The discussion of private equity, what motivates the salespple. The joke.
SMT. Scottish Mortgage Trust.
There is a piece today on the high-conviction strategy of SMT where the managers admit to certain mistakes in 2921/22 going after exceptional growth companies like Amazon, Tesla and Tencent:
thinking some covid-behaviour would persist more after the pandemic
slow in recognising the significance of the deterioration in US-China relations.
But they believe in the returns from high-tech companies and think these are not about the availability or non-availability of cheap money.
The fund's managers also talked about historian Adam Tooze’s "poly crisis" that describes where we are on endlessly-evolving supply-chain delays, the Ukraine war, US-Sino tensions and climate change. So the collapse in SMT's share price, not just inflation and the Fed's strong response.
So they hang in on the long term prospects of disruptive technologies and discount the presumably-short-term stagflationary pressures on growth companies.
Nearly half of SMT's assets are in quoted companies with net cash and of these:
48% are profitable
21% in net debt
22% are unprofitable.
Of the unprofitable, 8% generated positive free cash flow which I guess means 92% of unprofitable companies were sunk by debt expenses.
But these stats didn't include the 30% of the trust invested in unquoted companies - the long tail of private equity positions that go some way to explain why SMT shares have fallen to a 9% discount below NAV net asset value.
The Trust can have up to 30% in unlisted. They say they revalue but they also say that unlisted companies won't accept these revaluations!
Of the listed, valuations have fallen in some cases back to 2008 levels, from 7 x to 5 x sales, and prospective earnings by 10% (seems too low). They are saying: how can the shares get any cheaper? And: reflect not on current valuations but future prospects (which is a nonsense argument).
Anyway, I sold DLG, taking a big big hit, putting some into DLG, some into SMT. And it has proven profitable...fingers crossed.
