Investment Climate January 2021

As the pages on the calendar turn from a tumultuous 2020 and into 2021, most are hoping for a return to normalcy and some restitution of life as we once knew it, all the way back in February 2020.  With all that has transpired in 2020, that seems a lifetime ago.  We will not spend time musing about the COVID debacle, except to refer readers to our blog post on March 23, 2020 (coincidentally the day the market bottomed) and say that we think we have been vindicated in our warning that we needed to be careful that the COVID “cure” was not worse than the disease.  Millions of small businesses and the lives of those who owned and are employed by those businesses have been decimated.  And while the actual disease is clearly deadly for some, statistics show that most are able to fend it off; not so much for the millions of small businesses who will never return. 

It is in this vein that we reference the unbelievable performance we experienced in our growth strategies this past year with a tone of humility.  We do not revel in thriving while others suffer.  That said, it was the diligent effort put into finding businesses in which to invest our own and our clients’ hard-earned capital that came through in spades this past year.  Our focus has always been to invest in businesses that will be resilient in all economic environments.  This approach is clearly the reason we were able to have an extraordinary 2020.  Our Core Growth Strategy was up roughly 80% in 2020, the Aspire Small Cap was up about 43% and the Israeli Innovation Strategy was up over 111%!  These were all record numbers for our firm and the careers of our firm’s professionals, a time that spans almost four decades. 

We are being asked every day what to expect going forward.  While we thoroughly expect corrections to happen, and as we have written before, corrections in the modern era are violent and swift, we have no idea when those corrections will occur.  And we don’t worry about them.  Our growth portfolios are full of companies that are very early in their growth trajectory.  As our clients know, we have transitioned out of a number of more mature businesses over the last few years, realizing significant capital gains, and while taxable accounts have had to withstand the nasty capital-gains tax that comes with that, the proceeds of those sales have been invested in “up-and-coming" businesses that are the reason for the performance we have experienced.  And being still relatively young companies, we expect many years of positive performance from those businesses. 

We believe our narrative-based investment approach, which seeks to identify the trends that will drive economic growth in the coming years, has proven resilient. Those narratives are centered around technological innovation in areas such as business efficiency software, mobile communications and connectivity, home-based healthcare services, medical technology and financial technology that allows people and institutions to transact business more safely and effectively, just to name a few. 

All is not rosy, however.  The rhetoric from the policymaking class suggests higher taxes and more regulations are coming.  All the more reason we say that it is crucial to focus on businesses rather than markets, as always.  And most importantly, we continue to trust that savvy entrepreneurs will drive forward in spite of what the politicians and policy-makers do.  This is the approach that works, and we’re sticking to it.  Happy New Year! 

Disclosures: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Taylor Frigon Capital Management LLC (“Taylor Frigon”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Taylor Frigon. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Taylor Frigon is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Taylor Frigon’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a Taylor Frigon client, please remember to contact Taylor Frigon, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.

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Have you heard of this company? Boot Barn (BOOT)

 

In line with our motto which declares that "We own companies, not markets" and which advises investors to concentrate on businesses rather than the behavior of stock markets where shares of those businesses are bought and sold, we have over the years highlighted a number of the kinds of companies we own in our portfolio strategies. 

Those interested can go back into the archive and find previous introductions to companies such as Carvana (CVNA), Kornit (KRNT), Glaukos (GKOS), IDEXX Laboratories (IDXX) and Vuzix (VUZI), all of which we believe to be classic Taylor Frigon companies and all of which we continue to own to this day on behalf of our clients.*

As we close the books on 2020 and begin the year 2021, we'd like to highlight another company we believe fits our definition of a well-run business positioned in front of fertile fields for future growth: specialty retailer Boot Barn (BOOT).

Boot Barn is a specialty retailer of western wear and workwear, selling footwear, apparel and accessories, with by far the largest market share in a fragmented market (three times the number of stores versus their nearest competitor), and constitutes the only nationwide retailer in the space.

The company has a little over 260 stores in thirty-six U.S. states which we believe can easily double over the next several years, even by very conservative estimates, with abundant new regions to target in addition to continuing to add stores in states where they have already been operating for years, such as California and Texas. We have always felt that the company's predictions of its potential total store count have been conservative in the past, and have noted that another company we own, Tractor Supply (TSCO), presently has over 2,000 stores.

Boots are the company's "signature category" and are placed in the center in order to "anchor the store." Boot Barn is an important distribution channel for major "western" and "country" brands, which often don't have a large variety of other retail outlets through which to move their products, with Boot Barn being the largest in many cases. Boot Barn has also been very successful at launching "exclusive brands," often partnering with major country music artists to do so.

The categories Boot Barn serves benefit from attractive growth drivers, including the population flows to the south and the west of the U.S., the increasing popularity of country music and associated lifestyles, and the paradigm shift in oil and gas production in North America (although this last factor also introduces some volatility as energy production goes through its own cycles, and as investors and algorithms trade their positions in Boot Barn based on their attempts to predict moves in those markets).

The company's stock price was (not surprisingly) absolutely hammered during the first weeks of the COVID lockdown, in which not only were many retail stores closed down but also nightlife, concerts, rodeos, and other venues associated with the lifestyle served by Boot Barn products -- in addition to the volatility in oil prices just mentioned.

While Boot Barn closed their stores in California and Louisiana during the first part of the lockdown, most other stores remained open. Remember that Boot Barn sells workwear, including work boots, and that these are considered essential because they actually are essential for workers who still have to perform necessary jobs in construction and logging and mining and a host of other vital parts of the economy. 

And while Boot Barn has an online sales channel (actually three different online sites: Boot Barn, Shepler's, and Country Outfitter), the events of the past year have proven that the Boot Barn customer still likes to come into the store in person -- and in some cases needs to come into the store in person (if you need boots for work as a safety factor, and you experience a boot blow-out with your old boots, you can't wait around for an online order: you need to get some new boots right away).

Our analysis confirms that Boot Barn is led by a competent and experienced management team which has delivered very impressive results over the past ten-year period and which continues to make good business decisions and which continues to grow in a responsible and sustainable manner, and should have the ability to continue to do so for many years to come. 

The company is a prime example of the kind of companies we look to own.

* At the time of publication, the principals of Taylor Frigon Capital owned securities issued by companies mentioned in this article, including CVNA, KRNT, GKOS, IDXX, VUZI, TSCO, and BOOT.

Disclosures: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Taylor Frigon Capital Management LLC (“Taylor Frigon”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Taylor Frigon. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Taylor Frigon is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Taylor Frigon’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a Taylor Frigon client, please remember to contact Taylor Frigon, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.

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