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Q3 2020 Newsletter

By Team

Dear Clients,
since our inception in almost 5 years ago, Christmas Corp has delivered 186.30% cumulative return (gross of management fees) for our clients, far exceeding the S&P500 index, which has gained 81.05%, including reinvestment of dividends. We hope this great achievement is worth your trust and patience.

Indeed, we are getting more trust. We started our journey from 5 clients in January 2016, and now there are 39 clients and growing. We are also getting new clients and inquiries from 2nd-degree and 3rd-degree connections. This is a great milestone as we are reaching out more people beyond our friends and families to help them thrive financially.
We believe passionate communication is important in building trust. Past five years, we enthusiastically communicate our wisdom, strategy and outlook to our Clients, albeit in disorganized manner. This is one area we can greatly improve. First, we will deliver our thoughts in a more organized newsletter, starting with this quarterly as you are reading. As you can see, we have redesigned our website beautifully! Second, we are improving our platform so that we can share our insights to wider audience. Hopefully we can deliver the client platform over the next few months. 
Happy reading!

Return Update 

Year to date, we have delivered 26.23% gain despite chaotic market. To put into context, S&P500 index only gained 5.57%. In the 3rd quarter of 2020 we gained 16.35% while S&P500 index only gained 8.93%. We do not see market downturn as worrisome. The market has its own valid reasons to be bearish, but we are still confident with the future growth of our stock holdings. In fact, we even had a positive return in September despite all major indices tanked pretty significant during the month. Previously, our portfolio suffered less damage during "covid crash" in Q1. 

We made significant difference over the last 12 months with 4 consecutive winning quarters:
We do not want to give the impression of thinking too much about monthly or quarterly performance, because we care only about multi-year outperformance. However, observing market periodically gives us opportunity to pinpoint our thought and assumptions, and to spot any opportunities or risks. Indeed it is a good exercise.

Market Update: Vaccine & Election

Equity market saw a big swing in 3Q-2020. The prolonged bull in the first two-months was fuelled by improving economic data, earnings and strong liquidity. Several economic data made big improvements, most notably the unemployment rate which fell again from 10.2% in July to 8.4% in August. Corporate earnings data was overall better than expected, and much of these came from tech-related companies. A clear example was Apple Inc. who beat consensus earnings by 25% in the most recent reporting season. The rally was also driven by strong liquidity. Multiple government stimulus, supported by the Fed, pressured the bond yields down. As opportunity cost of holding cash was getting lower, risk appetite of holding stocks increased. In September, market turned south, preceded by profit taking in tech stocks. Several concerns reappear, such as the timing and size of the next Covid-19 stimulus, the outcome of US elections in November, the progress of Covid-19 vaccines development and the recent money outflow from equity market.

These concerns appear to dominate market talks in the 4Q-2020 and may create wild market volatility ahead. The size of the next Covid-19 can be as little as $300 billion and as much as $2 trillion or more. Market expectation is somewhere in between, so any outcomes can sway the market in both directions. Moreover, the timing of the stimulus may add the uncertainties. On the vaccine progress, it is safely to bet that there will be rough progress. There will be breakthroughs and setbacks along the way. The recent one is when AstraZeneca's trial is put on hold in the US. On the US election, we believe whoever wins, our companies can still grow their earnings tremendously. Surely, a challenged vote will jitter the market, albeit temporarily. It is fair to note that when Bush vs. Gore outcome was uncertain in 2000, S&P500 index fell -11% in a month.

 We do not want to second-guess the market because it all does not matter for us. Surely the pandemic negatively impacts current earnings, but it also accelerates pre-existing trends that we are investing in, such as digital transformation/innovation and increasing wealth gap. On the U.S. election, and on the bigger perspective, the polarization of the world, it is important to note that the U.S. is an intentionally and rapidly invented nation (to read our publication on "Why Invest in U.S. Companies", click here). The regime was built to leave the people free to evolve as quickly as they could take advantage. No wonder, U.S. always ranks in the top countries with most innovation according to World Intellectual Property Organization. This is important, because most of our companies benefited from innovation-friendly environment. To sum up, the companies we invest in will thrive no matter the outcome of the election or the vaccines progress. 

We Maintain Our Position as "Stock-Picker"

In every stock-picking decision, we ensure that our investee has several of these traits: having a sizeable opportunity and superior competitive advantages, making consistent progress or innovation over the years or even decades, and led by qualified and committed management. If we can see these factors clearly, we should care less about quarterly or monthly fluctuations, and even the macroeconomic environment.
One example is The Trade Desk Inc (TTD), which has been held since our first-buy call by the end of 2016 and the stock price grew by more than 17-fold ever since. Out of $725 billion global ad spending, only about $43 billion are programmatic. The global ad spending may fluctuate in growth depends on the general economic, but the major trend is the shifting from traditional to programmatic advertising. Eventually all media will be digital and it will be transacted by machines. Okay, that is only the CURRENT opportunity. Jeff Green, Founder and CEO, predicts that streaming service such as Netflix or Disney will get ads someday. As the battle of content heats up, most people in the world will be willing to accept advertising as the price of free or cheaper media. And that is only part of the FUTURE. For sure, there will be competitions along the way, and things like global pandemic hurts revenues badly. Tech-related sentiment may also hit the share price. Nevertheless, we are still holding into it. It has been 4 years since we bought the shares at $30, buying it continuously, and its stock surpassed $510 as of September.