The future of work and retail transformed

Long-term growth
Meet the author who
set up the first Silicon
Valley stock exchange
Never the same again
What does the
workforce of the
future look like?
A paradigm shift
Heidi Ridley
explains why ESG is
crucial to investing
Digital and direct
The business model
changing retail as
we know it
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SECRETS accessed the world’s best-known
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BRAINY BULL — Issue 03 3
ince Brainy Bull last went to press, a great deal
has changed, but much is still the same. Global
protests against systematic racism gave way
to an unprecedented rally, but the virus that
wrecked markets globally months ago is still
very much present. Governments, businesses
and individuals around the world wait
with bated breath to see if 2020 will end as it started.
But that has not held Brainy Bull back. In this issue, we were
fortunate enough to speak to a number of incredibly interesting
and hugely knowledgeable market experts. The scribe of Wall
Street, Jack Schwager, got on the phone with Brainy Bull and
revealed what he has learned from his time interviewing the best-
known hedge fund managers and investors in the world (p.40).
We also spoke to Heidi Khashabi Ridley, the former global
CEO of Rosenberg Equities, who in recent months founded
an ESG-focused firm – Radiant ESG. She explained why such
principles are essential to investments (p.50). Eric Ries,
meanwhile, described his role in establishing the Long-Term
Stock Exchange, a new securities exchange set up with the
aim of insulating companies from short-termism (p.60).
Since markets around the globe were brought to their
knees in March, an unstoppable rally brought an end to the
shortest bear market in history as stocks and indices hit
high after high. Investor euphoria in big tech has helped
in no small part, as innovative technological solutions
facilitate changes we as a global society have been forced
to embrace. We’ve explored several such companies in
our report on direct-to-consumer stocks on p.26.
As the way we engage with such services changes, so is how
businesses provide these services, with many using technology
to shake of the shackles off the middleman. It is also technology
and innovation that has allowed for a transition in the way we
work. This shift, and the stocks involved, are considered on p.16.
Despite the uncertainty, we hope that Brainy Bull can
provide you with some useful insights, however you choose
to invest. As always, we hope you enjoy the magazine.
All the best,
The Brainy Bull team
@Century_Fin
info@century.ae
“Guard against
impulsive trades”
—Jack Schwager, p40
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BRAINY BULL — Issue 03
4
CONTENTS
Updates
08 Keep up to
speed with…
Cloud computing
stocks, ETFs, trade
tensions and more
Columnists
55Steve Cain and Aneet
Chachra, Russ Mould,
Michele Schneider,
David Storm and
PerthTolle
Reports
16 A short commute
How COVID-19
flipped the way we
work and the ways
in which companies
are adapting to the
workplace of tomorrow
26
Route one
The brands that are
smashing bricks and
mortarto put the retail
sectoron course fora
majortransformation
People
40 Access all areas
What is it aboutJack
Schwagerthat attracts
the biggest hedge
fund billionaires and
legendary investors?
50 Apoint on
sustainability
Heidi Khashabi
Ridleyexplains why
sustainable investing
is crucial to investment
management
Insights
60 The cultivator
Eric Ries, entrepreneur
and author, on the stock
exchange that nurtures
companies forthe
long term
64 Volatilitybites
The fatherof the fear
gauge explains why the
VIXis misunderstood
66 Taking five
With The Wall Street
Journal chronicler
Gregory Zuckerman
AUTUMN 2020
“
The hype around DTC is ultimately
about brands getting closer
to their consumers”
— Christian Polman, Ebiquity
40
16 50
26
IN FOCUS:
The moments that
moved markets
A lone supporter attends a “Make
America Great Again!” rally at the
BOK Center in Tulsa in June. The US
election has polarised sentiment across
the country and across Wall Street.
The run-up to 3 November has been
characterised by rising uncertainty,
as investors look to place bets on the
outcome of the presidential race.
JABIN BOTSFORD
OKLAHOMA, USA
The most striking images
from behind the headlines
All
images
via
Getty
Images

6
The surface of the Longyearbreen
glacier in the Svalbard archipelago
melts during a summer heat wave that
set a new record in July — haunting
news for environmental investors.
Fortunately, 2020 has seen the
biggest rise in investors looking to
align their portfolios with sustainable
companies, as more and more ESG
funds outperform the broader market.
In fact, ESG funds were the most
resilient during the March market
downturn, Morningstar shows.
One of the industries hit hardest by the
coronavirus pandemic is health and
fitness. Studios and gyms are rising to
the challenge though, and have been
recreating their services in clever,
innovative ways. Felicia Brunner, a
fitness instructor in New York, has
taken to conducting Zumba classes
in the parking lot of Gold’s Gym Islip.
Other online options, such as Peloton,
have been expanding their presence.
Musicians from UceLi Quartet
perform for an audience made up
of 2,292 plants in late June. Spain's
benchmark index, the IBEX 35, fell
28.9% in the first quarter, 5.9% more
than the Stoxx Euro 600. Both indices
are still in the red for the year-to-date
through 1 September, down 27.1% and
12.3%, respectively.
SEAN GALLUP AL BELLO JORDI VIDAL
LONGYEARBYEN, NORWAY NEW YORK, USA BARCELONA, SPAIN
IN FOCUS: The moments that moved markets

8
Updates:
July — September 2020
HEDGE FUNDS
Clash of the titans
Who holds all the cards in the hedge
fund manager world?
TRADING
THE ROBINHOOD DICHOTOMY
Professional fund managers and analysts are
stumped at the growing number of bets being
made by retail traders
b Firm: BridgewaterAssociates
b Founded: 1975
b Portfoliovalue: $5.9bn as of 30June
b Flagship fund: Pure Alpha
b Strategy:The fund bases its investments on its
predictions forthe economy
b Performance: 16.7% (TTM)
b Holdings: 383 as of 30June 13Ffiling, including:
—iShares GoldTrust [IAU]
—JD.com [JD]
—Snap [SNAP]
—Tencent [TME]
—Trip.com [TCOM]
Sources: SEC 13F filing; TipRanks
Ray Dalio
b Firm: Pershing Square Capital Management
b Date founded: 2003
b Portfoliovalue: $7.75bn as of 30June
b Fundvehicle: Pershing Square Holdings
b Strategy: The fund invests in US equities
and debt securities
b Holdings: Seven as of 30June 13Ffiling, including:
—Restaurant Brands Intl [QSR]
—Chipotle Mexican Grill [CMG]
—Lowes [LOW]
—Howard Hughes [HHC]
—Agilent [A]
Bill Ackman
b Firm: Berkshire Hathaway
b Date founded: 1956
b Portfoliovalue: $202bn as of 30June
b Fundvehicle: Berkshire Hathaway
b Strategy: Invests in companies that show robust
earnings and long-term growth
b Holdings: 44 as of 30June 13Ffiling, including:
—American Express [AXP]
—Bankof America [BAC]
—Apple [AAPL]
—Coca-Cola [KO]
—Kraft Heinz [KHC]
Warren Buffett
OUT OF ALL the retail brokerage firms, the three million
new users that signed up to US trading app Robinhood in
the first quarter have been attracting the most attention.
Amid the boom in retail trading, which was fanned by
lockdown measures put in place because of the coronavirus
pandemic, there has been a wave of speculative investments.
One of the most confusing is car hire group,
Hertz. In early June, it was the most bought stock
on the app, according to the Financial Times, despite
hitting an all-time low of $0.55 a few days earlier and
the company filing for bankruptcy weeks before.
Similar bets have been made on other debt-stricken
companies like J.C. Penney and Whiting Petroleum.
Market commentators believe the rationale behind
the trades to be that investors are betting on a market
recovery that will bring these companies back to life.
As more and more independent traders try their
luck at the stock markets, the more it looks like the
rise of the day trader might be here to stay. b
TECHNOLOGY
Cash clouds
Cloud computing companies have been
up recently. But some question whether
spending will continue once lockdowns
are lifted and wallets start tightening
WHILE DIGITAL
TRANSFORMATION has been a
business buzzword for a number of
years, the COVID-19 crisis has forced
it to the top of companies’ agendas.
Many businesses have had to fast
track their digital strategies in order
to adapt to the work-from-home shift.
Cloud computing has been one
of the big corporate winners of
2020 so far, despite the coronavirus
pandemic. Between January and
September, the Global X Cloud
Computing ETF [CLOU] gained
over 64%. In comparison, the SP
500 Information Technology sector
rose 37% during the same period.
Amazon [AMZN] leads the
cloud computing conversation.
According to research published
by the Synergy Research Group
earlier this year, the company is the
industry’s top vendor with the biggest
market share of around a third.
Revenue for Amazon Web Services
for Q1 2020 was $10.22bn, a 33%
increase on the $7.67bn posted in
Q1 2019. It was, however, slightly
down on Q4 2019’s 34% year-over-
year rise. Overall, the company’s
cloud revenue growth has been
slowing since the third quarter
of 2018, Statista data shows.
It’s a similar story for the second
biggest vendor by market share,
Microsoft [MSFT]. Revenue from
its Intelligent Cloud segment for
Q4 2020 rose 17% to $13.4bn, while
Azure’s growth rose 47%. Although
this beat analyst expectations of
$13.11bn, it marked another quarter
of reduced cloud computing growth.
The slowdown may have
continued regardless of the pandemic,
but it hasn’t been helped by the fact
that 2020 IT budgets have been
slashed by 8% globally, according
to Gartner. Microsoft does, however,
expect spending on public cloud
services to grow by 19% in 2020.
Every cloud has a silver lining
Despite the IT spending clampdown,
other areas of cloud computing have
soared so far in 2020. The demand for
cloud-based conferencing is so high
that Zoom [ZM] has revised its full-
year revenue forecast to $1.8bn, up
from $623m in 2019. With employers
relying on communications software
to allow staff to work remotely,
Twilio [TWLO] is another cloud
communications stock that has seen
a surge in sales during the pandemic.
Even small-cap cloud computing
stocks such as Workiva [WK] and
Rapid7 [RPD] have seen an uptick in
customers, boosting total revenues
14.1% year-over-year to $83.9m and
25% year-over-year to $98.9m in
their respective second quarters.
A number of these companies
offer products and services on a
subscription basis, and their future
growth will depend on whether
organisations renew or cancel
subscriptions as offices start to
open up again post-coronavirus.
That said it is likely that many
businesses will embrace
remote working in some form
over the longer term.
Cloud-based telephony and
messaging is expected to be up
8.9% by the end of the year, with
cloud-based conferencing expected
to rise 24.3% in the same period.
Gartner has also suggested that
the total cloud spending levels it
was forecasting for 2023 and 2024
could be met as early as 2022.
Dennis Lynch, head of
Counterpoint Global at Morgan
Stanley Investment Management,
believes that cloud computing
requires investors to look to the far-
horizon rather than making decisions
based on short-term volatility.
Counterpoint Global recently added
two cloud-based software businesses
— Veeva Systems [VEEV] and
Amazon — to its top holdings.
“We’re going to continue to
own the companies we think are the
best in class for the next five and
10 years, and that have significant
upside from here,” Lynch said. b
Images:
©
Robinhood;
Getty
images

10
2015
2014
2013
2012
2011 2020
2019
2018
2017
2016
b 29 September 2015
Delivery of the
ModelXcommences.
b 8 November 2016
Tesla acquires Grohmann
Engineering in a bid to
automate its factories.
2015
2014
2013
2012
2011 2020
2019
2018
2017
2016
TIMELINE
A wild ride
Tesla's stock is up by more
than 7,000% since its debut
10 years ago
b 2 October 2011
Elon Musk unveils
the first fully
electric sedan,
the Model S beta.
b 9 February 2012
A prototype for a
crossover SUV — the
ModelX — is revealed.
b 29 June 2010
IPO’d on Nasdaq, pricing
shares at $17. Raised
$226m.
b 22 June 2012
Delivery of
the Model S
commences.
b 4 September 2014
Tesla selects a site in
Nevada for its
Gigafactory.
b 8 May 2013
In Q1, turns first profit of
$15,000,000
b 1 July 2020
Tesla becomes the world's most valuable car company at
$208,000,000,000
b 12 June 2014
Musk furthers
the adoption of
electric vehicles
by open-sourcing
its patents.
b 9 October 2014
Musk reveals a
semi-autonomous
self-driving system
called Autopilot.
b 30 April 2015
Tesla expands its
battery tech to
homes with the
Powerwall.
b 14 October 2015
A 7.0 software update
activates Autopilot
across vehicles.
b 8 March 2017
Musk tweets that he can
solve South Australia’s
power woes in 100 days —
a feat he accomplishes.
b 31 March 2016
Tesla shows off a prototype
for the Model 3 selling at
$35,000
b 30 June 2016
Following a fatal accident,
government regulators
investigate Autopilot’s
role in the tragedy.
b 21 November 2019
The Cybertruck is
shown on stage.
b 6 February 2018
Musk’s red Tesla
Roadster is sent to
orbit Mars.
Images:
©
Tesla;
David
Calvert/For
The
Washington
Post
via
Getty
Images;
Jeffrey
Mayer/WireImage

12
This led to mass-panic selling,
sending Volkswagen’s share price
rocketing to an intraday high of almost
€1,000 making it, for a moment, the
most valuable company in the world.
b December 2012
Herbalife
As chronicled in Netflix's Betting on
Zero, Bill Ackman, founder of Pershing
Square Capital Management, took a
short position to the value of $1bn in
supplements firm Herbalife Nutrition
in December 2012. He claimed the
business was operating a pyramid
scheme destined for collapse.
The shares sat at $45 at the time,
and Herbalife described the claims
as “bogus”. Even famed trader Carl
Icahn gave the company his backing
— taking a 26.2% stake and praising
the company’s “good product”.
It led to a personal clash between
the two investors, with Ackman stating
that Icahn was not a “handshake guy”
and Icahn informing Ackman that
he wouldn’t invest with him even if
he were “the last man on Earth”.
Herbalife continued to grow
revenues, and even after a $200m fine
from the Federal Trade Commission
following an investigation into its
practices, its shares kept rising.
In February 2018, Ackman
finally quit his position as
Herbalife’s shares reached $92.
b September 2019
Tesla
Last September, Tesla’s [TSLA] share
price was languishing at around
$220.68. It had dropped, following a
string of PR gaffes, including personal
misdemeanours on the part of founder
Elon Musk, and increasing concerns
over the company’s profitability,
while rumours of filing for bankruptcy
abounded. As the negative headlines
mounted, 30% of the company’s
shares were in short positions.
But those betting against Tesla
were unsuccessful. Fast forward to 20
July, and Wall Street’s most shorted
stock hit a new all-time high of $1,643.
The stock had been making a string of
new all-time highs, supported by leaks
of strong second quarter figures, and
was further lifted by Musk’s SpaceX
successful launch of the Falcon 9.
Future demand for electric
vehicles is bright as nations seek
green travel solutions following
the lockdown climate reprieve.
Since July, short positions
have significantly dropped. As
of 6 August, just 8.6% of Tesla’s
shares are shorted. Musk, who has
previously described short sellers
as “value destroyers”, was no doubt
pleased with this reduction.
However, the short brigade has
not run out of gas just yet. “We’ve had
to cover some shares as Tesla’s price
skyrocketed higher, but will reinstate
them on the stock’s fall back down
to oblivion,” Mark Spiegel, managing
member of Stanphyl Capital, told the
Financial Times in July.
b June 2020
Wirecard
On 18 June this year, shares in
German payment firm Wirecard
[WDI] plummeted 61.8% to
€39.90, following auditor EY’s
announcement of a $2.1bn hole
in the fintech firm’s accounts.
At the time, around 16% of its
shares were held by short traders.
Questions had long been bubbling
around the company’s valuation
and the state of its finances. As the
company delayed its full-year 2019
results, more short sellers piled in.
When the shares finally collapsed,
short traders made $2.6bn in profits
– with one German trader pocketing
€750,000 in 30 minutes alone.
Short selling dynamo Fahmi Quadir,
founder of Safkhet Capital, had also
made a bet against the stock. The
firm had allocated a quarter of its
capital to shorting Wirecard since
2019. Wirecard has subsequently filed
for insolvency, and as of 28 July its
share price sits at less than €2. b
b November 2000
Enron
Jim Chanos’ Kynikos Associates took
a short position in energy giant Enron
in November 2000, when the stock’s
price sat at $90 and analysts were
handing out price targets of $130.
Chanos had become sceptical
of Enron’s use of the “Mark to
Model” and “Mark to Mark”
accounting methods, which allowed
the company to add the value of
future profits to their accounts.
Enron’s off-the-book accounting
practices soon took centre stage, as
reporters began questioning whether
or not the company was engaged in
fraud. In the glare of the spotlight,
Enron filed for bankruptcy on 1
December 2001. Chanos and his team
cashed out with a $500m profit.
b October 2008
Volkswagen
In October 2008, German carmaker
Volkswagen [VOW] was on a roll,
with several quarters of forecast-
beating earnings behind it and a share
price climbing past the €300 mark.
But many market experts
believed the debt-laden firm was
in fact on the road to bankruptcy
because it faced a slump in buyer
demand as the recession took hold.
This confluence of events gave
cheer to short sellers, who held
12.8% of Volkswagen’s outstanding
shares as of 25 October, and were
waiting for the inevitable crash. At
the time, funds like Albert Bridge
Capital shorted two more tranches,
one at €233 and another at €206,
according to the Financial Times.
However, when rival carmaker
Porsche announced a few days later
that it had increased its stake in
Volkswagen from 31.5% to 42.6%
with an intention of increasing
its holding to 75% within the next
year, short sellers were sent reeling
because the true available float
went down to just under 6%.
HARD LESSONS
The shorts
that shocked
the markets
The high risk, but potential for huge rewards,
have long imbued the practice of short selling
with an air of mystery. There are countless
stories of traders flexing their investigative
muscles to try and make massive gains on
companies’ misdeeds and misfortunes — and
some of them even pull it off. We’ve identified
some of the biggest short selling wins, and
hardest losses, of the twenty-first century
THE BUZZ AROUND
ETFs is back. After a dip in
February, when investors
pulled $6.8bn from mutual
funds and high-yield ETFs,
sentiment is rising again.
On 4 August, assets in
US ETFs clocked a record
$4.66trn, according to data
by Bloomberg. Meanwhile,
mutual funds that track popular
indexes have lagged behind,
with $34bn of outflows in
the first half of the year.
Among the top performing
ETFs are ProShares Online
Retail ETF [ONLN], Ark
Genomic Revolution ETF
[ARKG] and Amplify Online
Retail ETF [IBUY], which
have all gained 87% YTD
through 1 September.
In comparison, the top
performing mutual funds
including Morgan Stanley
US Advantage, BGF World
Technology and Baillie
Gifford Global Discovery
are up 40%, 39% and 35%,
respectively, in the year to 3
July, according to Morningstar.
Whether investors will
continue to rotate out of mutual
funds and into ETFs in pursuit
of higher returns is an open
question and one that will be
answered over the long term. b
FUNDS
ETFS VS
MUTUAL
FUNDS
The friction between popular
ETFs and pension-friendly
mutual funds has been an
ongoing feud
Images:
Joe
Raedle/Getty
Images;
Illustration
by
TCCo.
Leveraged ETFs are com-
plex financial instruments
that carry significant risks.
Certain leveraged ETFs are
only considered appropri-
ate for experienced traders.

14
GEOPOLITICS
Inside the US-China
tech stand-off
The ever-changing relationship between US and
Chinese technology firms is reaching fever pitch,
powered by a cocktail of competition, geopolitical
tension and envy. With formidable tech giants on
both sides, where does the investment potential lie?
While shares in Alibaba and
Baidu were not able to outperform
their western equivalents, Amazon
[AMZN] and Alphabet [GOOGL],
the 33.3% increase in Tencent’s share
price in H1 more than outmatched the
10.6% gain seen by Facebook [FB].
Tencent’s outperformance
doesn’t just come down to the fact
that it owns China’s largest social
network, WeChat, but because of
“ Optimismmattersalotinarelativelynewand
exuberantmarket,especiallywhenpeopleare
chasingthenextFacebook,Amazon,Netflix
andGoogleinChina”
its impressive expansion efforts.
Although Facebook’s international
dominance as a social network is
unparalleled — the company had
more than 2.7 billion monthly active
users in the second quarter — Tencent
takes the crown as the world’s biggest
company when it comes to gaming
revenues. It amassed CNY37.3bn in
the first three months of 2020, alone.
The international success of
companies such as Nio [NIO] and
Xiaomi [XIACF] — up 92% and 19%,
respectively, in H1 — is also a major
driver of foreign investment. The
stocks are only slightly behind their
western counterparts, Tesla [TSLA]
and Apple [AAPL], up 158% and 24%,
respectively, during the same period.
However, the geopolitical
rivalry and battle for technological
advancement has seen Chinese
companies increasingly look closer
to home when it comes to listing.
CHINESE TECH COMPANIES
are hot on the heels of their
US counterparts.
Three of the region’s biggest
technology stocks, dubbed the
BATs — Baidu [BIDU], Alibaba
[BABA] and Tencent [TCEHY] —
are collectively up 29.8% in the
first half of 2020. The trio had a
combined market value of $1.4trn
at the end of the second quarter.
cutting equipment, Harbin Xinguang
Optic-Electronics Technology
[688011], software product
manufacturer, and Semiconductor
Manufacturing International
[688981], China’s leading chipmaker.
In the first five months of the year,
66 IPOs and secondary listings on
the STAR market raised $14.1bn,
Refinitiv data shows, outpacing
the 60 — worth $18bn — seen on
the Nasdaq in the same period.
Owen Lau, senior analyst at
Oppenheimer, expects the STAR
market to continue to attract
more listings this year due to
uncertainty around US listing
rules. He also believes that the
Shenzhen Stock Exchange’s
amended IPO rules — companies
can list without regulatory approval
and there are no price limits
during the first five trading days
— will attract more interest.
“Optimism matters a lot in
a relatively new and exuberant
market, especially when people
STAR STRUCK
China’s answer to bolster more
local technological innovation
is Shenzhen, a growing tech hub
known as the Silicon Valley of the
region. One of the most notable
milestones in the rise of China’s
tech industry came with the launch
of the Shanghai Stock Exchange’s
Science and Technology Innovation
Board, dubbed the STAR last year.
Similar to the ChiNext [399006]
— a Nasdaq-style subsidiary in the
Shenzhen Stock Exchange — the
STAR market was developed to bolster
IPO’s in the region. Some of the most
recent listings include Qingdao Gaoce
Technology [88556], a manufacturer of
are chasing the next Facebook,
Amazon, Netflix and Google in
China. I [wouldn’t be] surprised
to see if that outperformance
continues to the year end, but I
will be very cautious about the
downside risk,” he tells Brainy Bull.
Who will win the tech race is
still an open question. As trade
tensions continue to boil between
the world’s two largest economies,
the companies on either side
of the divide will need to keep
innovating in order to hold the
attention of investors. b
← Inside the
Shenzhen Stock
Exchange just
moments before
the first batch
of 18 IPOs debut
on the ChiNext
board on 23
August 2020 in
the Guandong
Province of China.
THE 60/40 PORTFOLIO
has been a firm constant
in the investment
world’s history. It dates
back to 1926, according
to Vanguard, and has
managed to deliver
steady returns during
times of both elevated
volatility and bull runs.
However, the 40%
weighted in debt securities
like government bonds
or high-grade corporate
bonds that typically works
to mitigate risk during
market downturns is no
longer producing returns.
The bond market
has seen yields hit rock-
bottom levels, with five-
year and 10-year Treasury
yields posting record
lows in August and
March, respectively.
The crash has led fund
managers and analysts to
question whether bonds
still serve as an effective
hedge for investors, with
many now substituting
bonds for safe haven
assets like gold.
But this isn’t financial
alchemy and gold prices
do fall. Ultimately, the
jury is still out on whether
the precious metal is
the fixed income asset
that replaces bonds. b
STRATEGY
Rethinking the
60/40
portfolio
Leveraged ETFs are complex financial instruments that carry significant risks.
Certain leveraged ETFs are only considered appropriate for experienced traders.
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VCG/VCG
via
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Images

16 BRAINY BULL — Issue 03 17
16
_
The global pandemic has
brought about remote working
en masse and provided added
impetus to make changes to
century-old working practices.
Which companies are leading
the change?
_The companies
reimagining
your work life
Words:
Peter Taylor-Whiffen
Illustration:
Motiejus Vaura
BEFORE: Early starts, long commutes and extended
hours in large-scale offices, working alongside
thousands of employees living similar lifestyles

18
_Work from Home Report
_
The world of work will never be the same
again. The coronavirus pandemic and the
resulting lockdown measures have caused
a profound paradigm shift
F
or many around the globe, work and
home lives have merged. This has
proven that good work can take place
anywhere. While restrictions on
social distancing began easing in
July, it's looking like many employees
will continue opting to work from
home — perhaps not permanently,
but at least a bit more often.
The accelerated shift to a flexible
working model has challenged
perceived wisdom that work should
take place between the hours of 9am
to 5pm, with staff congregating inside
a single office. Faced with this
existential question, employees,
companies and investors are beginning
to look for new opportunities.
From boardroom to spare room
Naturally, the tech companies
providing the digital infrastructure
on which working from home
practices rely — such as Zoom Video
Communications [ZM], Microsoft
[MSFT] and Slack [WORK], to
name a few — have seen their
share prices boom. But the shift to
remote working won't just benefit
the share prices of companies that
are providing the right tools.
No matter the industry, the
pandemic has forced companies to
rethink what “business as usual” looks
like. Fashion retailers have had to
reconsider how they let customers
try on clothes, while restaurant
operators have had to redesign
their spaces to accommodate socially
distanced dining. With a greater
emphasis on ecommerce, warehouse
space is now prime real estate, and
logistics companies are finding
themselves busier than ever.
“COVID-19 has had such an
extraordinary impact on us all
mentally, physically, emotionally.
It was something the western world
had never experienced before,”
Dave Mazza, managing director and
head of product at New York-based
fund manager Direxion, tells
Brainy Bull.
“Businesses switched to working
from home to keep operating, but it
has been so successful that they've
realised this is the new normal. It's
the future.”
Businesses that are implementing
generous, long-term remote working
are also proving more attractive to
investors, who interpret the embrace
of flexible working as evidence of
resilience — not just in terms of a
capital buffer.
A happy corporate culture — an
intangible metric increasingly
considered for responsible investing
(see boxout: A new metric for corporate
responsibility) — has seen significant
correlation with higher profits. It's
the businesses that have been able to
swiftly send staff home, while still
maintaining their usual operational
rhythm that are proving most popular.

Tracking the rise
of home working
In June, Direxion launched the
world's first remote working ETF.
The fund, using the ticker WFH,
comprises 40 tech businesses
considered to be integral to the
delivery of seamless remote working.
In its first two weeks, the fund
attracted $60m of inflows, according
to Mazza — an impressive feat in
a market where thematic portfolios
across the board have struggled
to maintain momentum amid the
broader market downturn. The timing
may appear a stroke of luck, but
the firm had seen the shift coming.
“Regulatory restrictions mean
you can't just dream up and launch
a new fund overnight,” explains
Mazza, whose company specialises
in leveraged ETFs that allow traders
to make outsized bets on the daily
moves of market indices. “The trend
NOW: Making it work in a pandemic – unrushed
breakfasts, juggling childcare and, for many people,
a more relaxed and happier working environment
19

20
Virtually everywhere
Zoom Video Communications is one
platform that has become so popular
over the past six months that it has
entered the general lexicon as a noun,
a verb and the poster child of the
stock market's COVID-19 resistance.
At the end of 2019, the company's
stock was languishing below $70. By
10 July, it had hit an all-time high of
$275.87, following a steep 70% rise
since the pandemic began to bite
in mid-March.
The reason for the stock’s 272%
gain in the first half of the year comes
down to the 354% year-over-year
uptick in customers it registered
in the three months to 30 April. The
company's 265,400 users, and 769
customers contributing more than
$100,000 in revenue in the past
12 months, helped total revenue for
the quarter jump 169% to $328m.
“Zoom is the big one everyone
talks about — and rightly so,” Mazza
says. “But after these immediate
standout successes, it's obvious that
_
Direxion Work From
Home ETF holdings
the general work-from-home trend
has longer legs than that. We're
looking at the longer term, the
emerging companies and those that
aren't household names but underpin
all the technology that enables
successful remote working.”
On the 25 June, its first day of
trading, the WFH ETF rose 1.4%,
outpacing the tech-heavy Nasdaq's
1.2% gain. Over the next two weeks,
the WFH fund climbed a further 7%.
Twilio [TWLO] — which had seen its
share price nearly treble to $222.38
since a mid-March low — was its top
holding. This was followed by 5G and
device-to-cloud company Inseego
[INSG], cybersecurity firm
CrowdStrike [CRWD], business
communications specialists Avaya
[AVYA] and cloud software company
Okta [OKTA].
Twilio is, according to Mazza, one
of the most exciting movers at the
moment. “Most people in the street
have never heard of [Twilio] — a
cloud communications platform
service company that allows software
developers to make and receive
automatic phone calls and text
messages,” he explains. However, the
company just won the contract to
Xunlei [XNET]
15%
Inseego [INSG]
10%
Vonage Holdings [VG]
7%
Avaya [AVYA] 6%
Infosys [INFY] 6%
Hewlett Packard Enterprise [HPE] 5%
Plantronics [PLT] 5%
Box [BOX] 4%
FireEye [FEYE] 4%
8x8 [EGHT] 4%
BNY Mellon Institutional Cash Reserve Fund [ICRF] 3%
Cincinnati Bell [CBB] 3%
Dropbox [DBX] 3%
Nutanix [NTNX] 3%
Ping Indentity [PING] 3%
Progress Software [PRGS] 2%
Upland Software [UPLD] 2%
Slack Technologies [WORK] 2%
CrowdStrike [CRWD] 1%
Cisco Systems [CSC] 1%
Elastic NV [ESTC] 1%
Fortinet [FTNT] 1%
LogMeln [LOGM] 1%
Oracle [ORCL] 1%
Perficient [PRFT] 1%
Twilio [TWLO] 1%
“Businesses switched to working from
home to keep operating, but it has been
so successful that they've realised this
is the new normal. It's the future”
_Dave Mazza, Direxion
JUL
JUN
APR
MAR
2020
NOV
SEP
AUG
119.85%
53.65%
48.62%
13.91%
78.78%
towards remote working has been
coming for a few years and we'd
been putting this together for a
while. But the COVID-19 pandemic
accelerated that trend — and we
were well placed to launch.”
The Direxion Work From
Home ETF tracks the Flexible
Office Index, which was created
in March by the German-based
index provider Solactive.
“During the COVID-19 crisis I,
like many other people, have tried to
set up an office space at home that
holds a candle to our regular office
environment,” Timo Pfeiffer,
Solactive's chief markets officer,
says. “Translating this issue to
a global perspective, it's obvious
companies actively engaging with
the set-up of the work-from-home
evolution will be the beneficiaries.”
The index provides exposure
to companies “accelerating the
greater adoption of remote work”
by offering critical technological
infrastructure and services that
help enable working remotely
through four “pillars”: cloud
technologies, cybersecurity, online
project and document management,
and remote communications.
“Some of these technologies
— or ones similar to them — may
not necessarily be new or ground
breaking,” adds Dr Axel Haus, head
of qualitative research at Solactive.
“However, a greater degree of
acceptance towards them from
employers and employees alike may
further increase their relevance.
Even more, better and faster
connectivity from — for instance —
5G technologies could exacerbate
the shift towards flexible offices
all around the world.”
Unsurprisingly, tech behemoths
are the standout names in both
Solactive's and Direxion's trackers,
and with good reason. Microsoft's
shares have climbed 48% YTD to a
record high of $231.65 on 2 September.
In the same period, Amazon's [AMZN]
stock rose by 91% to $3,531.45.
_
Direxion Work From Home ETF's
top five stocks at launch
Inseego [INSG]
Twilio [TWLO]
Okta [OKTA]
CrowdStrike [CRWD]
Avaya [AVYA]
Source:
TradingView
27.07.20
Source:
Direxion
20.07.20

22
provide the text messaging for New
York's track-and-trace programme,
Mazza explains.
Jeff Lawson, CEO and co-founder
of Twilio, has a focus on “digital
engagement, software agility and
cloud scale” and this has made
the platform a permanent fixture in
the work-from-home environment.
The increased demand for its services
— it noted a 23% uptick in accounts
in the first quarter — boosted its
revenue 57% year-over-year to
$364m. The stock climbed 114.7%
in the first half of the year.
Direxion — which had around
$15bn in assets under management
at the end of last year — may have
launched the first specific remote-
working ETF, but other trackers
are tapping into the home-working
space. The Horizons Industry 4.0
Index ETF [FOUR] holds 50 stocks
in cloud computing, cybersecurity,
virtual and augmented reality,
robotics and the Internet of
Things spaces, and returned 9% in
the first six months of this year.
“The whole idea of digital
transformation has been turbocharged
by COVID-19,” Hans Albrecht,
vice president of Horizons, says.
“The need to get on board the
digital train is no longer a nice-to-
have,” he told The Globe and Mail.
“It may be a must-do to survive.”

Homeworkers are
happy workers
The work-from-home phenomenon
is about far more than software,
however. Flexible working policies
have been credited with leading to
a more motivated workforce, higher
staff retention rates and increased
levels of diversity. Such policies can
also be considered as an indicator
that a business is more likely to be
able to pivot and adapt to rapidly
changing circumstances — as was
required with the pandemic. A
study from Stanford University on
remote working in 2018 came to
the conclusion that happy home
workers make for a more productive
business, as it decreases the amount
of lost work by 50%. Since then, an
increasing number of surveys have
emerged backing up its findings, the
most recent being a study by Lenovo
in July that found 63% of the global
workforce to be more productive at
home than in the office. In another
survey by research group Hoxby,
52% of UK managers agreed that
workers have been more productive
than in the office.
Meanwhile, a report by CNBC and
Survey Monkey released in May,
found that 44% of 9,000 US-based
workers surveyed were happier in
their jobs, mainly because they didn't
have to commute to the office. A
separate study by Salesforce [CRM]
broke down employee’s productivity.
It found that 32% started work
earlier, 35% worked later and nearly
40% made more business phone calls,
according to ZDNet.
Unsurprisingly, the tech sector
has been quickest to pounce on these
benefits and make their staff's remote
working arrangements permanent.
On 6 July, Fujitsu [6702] announced
it would offer “unprecedented”
flexibility to its 80,000 workers in
Japan in a bid to make working from
home standard wherever possible.
The company (which is up 36%
YTD at JPY13,800 on 1 September)
said the move would give “a more
empowering, productive and creative
experience for employees that will
boost innovation and deliver new
value to its customers and society”.
At the same time, it will be able to cut
office space costs.
JUL
JUN
APR
MAR
2020
NOV
SEP
AUG
8.77%
189.37%
“The pandemic has already shaped
long-term behaviour and, with
it, investment trends”
_Michael Nicol, Kames Global Capital
_
A new metric
for corporate
responsibility
Keeping staff at home not
only makes for happier
workers, some argue it makes
for greener companies too,
with no offices to power and
no commutes to take. But
beyond these obvious
environmental benefits, there
is a case to be made that —
by examining a company’s
response to the pandemic
— deductions can be made
as to how resilient it is. For
ESG investors, this could
provide a new metric by
which to assess a business.
In June, New York financial
services firm Moody’s
Investor Services published
a report suggesting that
how businesses operated
in the face of COVID-19
would change the way
investors see them.
“The coronavirus outbreak
will intensify the focus of
companies, investors and
other stakeholders on
environmental, social and
governance factors, and
increase the credit-relevance
of ESG risks,” Matthew
Kuchtyak, the firm’s AVP-
analyst, said. The report
outlines how a company’s
preparedness for such global
risks could impact its
creditworthiness, creating
a greater need for a triple
bottom line approach to
decision making where
businesses are not just
responsible to shareholders
but to people and the planet.
A business that can
demonstrate that it cares
for its people and community
— through work-from-home
policies or otherwise
— can, therefore, sell itself
to investors, showing it has
the right foundations for
resilient growth.
We are already seeing
this mindset shift take place.
Dai-ichi Life, Japan’s third
largest life insurer, is now
asking the 250 companies
in which it holds equity
investments in if they are
offering their employees
permanent home-working
arrangements. Meanwhile,
equity and credit investors
AllianceBernstein, which
keenly advocates home
working among its own
staff, is expecting the
same standards of the
companies in which it
is invested — even going
as far as checking up on
how quickly companies
are installing up-to-date
tech at staffs’ homes.
“Sustainability is the most
important aspect of the
investment case
for a company,” Michael Nicol,
investment manager at
Kames Global Capital, affirms.
“A close look at the
company’s environmental
and social impact, as well
as its governance polices
is vital and intrinsically
linked to its strategic
competitive positioning.”

Growing adoption
of home working
Fujitsu's move to flexibility follows an
announcement in May by Jack Dorsey,
CEO of Square [SQ] and Twitter
[TWTR]. Dorsey promised employees
in specific roles could work at home
“forever”. Tobias Lütke, CEO of
ecommerce platform Shopify [SHOP],
has also touted the end of “office
centricity” and has outlined plans to
make the business a “digital-by-
default” operation. Furthermore,
Stewart Butterfield, CEO of Slack,
has also given employees the option
to work from home indefinitely.
Facebook [FB] and Google [GOOGL]
have extended their remote working
initiatives until the end of the year,
with the expectation these will likely
be made permanent. Seeing these
successes, other industries have
started to dip their toe in the work-
from-home waters. Jes Staley, chief
executive at Barclays [BARC], said
crowded corporate offices with
thousands of employees “may be
a thing of the past”, while banking
peer Goldman Sachs [GS] has mooted
a return of no more than 50% of staff
to its offices. Morgan Stanley [MS],
JPMorgan [JPM] and Capital One
[COF] have also extended their
flexible working options, according to
human resources organisation SHRM.
Even automakers, one of the least
expected industries to embrace the
remote working boom, are considering
how they can extend policies. Nicholas
Speeks, CEO of Mercedes-Benz,
recently told Automotive News that
“for the foreseeable future, [work from
home] will become the norm”. At the
same time, French car
manufacturer PSA [UG] — which
owns the Peugeot, Citroën and
Vauxhall brands — said that for
non-production staff “teleworking”
will become “the benchmark”. Among
the consumer staples space, Alan
Jope, CEO of Unilever [ULVR],
is reportedly reviewing permanent
mobile work arrangements.

Bucking the trend
There is, of course, a possibility that
remote working could lose its shine as
time goes on. While there is no
precedent for the coronavirus, during
other catastrophic historical events
many sectors have come close
to extinction — the travel sector after
9/11, the banking sector after 2008,
cryptocurrencies after 2017 — to then
suddenly recover.
Many industries were able to go
back to business as usual. If this
pattern were to be repeated in the near
future, would the work-from-home
trend be reversed, leaving these hot
Zoom outperforms
US market
Zoom [ZM]
SP 500 [SNP]
Source:
TradingView
27.07.20

24
_Work from Home Report
stocks out in the cold?
“I don't see it,” Mazza says.
“Maybe some firms have had
significant run-ups, and you’re seeing
an elevated price to earnings, but
collectively they are at lower
valuations than the Nasdaq but
with higher growth potential.”
In fact, indicators suggest the
tide of home working will not
be turned. Of the 1,500 UK businesses
interviewed by video conferencing
platform Whereby, 82% said they are
open to the idea of making their
COVID-19 flexible working arrange-
ments permanent, while 65% said
they intend to downsize their office
space as a result of the pandemic.
Michael Nicol, an investment
manager at Kames Global Capital,
agrees the pandemic marks
a permanent sea change in the way
we work. “The pandemic has already
shaped long-term behaviour and,
with it, investment trends,” he
says. “COVID-19 has fast-forwarded
particular themes that are important
for a portfolio that will perform
well over the next few years.
Nicol adds that “tech is the single
most obvious driver”. He believes
that the increased adoption of
software and services that enable
remote working will stay a permanent
fixture in business.

The future of work
As with every other trend, success for
investors is about foreseeing the
“One thing's for sure. We've
discovered the joys of remote
working and we're not going to give
them up. This is here to stay”
_Dave Mazza, Direxion

Education:
• K12 [LEARN] 83%
Tech:
• Alphabet [GOOGL]
• Amazon [AMZN] 80%
Management:
• Microsoft [MSFT]
• Salesforce [CRM] 79%
Finance and insurance:
• Lemonade [LMND] 76%
Information:
• Cisco Systems [CSCO]
• Zoom [ZM] 72%
Wholesale trade:
• Alibaba [BABA] 52%
Transportation
and warehousing:
• Ocado [OCDO] 19%
Health care:
• Teladoc Health [TDOC] 25%
Sources:
Bloomberg/National
Bureau
of
Economic
Research
The companies making
it possible for other
companies to work
from home
Below are the share of jobs
that can be done at home in
different industries and some of
the companies that are enabling
these jobs to be done.
BEYOND: Your office is wherever you are – and this
could be anywhere in the world. Remote working is
here to stay, so adapt to new ways of doing things
micro-changes along with the macro.
For instance, travel may have returned
after 9/11, but the industry has
permanently changed its security
measures. The same could be said for
remote working. Certain stocks may be
spiking right now, but investors will
need to look at the longer term.
“Everyone is already looking
at where this goes next,” Mazza says.
“Zoom is looking at partners to
build devices, and Google wants to
enter the video-conferencing space.
Everyone can now see remote
working is the future — but we need
to keep looking for exactly how
that future will pan out, what new
technologies and trends will come
out of this.”
Mazza is also working on
another fund to exploit a post-
lockdown new standard — a consumer
ETF that tracks companies providing
virtual services, such as home
entertainment, online education and
telemedicine. Another indicator,
he says, that the COVID-19 crisis
has changed business, work-
ing and investing forever.
“One thing's for sure. We've
turned a corner,” Mazza concludes.
“We've discovered the joys of
remote working and we're not
going to give them up. This is
here to stay.” b
*Leveraged ETFs are complex financial
instruments that carry significant risks.
Certain leveraged ETFs are only considered
appropriate for experienced traders.

26
Direct
consumer
to
Words:
Rich McEachran
Retail’s rising stars are showing
that simple can often be better.
But does the business model
have long-term staying power?
DTC Report
Brainy Bull — Issue 03
26
Illustration:
Asillo
3d

28
all started around the time of the dotcom bubble, when the
internet was young and a new land of opportunity. Webvan,
founded in 1996, promised to deliver grocery shopping to your
door within a 30-minute window. After just a few years in
operation — and after raising $375m through its 1999 IPO — it
collapsed. The business model was too expensive to operate.
Now, more than two decades later, forecasts suggest direct-to-consumer (DTC)
sales to account for $17.75bn of the total US ecommerce market by the end of 2020,
which would represent a 24.3% rise on the previous year, according to market
research company eMarketer. Despite overall growth being strong in the space,
research indicates that momentum is slowing due to intensifying competition.
Unlike their early predecessor Webvan, today’s wave of DTC companies are
trying to do things differently. When apparel ecommerce company Bonobos — now
considered the first major DTC brand — launched in 2007, it did so with a single
product: a pair of men’s trousers. The company’s ambition was to give consumers
that didn’t like to go shopping a way of buying jeans without leaving their home,
using a process that was designed to be convenient and hassle-free. Walmart [WMT]
acquired the company for $310m in June 2017.
An army of businesses have followed in the footsteps of Bonobos. One of the
most talked about names on investors’ lips is Glossier. The darling of the DTC
cosmetics world was spun out from founder Emily Weiss’s blog, Into The Gloss, and
received its first capital investment in 2014. The company has leveraged the blog’s
readership and social media following to build a loyal customer base. To date,
Glossier has resisted acquisition or the urge to go public, despite it achieving a
billion-dollar valuation and unicorn status last year.
The surge of interest from companies expanding their traditional distribution
channels to incorporate online has, itself, disrupted traditional ecommerce.
Despite DTC’s relative youth, the increased complications it poses to brick-and-
mortar companies has raised the importance of building a dynamic ecommerce
infrastructure.
Like so many other markets, the DTC trend was amplified earlier this year with
the arrival of COVID-19, which made the ability to deliver products directly to
consumers more relevant than ever. As a result, the coronavirus pandemic has
created a massive tailwind for DTC brands. It has reshaped the way companies do
business online, while also opening up the market to all types of retail brands
looking to tap into the DTC boom.
From the moisturiser you use each morning
to the gourmet treats you feed your pet
and even your favourite tipple, more
and more businesses are battling to get
consumers to buy directly from them.
PELOTON has made
itself a genuine fitness
phenomenon through
its clever branding —
its instructors have
a sort of cult status
among followers.
up 46% year-over-year.
Peloton [PTON], one of the
most renowned brands in the
interactive fitness category, is
another DTC brand that has seen
an uptick in sales. When gyms
closed and people were looking
for ways to keep fit while working
from home, sales of smart exercise
bikes and workout streaming
subscriptions rose. The company
reported a 66% year-over-year
increase in total revenue for the
third quarter of fiscal 2020. Sales
of its connected fitness products
— bikes and treadmills — were up
61%, while subscription sales were
up 92% year-on-year for the three
months to the end of March.
Chewy and Peloton have seen
Ordering online has never
been easier or more popular.
According to Grand View
Research, the global B2C
ecommerce market is expected
to be worth $6.2trn by 2027,
growing at an annual compound
growth rate of 7.9%.
Global lockdowns have also
increased DTC brand exposure.
Take online pet product specialist
Chewy [CHWY]. It added 1.6
million new active customers in
the first quarter of fiscal 2020,
which ended 3 May, taking the
total number to 15 million. Initial
orders were up 11%, and new
customers were adding more to
their carts than pre-pandemic
customers. Overall, sales were
“Rio il ipsandita volum
etus sum ut minus sime
parum, adicit ventin
cum, expelicidit ommo
lor emquatur saerfer
aturiberum ari voluptae
commolut a doluptas
que dio”
P A R T 1
Disrupting
ecommerce
FOR EVERY DTC unicorn
attracting private investors and
raising venture capital, there are
many more public DTC brands
that manufacture, market, sell
and ship their own products.
While their primary objective will
be to sell products directly to
their customers, some will use
online marketplaces like Amazon
[AMZN] to drive additional sales
and to widen distribution.
Image:
©
Peleton
DTC Report

30
their share prices hit all-time
highs since the market selloff.
Both stocks are up 54% and 103%
respectively in the first half of the
year, outpacing the SP 500’s
decline of 4%.
Shifting consumer
behaviours
While the DTC model is very much
in vogue, the question for many
businesses that have seen sales
and revenues surge in recent
months is whether customers will
keep coming back as lockdown
restrictions around the world ease.
Pelotons’ products are not
cheap. The company’s bikes cost
$2,245 and treadmills are $4,295 a
pop, making each product a
high-end statement. If the owner
wants to access the full suite of
online exercise classes, they will
need to take out a subscription to
the tune of $39 a month.
This seems like an eye-
watering amount to be paying
compared to a gym membership.
In a July conference call with
P A R T 2
Directing the
economy
AS LOCKDOWNS AND
shelter-in-place orders rendered
shops unappealing, or unavail-
able, many ended up turning to
subscriptions to get hold of their
everyday essentials.
Meal kits and recipe boxes
were gobbled up and companies
such as HelloFresh [HFG] and
Blue Apron [APRN] performed
well since lockdown restrictions
came into force. The former hit an
all-time high of €52 in July, while
Blue Apron reached a 52-week
high of $28.84 in March.
Meanwhile, major players in
the food and drink space have
rushed to adapt their business
models. Bidfood, part of a subsid-
iary of BidCorp [BID] (one of the
UK’s largest wholesalers and food
service providers) set up a DTC
option on its website in March.
By April, food and bever-
age industry stalwart Kraft Heinz
Company [KHC] had launched
Heinz to Home, a service that
delivers bundles of Heinz-
branded soups and condiments
to people’s doors.
Efficient and
effective delivery
Such unprecedented demand
for food and drink, which was
being driven by panic buying and
stockpiling, has highlighted the
“
We continue to see an expansion in
ecommerce transactions even
as COVID-19’s impact tapers off”
—Moshe Katri, Wedbush Securities
who have this focus on user
experience, that is where we
looked for inspiration,” Tom
Cortese, co-founder of the
fitness brand, told CNBC
last year.
A perfect fit
Cutting-edge design and an
innovative user experience are
key to a long and fruitful
customer relationship. If you
build it, they will not only come,
but also stick around. That is
evident in the resilient customer
growth of brands like Stitch
Fix [SFIX].
The online personal styling
service company sends its
customers clothes on a one-off or
subscription basis. What sets it
apart from similar DTC fashion
businesses is the technology that
powers it — algorithms and
machine learning are used to
inform the personal styling
service it offers. Stitch Fix can
recommend items to customers
based on past purchases,
behaviours, preferences and
measurements. Dozens of data
scientists have been hired to
better understand customers and
to deliver personalisation at scale.
Stitch Fix did not benefit
CHEWY’s stock is
rallying as pet adoptions
and ecommerce sales
surge amid the coronavirus
pandemic.
directly from lockdown as much
as other DTC companies,
however, reporting a sales decline
of 9% and a net loss of $0.33 per
share on $371.7m revenue for
the third quarter of fiscal 2020.
The pullback was blamed on
supply chains being hit by the
pandemic, resulting in a backlog
of orders.
Nevertheless the stock has
outperformed the broader apparel
market by 3.2% in the first half of
2020 amid a growing customer
base. Stitch Fix’s active user base
grew by 9% year-over-year in the
three months ending 2 May.
AUG
JUL
JUN
APR
MAR
2020
NOV
SEP
23.44%
-2.84%
80.36%
173.49%
236.45%
The rise of DTC
How some DTC brands have performed
against the US retail market
Shopify [SHOP]
Peloton [PTON]
Chewy [CHWY]
SPDR SP Retail ETF [XRT]
Stitch Fix [SIFX]
Barron’s, Jill Woodworth, chief
financial officer at Peloton,
acknowledged as much, saying the
company was looking to reduce
the cost of its treadmill. While she
added that the company’s
equipment would certainly never
be cheap, reducing the price will
help to make it more attainable.
Although Peloton has been
discussed in the news as the ‘Apple
[APPL] of fitness’, its founders
consider it to be more akin to
Netflix [NFLX] or Amazon, in that
users can curate their own fitness
plans right down to the playlist
they exercise to, similar to Amazon
curating personalised homepages
and allowing shoppers to create
wish lists.
“When you think about
the game-changer companies
Images:
©
Chewy,
Stitchfix
DTC Report

32
need for efficient and effective
logistics. Even traditional
retailers in the UK, including
Tesco [TSCO] and Sainsbury’s,
[SBRY] were having to add
thousands more home delivery
slots to cope with the number of
online orders.
Normally, delays to a delivery
would be a test of patience. But
these aren’t normal times. The
global pandemic has not just led
to a major shift in consumer
purchasing decisions, but also to
consumer expectations. Some
surveys have suggested that
consumers have been sympathetic
to the impact COVID-19 has had
on supply chains.
One survey conducted by
logistics technology company
Convey in April — when panic
buying and stockpiling was at its
peak — revealed 60% of consum-
ers didn’t expect companies to
have all the products they want in
stock, while 94% were happy to
wait longer for orders to be
delivered. The caveat is that
seven in 10 also said that they
wouldn’t buy from a company
again if they weren’t informed
about delays.
Although demand for trans-
portation hit rock bottom in April,
since then, logistic firms have
been benefitting from the rise in
ecommerce sales. Notably, United
Parcel Service [UPS] and FedEx
[FDX] have seen their share prices
rally since the mid-March sell-off.
The former gained more than 20%
in the second quarter, while the
latter rose 16%.
Designing the
consumer experience
Consumers may have been happy
to give couriers some leeway
during lockdown, but what many
will be less forgiving about is
the problems that arise when
navigating and purchasing
through a website. A seamless
user experience (UX) is crucial
for converting web traffic and
one-off purchases into recurring
sales and subscriptions.
Lynsey Thornton (pictured
above, speaking at the company’s
annual partner conference), vice
president of UX at Shopify
[SHOP], believes that keeping a
close connection to users “is one
of the surest ways I know to build
empathy for them, and gain a deep
understanding of our products
and the problems they solve”.
With more people shopping
online directly from businesses
and the growing competition, it’s
becoming more and more
important for companies to
prevent customer numbers from
dropping out before checkout.
According to Ciaran Bollard,
CEO at Kooomo, a cloud com-
merce platform that has been used
by the likes of Umbro and
Morrisons [MRW] to build online
stores, “user experience is going to
overtake price as the key differen-
tiator”. Companies are realising as
a result of the pandemic that they
need to find ways to “provide a
frictionless UX and customer
journey across every touchpoint”,
he tells Brainy Bull. DTC brands
need to be investing in the right
tools and techniques to help them
deliver this to stand out against
the rest.
Unlike the early pioneers of
home delivery that failed to
survive the dotcom crash, today’s
DTC brands can use technology to
improve their offering and gain a
competitive advantage. One
example is integrating smarter
payment systems into the
ecommerce experience.
Square competes for
a piece of the DTC pie
It might come as no surprise that
Square [SQ] saw its share price
more than double between April
and July this year, reaching a new
all-time high and outpacing the
computer and technology sectors.
The payment processor provides
products for merchant sellers and
consumers. Its Cash App product,
which facilitates peer-to-peer
transactions, had 24 million
monthly active customers in
December 2019.
In March, the company said it
welcomed its largest number of
new users — many of these were
DTC businesses that found
themselves quickly having to
transition from offline retail to
online, and were looking for a
digital alternative to traditional
business bank accounts that could
be opened quickly and easily.
Towards the end of June,
Square launched an on-demand
delivery service called Square
Online Store in partnership with
Postmates. It allows sellers to
dispatch delivery drivers for
orders placed directly through
their website.
Unlike third-party services like
DoorDash and Uber Eats [UBER],
which handle the ordering,
payment and delivery, Square
Online Store puts control of the
fulfilment process in the hands of
the seller. As a result, they have the
ability to pass delivery charges on
to the consumer, reducing the
commission they have to pay. The
model has been popular with small
restaurants and food service
businesses that were already
operating on slim margins and
being crippled by the costs charged
by third parties before the
coronavirus pandemic even began.
For the first quarter of 2020
ending 31 March, Square posted a
net loss of $16m, or $0.24 per
share, compared with a loss of
$38.15m, or $0.09 per share, in the
first quarter of 2019. Revenue
jumped 44% year-over-year from
$959m to $1.38bn — analysts had
expected $1.29bn — and gross
payment volume (the total
amount of payments handled)
rose 14% to $25.7bn.
The mixed results were largely
down to the fact that Square has
previously derived a major chunk
of its income from traditional
brick-and-mortar businesses.
“
User experience is going
to overtake price as the
key differentiator ”
— Ciaran Bollard, Kooomo
Rethinking
business
There are certain
industries that
haven’t really
changed the way
they conduct
their business for
decades.
For example,
car manufacturers
will mass produce
and assemble
vehicles before
selling them on to
dealerships, which
then go on to sell
them to consumers.
Yet, there are
signs that some
traditional industries
are rethinking their
business models.
Electric vehicle
maker Tesla [TSLA]
has become the
first automaker
to adopt a DTC
approach. In a move
that could mark the
beginning of the end
for the humble car
salesmen, Tesla is
allowing customers
to purchase vehicles
online and have
them delivered
straight to their
door. However,
some industry
experts have argued
that automakers
could see sales
of vehicles drop
without the
presence of physical
showrooms.
Banking is
another industry
that is changing its
ways by borrowing
from the playbook
of DTC companies.
Although this is
arguably out of
necessity. People
have long relied on
high street branches
where they can
cash cheques and
withdraw money. But
with the use of cash
declining and card
payments on the
up — accelerated
more recently by
pandemic-related
restrictions — more
banks are shutting
branches and
starting to prioritise
app-driven,
branchless services.
Unlike traditional
banks, digital-
first banks such as
Monzo, Revolut and
Starling focus on
creating a seamless,
app-driven service
that does not
require a high
street presence.
In February, RBC
[RY] said it would
launch a digital bank
targeting affluent
customers.
Research by FIS
[FIS], published last
year, indicated that
digital-only banks
have a higher rate
of customer
satisfaction than
traditional banks do,
as well as a lower
rate of customer
deflections.
SHOPIFY has built its
platform to make it simple
for brands to promote
products, manage sales
and fulfilment.
SQUARE’s Online
Store is an enablement
platform that is helping
DTC brands scale.
Images:
©
Shopify,
Square
DTC Report

34
“Tempur-Pedic International,
now known as Tempur Sealy
International, is a $4.4bn
leader in mattresses that
has been posting fantastic
numbers, driven by its
omnichannel focus and rapid
expansion in the direct
channel. The Kentucky-
based company saw online
growth climb 125% in Q2
2020 amid a strong housing
market and shifting
consumer behaviours.”
The coronavirus pandemic
has accelerated a shift to
online shopping that is set
to grow.
Joe Kunkle, head
research analyst and
portfolio manager at
Options Hawk, tells Brainy
Bull his five small-cap DTC
picks that are primed
for growth.
“Yeti Holdings is a $4.5bn
high-end brand famous for
its coolers and drinkware,
but it also has a number of
other emerging consumer
businesses. The Texas-
based company has seen
solid growth in its DTC
channel that’s resulted in a
better margin mix. Yeti also
has a thriving personalisa-
tion business through its
website and a very loyal
customer base.”
“Frontdoor is a $3.78bn
provider of home service
plans, covering repair and
replacement of household
systems. Customers have
been renewing via the
Tennessee-based compa-
ny’s DTC-channels at a rate
of over 2.5 times than
those acquired through
the real estate channel.
The company has said
that they have a higher
lifetime value.”
“A long-time favourite of
mine, Wingstop is nearing a
$5bn market cap after
coming off another
impressive quarter with
plenty of room for further
growth through location
expansion. The company
was able to pivot quickly
from in-store dining with an
easy transition to delivery
and pick-up models. It has
seen a lot of success from
its DoorDash partnership.”
“Freshpet is a $4bn maker of
pet food and treats in what
has been a very resilient pet
industry. The New Jersey-
based company posted
200% growth in its ecom-
merce business in Q2 2020.
While its own DTC business
is small, it makes a lot of
sense as an acquisition
target as most of the other
leading pet food brands are
owned by large packaged
goods companies.”
2017 2018 2019 2020 2021 2022 2023
Joe Kunkle’s
commentary
Ecommerce
as a share of
global retail sales
Tempur-Pedic
[TPX]
Yeti
[YETI]
Frontdoor
[FTDR]
Wingstop
[WING]
Freshpet
[FRPT]
Price to sales (TTM)
Share price performance
over last 52 weeks to 1/9/20
Net income (TTM)
Return on assets
18.11%
1.38
$203.1m
7.59%
4.72
$56.75m
10.45%
2.97
$14m
21.35%
21.01
$28.59m
19.63%
13.77
$4.26m
1.21%
101.12% -11.26% 70.08% 137.14%
Source:
Yahoo
Finance
06.08.20
Omnichannel
commerce
In the long term, Square is
likely to be propelled forward
by the tailwind that the
pandemic has provided digital
payments. Shops may reopen
and people may return to the
high streets, but even the
brick-and-mortar businesses
that were forced to transition
to online selling will likely
have realised how convenient
Square’s technology is.
In theory, this should lead
to an uptick in more companies
adopting an omnichannel
approach and integrating
payment technology into offline,
online and DTC channels. The
total transaction value in the
global digital payments space
is set to be worth $4.7trn this
year and is predicted to be worth
$8.3trn by 2024, according
to data from Statista and
research by Learnbonds.com.
Similar to Square, Shopify has
seen accelerated growth recently,
given that its ecommerce
technology can be integrated
into any website. Essentially,
this allows a DTC brand to
receive and handle orders itself,
without having to rely on online
marketplaces such as Amazon.
According to Statista,
Shopify accounts for 30% of the
ecommerce platform market in
the US. Its market dominance
in the online space made the
company’s stock one of the best
performers in the aftermath
of the market sell-off. It more
than doubled in value between
April and July, with shares
pushing past the $1,000 mark
for the first time in June.
For the first quarter of 2020,
Shopify reported revenue of
$470m — up 47% from the year-
ago period — surpassing Wall
Street expectations of $443.1m.
In the six weeks from 16
March to 24 April, Shopify saw
$2.382
$22.974
$2.928
$23.956
$3.535
$25.038
$4.206
$26.074
$4.927
$27.243
$5.695
$28.472
$6.542
$29.763
Understandably, COVID-19
led to a slowdown in its seller
ecosystem. Revenue from the
Cash App offset the slowing
demand, though. In the first
quarter, the app’s revenue
accounted for more than a third
of the company’s total revenue
— $528m — up 197% year-over-
year. Gross profit, meanwhile, was
up 115% year-over-year at $183m.
Moshe Katri, managing director at
Wedbush Securities, believes
Square’s seller segment will
gradually improve when
lockdown restrictions ease in the
US. He also expects the increased
growth in companies looking to
adopt the DTC model to be
sustainable. “We continue to see
an expansion in ecommerce
transactions even as COVID-19’s
impact tapers off,” Katri tells
Brainy Bull.
Images:
©
Tempur-Pedic,
Yeti,
Frontdoor,
Wingstop,
Freshpet
DTC Report

36
an acceleration in new sign-ups.
Almost two-thirds more stores
were created on its platform
during the period than a year
ago. The company did warn,
however, that this could be
attributed to the extension of
the free trial period on standard
plans from 14 days to 90 days.
It was for this reason that all
eyes were on the second quarter
earnings report at the end of July.
Would those taking out free trials
convert into paying subscriptions?
While monthly recurring revenue
was up 21% year-over-year to
$57m for the three months to the
end of June, the level of growth
was impacted slightly by the
number of free trials taken out.
Shopify indicated that the
rate at which merchants were
converting their 90-day trials
into subscriptions was lower
than the pre-pandemic rate, but
the company expects stronger
retention going forward.
Nevertheless, new stores grew
71% in the quarter and the total
value of merchandise sold on the
platform rose 119% year-over-year
to $30.1bn.
P A R T 3
Determining
the future
RECENT RESEARCH
published by PipeCandy, a
company that analyses business
and consumer perception metrics
about DTC brands, found that
food and drink, pet food and
fitness verticals had been faring
better compared to their past
performance. On the other hand,
apparel, fashion and furniture saw
a year-over-year decline in web
traffic during April.
Within the verticals that
performed well, there were some
unexpected additions. For
example, while slaughterhouses
were shuttered and meat
production ground to a halt —
at one point Wendy’s [WEN]
restaurants in the US even ran out
of hamburgers — hungry
shoppers snapped up meat-free
and vegan substitutes.
Furthermore, according to
one survey of 2,000 British people
conducted by Mintel, 25% of
young millennials (aged 21 to 30)
are of the opinion that a vegan
diet has become more appealing
since the start of the outbreak.
The Very Good Food
Company [VERY] became only
the second plant-based food
purveyor to be listed — the other
being Beyond Meat [BYND] —
when it joined the Canadian
Securities Exchange in June.
The British Columbia-based
firm is behind The Very Good
Butchers brand, which as well as
selling through retailers, delivers
boxes of plant-based meat direct
to consumers’ doors through a
monthly subscription.
Adapting the DTC model
Will other businesses look to the
likes of The Very Good Company
and try to replicate its success?
Will more companies pivot to
the DTC model in the future? It’s
possible. Afterall, the model does
have many appealing aspects.
However, it’s not for everyone.
“The primary challenge is that
it’s not necessarily the solution
to every brand’s woes. It can be
expensive, logistically challenging,
and distracting,” Christian
Polman, chief strategy officer at
brand consultancy Ebiquity,
tells Brainy Bull.
“The hype around DTC is
ultimately about brands getting
closer to their consumers. Many
brands can achieve similar
outcomes by building great
customer experiences, backed
by good relevant content that
builds brand engagement, loyalty
and creates differentiation and
competitive advantage.
Polman points to one brand
— Warby Parker. In its early years,
the innovative eyewear company
had huge success experimenting
with showrooms that were offline.
“In itself, DTC doesn’t build brand
affinity. For many established DTC
companies, success came when
they built live [retail] experiences
that brought the brand to life,”
Polman explains.
Industry stalwarts look to
acquire brand affinity
It’s this blend of offline retail and
ecommerce that has piqued the
interest of large multinationals.
In April 2019, digital-first razor
blade company Harry’s struck a
deal with Boots to sell its
products in 300 stores — a move
designed to change the way
Harry’s markets itself to
customers. The following month
it was announced that Edgewell
Personal Care [EPC], owner of
the Wilkinson Sword brand,
would be acquiring Harry’s
for $1.37bn.
Edgewell’s shares dropped
around 17% on news of the deal,
reaching a 52-week low at the
time. This was due to the
possibility that the company
would have to take on more debt
to fund the acquisition. Then, in
DTC IPOs:
Ones to
Watch
Earlier this year,
mattress-in-a-box
company Casper’s
[CSPR] debut on the
stock exchange was
a disaster. Its IPO
has become a
cautionary tale,
highlighting the fact
that going public
isn’t always the right
path for DTC brands.
But not all DTC
brands are expected
to flop when going
public. Following its
2017 reverse merger,
Purple Innovation
[PRPL] has seen its
share price increase
sharply in recent
months. The stock
rose 336% between
3 April and 10 July.
Below are some
other DTC compa-
nies that are
rumoured to be
considering an IPO.
Allbirds — The
digitally native
trainer company
reached a $1bn
valuation after just
four years of trading,
and has also started
to expand into
physical retail.
Away — The
on-trend luggage
brand is another
$1bn-valued DTC
company. Its
product line-up of
suitcases, bags and
organisers are also
set to include
clothing in 2021.
Poshmark — The
online marketplace
for second-hand
clothes reportedly
postponed a
potential IPO at the
end of 2019 to focus
on increasing its
sales. It’s likely to
revisit the idea soon.
23andMe —
Although the DNA
home-testing kit
company, last
valued at $2.5bn, cut
14% of its staff in
January due to
declining sales, the
pandemic may have
presented new
opportunities to
analyse genomes.
February of this year, the deal was
blocked on the grounds that it
would harm competition in the US
shaving market. Following the
announcement of the Federal
Trade Commission’s (FTC)
decision, Edgewell’s shares rose
more than 27% in intraday trading.
Despite the botched deal,
other big companies are vying for
a slice of the DTC pie. In July,
Constellation Brands announced
that it would acquire the DTC
wine business Empathy Wines,
“
The hype around DTC is ultimately
about brands getting closer
to their consumers”
— Christian Polman, Ebiquity
AWAY is a trendy DTC
luggage brand valued
at $1bn. The company
could debut soon.
Image:
©
Away
DTC Report

38
JUL
JUL
JUN
APR
MAR
2020
NOV
SEP
13.43%
5.47%
118.12%
90.06%
co-founded by entrepreneur and
investor Gary Vaynerchuk in 2019.
“Key to our strategy is being
consumer obsessed,” Bill
Newlands, CEO of Constellation
Brands, said in a press release.
“We believe Empathy Wines is the
right strategic partner to help us
deliver exceptional brands and
experiences to our consumers.”
With the coronavirus pandemic
creating lasting uncertainty in
the retail and grocery industries
around the world, there is the
possibility that we will see major
fast-moving consumer goods
(FMCG) businesses, like Unilever
[ULVR], move into the DTC space
through acquisitions.
“As we come out the other
side of the pandemic, DTC
businesses may look like
attractive opportunities for
FMCG players that are wanting to
diversify their route to market
and reduce their reliance on
brick-and-mortar retailers,”
Andrew Taylor, co-founder of
Aldwych Partners, a consultancy
that advises on Competition and
Markets Authority (CMA)
investigations, tells Brainy Bull.
They will have to read
carefully though, Taylor warns.
Many of these stalwarts often
acquire DTC brands and startups
for their innovative approach to
ecommerce. But an acquisition is
no cast-iron guarantee of success
in the DTC market.
Unilever bought Harry’s
biggest competitor, Dollar Shave
Club, for $1bn back in 2016,
despite the business not being
profitable. At the time, the deal
raised eyebrows and since then
the company has admitted that
the acquisition hasn’t made much
sense financially, a source close to
the matter told The Wall Street
Journal last December.
Taylor adds that health and
beauty, and household products,
are likely to be more vulnerable to
CMA or FTC intervention and
face more regulatory hurdles than
those in other verticals, such as
food and drink.
“Competition authorities are
increasingly sensitive to the
possibility of killer acquisitions
— established suppliers snuffing
out the competitive threat posed
by digital startups,” Taylor says.
The DTC brands that
could breakout
It’s clear that food and drink brands
will continue to profit post-pandemic,
but will other verticals that haven’t
fared as well during the downturn,
such as clothing, bounce back?
The indications are that this will
be the case. For example, Canadian
athletic apparel retailer Lululemon
[LULU] will be one to watch in the
future. DTC has been the firm’s
fastest-growing segment and the
company has made significant
investment in its checkout process
and digital marketing to help attract
and retain customers. The first
quarter of the fiscal year, ending 3
May, saw ecommerce sales rise 70%
year-over-year.
Another company that could go
from strength-to-strength post-
pandemic is iRobot [IRBT]. The bulk
of its sales are from its autonomous
vacuum cleaners and mops. Revenue
for the second quarter of 2020,
ending 27 June, was $279.9m, an
8% increase compared to the
year-ago period. Although DTC
revenue was a relatively small
$33m, it roughly saw a 160%
year-over-year increase. With
cleanliness and hygiene having
taken an important role during
the pandemic, especially as more
people were spending more time
at home, the company is hoping
this will be a springboard for the
DTC side of its business.
DTC breakouts
How some DTC brands have
performed against the SP 500
Lululemon [LULU]
Square [SQ]
SP 500 [SNP]
iRobot [IRBT]
DTC brands have been
disrupting traditional retail now
for more than a decade, and its
likely that they will continue to do
so in the future. However, it’s
unlikely that we’ll be seeing a
seismic shift to online-only retail
anytime soon.
“There’s no doubt this
[DTC] category will continue
to grow. However, as long as
we see lockdowns continuing
to ease, the importance of live
retail environments will return,”
Polman says. “Until we’re stuck
in a chair with virtual goggles
on, there’s a long life left in live
experiences.” b
“
Competition authorities are
increasingly sensitive to the
possibility of killer acquisitions
[in the DTC space]”
— Andrew Taylor, Aldwych Partners
LULULEMON’s
fastest growing
segment is DTC.
Image:
©
LuluLemon
DTC Report

40 41
L E g E n D a r Y i n v E S T O r S
T a L k S H O P
What is it about Jack Schwager
that encourages investing legends
and hedge fund billionaires
to open up? Brainy Bull meets
the man behind the words
Words:
Amelia Schwanke
Photography:
Matt Nager
Profile: Jack Schwager
I n S I D E M A n :
40 BRAINY BULL — Issue 03

42
the world of trading and investing, to those on
the outside, can often seem hugely secretive.
There is one person who has been able
to penetrate this world and gain the trust of
these enigmatic individuals — Jack Schwager.
The biggest names in the business have fallen
under his spell and — after a thoroughly
engaging interview — it’s easy to understand why.
Who is the man that the world’s most
influential investors consider their confidant?
The trader’s hall of fame
There’s a tranquility to Schwager that instils
calmness. Like the majestic mountains that
frame his home in Winter Park, Colorado,
his warm, considered tone creates an open
space for sharing ideas and opinions.
It’s this assuredness — not to mention
his innate understanding of the mechanics of
the markets — which has helped Schwager to
get unfettered access to the habits and customs
of renowned investors such as Ray Dalio,
Stanley Druckenmiller and Monroe Trout.
In his best-selling book series, Market
Wizards, Schwager talks to some of the world’s
best traders and distils their secrets to success.
Interviewees are chosen for their extraordinary
outperformance and exceptional trading skill.
But the appeal really lies in how
Schwager tells their stories. He has a way
of humanising them that makes you feel
as if you’re the one asking Jamie Mai, the
co-founder of Cornwall Capital — featured
in Michael Lewis’ The Big Short — how he
discovered the subprime mortgage scandal
that led to the 2008 financial crisis.
Throughout his books, Schwager captures not
only the essence of each trader’s investment style
and market focus, but also their backgrounds
and initial attraction to the financial markets.
While the conversations with hedge
fund billionaires Dalio and Cohen are of
course another major draw, it’s Schwager’s
enthralling style that keeps you hooked.
Without him, the stories behind some of the
most epic trades — and not just the bets that
paid off — wouldn’t have been exposed.
There’s no shortage of epic tales on Wall
Street. It’s not only the high-stakes gambles
with the potential for massive gains or huge
losses that steal people’s attention, but the
idiosyncratic personalities of some of the
community’s most influential traders that
make for compelling reading…
n E v E R
T H E
L E S S ,

44
“MY ECONOMICS
EDUCATION INCLUDED
VERY LITTLE OF
ANYTHING ON
MARKETS…
... AND CERTAINLY
NOTHING ON
ANYTHING LIKE
FUTURES”
The philosophy of
a trading savant
When Schwager was just stepping onto the
career ladder in 1971, he had no interest in
the markets. He was more curious about
understanding how the global economy behaved.
Born in Belgium and raised in Brooklyn,
he had just graduated from Brown University
with a Masters in economics, and by
chance landed an interview for the role of
commodity research analyst in New York.
“I actually knew nothing about futures
at the time,” he says. “My economics
education included very little of anything on
markets and certainly nothing on anything
like futures,” Schwager tells Brainy Bull.
It was around this time that Schwager
began writing for Futures — then called
Commodities Magazine. His articles gained him
some recognition in the industry and, in two
short years, he went from being an analyst to a
research director — a role he held at a number
of firms for the next 20 years. Among the more
recognisable were Smith Barney (now co-owned
by Citigroup and Morgan Stanley), Paine
Webber (now UBS) and Prudential Securities
(now Prudential Financial), Schwager notes.
Schwager was strictly a fundamentalist until
he met Steve Chronowitz — who, at the time, was
the technical analyst who worked for him at Loeb
Rhoades Hornblower. Schwager noticed that out
of all his analysts, Chronowitz was the only one
who was significantly “more right than wrong”.
“I got to understand [from Chronowitz]
that there was a good rationale for why technical
analysis worked and that’s simply because the
market price reflects all the other information
in the market. It’s not like you’re ignoring
fundamentals, you’re basically seeing the impact
of fundamentals and psychology in the price.”
Ever since, he’s been a firm believer in the
value of charts and technical analysis. He also
appreciated that technical analysis was far
more compatible with risk management
than fundamental analysis. Once he
switched from trading based on fundamental
analysis to using technical analysis instead,
Schwager said he went from consistently
losing to becoming net profitable.
The first market wizards
The publication of A Complete Guide To The
Futures Markets — a compact 800-page analytical
guide to the futures markets — in 1984 (a revised
version was published in 2017) acted as a catalyst
for the first of the Market Wizards books. Several
Fortunately, Schwager personally knew
some phenomenal traders. He recruited
Michael Marcus — who he met while
interviewing to fill the research position Marcus
was vacating. Through Marcus, he met Bruce
Kovner, the founder of Caxton Associates, and
also Ed Seykota, who had developed one of
the first computer programs for testing and
trading systems. Schwager’s circle continued
to grow till he had 17 interviewees.
Some of the biggest names in the
business were in the book, including Kovner,
Jim Rogers, co-founder of the Quantum Fund,
Paul Tudor Jones, chief investment officer at
Tudor Group, Michael Steinhardt, the founder
of Steinhardt Partners, and Richard Dennis, a
celebrated commodities trader who famously
believed that successful trading could be
taught and so recruited 23 novice traders, who
became millionaires, to prove his point.
Building a bespoke strategy
“The personalities of the traders I interviewed
are as diverse as any random group of people
you want to pick,” Schwager says.
However, there are commonalities. Each of
them tend to have a very clear trading method
that matches their personality. Randy McKay
— a veteran trader who turned $10,000 into
over $10m over 20 years — noted in his Market
Wizards interview that this was common among
virtually every successful trader he knew.
From his time spent with these investing
icons, Schwager was also able to determine
that they were all “very, very disciplined
people”, who were hard workers but had
tremendously different trading methodologies.
Schwager explains that each individual
hones in on a unique factor that they believe
is critical, and that works for them. “So by
definition that’s always going to be something
different,” he says. Their approaches can range
from purely fundamental to purely technical,
from short-term to long-term, and from
the intuitive trading style that made Tudor
Jones so attuned to the markets to the smart
asymmetric bets that epitomise Mai’s approach.
Even individual traders may significantly
change their methodologies over time. As
Colm O’Shea of COMAC Capital explained to
Schwager: “Traders who are successful over
the long run adapt. If they do use rules, and you
meet them 10 years later, they will have broken
those rules. Why? Because the world changed”.
“The closest thing to a single common
denominator — but even that has its rare
years later, another publisher invited Schwager
to lunch to pitch him on the idea of doing a series
of analytical books. Schwager told him that he
had no interest in doing another analytical book
and that, if he were to write another book, he
wanted it to be for a larger audience. He went
on to tell the publisher about his concept for
the book that was to become Market Wizards.
“I had thought that a book of interviewing
these great traders was a good idea. I also
thought it would be a good excuse to meet
these people and pick their brains,” he
explains. “It gave me an excuse to delve
into what they were doing and learn.”

46
“THE CLOSEST THING TO A SINGLE
COMMON DENOMINATOR...
... ALMOST ALL OF
THEM ARE PRETTY
RIGOROUS ABOUT
RISK MANAGEMENT”
13F filing still showed $138bn at the end of
April, making it the world’s biggest hedge fund.
For Schwager, Dalio is “a student of
history”. The superiority of his hedge fund is
its fundamentally based computer model that
incorporates historical analysis going back
hundreds of years. “Having that perspective
of how markets work in all different types
of situations, over broad periods of history,
I think is where the edge of his whole overall
approach is. Dalio also places a very strong
emphasis on learning from mistakes.”
Discovering Unknown Market Wizards
Through his work at Fortune Group,
Schwager met Emanuel Balarie, who
engaged him as a consultant to construct
a multimanager portfolio for ADM Capital.
Balarie would later come to Schwager with
an idea for a platform through which traders
could link their personal trading accounts and
be discovered by institutional money looking
for fresh talent. Schwager was on board.
With a long-term vision of disrupting Wall
Street and democratising the capital allocation
process, the pair founded FundSeeder in
exception — is that almost all of them are pretty
rigorous about risk management,” Schwager says.
Often, their strict adherence to risk management
has its roots in a painful experience. For
example, Paul Tudor Jones’s most memorable
and influential market experience was a cotton
trade in 1979 that saw his accounts lose 60%
to 70%. Ever since, risk control has become
the essence of his trading style. In Jones’ own
words: “I have a very short-term horizon to pain.”
Hedge Fund Legends
Given Schwager’s expertise in the futures market,
his transition to the hedge fund industry was
a natural fit. At the turn of the millennium,
he landed a job as a partner at Fortune Group,
a London-based hedge fund advisory firm that
was later acquired by Close Brothers Group.
After leaving Fortune, Schwager wrote
Hedge Fund Market Wizards, in which he explored
each manager’s edge — something that is critical
to anyone who is trying to identify which trades
to focus on. The book profiled legends such
as Ray Dalio of Bridgewater Associates and
Edward Thorp of Princeton-Newport Partners.
Perhaps no hedge fund manager has
been more innovative than Thorp. Among
his accolades are the first successful quant
fund, the first market neutral fund, the first
implementation of statistical arbitrage, the
first implementation of convertible arbitrage,
and the first formulation of an option-pricing
model that was equivalent to — and preceded
— the famous Black-Scholes model.
Thorp’s performance flies in the face of
the theory that it is impossible to consistently
win in the markets. Between 1969 and 1988,
his first hedge fund had a track record of
227 winning months and only three losing
months, a 98.7% winning percentage.
Dalio’s remarkable achievement has been
his ability to generate attractive returns on
enormous assets. Even taking into account the
15% drop in assets under management during
March and April, Bridgewater Associates’ May

48
2014. In the ensuing years, they launched
FundSeeder.com, which provided traders
with performance metrics and analytics.
It also allowed traders to create “verified”
track records by linking their account.
In his upcoming book, Unknown Market
Wizards: The Best Traders You’ve Never
Heard Of, published by Harriman House
in November, Schwager focuses on solo
traders that were not only operating in
complete obscurity but, amazingly, had some
of the “best performance records I have
ever encountered”. Several of these traders
were discovered via FundSeeder.com.
One of the traders profiled, Amrit Sall,
a futures trader, has averaged annual returns
of 337% over 13 years, using a strategy that
Schwager had never seen before. On a basic
level, Sall traded market-moving events.
“Essentially, what he was doing was
using the influx of new information and
being very, very prepared on how the market
should react to that information. He had
a precise game plan,” Schwager recalls.
Daljit Dhaliwal, another trader in the
book, also used a “macro, event-driven”
trading approach. Dhaliwal averaged annual
gains of 298% over a nine-year period,
and while he has an average annualised
volatility of an extremely high 84%, his
maximum drawdown is under 20%.
The secrets to successful trading
To conclude each book, Schwager compiles
the wisdom he has learnt from each trader into
epigrams. Some memorable examples of these
include the advice to “guard against impulsive
trades” or to “choose meaningful stop points”.
Perhaps the most expressive, however,
is “if you’re on the right side of euphoria
or panic, liquidate or lighten up”. As each
individual is unique, the lessons can always
be adapted in a distinctive way, making
Schwager’s tomes timeless resources. It is
these lessons that also inform his personal
trading. “I have a rule, whenever I start trading
I always risk a small amount and if I happen
to lose that small amount then I’ll stop, and
I’ll come back at a later time,” he says.
Like the mountains that surround
Schwager, the grandeur of the Market
Wizards series and the lessons he imparts
about how investing giants reached their
peaks will stand the test of time. b
“ IF YOU’RE ON THE
RIGHT SIDE OF
EUPHORIA OR PANIC,
LIQUIDATE OR
LIGHTEN UP...
Global Banking
Finance Review
International
Finance
Disclaimer: Century Financial Consultancy LLC (CFC) is Limited Liability Company incorporated under the Laws of UAE and is duly licensed and regulated by the Emirates Securities
and Commodities Authority of UAE (SCA). Services offered by CFC include financial market products that are traded on margin and can result in losses that exceed deposits.
Transactions or trades in the financial markets are very risky, and you should trade only with the capital you can afford to risk or lose. Before deciding to trade on leveraged products,
you should consider your investment objectives, risk tolerance and your level of experience with these products. Trading with leverage carries significant risk of losses and as such
margin products are not suitable for every investor, and you should ensure that you understand the risks involved and seek independent advice from professionals and experts if
necessary. CFC is not responsible or liable for any result, gain or loss, based on this information, in whole or in part. Refer to risk disclosure on our website.
+971 4 3562800 | info@century.ae | www.century.ae
We are delighted to be recognized with two
prestigious awards this year.
These accolades are a tribute to our customers,
whose trust and confidence is our core objective
and it further motivates us to serve them better.
Regulated by SCA
Every recognition is a testimony of
our compelling desire for excellence
Global Banking
Finance Review
International
Finance
Disclaimer: Century Financial Consultancy LLC (CFC) is Limited Liability Company incorporated under the Laws of UAE and is duly licensed and regulated by the Emirates Securities
and Commodities Authority of UAE (SCA). Services offered by CFC include financial market products that are traded on margin and can result in losses that exceed deposits.
Transactions or trades in the financial markets are very risky, and you should trade only with the capital you can afford to risk or lose. Before deciding to trade on leveraged products,
you should consider your investment objectives, risk tolerance and your level of experience with these products. Trading with leverage carries significant risk of losses and as such
margin products are not suitable for every investor, and you should ensure that you understand the risks involved and seek independent advice from professionals and experts if
necessary. CFC is not responsible or liable for any result, gain or loss, based on this information, in whole or in part. Refer to risk disclosure on our website.
+971 4 3562800 | info@century.ae | www.century.ae
We are delighted to be recognized with two
prestigious awards this year.
These accolades are a tribute to our customers,
whose trust and confidence is our core objective
and it further motivates us to serve them better.
Regulated by SCA
Every recognition is a testimony of
our compelling desire for excellence

50
“ESG is probably the single
most important change to
asset management”
Perspectives:
However, Ridley says there is
still a common fallacy at the heart of
investing — despite more and more
studies debunking such notions —
that returns need to be sacrificed
in order to advance social and
environmental agendas. In starting
Radiant ESG, Ridley is challenging
this train of thought. “If we can
[get good returns] with a diverse
and minority-led firm, because we
think we can actually make better
decisions that better reflect our client
base, then why wouldn’t we do that?
Why is there push back there?”
Having spent three years as global
CEO of Rosenberg Equities — the
famed quant arm of AXA Investment
Managers — Ridley decided to go her
own way and with fellow Rosenberg
Equities alumni Kathryn McDonald,
formerly head of sustainable investing
at the firm, founded Radiant ESG in
June 2020. The company, which at
the time of writing is in the process
of finding a partner to launch its asset
management business, runs ESG and
impact consulting for institutional
clients. Ridley says the co-founders
see both asset management and
consulting as important ways to
continue to push the dialogue on ESG.
Information
leading insights
Ridley says that she learnt some
important lessons about company
culture during her time leading
Rosenberg Equities that she wants to
instil at Radiant ESG. Chief among
these concepts was that of remaining
Words:
Danny McCance
Photography:
Carlos Chavvaria
Heidi Khashabi Ridley
has for a long time
championed the
importance of ESG
principles in investing.
Having recently
established her own
firm, Radiant ESG, she
tells Brainy Bull why
considering strong ESG
principles is crucial to
any investment decision
DESPITE BEING JUST 08:00, it
had already been an action-packed
morning for Heidi Khashabi Ridley
on the day she picked up the phone
to Brainy Bull in early August.
That morning, Ridley had spent
hours speaking to those involved in a
panel about gender pay disparity that
she was to moderate. It’s a subject
that — as you might expect from the
co-founder of an ESG-focused firm
— is close to Ridley’s heart. She has
spent much of her career advocating
for diversity and inclusion alongside
broader ESG issues. “We're now in
a world where we're making a very
strong economic argument [when
it comes to diversity and inclusion],
and one might wonder why we need
to work so hard to defend [it],” she
says, reflecting on the morning's
discussion. I find that perplexing,
but at the same time, I'm not sure
there are many excuses left.”
When considering the topic
of diversity and inclusion, Ridley
says that a shift in focus started to
take place in the past two years, as
business leaders began to realise
the positive benefits that investing
along these themes can bring.
“People were coming at it more
from an equity, an equality [and] a
fairness angle — you're giving
people equal opportunity,” Ridley
explains. “More recently, you've
seen it starting to dovetail with
ESG,” she continues, saying that the
discussion has now shifted to one
about “good governance and good
business practice and that it’s just
the right way to run a business”.

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