Friday, Jan 14th 2022

3, 2, 1, Go!


The second full week of 2022 has been busy, both at Titan and the broader investment world.

So for this week’s Quick Thought, we wanted to bring readers a weekly version of our Three Things update, two notes on our market views for the year ahead, and one big idea as we head into a long weekend here in the U.S.

Three things this week

1) In our view, the biggest story this week was Wednesday’s inflation data. This report showed consumer prices in December rose 7% when compared to the same month last year, the fastest year-on-year increase in 40 years. In the immediate aftermath of this report, markets didn’t move too much, indicating investors may have already priced in this sort of eye-popping inflation number over the last few months. Tech stocks resumed their recent slide on Thursday, however, while volatility continues to feature. In our view, this action suggests the regime change that began in markets in late 2021 has not yet been settled. In many ways for investors, it’s a new year dominated by the same story.

2) After a record year, the IPO market is under pressure. As noted in Thursday’s Three Things email, HR software company Justworks delayed its planned initial public offering this week citing “market conditions.” As we wrote Thursday, we believe the IPO market is important to track as a gauge of investor sentiment. We believe that when IPOs get done more easily with companies earning premium valuations, it suggests investors are willing to take on more risk; when IPOs have challenges, we believe it suggests investors are more inclined to tighten up their risk exposures. This week’s news may be about Justworks, but this trend is bigger than any one company’s challenges.

3) Citadel Securities helped reshape equity market trading over the last two decades and until this week had never taken outside capital. On Tuesday, Citadel announced venture firm Sequoia and crypto investment firm Paradigm had made a $1.15 billion investment in the company, valuing the business at $22 billion. Bloomberg’s Matt Levine has written for years that “private markets are the new public markets.” In our view, this investment suggests an extension of this idea may be that crypto markets are the new equity markets.

Two things next year

This week, we published our annual letter to Titan clients and also outlined our views on the crypto market, which we believe is at a key juncture.

On the equities side, we believe recent market volatility has created excellent opportunities for the patient investors we intend to be. Each of our strategies has accumulated strategic cash and some stocks on our watchlists are down 30% or 40%. And we believe the actions we took within our strategies at the end of 2021 have put us in a great position to do what our investment team does best: aim to identify high-quality businesses with long-term growth prospects and idiosyncratic drivers.

On the crypto side, the market has cooled off since Bitcoin hit a record high in early November. But with Bitcoin holding what our team believes is a crucial support level between $40,000-$42,000 earlier this week, we believe risks remain skewed to the upside.

One thought for the weekend

One line from our annual letter we believe is worth highlighting again says that, “We’d rather be a little late to a great party, than the first ones to a lame party.”

Since the pandemic began, we’ve seen a surge in retail trading activity, another crypto bull market, and the continued spread of legal sports betting throughout the country. There are no shortage of posts on Instagram and TikTok detailing sports bettors turning $10 into several thousand with one crazy parlay, or crypto influencers posting from a yacht in the Caribbean.

It can sometimes seem that just about everybody knows someone who knows someone who made a fortune from their living room. And now that person’s living room is in a mansion, or something like that.

But as long-term investors, we believe these periods of excess are called periods for a reason — they do not last. We have little doubt that many newly-minted millionaires from this recent rise in financial assets will maintain this wealth and see their lives forever transformed. But we also believe many people will struggle with success that may prove fleeting, and perhaps in time see paper gains turn into real losses. In the end, we believe there are no shortcuts to building durable, long-term wealth.

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