To Our Investors and Friends,
Fears of higher inflation and lower COVID-19-related demand hit the market in the month of November, causing a decline in most stocks, including the S&P 500 Index which fell 0.8%. Oil declined 21% to $66 a barrel as speculators sold positions faster than they built them in the previous month on fears of the Omicron variant. The 10-year Treasury bond dropped 12 basis points to 1.43% as the bond market sought safety, while the spread between the 2- and 10-year narrowed to 91 basis points, a 16-basis point contraction. The short end of the curve has increased in the last two months in anticipation of tightening from the Federal Reserve. Except for a handful of mega cap technology companies, the indexes fell for the month. The Bloomberg 1000 Growth Index declined 0.5%, the Bloomberg 1000 Value Index fell 3.3%, the Bloomberg 2000 Value Index dropped 3.4% and the Bloomberg 2000 Growth Index declined 4.6%.
We don’t think investors will be fixated on interest rate expectations and inflation for long it makes for a terrible story when compared to heroes creating technology to change the world. As explained by renowned professor Joseph Campbell in his book The Hero with a Thousand Faces, the adventure of the hero follows a typical pattern: “separation from the world, penetration of some source of power, and a life enhancing return.” It is a story from which most myths are made and is seen throughout the world, originating from a common human psyche that is as old as civilization itself.
The hero’s journey is present in all great new companies and is why we believe founder-led businesses have more potential than businesses that are managed by a political champion chosen to run most older companies. It is also why we are so excited about the prospects for the disruption of existing businesses and industries over the coming decades.
COVID-19 created a once-in-a-lifetime opportunity for billions of people worldwide to re-examine their lives while quarantined at home. Millions have started the hero’s journey...changing their lives by creating a new business. As can be seen in the chart below, business formation trended higher for years following the financial crisis but exploded to new levels since the emergence of COVID-19.
Joseph Campbell would describe these heroes as seeking out their “golden seed” or bliss…discovering their passions as they look to get more out of life. We believe this shared experience will create millions of heroes that will breathe new life into the world, creating an abundance of growth opportunities. Those companies struggling to attract workers may find it more difficult as hero-driven organizations attract people to their missions and away from boring bureaucracies.
Kingsland Growth Advisors has always been in search of great businesses led by enthusiastic management teams. We believe this passion is necessary to create larger companies and are excited when we discover them. As Joseph Campbell wrote, “birth can conquer death not of the old thing again, but something new.” It is with this view that we will wait patiently for investors to turn away from inflation and interest rate concerns and embrace the heroes of this new world.
All the best to you,
Arthur K. Weise, CFA