The following are excerpts taken from Eventide's Annual Shareholder's Letter dated June 30, 2020:
If someone would have predicted at the New Year that during 2020, all professional sporting events would be canceled, restaurants would be closed, Seattle would have an autonomous “country” inside of it, large portions of Minneapolis would be looted while millions would be calling for the police to be defunded, public schools across the country would stop, and the market cap of Zoom would surpass American Airlines, Delta, Southwest, and United—combined, you would have thought that person to be insane. Surreal is too weak a word to describe the last few months of 2020. Most of us have grown so accustomed to the wildly improbable that we can hardly appreciate how abnormal our world has become.
What is an investor to do? As is often the case, investing and the events on the news teach the same lessons from different perspectives. An important lesson is that proclivities to sound bites and reductionism are costly, even deadly, tendencies. When we see people on both sides of the contemporary race debate (or rant, as the case may be), it is painfully obvious that very few have even read a well written book on the subject and certainly not one from the other side’s perspective. Mark Twain said it well, “In religion and politics people’s beliefs and convictions are in almost every case gotten at second-hand, and without examination, from authorities who have not themselves examined the questions at issue but have taken them at second-hand from other non-examiners, whose opinions about them were not worth a brass farthing.” If we could encourage deep examination (which best comes from books, not from the news or social media), much of the current rancor might be converted into constructive value creation, not demagoguery or demonization.
The investing world right now is subject to similar sound bites rooted in fear or snap judgments—“P/E ratios are high! COVID-19 is winning!” This has caused many to make unwise choices and miss the ninth best quarter in the history of the S&P 500. It has caused investors to miss opportunity because of fear. We do not mean to equate financial losses with the loss of lives or dignity, but the underlying thinking processes are the same in finance and politics. Investors need to rise above the groupthink and ponder deeply the basis of their decisions. On the valuation side, P/E ratios are notoriously obscurant, and those who rely on them may miss profound drivers of the market such as cost-of-capital, return on capital, and the equity risk premium. On the values side, reductionism may relegate investors to a shallow greed no better than the vapid political proclamations that dominate the media today.
We at Eventide are seeking to enlarge the conversation, inviting market participants to think deeply about what investing represents. Our Business 360® approach is designed to investigate the multiple stakeholders affected by a business, an approach that could not be timelier in a world that is looking at supply chains, employees, and social concerns as never before.
[Reductionism] leads to pernicious consequences in all facets of life. The news today teaches another lesson with direct relevance to finance. That lesson is: it takes courage to see oneself as not merely passive but endowed with abilities to effect change. It is easy to watch the news, shrug one’s shoulders and say, “The West is in moral decline.” There are many people who bemoan and criticize, watching from an armchair as virtues unravel. Similarly, it is easy to be a “passive” investor and allow corporations as they are to shape the future. We at Eventide are here to remind you that investing is ownership and that the owners of a business determine the character of the business. The failings of the media and corporate America are opportunities for investors to right the ship. This takes courage and collaboration in a world trending toward greater passivity and isolation. As we have grown as a firm, we are more excited than ever for our capacity to influence business practice. By partnering with us, you are endeavoring to step outside the status quo and use your investing dollars to labor for a future that is bright.
This communication is provided for informational purposes only and expresses views of Eventide Asset Management, LLC ("Eventide"), an investment adviser. There is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses. Eventide's values-based approach to investing may not produce desired results and could result in underperformance compared with other investments. Any reference to Eventide’s Business 360 approach is provided for illustrative purposes only and indicates a general framework of guiding principles that inform Eventide’s overall research process. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results.
Before investing or sending money, an investor should carefully review investment objectives, risks, charges and expenses as provided in prospectuses and other information available at www.eventidefunds.com or by calling 1-877-771-EVEN (3836). Eventide Asset Management, LLC serves as investment adviser to the Eventide mutual funds distributed through Northern Lights Distributors, LLC (“NLD”), member FINRA/SIPC. NLD and Eventide are not affiliated entities.
4897-NLD-8/18/2020Posted September 17, 2020