Posted on January 3, 2022 by Scott Shuda
I haven’t been a Kuppy follower for long, but I got on his mailing list and I read everything that he sends to my in-box. Not only that, I’m usually compelled to share his insights. Today’s post on his AdventuresinCapitalsim is labelled “The Great Rotation.” His big idea echoes what I’ve been reading from many others, but is more specific.
My bold prediction for 2022 is that we’re about to have the mother of all sector rotations. On one hand, the Tiger-40 will get sold off—on the other hand, the “old economy” is about to absolutely roar.
What’s the Tiger-40? It’s the top 40 holdings of Tiger Global Management LLC (as shown by Bloomberg). Let me start by saying that I have the utmost respect for Tiger and the performance record they’ve produced over multiple decades. They’re smart capital allocators—for all I know, they’ve dumped most of these names by now. However, as far as I’m concerned, the Tiger-40 is a list of the most over-owned hedge fund hotels I can think of. All the wise guys are max long, often with leverage—this is because most of the large PMs all know each other. They share the same notes. They copy each other and they copy what’s been working. Put simply, if they didn’t own the Tiger-40 over the past few years, they’d have long ago been redeemed. You had to own it—so they all own it in size.Kuppy 1/3/22
Kuppy quickly supports his prediction with a callout to Valuation 101:
I think inflation is about to awaken all these PMs from their slumber. In a deflationary world, you can pay almost any price for future growth. When inflation rages to the point that the Fed is forced to act, all you want is current cash flow, not 2050’s cash flow discounted back.Kuppy 1/3/22
The Pros have all known that it is only a matter of time — something that cannot continue, won’t. Even good businesses cannot sustain valuations at 40x sales. When will the rotation start? No one knows. But the first day of a new trading year is a very good time to remind everyone of the obvious overhang.
Disclosure: I don’t own any of the stocks on the Tiger-40. Instead I own great smallcap and microcap names with catalysts in front of them. I learn about these companies and share research with other like-minded investors on the Breakout Investors Platform (BIP). Join us there, after a simple registration, the platform and most of the content is free.