Market volatility remains very high. Most of our outperformance can be attributed to getting in at good prices, along with investors’ recent excitement for digitally distributed products. But we’re not out of the woods yet.

The Butterfly Effect

130 years ago, Eugene Schieffelin released sixty European Starlings into New York’s Central Park. He wanted the city to enjoy this bird species from one of Shakespeare’s plays. Today, there are over 200 million of these destructive little birds all over the US. Small actions can have large, and unanticipated consequences.

Our country is working through health, social, and economic crises all at once. Remedies that improve our standing in these areas will also affect investment performance in unforeseen ways. Airlines and other rescued industries might become more regulated. And inflation, dormant for the last 30 years, could make a big comeback.

Rather than trying to predict exactly what will happen, we manage through the outcomes of what is happening. Some stock prices are falling, creating opportunities to own great businesses at good prices. Most businesses will have to adapt to these new circumstances, and we’re backing those that we believe can.

Market Swings

We’ve now experienced four straight months of high market volatility. Online-first companies have performed particularly well, but in some cases, investor expectations have run ahead of what’s possible. On the other hand, the market is offering good prices on companies enabling real life experiences. Below is a recap of our recent activity.

We doubled down on Airbnb in the depths of the first shutdowns. We also started two new positions: Ulta Beauty (ULTA) operates a 30+ million strong customer loyalty program for skincare and beauty customers, and Howard Hughes (HHC) is a developer and operator of Master Planned Communities, a real estate model designed for continued reinvestment.

We also added to our holdings in China where prices lagged the US. Our largest position there is now Tencent — who holds leadership positions in game development, social media, and digital payments. Lastly, we sold portions of our holdings in cloud software and payments companies whose valuations passed our targets - Adyen, Square, and Servicenow.

Upholdings Updates

We continue to work towards making this fund available as an ETF. Recent market volatility has only strengthened the case for managing this fund through the more tax efficient ETF structure.

We also supported two organizations in the quarter:

  • Innocence Project: An estimated 3-4% of our imprisoned population is innocent. Criminal justice reform will take time; but in the meantime, this organization helps free those that have been wrongfully convicted.
  • UndocuFundSF: Undocumented workers make up nearly 5% of our workforce but are ineligible for most federal and state assistance. This fund supports workers in San Francisco affected by the pandemic.

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