Curious about Zevenbergen Capital’s investment perspective? Check out an excerpt from our quarterly client letter for our thoughts on 3Q20.
Zevenbergen Capital
3Q20 Equity Review & Perspective
Back to the Future: Equity returns in 3Q20 reflected elements of going back in time, when America’s biggest success stories were just getting started and massive opportunities lie ahead. Shares of large cap technology companies surged, generating bubble comparisons, driving index gains and confounding many with the sheer velocity and strength of the rally (despite a stretch of volatility that dampened momentum in September). While the technology sector has a rich history of sizzling advances built on fragile startups with little more than optimistic outlooks (read: no revenue), during the bubble, share prices rose on euphoria about a digital economy that was still decades away. While nothing is *normal* about now or the last seven months, the acceleration of digital adoption (at present and likely beyond the pandemic) has amplified the dominance of current technology business models, grounded on solid demand (read: healthy revenue growth) even in a deep economic downturn. Whether in a recession, pandemic or otherwise, who would not want the relative confidence of consistent/improving revenue growth?
Better Angels of Our Nature: It’s a familiar caricature: the devil on one shoulder and an angel on the other. Recent gains have many investors wondering which of these “advisors” to listen to. One of the worst biases, loss aversion, gets exacerbated by headlines such as “markets plunge” or “investment mania”. As fear takes over, the proclivity to market time increases, leading to selling, when staying invested might be a better solution. Though the economy might look precarious, recent stock market gains are not necessarily a signal that we’re headed for a dotcom-style crash. If it is a bubble, unlike the one that burst at the turn of the millennium, it’s inflated by strong fundamentals from some of the biggest, most profitable companies the world has ever seen. While a few companies may have extraordinary valuations, broadly speaking, we are still a galaxy away from 1999. From our perspective, volatility is normal and depending on your objective/mandate and the companies/entrepreneurs you invest in, it represents opportunity, not risk. If there were ever a time in our history to heed the better angels of our nature, we believe it’s now.