and Communication Services, up +8%. The other eight sectors are all down, with the worst performing areas being Energy (35%), Financials (24%) and Industrials (14%).

During the 3rd quarter of 2020, the S&P 500 rose 8.9%, which followed the impressive 2nd quarter rebound of 20.5%. This was the best two-quarter performance of the S&P 500 since 2009. For the S&P 500, both July and August were positive at +5.6% and +7.2%, but September was down (3.8%), snapping a five-month winning streak. This was the worst September since 2011 and it hit certain technology stocks quite hard. In just 2 days, leading into the Labor Day holiday, the Nasdaq market dropped over (6%). In one single day, Apple (NASDAQ:AAPL) lost $179.9 billion off of its market capitalization. Not only was the worst one-day loss for a company ever, but that loss was bigger than the individual market capitalizations of 470 of the companies in the entire S&P 500.

Not only did technology get hit, but there was also a subtle shift which many investors might have missed. For the first time in a while, value stocks outperformed growth stocks. Was this a shift from high growth to deep value? Was there some temporary profit taking in technology stocks? Are some investors desperately seeking a dividend yield? Is the market factoring in differences between a Trump versus Biden administration? All of these questions are valid, but unanswerable. For us, we will not market time or chase certain “hot” sectors. We will stay disciplined to our bottom-up, fundamental research process of identifying free cash flowing FINTECH companies.

Valuations:

There are actually 505 companies that constitute the S&P 500, not 500 different firms. Our point is that we find flaws in a simple valuation metric for the entire market. While using the forward P/E might be helpful in understanding bigger picture items, one really has to dive into the details and specific valuations on a company-by-company basis. The S&P truly is an index of various companies, in assorted industries, all with different growth outlooks and prospects.

The 10-year average forward S&P 500 P/E multiple is 15.1x versus today’s 22x, per FactSet. Certain skeptics say that the US stock market has not traded at this high a forward multiple since the late 1990s. In fact, the last time the S&P 500 sustained a forward P/E of over 20x was during the tech bubble. While there are pockets of the market that are absolutely overvalued, we are still able to identify and own companies we find attractively priced. The key for us and what separates this time period from the tech bubble era is profitability. Two decades ago, many technology companies did not generate any cash flow or earnings. Fast forward to today and many of these technology companies are literally printing free cash flow.

Some stock valuations are incredibly high right now, but let’s take a quick look where long-term Treasuries are trading. If we consider US Treasuries as the world’s “safe haven asset”, then they are shockingly expensive. Compared to 0.70% US Treasury rates, a 5% earnings yield on stocks (the inverse of this P/E multiple) could be considered downright attractive. We continue to believe that secular growing FINTECH companies represents a better risk/reward tradeoff than purchasing fixed income, especially in this low inflation, low-growth environment.

Meager expected returns in fixed income seem to be leading more and more investors to pile into equities. Those companies that can generate decent growth rates, especially in this lackluster economy, are being rewarded. Those that have promising future growth expectations are receiving elevated valuations and stock price appreciation. Some of these high-flyers are coming to the market in the form of IPOs, which we will address in detail, in a few pages. From our perspective, there is clear enthusiasm for certain technology stocks, bordering on exuberance, which has not been experienced in a couple of decades. Some of this “frenzy” is coming from retail investors, who have been trading at elevated levels for decades.

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Tech Giants:

Speaking of elevated valuations, we thought we would discuss a few high-flying technology companies. As we mentioned in our 3rd quarter newsletter, the S&P 500 continues to be driven by a select group of tech stocks. FAANGM or Facebook (NASDAQ:FB), Apple, Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) continue to dominate the US stock market.

Year-to-date 2020, these stocks have generated impressive returns, with Facebook up +33%, Apple up +67%, Amazon up +82%, Netflix up +68%, Google up +16% and Microsoft up +42%. With these impressive year-to-date returns, 4 of these 6 companies have market capitalizations over a once unimaginable $1 trillion. Why do we continue to highlight the concentrated returns among this small group of stocks? Maybe we’re just jealous, since we do not own any of these 6 companies. Well, the S&P 500 remains the most important US index and it positions and weighs firms by their market capitalization. For example, companies make up more and more of the index, as they get larger and larger.

We saw this Statista graphic and it really struck a chord with us.

Looking back 15 years, there was a fairly diversified mix of the world’s largest companies, across 6 different sectors. Now, 7 of the 8 largest companies in the world are technology companies. With Apple as the largest company in the S&P 500 right now, it represents 6.6% of the index. If we combine Apple, Microsoft 5.7%, Amazon 4.9%, Alphabet 3.2% and Facebook 2.2%, these five equate to astounding 22.6% of the total S&P 500. A decade ago, the US stock market represented about 40% of the world’s total stock market capitalization. With US technology companies continuing to thrive, the US now constitutes roughly 60% of the world’s equity value.

Of the nearly 25,000 companies that have issued common stock between 1925 and July of 2020, only 11 different companies have ever held the title of highest valued company (in terms of market capitalization). According to the Center for Research in Security Prices, in the University of Chicago’s Booth School of Business, AT&T (NYSE:T) held the largest stock title for 43% of the this 95-year period. In 1955, E.I. Dupont de Nemours (NYSE:DD) was on top of the mountain for 11 days, while Philip Morris (NYSE:PM) held the top spot for 34 days in 1991. In 1992, Walmart (NYSE:WMT) was the titleholder for only 3 days. In the early 1930s, AT&T actually was 1/8th of the value of the entire US stock market. Even into the 1960s, AT&T was 1/12th of the entire index. Now that was a monopoly!

It isn’t just these 6 tech companies that have experienced wonderful 2020 performance, but it sure seems like the whole technology sector has dramatically rallied. The Nasdaq Composite (which is comprised of many tech companies) hasn’t had this many stocks increase in value, by over 400%, since 2000. We continue to highlight this because the technology sector and a few of its star performers, are shining brighter than ever. This is creating a stark divide with the rest of the S&P 500 sectors.

Rationally Allocating Capital:

We look for a set of desirable characteristics in each of our positions (click here). One of the areas we focus on is whether or not management teams are rationing allocation capital. When a business generates free cash flow, management has various ways to spend that money. We obviously want companies to re-invest back into their businesses, especially if they can generate a good return on that investment. When a business has excess capital, it can look at acquisitions, to buy back its stock and/or to pay a dividend.

In the 2nd quarter, according to Janus Henderson, total shareholder dividend payouts fell by $108 billion to $382 billion. This was the lowest 2nd quarter payout since 2012. With record-low interest rates, we are somewhat surprised there isn’t more interest in owning dividend paying companies. The S&P 500 Dividend Aristocrats index has 65 companies that have at least a 25-year history of paying out and increasing their dividends. Surprisingly, this index is down (1%) this year, which is its widest underperformance versus the overall market since 2007.

As you can see in the above S&P chart, buybacks last quarter were down (48%) year-over-year; down by over (50%) sequentially. In fact, S&P 500 companies only bought $89 billion of their own stock last quarter, which was the lowest level since March of 2012. Over half the companies in market reported no buybacks in the quarter, which was more than double a year ago. Financials are typically one of the strongest sectors for buybacks, but their stock repurchases were down (82%) quarter-over-quarter. Unlike other companies, where management teams can freely allocate their capital, the Fed has asked (more like required) US banks to preserve their capital. This remains one of the unusual aspects of owning financials, as they typically do not have free access and control over their balance sheet, in terms of buybacks or paying out more in dividends.

IPOs & SPACs & Direct Listings, oh my!:

The IPO market is partying like its 1999. According to Dealogic, this is the most concentrated the IPO market has been since 2007, when the “hot” sectors were banks and lending institutions. 80% of the capital raised this year is going into three primary areas, technology, healthcare and SPACs (special purpose acquisition companies). Investors cannot get enough of these new offerings and the average one-day gain on IPOs is averaging 24%, its highest since early 2000.

As this Dealogic chart below shows, with a few months left in 2020, US-listed IPOs just exceeded $200 billion. This exceeds 2014’s levels and the highest amount of capital raised since 2000. Many private companies avoided a public listing (and an IPO), because of the regulatory hassle. Now, with the market awash in liquidity and cash, there seems to be a rush to enter the public sphere.

Private companies used to follow a formulaic process of going public. Most would raise capital via funding rounds and then follow a typical IPO roadshow process. In a global pandemic, with social distancing and rules concerning travel, many companies are excited not to traverse the country doing non-stop roadshows. With virtual roadshows, more possible investors can listen to management and participate in the process.

In addition to IPOs, companies can choose to do a “direct listing”. With a direct listing, the new public company does not raise new capital, so this process is really only for cash-rich startups looking to permit founders and early investors to cash out of their stakes. This is largely an untested model that only a few companies have pursued, but data firm Palantir Technologies (NYSE:PLTR) and software firm Asana (NYSE:ASAN) are the latest companies to attempt this process. In 2018, Spotify (NYSE:SPOT) did a direct listing, and in 2019, Slack Technologies (NYSE:WORK) followed.

To have their direct listing, both Palantir and Asana hired Morgan Stanley as their lead adviser and Citadel as their designated market maker. On the same day (September 30th), both companies simply began trading on the Nasdaq exchange. Instead of paying large fees to investment banks, underwriters and trading firms, direct listings simply begin to trade on their launch date. No new capital is raised and these companies begin to trade, allowing employees and early investors to sell their shares (if they wish). While Palantir has a market capitalization of $21 billion and Asana is at nearly $4 billion, both companies are down from their first trade price.

As this chart from Dealogic shows, the SPAC market has never reached nearly 50% of all annual IPOs.

According to SPAC Insider, as of mid-October, there have been 143 SPAC IPOs this year. For some perspective, there were only 13 in all of 2016. These “blank check” companies turn the traditional IPO market on its head by raising money before developing a business plan. These companies are essentially publicly-traded shells that use their newly raised proceeds to then make an acquisition. Management teams have 18 months to make a deal, but typically put the money to work sooner than that. Once an acquisition is announced, the target company converts into a publicly-trading stock.

While SPACs aren’t new, today’s private companies are particularly attracted to this expeditious route to a public listing. While traditional IPOs can take up to 6 to 12 months to develop, a SPAC can launch and bring a private company to market in just a few months. This is simply today’s version of instant gratification. Not only do SPACs represent efficiency and a speed-to-market approach, but there is significantly less disclosure required. In a traditional IPO, a company must provide a detailed S-1, which is pored over by potential investors (and competitors). In a SPAC, private companies are able to shield their results from the microscope of public curiosity. That is, until a SPAC acquires them, in this version of a reverse merger.

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Two of the most high-profile SPACs in 2020 have been the online sportsbook DraftKings (NASDAQ:DKNG) up over 250% and the electric truck manufacturer Nikola (NASDAQ:NKLA), up over 100%. In 2020, SPAC Insider reports that the annualized rate of return is +35%, which is significantly higher than the overall market. Before one rushes into this category, some prudence is probably warranted. According to Renaissance Capital, there have been 313 SPAC IPOs since 2015 and only 31% have had positive returns.

Whether a company chooses to have a IPO, get acquired by a SPAC or even do a direct listing, there are clearly multiple ways for private companies to access the public markets. The spectrum of acceptable alternatives is growing and the number of companies accessing the capital markets is brisk. Years ago, many traditional asset managers could only own companies once they were public. Now, firms like T. Rowe Price and Fidelity are able to add private securities to some of their funds. Only time will tell if these new listings are successful, but it certainly represents an era of ample liquidity. Now that the “window is open”, companies are racing to access capital. As many experienced in February of this year, when the window of capital raising closes, it can slam itself shut!

Conclusion:

2020 has been unlike anything we have ever experienced and few things have felt “normal”. As we have learned time and again, never more than this year, the stock market loves to climb a wall of worry. Even though US stocks just posted their weakest September in a decade, the S&P 500 index is still up 6.5% this year.

Not since the early 1970s has the US market been more concentrated. While half of the US population works for small businesses, this is a mega cap and tech focused stock market. The V-shaped recovery from late March has been acutely in technology, consumer goods, certain aspects of manufacturing and the housing market. Many are questioning the market’s positive year-to-date return, considering the awful fundamentals associated with this global pandemic. Is there a disconnect between the S&P 500 and the still struggling economy? Yes, but one has to remember that the stock market anticipates and looks forward, while the economic data (unemployment, GDP, etc.) is backward looking. Also, one must consider that interest rates are essentially zero and there is roughly $4.5 trillion in money-market funds earning nothing in the bank. With so much cash on the sidelines, both retail and institutional investors are looking to the equity markets for returns.

We strongly believe that the Fed has done more than anybody could have expected or imagined. If the economy does struggle, we expect the Fed to continue to provide significant support. We continue to believe that 2021 and 2022 will be a more “normalized” environment, but it will require some patience. Economic growth is coming, but it will not be broad based. Rather, it will continue to be concentrated in those businesses that have ample liquidity, capital and dominant market share.

Some companies have prudently managed their balance sheet, focused on free cash flow, and should come through this troubled environment bruised but fine. Others continue to struggle under burdensome debt loads and lack of growth prospects. We believe the market should start to treat companies differently, based upon their recent results and (more importantly) forward expectations. In the short term, our economy faces several speed bumps, like the expiration of certain governmental stimulus programs and stubbornly high unemployment. As the market begins to separate winners from losers, we feel Manole Capital will excel.

We don’t have a crystal ball to tell us what will happen over the next few months. We are not epidemiologists or healthcare analysts, so we cannot forecast when we will get a COVID-19 vaccine. As we’ve seen in other states and countries, much of this uncertainty depends on circumstances outside of our control. We are not Washington DC policy experts either, so we are not going to predict who will win the election and what policies will be passed in 2021.

As the charts below show, the COVID-19 pandemic is still raging across the globe. Small businesses are experiencing over 25% declines in year-over-year revenue and millions are unemployed. While things might appear to be “out of control,” we will get through this difficult time period. However, we believe it is important to focus on items within our control, as well as those that truly matter. It is this niche or intersection that remains crucial for our investment process.

At Manole Capital, we are long-term investors, taking a long-term perspective. We strive to anticipate, as opposed to react. On a daily basis, we evaluate our holdings and seek to invest in attractively priced, high-quality FINTECH companies. We believe that by owning free cash flowing FINTECH companies, our portfolio(s) will continue to outperform and reward our investors. We continue to analyze a number of fundamental factors, regarding companies’ growth prospects, cash flow, and ability to withstand a downturn or recession. During uncertain times like this, we believe our long-term investment horizon is an asset. Manole Capital embraces this challenge and we have positioned our portfolio to “survive and thrive”, in these unprecedented times.

We thank you for the trust you have placed in us. Rest assured, we will always act in the best interest of you, our clients. All the best to you and your colleagues, friends, and families during this challenging and unsettling time. Stay healthy and safe and I look forward to speaking with you soon.

DISCLAIMER:

Firm: Manole Capital Management LLC is a registered investment adviser. The firm is defined to include all accounts managed by Manole Capital Management LLC. In general: This disclaimer applies to this document and the verbal or written comments of any person representing it. The information presented is available for client or potential client use only. This summary, which has been furnished on a confidential basis to the recipient, does not constitute an offer of any securities or investment advisory services, which may be made only by means of a private placement memorandum or similar materials which contain a description of material terms and risks. This summary is intended exclusively for the use of the person it has been delivered to by Warren Fisher and it is not to be reproduced or redistributed to any other person without the prior consent of Warren Fisher. Past Performance: Past performance generally is not, and should not be construed as, an indication of future results. The information provided should not be relied upon as the basis for making any investment decisions or for selecting The Firm. Past portfolio characteristics are not necessarily indicative of future portfolio characteristics and can be changed. Past strategy allocations are not necessarily indicative of future allocations. Strategy allocations are based on the capital used for the strategy mentioned. This document may contain forward-looking statements and projections that are based on current beliefs and assumptions and on information currently available. Risk of Loss: An investment involves a high degree of risk, including the possibility of a total loss thereof. Any investment or strategy managed by The Firm is speculative in nature and there can be no assurance that the investment objective(s) will be achieved. Investors must be prepared to bear the risk of a total loss of their investment. Distribution: Manole Capital expressly prohibits any reproduction, in hard copy, electronic or any other form, or any re-distribution of this presentation to any third party without the prior written consent of Manole. This presentation is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is contrary to local law or regulation. Additional information: Prospective investors are urged to carefully read the applicable memorandums in its entirety. All information is believed to be reasonable, but involve risks, uncertainties and assumptions and prospective investors may not put undue reliance on any of these statements. Information provided herein is presented as of December 2015 (unless otherwise noted) and is derived from sources Warren Fisher considers reliable, but it cannot guarantee its complete accuracy. Any information may be changed or updated without notice to the recipient. Tax, legal or accounting advice: This presentation is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. Any statements of the US federal tax consequences contained in this presentation were not intended to be used and cannot be used to avoid penalties under the US Internal Revenue Code or to promote, market or recommend to another party any tax related matters addressed herein.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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