This year, Spaceship Voyager will turn four. It’s a coincidence, but we’re also experiencing our fourth correction since we launched in 2018.
If you were a unitholder when we first launched the Spaceship Universe Portfolio, you would have doubled your money, but you also would have endured corrections and volatility along the way, not least because of the ongoing ramifications of the coronavirus pandemic.
This is why going on an investing journey can be difficult; the market is volatile. (This is why we recommend a minimum time frame of seven years for all our Spaceship Voyager portfolios.)
The recent market volatility has been sparked by a few things, including the new Omicron variant, the US Federal Reserve’s pivot to end quantitative easing, as well as expectations that they might increase interest rates as soon as March 2022. (The move to higher interest rates would be as a reaction to recent inflation concerns.)
As such, the market is correcting itself by essentially “pricing in” higher short term interest rates.
In the short term, rising interest rates can hurt growth companies. This is because investors discount future cash flows at a higher rate back to today, lowering valuations. For example, $1 discounted at 5% is worth 95 cents, while $1 discounted at 10% is only worth 91 cents today. (Money in the future is worth less than money today.)
Changing interest rate expectations can cause corrections and sector rotations like the one we have seen of late.
So, what does that mean for Spaceship? If we believe an event will have a significant long term impact, we will react. This is why, when COVID-19 first hit, we sold our travel stocks. But, in terms of what’s going on today, nothing has changed our long term outlook. Most investors, including us, have assumed interest rates will rise in the future. And as a savvy investor, you would know that growth stocks are the cornerstone of our Where the World is Going (WWG) methodology. (The WWG methodology only applies to Spaceship Universe and Spaceship Earth portfolios.)
A bit more on that —
Our Where the World is Going (WWG) methodology has a focus on longer term structural trends such as changing consumer habits. We aren’t investing based on cyclical factors such as interest rate expectations, but rather on future trends. For example, we’re investing in the increased adoption of electric vehicles and online payments.
WWG is about multi-year trends, not reacting to the market today or macroeconomic news over the next few months. Again, it’s a focus on structural adoption trends, not cyclical economics.
The Spaceship Universe Portfolio saw similar interest rate fears in December 2018. At that time, the unit price hit a low of 89 cents, compared to around $2 today.
That’s why our investment approach of investing Where the World is Going remains the same; we’re investing in companies over a three to five year time horizon. We invest in businesses that we believe will benefit from new trends and habits and that have moats protecting them from competition.
Similar to three years ago, we encourage investors to think about market corrections as sales opportunities, the same way you might think of Boxing Day sales. The stock market is the only market in the world where consumers feel they should run away from sales and discounts, but we take the opposite view. Losses are painful in the short term but discounts are great for long term investors. It’s why we’re glad so many of our customers have investment plans, as dollar cost averaging into the market helps reduce the emotion and risks of timing the market.
As long term buyers adding to our investments, we prefer lower prices. If anything we want sales to go on for a little longer so we can buy more.
Important! We’re sharing with you our thoughts on Spaceship Voyager for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.
