Three Things (11/20)
Nov 20, 2023
“If I start going off, the OpenAI board should go after me for the full value of my shares." - Sam Altman, Former CEO of OpenAI
Control, Altman, Delete
OpenAI was the talk of the weekend following an announcement that Sam Altman will depart as CEO of the AI giant. Altman's exit followed a review process by the board, which concluded that he was not consistently candid in his communications, hindering its ability to exercise its responsibilities. Following an uproar, the company’s investors (Microsoft, Tiger Global, and Thrive Capital, among others) and company executives are pressing to reinstate Altman as chief executive officer and replace the current board of directors.
The last 72 hours have been an incredible case study on corporate governance and we’re certain there are founders around the globe double checking their own company structure. As key executives are threatening to leave, the board’s decision could be one of the most impressive missteps in modern management. There’s surely more to the story but for the time being, it’s an incredibly perplexing decision that could disrupt the company’s growth plans for years to come.
Russell rally
The Russell 2000 index – the world’s most closely followed gauge of smaller companies — rose over 5% last week as softer US inflation data bolstered bets that interest rates have topped out. Relative to the S&P 500, the small-cap index is hovering near the cheapest valuations since 2007 as higher rates and, potentially, a slowdown in the economy are key risks that have more profound implications on smaller companies.
The lagging performance may be troublesome but it also could be viewed as an opportunity: valuations are “beyond cheap” and “if we’re going into a slowing economy, small caps are already predicting a recession. So the valuation gap between small and large caps will begin to close” said Nicholas Galluccio, portfolio manager at Teton Westwood.
Waning demand
Wall Street firms have quietly been closing sustainable investment funds after investors withdrew more than $14 billion from ESG offerings this year. Higher interest rates have slammed clean-energy stocks and the third quarter was the first time more sustainable funds liquidated or removed ESG criteria from their investment practices than were added.
The change is certainly demand and performance driven but it also may be influenced by political pressures. The Securities and Exchange Commission is stepping up oversight of the space, firms like Deutsche Bank have already been penalized for alleged greenwashing, and environmental, social and corporate-governance investing has become a political target as the presidential race heats up.
As of writing, MSFT is a holding in Titan's Flagship strategy.
Cash Management
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