Member Info for steph

Yes 2.7 % per year to hold.

Wider spreads than regular shares for GROW so not best for quick trades. High margins as well for GROW but This does not affect me as I put much more than required on deposit anyway. I use IG

Quite right it will align with eu and USA

Both quite dovish at the moment

Switzerland was forced to align as the exchange rate was killing exports

I pay 2.7% to hold my shares on my spread rather than as fully paid for. This has the benefit of tax which can be substantial if the stock goes up rapidly. The leverage is basically free if one looks at it this way. So for me a spread bet is a tax efficient way of holding shares long term once my ISA is full. ISA best though. As the leverage is free (once one pays the 2.7% on the additional position) always tempting to use it a bit if one is expecting the shares will go up and why hold shares if you don’t think they will. How much leverage is the question. I was on about 80% from May 2020 to June 2021 bring it down to just 30% on our recent peak and now have 60% due to the dip. I’d rather be 30% right now. I’m nervous about the general market.

They say at least one .5% interest rate rise is already priced in. We will dip only if any rises faster than expected.

To be honest interest rate rises of this small magnitude will not have much impact on inflation. Big rises will crash the economy and yes that will reign in inflation but at a terrible cost.

So I expect the central banks to pay lip service to raising rates as that is financial orthodoxy but not really do much that would make a difference. They will tolerate a surge in inflation to 5% as they did after the 2009 crash. The same phony lip service is being paid to reversing printing money (operation twist) they will never do it but have to pretend they will. SO a lot of hot air.

Serious interest rate rises to an historic norm of 4% for central banks may not happen in our lifetimes. The market is pricing in orthodoxy but the central banks have constraints they can’t directly talk about. They do not want to crash the economy nor make government debt unaffordable and then have sovereign risk. Greek default with Italy and Spain close behind spooked the central banks. They will be cautions to go near there again not matter how long they have to keep interest rates low and avoid “operation twist”.

Wise words to be sure although using May 2020 as a starting point I’m still a strong beneficiary of using leverage. Hard to put a value on the lost sleep though along the way.

This dip has spooked me on my spread . What if we now get a general market crash on top of this share specific retrace? My leverage is 60% which means I would about survive it without a margin call.

Flib thanks

Yes we generally go up on results so November a good month.

https://www.telegraph.co.uk/technology/2021/10/03/cazoo-became-britains-fastest-unicorn/

On the second point the start up to unicorn pathway is not evenly condensed in time. It is slow in the development stage and then for a few lucky companies speeds up to warp speed unconstrained by need to recycle retained profits.

There is a primeval soup of 10’s of thousands of new ideas on how to harness the new possibilities of an integrated global on line market for goods and services and AI. We went decades of offices having computers with no noticeable increases in office productivity but that is finally starting and with AI it will now be rapid. The minor productivity gain of elimination of typing pools with IBM terminals at every professional desk at the early stages of ICT office introduction is giving way to AI and “work flow” products actually eliminating many professional jobs themselves. Even if just 50% of office jobs could be eliminated by AI assisted products that market is absolutely massive. UIPath is just the start.

Anyway think how many alternative ideas were about when the railways first competed against canals and horses. the new business models were rather obvious. Build an expensive railway line connecting a natural trade in goods route. Not so today.

10’s of thousands of ideas are there man inside big tech companies and owned by them but most independent and any one of them a potential global big firm if they have a niche product that can hold it’s market share in the new globalized marketplace.

GROW fishes precisely in this pool. WHile some university research arm or independents might struggle for decades without major commercial success with dozens of ideas that never quite made it commercially it only needs a single idea picked up by growth accelerators like GROW .

It is like a large pool of ideas from which a few lucky ones will suddenly achieve breakout velocity by developing a marketable profitable product and then suddenly enjoying the economies of scale in sales. Each extra unit of sales after the first is almost cost free once the marketable product is developed. It is like a self sustaining rocket ship -not steady incremental growth limited by access to capital that previous shifts required.

Picking out how to profit by this shift if one believes it is occurring is hard. GROW for me is the best way but there are others.

Our volatility is probably down to the market not really deciding who we are and what is this opportunity. We are new and the opportunity new. Thus exaggerated ups and downs.

For my money I prefer to be here rather than cash. I know there is a risk of a downturn and there may be a better buy in point but then I risk missing the train. I am very comfortable with GROW 100% in my ISA with a 10 year perspective. I’m sure it will come good no matter the volatility along the way. not sure on the leverage on my Spread or even if I should be leveraged at all right now. Low leverage is not quite going to cash but is in that direction.

Valuation methodology, NAV to sales ratios, margins and appropriate premium of trailing NAV/sp all factors to consider beyond the sector and core portfolio itself.

I have a suspicion we are in a new paradigm. I know that has been said many times before but maybe this time it is real. I feel commercial history is speeding up. It took decades for the rail, oil, chemical and mining barons to become so dominant. It took time for the tech giants post war like IBM and Microsoft. The data driven firms of today go from start up to huge in record time. I suspect this is down to two new factors.

Firstly the global capital marketers are larger and interest rates much lower than before. So the cost of leveraging growth by borrowing or by raising capital much less. thus retained profits needed less than before to grow.

Secondly the new rapid growing firms are not capital intensive which was the speed limit of previous growth. Indeed they are the opposite of capital intensive. Once they have a marketable product the cost of additional sales is almost zero. That can mean unheard of levels of growth potential and thus valuations that seem frothy but are actually the new normal for some.

https://a16z.com/2020/08/17/role-of-entry-multiples-in-valuations/

ORuin thanks

Laugh HIndsight is always 100%. We shall see what the future holds shortly. Oddly sage and my predictions both came true. Sage talked about 9.5 and her we are. I talked about circa 12 by results and we got to nearly that twice already. May yet achieve that and hold.

We are showing volatility that we have not had in the past. We did recently dip below trailing NAV per share in the peak of the covid scare and that was proven by events to be an overreaction. However in that dip we went down with the sector and back up with the sector so not share specific. This recent retrace from 11.80 to 9.32 is in line with the sector but more amplified.

Best explanation I can imagine is the shift to more jumpy retail funds and retail investors as we moved into the FTSE 250. Has an upside to that but a downside as well. Might take a while to settle on a new normal in terms of premium over trailing NAV/share.

IN the long run it is not critical if you set 9.32 as your starting point or 11.82. With NAV/share growth in the range of 10%(cautious) to 20% (middle ) and 20% plus (optimistic) in 10 years with compounding both scenarios produce a fantastic get rich slowly return.

For my money I am pencilling in 20% compounding on a 11.80 base for 10 years but there is no hard science behind that. IN many ways it is trying to read “market moods” as much as spreadsheets and hard data. If the mood is in our favour we look cheap. If against overpriced. IN many ways it is a bet on technology trends that are still in their infancy and quite unpredictable. The market gets excited on individual shares like UIPath and gives it a fantastic multiple of earnings but is it sustainstainable.It might be indeed and in 2 years time the buy in price might look quite reasonable.

FOr some of our deep tech holdings the sky is indeed the limit. Machine learning and the computing software that it eats up is a fantastically sized market.

Even on teh retail end Trustpilot goes form strength to strength. In many ways it is entering a vacuum left behind by slow moving government regulation unable to keep up in the plethora of new products traditional and virtual now out there. Try getting your money back using a government funded process if you are ripped off on line these days. The odds of catching a burger who broke into your house when you were away and left few traces is higher than that. It is trend to global privatization of business to business third party trust that is a massive market need to enable all these new transactions.

Anyway short term return or long term return we are in a good spot with GROW. I can’t think of a better sector or share and I think the risk is worth it compared to cash.

https://shorttracker.co.uk/company/GB00BY7QYJ50/

Much as I’d like to blame it on Boris or brexit there is not much statistical correlation nor much causal links between our sector and UK struggles.

I agree with sage in that is is unlikely some unknown company specific bad news but just general trends maybe more sharp at the company level due to sector and “newness”.

Where I depart a bit from Sage is that I think 9:40 is the low side of our volatility range rather than normal. THis is a debate on the sustainable premium over trailing NAV/share as well as the likely direction of the market from here. On both counts I am more dovish than sage.

I think COVID accelerated a shift of economic activity and thus profit to the sorts of shares GROW already own and plans to own. WHole sector has and will grow faster than in the past. THus can support a higher premium of trading NAV/share.

I also think (so long as GROW cash out from any publicly traded shares) that a trust that holds exclusively private company Ives in the sector will in time get picked up by an increasing percentage of retail investors who otherwise can not access that sector. We are in only the beginning of that shift. It may well be that the two surges to 11.80 was based on this and the current dip down attributable to a fund that prefers to buy their own stakes in the underlying private portfolio reducing. SO funding rounds in the underlying portfolio might trigger some exists as one of our stakeholders might shift. So extra volatility up and down for a bit.

Plus the regulator would not be happy if a subset of investors has market sensitive bad news. An obligation on grow management to get the news officially out of it that happens. Silence in this way is golden.

I expect nav will get upgraded by circa 100 on the half yearly updat ahead of expectations with guidance for the year end anouther 50 or so.

https://techcrunch.com/2021/08/03/why-draper-esprit-doubled-down-on-its-status-as-a-publicly-listed-vc/

The roots of the extra volatility might well be, temporarily, the broadening out of the investor base.

New more fickle easily spooked holders who go in and out on less data than in the past. We are new and unknown to them and our business model has been muddied a bit by an unusual number of temperate post ipo holdings.

I really don’t think this dip is “secret” data driven. It would be quite a breach of confidence in grow management if it is. They have been very cautious with public announcements thus far.

For my money i think this dip is just self reenforcing volatility that will reverse itself quickly as the half year results get closer.

LSE report no short activity but this is lagging indicator. I don’t think we were ever shorted on the Aim but maybe in this pond.

Everything we know indicates an update above the rather dour predictions on year end.

Unless there had been an almighty “balls up” a helpful will be reported shortly. If anybody is shorting on no bad inside information ( unlikely I think) they will close out well before the update is due. This dip may be over nearly as quick as it started.

For my money I’m topping up on this dip. I suppose I trust grow management to report bad news as it occurs. I don’t think we have any except 2 of our traded shares are down a small % on ipo price and one still up very nicely, hardly counts as bad news.

We are not following the Ftse 250 or us tech.

The only pattern we are following is a share under assault by shorters on the back of a minor retrace And a new share to the fyse250.

Les report no short activity but that is a lagging indicator.

I very much doubt the core portfolio we have not been informed about has done u expectedly badly.

The sector as a whole is still covid booming due to a shift online and towards ai where we specialize.

I doubt if we have GROW specific news that is bad coming up on the update to justify the dip.

We know about the dip on the 3 publicly traded shares over the last month but overall they are up since NAV was last calculated.

We had a very positive update on the 17th of September. If there was part of the portfolio performing badly I think they would have put that in. They seem to go out of their way not to ramp up expectations.

We are performing worse than the sector for a week but we performed better than the sector before that.

Maybe just volatility due to funds coming in and out.

P153 of annual report 2021.

“ The weighted average of NAV valuations when based on sales to NAV ratios is 4.8x. Same page also states It was 5.1x right in the middle of pandemic NAV caution in March 31 2020.

So 4.8 March 31 2021 is cautious.

https://microcap.co/valuation-multiples-for-tech-software-companies-2021-updated/

as above for larger private companies 4.8 is cautious. Many of our core are already unicorns and some have dominant positions their market niches.

So this part of or NAV valuation is not frothy at all and it is quite a big %. Fluctuates between 40% and 60% of our total NAV. each year.

OF course recently IPO’d core holdings can be much frothier but our policy is to take advantage of that, get out and recycle the loot earlier in the cycle.

Somewhat in-between is valuations based on last round. It is a real market price to be sure but are influence by the American money coming into the UK EU private tech market. If that support is maintained the NAV valuations will not retrace and will go up further on performance (like more sales).

For my money I think the cash going into UK/EU private tech has nowhere else to go. It will be a long time until we get substantial interest rate rises.

GROW can play this market effectively by getting fully out at IPO and recycle the money high upstream. Then there will be a steeper curve up than in the past due to the end state IPO prices beige up. GROW can also earn fees by assisting others to invest.

I once tried to calculate some proxy for price over earnings for our core portfolio. GROW states the NAV to sales multiples in the details of the accounting. They once stated that the underlying portfolio has margins of 65% which is very good. Does not mean they are profitable in accounting terms. they may be plowing the 65% strait back into growth which is fine for us.

SO my crude amateur calculation was that with sales 5x NAV and earnings “potentially” 65% of sales we had a low lowish P/E of 8 or so compared to say apple on 25. Happy to be corrected by someone more knowledgeable of accounting and comparable.

UIPath, cazoo and Trustpilot are the only shares we have that are listed on the exchange. They represent about 20% of our core portfolio. It is not GROW’s policy to hold shares for any length of time that are post IPO but there was a 6 month embargo on the core stakeholders selling out post IPO as is pretty standard. SO a temporary situation.

I feared our traded shares were creating our extra volatility of late. . Maybe not. The evidence is not strong.

I rather doubt if this dip is based on bad news not public from GROW itself. We know the post final results change in NAV of the 3 traded shares and the three taken together are up overall.

ALl indications form the 80% of our core portfolio of private companies is that it wil be a positive update with a significant lift in NAV/share. I rather doubt if there has been a major retrace of any of them we don’t know about.

It is normal for some of our core portfolio to make a retreat on NAV between updates. It is normally quite minor and overwhelmed by those doing well.

Anyhow I’m looking forward to half yearly results update and finals. I think those will steady the ship and we will get back to the SP we had recently.

Good luck all.

I get the dip on current jitters but not the size of it compared to the sector. We have had these jitters based on the inflation rate triggering interest rate rises before without this reaction. As stated before as we have a low P/E. Of the trust and underlying portfolio we are not especially vulnerable to interest rate rises except by being dragged down the the high P/E firms in tech we are associated with.