Monday
On Monday morning, my commute to Evenlode’s office takes me through the limestone villages and green fields of the Cotswolds. I enjoy this drive, the silence and stillness of rural surroundings always make me feel more present.
The time alone also gives me time to think. This morning, my mind is on stablecoins, which have been in the spotlight since the Circle IPO. Over the weekend there have been more news articles with a lot of bold predictions about stablecoins disrupting various parts of the payments value chain. Mastercard and Visa are core holdings in the Evenlode Global Equity portfolio and both names have been negatively affected by the news. These types of stories are not new. We have heard variations on this theme before; crypto rails, account-to-account and pay-by-bank have each, in their moment, been billed as an existential threat to the networks. So far, however, the networks have remained dominant. Still, you must always re-underwrite your holdings when a new risk surfaces, rather than assume it will pass.
At the Monday investment team meeting, we debate recent work and research across the Evenlode team, including the latest news on stablecoins. Later that day, Mastercard organises an ad hoc call for investors on the topic and I catch up on transcripts and research from analysts who cover global payments.
Tuesday
I join two further discussions with sell-side analysts to clarify how this could play out for the card networks and then report back to the Global Equity team at our ‘nudge’ meeting. We call it a ‘nudge’ because most of the portfolio decisions we make are incremental, so it is rare that an entire thesis changes overnight. We tend to add or trim at the margins as valuations shift or as new information alters one of the risk factors in our framework. Every so often, though, the fundamentals can change in a way that calls for more than a small adjustment – and the ‘nudge’ can turn into a ‘budge’.
As we work through recent research, we conclude that stablecoins are unlikely to displace cards in consumer-to-business payments in the near term. Consumers will only change payment methods if the benefits are substantial – not marginal – and in this case, the cost savings accrue to merchants, not consumers. Ultimately, it is consumers who determine which payment systems are widely adopted and at present they have little incentive to switch. On this basis, our risk scores for Visa and Mastercard remain unchanged, and we are comfortable taking advantage of their price weakness to make incremental adds to both positions. We also drafted a client brief to summarise our research and conclusions.
Wednesday
Our focus changes on Wednesday, as we have scheduled a call with a former Hasbro executive, as part of ongoing work on this new idea. The company has a large catalogue of well-known toys brands – Monopoly, Play-Doh, Peppa Pig, Dungeons & Dragons – and came onto our radar through adjacent research on Nintendo, which we already hold. Earlier conversations with the company and a licensing specialist were incrementally positive. Hasbro is still perceived as a traditional toy maker, but its gaming division – Wizards of the Coast – is now the core value driver for the group.
Today’s call focuses on understanding the strategic rationale behind this shift and the risks associated with the transition. We come away with greater insight into the strength of ‘Magic: The Gathering’ – Hasbro’s key franchise. More than 30 years old, the franchise has shown remarkable staying power: the average player is 35 with high disposable income and it continues to draw in young fans. This loyal community supports Hasbro’s push into digital gaming. Following the call, we add Hasbro to our watchlist for potential inclusion in the portfolio at the right valuation. From a portfolio perspective, Hasbro is structurally different from our existing holdings and adds idiosyncratic diversification.
Thursday
On Thursday, I travel to London for client meetings. We review recent trims and additions to the portfolio and how these moves reflect shifts in valuation or underlying fundamentals. From there, questions turn to the potential risks facing some of our holdings. I explain how we work through these issues using our ten-factor risk framework, which re-assesses the durability of a business as new information emerges. The framework provides a consistent basis for deciding whether anything has changed that is truly material. It also gives the investment team a shared language to build on each other’s work and challenge assumptions.
Friday
In our industry, there is endless opportunity to get lost in the weeds of the 288th row of a spreadsheet, so on Friday afternoons, I like to pause to keep a log of the days just passed. We live in a world where everything is geared towards an instant reaction, but compounding takes time to work – not quarters but years and decades. We have built the models, done the analysis, and scheduled the calls, now the rest of the job is having the patience to let the thesis play out.
