The Inspiring Power of Sisu & Quiet Innovators | H.E.R.O. Issue 1, 14 September 2020

Be Stronger, Wiser & Kinder By Participating in the Quiet Innovators' Quest to Purpose

The Inspiring Power of Sisu & Quiet Innovators | H.E.R.O. Issue 1, 14 September 2020

September 13, 2020 Uncategorized 0
The Inspiring Power of Sisu & Quiet Innovators | H.E.R.O. Issue 1, 14 September 2020
Summary
  • The Portfolio of dividend-yielding global H.E.R.O. Innovators rose during the week ended 11 September 2020, with the invested portfolio +0.6% vs MSCI ACWI All World index -1.5% and NASDAQ -4.1% in its worst week since March, demonstrating her resilience in turbulent market conditions and extending her overall relative outperformance against major world indexes since her recent birth on 28 August 2020, during which MSCI ACWI All World index tumbled -3.7%, S&P 500 -4.8%, NASDAQ -7.2% over two consecutive weeks in the fastest correction in history, and Greater China stocks slumped with Hang Seng index -3.6%, CSI 300 index -4.5% and tech board Shenzhen Chi-Next index -5.9%.
  • The H.E.R.O. framework, methodology and strategy are powering equity portfolio asset for our institutional client.
  • This is the only equities strategy in the market that focuses on both dividend yield and innovation-driven capital gains to enhance total shareholders’ returns. This is also the only dividend-yielding equities strategy in the market that is entirely not dependent on and with zero exposure to: (1) cyclicals (concentrated in economically-sensitive and rate-sensitive sectors such as financials, property & construction, energy & materials) that may not be resilient in economic downturns, and (2) cheap-gets-cheaper yield- and value traps. It also applies the proprietary forward-looking fact-based accounting fraud detection system that was pioneered and taught at the Singapore Management University, ranked top five in the world accounting rankings, and presented to the top management team of Singapore’s top financial regulator Monetary Authority of Singapore (MAS), to mitigate downside risks which escape detection by typical western-based forensic tools.
  • Top contributors (week ended 11 Sept/from cost since inception on 28 Aug vs MSCI ACWI -1.5%/-3.7%) include: (1) Japan’s #1 tech platform & wholesaler of e-books with a dominant 80% domestic market share leadership (+7.7% during the week/+16.2% from cost since inception on 28 Aug); (2) UK-listed global leader in animal genetics to produce superior breeding livestock (+19%/+14.3%); (3) Japan's #1 cloud software leader in groupware for mail sharing and expense settlement (+4.3%/+10.4%).
  • Market leadership and resilient winners in stormy market environment and in the post-pandemic future will be much less about the overcrowded popular trades in mega-cap tech and loss-making tech/biotech, as defined by FAANGT-STAMP (U.S.: Facebook, Apple, Amazon, Netflix, Google, Tesla; Asia/China: SEA, Tencent, Alibaba, Meituan-Dianping, Pinduoduo), who also do not pay any dividends (with the exception of Apple and Tencent), and will be led more by highly-profitable quiet innovators, including dividend-yielding cloud Software-as-a-Service (SaaS) companies.
  • Of the 90+ cloud software companies listed in the U.S., nearly all (>95%) do not pay any dividends, with many still looped in a negative free cashflow position, while the 20 global SaaS portfolio companies in the Portfolio of dividend-yielding global H.E.R.O. Innovators are unique in being exceptional market leaders in their respective field with ample internal cashflow generative capacity to reinvest for higher-margin growth and still consistently produce rising dividend yield to reward shareholders.

THE INSPIRING POWER OF SISU & QUIET INNOVATORS
One of the most beautiful things to say to someone is that he or she has sisu. Sisu is an untranslatable Finnish word originating from the 15th century that refers to a unique compound of courage, resilience, grit, tenacity and perseverance to act in the face of adversity, a determination to not give up or to take the easy way out. Sisu is also about looking for practical solutions and ways to move forward, to build up fortitude and resilience. Regardless of where we live or what we do, we all face struggles and challenges in our daily lives, especially in times like this when we are all connected together globally in fighting the coronavirus pandemic, and we could all benefit from integrating this age-old philosophy of hope and perseverance into our lives.

Sisu is about envisioning a better future and actively taking steps to pursue a righteous path with determination, imagination and patience in realizing that vision, even in the most trying of circumstances - characteristics that have shaped not just the fate of a nation but also forged the enduring and exponential growth trajectory of our quiet H.E.R.O. innovators.

Case Story: Nordic Global Medtech Leader in Glaucoma
Consider the case of one of our portfolio companies, a Nordic-listed global medtech leader in ophthalmic diagnostic, screening and treatment technologies and devices related to eye diseases, which is up 5.3% during the week ended 11 September 2020 and +3.5% from average cost since the inception of the Portfolio of dividend-yielding global H.E.R.O. Innovators on 28 August 2020, versus MSCI ACWI World index/NASDAQ -1.5%/-4.1% over the week and -3.7%/-7.2% since 28 August. The rising dividend-yielding company has also compounded 350% in capital gains in the recent five years vs MSCI ACWI World index +44%. Its current product portfolio extensively covers everything related to screening and treatment of glaucoma, a symptomless eye disease that progresses to blindness. Its devices are also used for diabetic retinopathy and macular degeneration detection, diagnosis and treatment. Its easy to use, handheld tonometers are painless to the patient, which utilise the company’s extensively patented rebound technology (RBT), which is continuously gaining market share from outdated tonometry.

The company's story of sisu began with Dr. K, who wanted to find a new, easy and patient-friendly method of measuring intraocular pressure. A major breakthrough was obtained in the 1990s after a decade(!) of hard work in research by Dr. K which lead to the development and invention of the rebound tonometer. Illustrative of the power of sisu is the fact that it has taken nearly 30 years for the company's technology to be recognised as the de facto industry standard. The use of its tonometers does not require anesthetization of the patient’s eye or specialist ophthalmological expertise. The growth of the company has been based on replacing old technologies (air puff, anesthesia and applanation) in the use of ophthalmologists. In comparison to its competitors, the company's medtech product has been overwhelming in terms of accuracy, usability and cost. The key strengths of the fundus imaging devices are their high quality, ease of use, and the extraordinarily true color of the images. Its tonometers enable hygienic and effortless eye pressure measurement that is barely noticed by the patient, making it suitable for all patients from the very young, to the older generation, even for post-surgical applications. Its tonometers are safe because of the use of a single-use sensor probe. About two thirds of the company’s revenue derives from this unique product, and the rest derives from disposable probe sales.

The company's customer base of over 80,000 satisfied users in more than 50 countries, in addition to ophthalmologists, are opticians, optometrists, general practitioners, first aid stations, nurses, and vets. The new HOME device extends the potential customers’ base to include patients. It is estimated that 150 million people suffer from glaucoma, approximately half of them without knowing it. The ageing population is the main growth driver, and the commonality of the disease is 4 % in over 65 year olds. The number of patients is expected to double by the year 2050, which translates to 45 million new patients. Home measurements make glaucoma monitoring more reliable because intraocular pressure may fluctuate a lot at different times of the day. For monitoring data to be reliable, measurements are needed at different times of the day. Round-the-clock monitoring of intraocular pressure makes the company’s tonometer, designed for self-monitoring, available to glaucoma patients. Its mobile application connects patients, who measure their intraocular pressure at home, to their doctor via a cloud service.

The company has delivered resilient results amidst the coronavirus pandemic: It reported healthy 2Q2020 (Apr-Jun) sales +15.6% YoY and operating profit +27.75 YoY. CEO Mr. T commented: "Demand for tonometers started to grow during May-June 2020, as did demand for single-use, sterile probes. The World Glaucoma Association has recommended avoiding traditional air-puff technology, as it is suspected of causing droplets, which enables the spread of viruses. In our view, it is quite possible that the remote digital monitoring of patients will receive a significant boost as healthcare professionals need to devise new methods to monitor the health of patients without meeting the patient.”

Strategic Focus on Quiet Innovators & The H.E.R.O. Investment Framework
This Nordic global medtech leader highlights our strategic focus on quiet innovators. Our investment strategies distinguish from all other tech- and innovation-themed funds with its singular focus on quiet innovators, which present structurally mispriced opportunities and avoid overcrowded misopportunities that stem from the human tendencies to equate flashy popularity with excellence, and have an active ratio of over 95% (vs the MSCI World Index). The portfolio companies are exceptional innovators and focused market leaders in their respective fields with unique, scalable, recurring-revenue and high-profitability business models delivering innovative products and services indispensable to our well-being in daily life and run by high-integrity, honorable and far-sighted entrepreneurs with a higher Purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – Honorable. Exponential. Resilient. Organization.

H.E.R.O. is operationalized into a systematic 4-step investment process and investment framework powered by sustainability & ESG principles to identify the winners, to distinguish between the true innovators and the swarming imitators, between the devoted missionaries forging a greater Purpose and the mercenaries. Not only do the H.E.R.O. innovators generate high profitability at the inflection point of their exponential growth trajectory, more importantly, they are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out.

We use the framework and positive criteria of the United Nations Sustainable Development Goals (SDGs) to integrate environmental, social, and governance (ESG) considerations into the research and investment process in selecting companies that generate sales in products and services that contribute to the achievement of the UN SDGs. The central focus of our impact investing is on innovators who contribute to the UN SDG Goal 9: Industry, Innovation, and Infrastructure — “Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation”.

H.E.R.O. is unique in eliminating the downside risks from accounting tunneling fraud and misgovernance through unusual related-party transactions, consolidation accounting craftiness (opportunistic shifting of expenses and debt into unconsolidated entities), and hidden balance sheet liabilities at the wider pyramidal business group level etc., which escape detection by western-based forensic tools through a proprietary forward-looking fact-based accounting fraud detection system developed by KB, and taught at the Singapore Management University, ranked top five in the world accounting rankings, and presented to the top management team of Singapore’s top financial regulator Monetary Authority of Singapore (MAS). For instance, prevalent across Asian companies, previously Big-4 audited “cash” in the balance sheet are often misclassified “cash equivalents” disguised from improper short-term related party loans employed by the insiders to expropriate or tunnel out cash from the company after initially propping up financial numbers artificially to create false positive signals to lure in funds.

Be Stronger, Wiser & Kinder By Participating in the Quiet Innovators' Quest to Purpose
“Innovators” are companies that generate sales in technologically enabled new products and services that potentially transforms the way the world works. We seek to identify companies capitalizing on innovation in offering faster, cheaper, more productive, more cost effective, more compelling products and services, or that are enabling the further development of an innovation theme in the markets in which they operate.

Quiet Innovators Thrive in Stormy Times
Prepare and position a winning portfolio for a post-pandemic world with innovators who thrive in stormy times and transform crises and trauma into opportunities for the future. The coronavirus crisis has helped accelerate innovation and enhanced the leadership of innovators. Market positions are not redistributed during sunny and calm times, but during times of crisis. The pandemic crisis has changed the behavior of both consumers and businesses. Companies offering faster, cheaper, more productive, more cost effective, more compelling and innovative products and services are gaining significant share.

Market leadership and resilient winners in stormy market environment and in the post-pandemic future will be much less about the overcrowded popular trades in mega-cap tech and loss-making tech/biotech, as defined by FAANGT-STAMP (U.S.: Facebook, Apple, Amazon, Netflix, Google, Tesla; Asia/China: SEA, Tencent, Alibaba, Meituan-Dianping, Pinduoduo), who also do not pay any dividends (with the exception of Apple and Tencent), and will be led more by highly-profitable quiet innovators, including dividend-yielding cloud Software-as-a-Service (SaaS) companies.

Notably, of the 90+ cloud software companies listed in the U.S., nearly all (>95%) do not pay any dividends, with many still looped in a negative free cashflow position, while the 20 global SaaS portfolio companies in the Portfolio of dividend-yielding global H.E.R.O. Innovators are unique in being exceptional market leaders in their respective field with ample internal cashflow generative capacity to reinvest for higher-margin growth and still consistently produce rising dividend yield to reward shareholders.

Case Story: German Global Leader in Workforce Management & Deployment Software
Another uplifting sisu story in our portfolio companies is German-listed global leader in workforce management & deployment software, which is up 2.9% from average cost since the inception of the Portfolio of dividend-yielding global H.E.R.O. Innovators on 28 August 2020, versus MSCI ACWI World index/NASDAQ -3.7%/-7.2% over the same period. The rising dividend-yielding company has also compounded 466% in capital gains in the recent five years vs MSCI ACWI World index +44%.

The company's story of sisu began with founder Mr. O who started the software firm in 1987 with a team of four other colleagues working in the backyard office in Munich with a single vision: a standard software solution for time and attendance management that can be used by companies in all sectors and of all sizes, as well as running on all standard computer platforms. Today, the company is a global leader and the clear number one workforce management software leader in Europe, with over 8,000 companies from all sectors and all sizes trusting the company's software in planning and managing over 3.4 million people they employed worldwide.

Founder, Chairman & CEO Mr. O reflects: "As exciting as the world of the 1980s was, there was no money and investors for a project like ours at the time. We still managed to do it with a great vision, perseverance and a dedicated and powerful team. And above all with many long-term customers, without which our success would not have been possible at all. We’ve been working solidly on one single area for three decades now This focus and continuity are key to our ability to offer outstanding solutions as a specialist provider solutions that are more in demand now than ever before Our people’s expertise, leading edge technologies and our innovative prowess are crucial elements of this success Year in, year out, we invest 20 percent of our revenue in further technology developments All in all, that comes to well over EUR 120 million Investing on this scale positions us as the clear number one among European workforce management providers."

Mr. O added: "Our solution used to be about supporting the admin side of managing and calculating working times Today, that’s merely the platform on which we build high performance algorithms with data on companies, employee requests and statutory frameworks The result is an accurate forecast of personnel requirements and optimized planning aligned with that forecast The quality of this planning allows companies to endow their workforce with greater flexibility And this flexibility is urgently needed nowadays if staff are to be deployed with pinpoint accuracy to cope with all the fluctuating demands of business models."

"Our customer RITTER SPORT, for instance, has improved its processes, planning quality and transparency thanks to our solution This has increased the productive working time of flexible staff by four percent Companies can no longer afford to do without such benefits in this day and age This value added which can directly boost EBIT by tens of millions every year means that our solutions deliver very rapid ROI In our projects, this usually comes within nine to twelve months We’ve proven this thousands of times in all industries The US company W L Gore, for instance, has successfully deployed our solution in 29 countries SHELL uses our solution to manage its gas stations in the Netherlands and FedEx its logistics in Poland All these customers chose our solution because we’re the only ones and I do mean the only ones who can cover all local laws and regulations with our standard system."

Case Story: Japan's #1 Cloud Software Leader in Groupware for Mail Sharing & Expense Management
In Asia, another sisu story in our portfolio companies is Japan's largest cloud software-as-a-service (SaaS) company by revenue and market value, Japan's #1 cloud software leader in groupware for mail sharing & expense management ("Japan's Mailchimp & Coupa Software - combined"), which is up 4.3% during the week ended 11 September 2020 and +10.4% from average cost since the inception of the Portfolio of dividend-yielding global H.E.R.O. Innovators on 28 August 2020, versus MSCI ACWI World index/NASDAQ -1.5%/-4.1% over the week and -3.7%/-7.2% since 28 August. The rising dividend-yielding company has also compounded 902% in capital gains in the recent five years vs MSCI ACWI World index +44%.

The story of sisu began with founder & CEO Mr. N who saved 20,000 yen every month after graduating in business administration from Kobe University and joining NTT in 1996, with the aim to start his own tech company. Mr. N studied programming on his own. Mr. N reflected: "With five friends, we were writing websites and writing programs at friends' home after NTT's normal duty on weekdays and on weekends and we devoted ourselves to development. Back then was the beginning of the internet. The Internet has not been widely used in general companies, and there was no email address. Meanwhile, in NTT, everyone has an e-mail address, and there was a training to write HTML and we were developing a free mailing list service. I left NTT in about two years to concentrate on the project."

Today, the company is Japan's largest listed pure-play SaaS provider with over 71.6% dominant market share leadership in groupware for mail sharing, and is over 4.2 times larger than its next rival in cloud expense management software with over over 6,300 corporate clients. Demand remains strong from companies that aim to improve operational efficiency due to labor shortages and government-mandated work style reforms. The time and cost spent on sales-related travel expense reimbursement adjustment is surprisingly large. Its innovative cloud-based software can help achieve a 75% reduction in time and cost required for expense settlements. Multi-year growth runway remains visible and strong: For its fast-growth cloud-based expense settlement, target market is 100,000 companies (50 to 1,000 employees) with over 60% still using the traditional paper/spreadsheet system, and the company aim to acquire at least 20,000 customers.

Mr. N added: "Our corporate mission is ‘We strengthen SMEs through IT A vast majority of companies in Japan are SMEs and there are four million of them There are only a handful of large companies, or over 5 000 of them SMEs employ more than half the workforce of this country What Japan needs to keep its society safe and prosperous is stronger SMEs Our company name comes from the word ‘ Our company has contributed to SMEs’ growth by providing user friendly cloud services which SMEs can easily adopt What we really are offering is not a system to increase efficiency but ‘mind richness’ When people can have spare time, the heart will be enriched You can also be kind to people if you are rich in heart Reducing wasted time will increase the time to think about the future It is our mission to create such a society that takes care of how efficiently we can create time with ‘ as a keyword in our way of working as well as thinking to offer a better service to the customer."

Case Story: Japan's #1 Tech Platform & Wholesaler of e-Books With a Dominant 80% Market Share Leadership
Another inspiring sisu story in our portfolio companies is Japan's #1 tech platform & wholesaler of e-books with a dominant 80% market share leadership, which is up 7.7% during the week ended 11 September 2020 and +16.2% from average cost since the inception of the Portfolio of dividend-yielding global H.E.R.O. Innovators on 28 August 2020, versus MSCI ACWI World index/NASDAQ -1.5%/-4.1% over the week and -3.7%/-7.2% since 28 August. The rising dividend-yielding company has also compounded 544% in capital gains in the recent five years vs MSCI ACWI World index +44%.

Founder & CEO Mr. F demonstrated sisu when he pivoted the business from music distribution (handling copyrighted material) in 2004 to eBook distribution business in 2006. The company’s share of the music distribution business was around 1%, while the top company in the field had a market share of around 80%. It recognized that becoming the market leader would be difficult, so it focused on niche markets such as reggae and hip-hop, becoming the top company in those categories. Being niche markets, the scope of expansion in these categories was limited, so the company decided to use its knowledge of the music distribution business to enter the e-book distribution business, which had no clear market leader. The e-book wholesaling framework is unique to Japan and in high demand as the nation has a large number of relatively small publishers and less oligopoly by foreign e-bookstores such as Kindle in the Japanese e-book market. This situation creates a strong need for the wholesaling of e-books. Manga account for around 85% of the e-book market; manga have pictorial content that is ill-suited to Kindle-like readers. Today, the company is the clear dominant market leader in eBook with a 80% wholesale market share on a gross merchandise value basis. Its growth has benefited from a market shift from paper to e-books and from people spending more time on their smartphones.

In the future, the company aims for growth in the gross merchandise value of e-books by creating a secondary e-book market. A secondary market facilitates the shift of content from consumption by users at the point of purchase to one based on assets that have a disposal value. By selling content on to others after they are done using the content, customers can recoup part of the cost of purchase, using the money to buy other content. The company believes such changes in user behavior will lead to increases in the gross merchandise value of content. The company’s approach is novel in that it aims to apply to content an approach like that in the markets for secondhand cars (where money received from trading in an old car is used toward the purchase of a new model) or flea market apps. That said, the model is more akin to finance than used cars, because digital content does not deteriorate over time as a car would. Also, distribution costs are essentially nil. The company has also transformed from an e-book wholesaler to a publishing platform operator, including pursing a SaaS model in sales and stamp duty management service for small and medium-sized publishers.

Founder & CEO Mr. F shares his PQ (Purpose Quotient): "Everybody is enlightened by the wisdom of books from childhood. We are the vanguard of eBook distributors advancing the copyrighted digital content business. We are building the know how to develop, operate, and operate solutions necessary for the distribution of digitized works on the Internet. We have pursued a user friendly, cost efficient SaaS model since entering the eBook distribution business. Our extensive publishing network consisting of more than 1,500 publishers enables distribution of the latest and most popular eBooks. A wide variety of comics, fiction/non-fiction titles as well as photo-books and magazines are available from catalogs of major and medium- to small-size publishers. In addition, by combining businesses such as information provision, promotion, and marketing to accelerate its distribution, we will deliver to as many people as possible the many works that authors have and will create in the future. Our business philosophy is to ‘realize a healthy creation cycle of copyrighted works’ in which copyrighted works are distributed as widely as possible with our own power, and profits are returned to authors based on fair use, and we hope to contribute to the development of culture and the creation of a prosperous society in Japan."


WEEKLY MARKET COMMENTARY (7 Sep to 11 Sep 2020)
The Portfolio of dividend-yielding global H.E.R.O. Innovators rose during the week ended 11 September 2020, with the invested portfolio +0.6% vs MSCI ACWI All World index -1.5% and NASDAQ -4.1% in its worst week since March, demonstrating her resilience in turbulent market conditions and extending her overall relative outperformance against major world indexes since her recent birth on 28 August 2020, during which MSCI ACWI All World index tumbled -3.7%, S&P 500 -4.8%, NASDAQ -7.2% over two consecutive weeks in the fastest correction in history, and Greater China stocks slumped with Hang Seng index -3.6%, CSI 300 index -4.5% and tech board Shenzhen Chi-Next index -5.9%.

  • The H.E.R.O. framework, methodology and strategy are powering equity portfolio asset for our institutional client.
  • This is the only equities strategy in the market that focuses on both dividend yield and innovation-driven capital gains to enhance total shareholders’ returns. This is also the only dividend-yielding equities strategy in the market that is entirely not dependent on and with zero exposure to: (1) cyclicals (concentrated in economically-sensitive and rate-sensitive sectors such as financials, property & construction, energy & materials) that may not be resilient in economic downturns, and (2) cheap-gets-cheaper yield- and value traps. It also applies the proprietary forward-looking fact-based accounting fraud detection system that was pioneered and taught at the Singapore Management University, ranked top five in the world accounting rankings, and presented to the top management team of Singapore’s top financial regulator Monetary Authority of Singapore (MAS), to mitigate downside risks which escape detection by typical western-based forensic tools.
  • Top contributors (week ended 11 Sept/from cost since inception on 28 Aug vs MSCI ACWI -1.5%/-3.7%) include: (1) Japan’s #1 tech platform & wholesaler of e-books with a dominant 80% domestic market share leadership (+7.7% during the week/+16.2% from cost since inception on 28 Aug); (2) UK-listed global leader in animal genetics to produce superior breeding livestock (+19%/+14.3%); (3) Japan's #1 cloud software leader in groupware for mail sharing and expense settlement (+4.3%/+10.4%).

Cyclicals and “Value” (Value Trap!) have been relative outperformers against “Growth” during this recent market correction, with the cyclicals-heavy Singapore STI index down only 2% over these two weeks, and the “value investors” crowd have hooted their schadenfreude victory chant and continue to remain in denial in flashing their fragile arguments based on historical mean-reversion in prices without fully appreciating that there is a structural break in data in the market’s multi-year appraisal (as opposed to mean reversion in valuation over a time period of 2-5 years) on the type of recurring-revenue business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. Until the sudden news gripping them this week from AstraZeneca that it is suspending the human trials of the virus vaccine developed at the University of Oxford after the unexplained illness of a woman participant, which became a wake-up call for traders advocating a BUY of “cheap” Cyclicals on the much-anticipated V-shaped recovery. As the Oxford vaccine is widely regarded as the single most promising candidate, this could have been taken as a serious and negative development. While AstraZeneca commented over the weekends that it is restarting the trials in UK, it would not be resuming the trails in the U.S. and elsewhere. Also, based on the share price reaction and momentary impact to AstraZeneca, market appears to be recalibrating vaccine related news and is beginning to treat vaccine development more sensibly – do not panic, but please do not get overly excited too - in essence, the message is that confidence over a vaccine in bringing the economic disruption caused by the pandemic to an end appears to be wildly overdone.

Perhaps we can think of Cyclicals/Value Trap as more like our grandmother’s fine china dining set: it gets displayed when there is something to celebrate (e.g. vaccine hope, stimulus hope, better macroeconomic data), only to get put back in the cupboard when life goes back to the everyday worries and grim reality. LVMH going back on its words in pulling off its $16-billion marriage with Tiffany also struck a blow to the deal-making and Cyclical optimists.

Following NASDAQ’s worst week since March, back-to-back weekly losses, and the fastest 10% correction of tech stocks in history, the animal spirits in the markets appear to be sapped. This market correction differs from the previous rotation back and forth around “growth” and “value” – this time round, both camps suffered casualties. Softbank’s comment on Tuesday that it has closed most (over 70%) of its “NASDAQ whale” options position has substantially reduced a LTCM-like blowup risk in the market, while also at the same reduced the possibility of a quick convexity snapback in prices, though the Robinhood retail day trader bros remain defiant and continue to pile up their options positions and "lottery tickets", resulting in continued volatility in the market that whipsawed traders. Tesla continued its slump and Nikola plunged after being attacked by short-seller Hinderburg who calls it an “intricate fraud”. Buffett surprised everyone yet again in supposedly joining the tech bandwagon in cloud companies with Berkshire investing US$570 million in the loss-making cloud data storage platform Snowflake which is valued at US$23.7 billion whilst generating revenue of US$265 million.

Meanwhile in Asia, Indonesian stocks dive on Thursday, triggering a circuit breaker, after Jakarta announced the reimposition of wide-ranging restrictions on movement in the Indonesian capital, starting Monday 14 September, which took many by surprise and dashing hopes of traders embracing a “value” tilt – stocks that will do well as economic recovery gathers steam – that a floor has been reached in economic activity. Korea market has gone speculatively feverish with day traders taking over the market and retail volume now accounting for almost 90% of equity value traded. China’s tech board Shenzhen Chi-Next collapsed 7.2% this week in its worst week since March amid a crackdown on speculative trading of smaller companies. Following Xi’s “clean plate” campaign against food waste which resulted in a correction in many F&B/restaurant/consumer staples stocks, and with SMIC’s unexpected addition to the US blacklist, traders in China stocks are nervous: turnover has tumbled since July and overseas investors offloaded Chinese equities for the first time in five months in August, and the sales have accelerated in September.

All in all, the recent cleansing of the speculative trading froth has swept across global markets, dealing a transitory blow to structural growth companies, which presents an opportunity for long-term Value 3.0 investors to accumulate. The cases of our UK-listed portfolio stocks - (1) Global Leader in Animal Genetics to Produce Superior Breeding Livestock and (2) Global Leader in Tabletop Wargame-Fantasy Systems - are instructive on what lies ahead. British companies report half-year results, instead of quarterly earnings, and September is the month for many British companies to strut their feathers and display their scorecards and outlook to mate with investors, with most reporting ugly numbers and grim outlook. After both UK-listed portfolio companies reported resilient interim results and healthy outlook, their stocks soared – by 19% each this week, even as NASDAQ melts down 4% in its worst week since March. So while the short-term day-to-day price movement can be volatile, what continues to be crystal clear is that the quiet structural growth innovators remain the most visible and vibrant pathway in a foggy, volatile, whipsawing, uncertain market to deliver sustained outperformance with their healthy fundamentals results.


SISU & YOU
All of us will face moments when we have a choice: to give up or buckle down. Such times are “sisu moments”. There is nothing grand or heroic when they first appear. In fact, they are much more likely to inject fear. Disaster, sickness, sudden unemployment, the loss of a loved one. Once the unthinkable has occurred, how do you go on? Sisu is for times like that. One of the hardest things in life is having to face a challenge with seemingly no end in sight. It requires a completely new way of thinking and living. Sisu is for those situations when the odds are stacked against us and there seems to be no way out. Unlike daredevil deeds and acts of extreme heroism, however, sisu often goes unsung.

The idea of sisu in its most practically applied sense was introduced to the world when Finland faced a challenging moment. In the autumn of 1939, the country was invaded by its neighbor, the Soviet Union. The Soviets possessed more than three times as many soldiers as the Finns, thirty times as many aircraft and one hundred times as many tanks. Thought the outcome of this sisu moment look grim, it became Finland’s “finest hour”. The winter of 1939-40 was exceptionally cold. Temperatures as low as -43 degrees Celsius were recorded and only those in active service actually had uniforms and weapons. The large numbers of reserves that were called up had to supply their own clothing. The Finns had an advantage: they were skilled in cross-country skiing, and knew that the best way to counter the cold was to keep their dugouts warm and dress in layers. For the outermost layer, they wore lightweight, white camouflage that made them almost invisible against the snow. Throughout the Winter War, Finland used speed, guerrilla tactics and economy of force to their advantage, working to isolate the numerically superior Soviet troops into smaller groups. The Russian soldiers grew to fear the “Finnish phantoms” that silently and stealthily moved through the landscape and made every bullet count. The only thing the Finnish army possessed in greater quantity than the Soviets was their sisu.

Thus, the Winter War encapsulates many secrets of sisu. It was the first time sisu was introduced on a global scale, and became a case study in what acting with sisu could look like. The collective strength of sisu became a phenomenon to reckon with. With a constructive sisu mindset, problems are confronted courageously, challenges are reframed as opportunities for growth, setbacks are perceived as blips, and solutions are pursued with tenacity and creativity.

After World War I, Finland had debts to pay. The difference between its response and that of some wealthier countries in the same position is that Finland took systematic action to repay their loans as soon as possible. Americans were full of respect and praise for the Finns when they were paid back in full in 1933. Again, after signing a mutual assistance agreement with Russia following World War II, Finland reimbursed its erstwhile rulers within ten years Perhaps this aversion to being indebted reflects a desire to remain free and self-reliant after centuries under foreign rule. The qualities of integrity, reliability and honesty associated with sisu demanded they made sacrifices to do what was needed. A promise is a promise that must be kept.

Sisu is about the practice of self-compassion and be understanding of other people’s struggles. Anyone who has suffered a serious bout of depression will attest to the feeling of utter helplessness when in its grip – the crippling perception that there is no way forward and nothing will ever be better again. Getting out of bed, socializing with people… doing anything seems like a monumental effort under the weight of your woes. At such extreme times of crisis, tapping into your sisu can encourage you to see through the mist and begin the process of recovery one small step at a time. Sisu is the understanding and recognizing of a universal potential in each other, of understanding that in the face of extreme challenge, we all stand naked and in need of support and that we all yearn to bask in the light of someone else’s kind gaze that says “you can do it”. Sisu is being strong enough to show some weakness. Applied with honesty, integrity, kindness and consideration for others, sisu can be positively life-changing. Sisu is something we inspire in each other.

In an unstable world where there are so many issues to be concerned about, tapping into a sisu mindset can offer a way forward, finding and building your inner strength and resilience to help you deal with life's challenges. At the heart of sisu is the idea of confronting adversity, and having the courage to use that experience to grow. Sisu is a universal trait and within reach of everyone. Sisu is the reserve fuel tank and inner strength reserve we didn’t perhaps know we had. Having sisu means looking for affirmation not from others but from deep within yourself, your private convictions and perhaps your faith. Sisu is a guiding ethos in life. If this notion of growing stronger in sisu to act with integrity and fight for what you believe in and learning to tap into it intrigues you, then H.E.R.O. is for you. Draw on your sisu and commit to a life of endless discovery. Find your courage, find your sisu, find your H.E.R.O.

Do you know of any sisu stories that inspires you? What is the local language equivalent of sisu in your home country - what's sisu in German, French, Italian, Spanish, Chinese, Indian, Japanese, Korean, Russian or Arabic? We love to connect with you to learn and share to be stronger, wiser and kinder together.

Warm regards,

KB Kee | Email: kb@heroinnovator.com | WhatsApp: +65 9695 1860
www.heroinnovator.com

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