Q4 2024 Results and Reflections

"Volatility is the Price of Admission"

Disclaimer: The following is not financial advice. The content is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice.

Disclaimer #2: The following consists of general political commentary. I am not a political expert or claim to be an authority on the subject. In the words of Marcus Aurelius, “all is opinion”.

Enjoy!

The Results

During Q4 2024, the JB Global Capital Fund declined ~20%, giving up more than half of the gains from the prior quarter (easy come, easy go?). The whipsawing in our top holdings (Alibaba, Tencent, PayPal) resulted in a pretty terrible quarter, on a relative and absolute basis. Over the longer term however, the fund has performed adequately. In full year 2024, the fund outperformed both the VT Total World Stock Index and the S&P 500. Since inception, the fund has outperformed the VT, while falling short compared to the exceptional S&P 500.

"Volatility is the price of admission" - Morgan Housel

We anticipate high volatility to continue into Q1 2025 with cease-fire talks in the middle east, the inauguration of a widely unpredictable Donald Trump, and earnings reports around the corner. Also, let’s not forget the nationwide ban of TikTok set for tomorrow… (or not?). One thing is for sure, high drama moves markets.

Geopolitics

During the final months of the Biden presidency, the government has passed a myriad of laws designed to restrict China’s access to U.S. technology. The government crackdown is being implemented under the label of “national security concerns”, a term that can seemingly be used broadly as any technology clearly has both commercial and military applications. The underlying assumption is that China-based businesses are (or could be one day) state owned enterprises in disguise, spying and/or “brainwashing” on behalf of the CCP. While the truth is most likely somewhere between the two polarities of opinion (All or None), this political pressure has created a strong negative bias in markets regarding all Chinese businesses, leading to low historical price multiples.

For example, in recent news, the U.S. Department of Defense designated Tencent as one of several "Chinese military companies". Tencent’s inclusion in the list was a negative surprise , leading to a 10% decline in share price. Tencent has since issued a statement asserting that it is not involved in military activities, emphasizing that the inclusion has no impact on its business operations. The company is actively seeking clarification and removal from the list. Given Tencent’s business model (social networking and online gaming) it follows that the company has a decent chance to secure exclusion through US courts, which it plans to pursue. Regardless of the final outcome however, the designation reflects continued tensions between the U.S. and China over technology, national security, and economic competition.

In other news, the Supreme Court upheld the law requiring China-based ByteDance to divest its ownership of TikTok or face an effective ban in the U.S. The law, Protecting Americans from Foreign Adversary Controlled Applications Act, was signed by President Biden in April 2024. TikTok’s fate in the U.S. now lies in the hands of President-elect Donald Trump, who originally favored a TikTok ban during his first administration, but has since reconsidered. More recently, Trump has invited TikTok’s CEO Shou Chew to his inauguration and has been communicating directly with China’s President Xi Jinping, potentially warming relations. Who would’ve thought?

Trump- The Unreliable Narrator

Our approach to investing involves a conscious weighing of potential scenarios that can unfold affecting our stock holdings. One such weighing is of the promise President Donald Trump made along his campaign to use blanket tariffs Day 1 in office. (60% on Chinese imports, 25% on Mexico and Canada, and 10% on all others). The problem we face in determining how much to factor in such a scenario involves an understanding of political idealism and economic reality.

In our previous article, we discussed how political aspirations can come into conflict with economic realities, stating,

“Politicians can promise whatever they want regarding the economy, but they won’t be able to deliver if their promises fly in the face of economic reality. Ultimately, the laws of economics are irrefutable. In other words, governments can pass laws designed to compel or discourage behavior, but in general they can’t mandate economic outcomes due to the complexity of second-order consequences and the ever-changing nature of causes and effects.” - Q3 2024 Letter

To avoid a long-winded discussion about game theory regarding tariffs, I will state my unauthoritative opinion regarding the matter: the incoming Trump Administration is fully aware of the potential retaliatory fallout from global trading partners around the world. I find it hard to believe that “they believe” that a 60% tariff on all Chinese imports “would be paid by China in full” without any retaliation that could be detrimental to the American consumer and thereby the overall American economy. The idea that “the appreciation of the dollar would simply offset the increased inflation caused by tariffs” as proposed by Scott Bessent (the incoming treasury secretary) is a clairvoyant prediction about what currencies will do in the future (which no one, regardless of I.Q, can predict). The ironic part of Bessent earnestly defending the use of tariffs as a net positive is that before his nomination, he emphasized that tariffs could be used as a negotiating tool to get better trade deals from other nations without imposing them.

“I think that given Donald Trump’s credibility and what he has done in the past on tariffs that we may not have to get to tariffs, but the threat of tariffs will change the quality and the fairness of a lot of historically poor trade deals…I believe that in a conservative agenda, tariffs do have a place, but I believe it’s part of the calculus of all the tools in the tool kit.” – Scott Bessent, Key Square Group Investment Firm CEO at Free Market Conference, June 6th , 2024

If tariffs were an absolute net positive for the country, there would be no reason to downplay using them outright, in every instance. The reason for this “tool in the toolkit” comment is the inherent understanding of the negatives that come with using blanket tariffs.

Portfolio Company Q4 Updates:

Alibaba BABA 0.00%↑

During the quarter, Alibaba continued to sell “non-core” assets such as Intime, a leading department store operator in mainland China, and Sun Art, China's largest hypermarket operator. The sales mark a move away from brick-and-mortar retail toward the asset-light model of third-party ecommerce. While we welcome a shift in strategy as the moves will free up capital toward more efficient units, the timing of the asset sales will cost the company ~$3B. ($1.7B loss from Sun Art and $1.3B loss from InTime). The “new retail” strategy that Alibaba touted during the time of these purchases has not come to fruition, with competitors benefiting (at the expense of Alibaba) from the agility that comes with asset-light business models.

Alphabet GOOGL 0.00%↑

On December 9th, 2024, Google's Quantum AI lab released Willow, its highest-performing Quantum AI chip. On a high level, Willow's computational performance far exceeds that of traditional supercomputers by a large margin. A few days later Alphabet released its Gemini 2.0 LLM with a slate of performance improvements and end-user cost reductions. These announcements are indicative of Alphabet’s high level strategy, which consists of speculative bets on potentially transformative technologies while dominating search and online advertising markets.

Plans for 2025

In 2025, you can expect to receive quarterly letters discussing the performance of the fund, along with general market commentary. You may also receive the occasional general article when inspiration calls for it. We would like to thank you for your attention and support throughout the years. We are happy to have you along for the journey.

With great appreciation,

Jack Beiro, MBA

JB Global Capital

The information contained herein represents the author’s opinion and is for informational purposes only. Nothing in this newsletter should be construed as legal, tax, investment, or financial advice. No opinion expressed by the author should be construed as a specific inducement to make a particular investment or follow a particular strategy. The author may hold positions in securities mentioned in the newsletter and may buy or sell securities at any time. The author may express opinions based on information he considers reliable, but no guarantee or warranty is made with respect to such information’s completeness or accuracy, and the author is under no obligation to update or correct any information provided. Please consult your own financial or investment advisor before acting on any information provided herein.