Sunday, November 21, 2021

Crypto Ranking Update - November 2021

Seems like every week there is big news in the cryptocurrency industry.  The latest news out of El Salvador is they are issuing $1Bn of "volcano bonds."  Half of the bond proceeds would be used to buy bitcoin to hold as collateral and half would be used to build a new "bitcoin city," powered by geothermal energy from a nearby volcano.  Value Added Taxes levied in the new city would be used partially for essential services and partially to repay the bonds.  There would be no other taxes in the new city.  After five years, the bitcoin can be sold to retire the bonds early and if bitcoin continues to appreciate at historical rates (200% per year on average), this could be very lucrative and allow for full repayment of all amounts outstanding while still being able to hold some of the originally purchased bitcoin.  El Salvador is the first nation in the world to make bitcoin legal tender and requires merchants to accept it.  The country has also started mining Bitcoin using one of its geothermal power plants.  Pretty amazing.  It is clear that there continues to be a lot of innovation, traditional finance is being disrupted and institutional adoption is growing rapidly.  Below is my updated Crypto Ranking summary, excluding the stable coins and sorted by market capitalization from largest to smallest with ratings (where available) from three sources, including Coin Checkup, Simetri and Weiss.  


There has been a lot of buzz lately about up and coming coins that could overtake Etherium, like Solana (#4) or Polkadot (#7), offering faster and cheaper transaction processing, a growing developer base and strong adoption.  Similarly there has been a lot of excitement about the so-called Metaverse tokens (none of which are included in the top 20 rankings yet), which include Decentraland, The Sandbox, Floki-Inu, Efinity Token, Terra Virtua Kolect, Epik Prime and Highstreet.  Finally, there are the "meme coins" like Dogecoin (#8) or Shiba Inu (#10) that have a large and faithful following, but a business case that is questionable.  While each coin or "project" has the potential for huge returns (especially the smaller market cap ones), in my mind that's taking a big risk equivalent to gambling.  There's certainly a strategy for investing a small amount in a number of smaller projects and just holding on to it to see what will happen, but that's more akin to venture capital investing where you could lose all of your investment in a project or it could grow 10x/100x/1000x.    

The two largest market cap coins, Bitcoin and Etherium, continue to distance themselves from the rest of the pack and the "first mover" advantage continues to be a powerful one as far as new technology is concerned.  Each coin has a slightly different use case.  Both coins are institutional quality assets to invest in, in my opinion and are the only coins I hold in my portfolio.  

Etherium is the clear market leader in smart contracts which are used in DeFi projects and NFT's, has a large and diverse developer and user base and a well-funded organization that continues to make enhancements to the protocol.  One of the things I like best about Etherium is the ability to stake your coins without leaving your wallet, giving you a yield (currently 4.5% on Coinbase).  Below is an excerpt from the Simetri report:

Ethereum Report Highlights

  • Phase 0 of Ethereum 2.0 upgrade (Beacon Chain) complete and expected to be finalized (merge with existing chain) in 2022
  • Phase 0 features an entirely new chain, which operates on Proof of Stake (PoS)
  • The capital locked up in DeFi smart contracts has grown from zero to nearly $200B
  • Ethereum browser wallet, Metamask, has recently surpassed ten million users
  • Ethereum Foundation has around $100M to support the ecosystem

Ethereum is fundamentally stronger than it's ever been. Despite all of the criticism it continues to be the number one project by development activity, with a massive developer community. The project is in a good position to not only maintain its spot as the number one platform for smart contracts, but grow its dominance in the coming quarter.

Bitcoin is the leader in store of value and also has a growing smart contract / payment ecosystem with the Lightning Network that has great potential.  Since Bitcoin is truly decentralized, major changes to the protocol are difficult to make since they require consensus across the entire network.  However, the most recent upgrade, Taproot, recently went live and will improve security and smart contracts.  Below is an excerpt from the Simetri report (you may also be interested in my post Why Invest in Bitcoin):

Bitcoin Report Highlights

  • Massive market dominance
  • Traded virtually everywhere crypto is traded
  • Global ecosystem and brand recognition
  • Active core and third-party development
  • Primary on- and off-ramp to fiat currencies

While institutional interest in Bitcoin as a store-of-value continues to grow, other tokens have become more suited to payments. Despite this, Bitcoin’s massive market dominance makes it unlikely that it will be usurped as the undisputed crypto heavyweight champion anytime soon.

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2021.  To see all my books on investing and leadership, click here.  

  
Stay safe, healthy and positive.  



Sunday, November 14, 2021

Portfolio Allocation Update (November 2021)

 

Last week was another eventful week in markets.  Probably the biggest news was the surprisingly high CPI inflation print at 6.2%, the highest in 30+ years.  This sent investors running for cover, sending gold / silver into a rally, bonds sold off and stocks were mixed but down for the week.  Ironically, a very poor Michigan Consumer Sentiment reading, which itself would be negative for markets, encouraged some hope in investors that the Federal Reserve might delay interest rate hikes to avoid the economy slipping into a recession.  It seems clear that inflation is not transitory and will be with us for some time, so investors must prepare for this reality.  Whether we can continue to see the economy grow amid elevated inflation or fall into stagflation will depend on the actions taken by the Federal Reserve (tapering and rates) and the amount of government spending (infrastructure bill, Build Back Better, etc.).  Either way, you will need to pay close attention to your investment portfolio allocation to make sure you are staying ahead of inflation.

Here's the portfolio breakdown for this month:

  • Cash - 5.9% (basically just my emergency fund plus a little extra)
  • Stocks - 20.8% 
    • US Large Cap - 7.1% (61% I manage myself in a trading portfolio and remainder is actively managed fund in retirement account)
    • US Mid Cap - 2.7% (100% actively managed fund in retirement account)
    • US Small Cap - 2.5% (100% actively managed fund in retirement account)
    • International - 8.5% (100% actively managed funds in retirement account, including developed and emerging markets) - added some this month as I exited the rest of my bond portfolio
  • Commodities - exited this month to lock in gains and moved most of it to a Bitcoin IRA, the rest was invested in art and private equity
  • Bonds - exited all positions this month, including TIPS (locked in a small profit and moved to cash)
  • Real Estate - 24.8% (37% actively managed fund in retirement account and remainder is investment property I manage myself) - added more this month as I exited the rest of my bond fund in the retirement portfolio
  • Private Equity - 13.6% (includes numerous small Seed Invest and Republic investments and a few direct investments - try to invest small amounts across a large number of companies following disruptive themes like artificial intelligence, genomics, proptech, fintech, blockchain, energy, cybersecurity, eSports, cannabis, etc.)
  • Bitcoin - 23.2% (mix of direct Bitcoin ownership including a new Bitcoin IRA, some GBTC and MicroStrategy; continuing to add to small Etherium position and dollar cost averaging small amounts twice a month into ETH and BTC in my Coinbase account); I also have a small position in the the Proshares Bitcoin Futures ETF (BITO) in my trading portfolio which I sell calls against for cash flow.
  • Gold / Silver / Other Alt - 9.8% (gold/ silver is 50% physical coins and 50% miner ETF's GDX and GDXJ (I like the miners because they pay a dividend and they also are a leveraged way to play gold since they tend to move up faster than the gold price, of course the opposite is true as well) - gold has started to rally in the last week or so and I think is still one of the most under-valued sectors right now; I also hold a small position in Metalla (MTA), a gold royalty company that should also have a leveraged return in any precious metals rally.  I made several additions to my new Masterworks account to invest in art this month (there were several interesting IPO's this month which look to have great upside and sold out rather quickly) - see my review of Masterworks here)
  • Other - 1.9%
This month, I added more exposure to small private equity deals and the new Masterworks investment as well as Bitcoin through rolling over an existing IRA to a Bitcoin IRA.  Fees were a bit high to do the IRA rollover (5% setup plus 2% trading fee), but the setup was easy, the coins are securely stored offline and they maintain $100M in insurance.  Over the long run this should outperform the commodity fund I had at Vanguard, which has had a nice run over the past year up about 50%.  Bitcoin IRA also offers a lending program where you can earn 2% by lending your Bitcoin, which will offset the account maintenance fees which are slightly less than 1% annually and allow you to add to your coins over time.  I did consider counterparty risk and after researching Genesis Global Trading (world's largest digital asset lender), I felt pretty comfortable in proceeding with that option.  If you are interested in other coins, they do have seven coins available currently including Bitcoin, Etherium, Cardano, Chainlink, Stellar, Litecoin and Bitcoin Cash and plan to add more in the future.  I focus my investing on Bitcoin and to a lesser degree Etherium and avoid speculating much in the "altcoins."   

I continue to keep a broad diversification across asset classes and favor hard assets like Bitcoin, gold/silver, real estate, and art especially in the current inflationary environment.  I like the potential upside that private equity offers relative to the public stock market, which is generally overvalued in my opinion (although if you look closely you can always find undervalued stocks which is the primary focus of my trading portfolio now).  Cash is a little higher than last month.  Overall portfolio grew 2.2% since last month.

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2021.  To see all my books on investing and leadership, click here.  
  
Stay safe, healthy and positive.  

Sunday, October 31, 2021

Investing in the Metaverse

There has been a lot of buzz in the last week about the "metaverse," the virtual reality future of the internet that was accelerated with Facebook's recent rebranding to "Meta" announced last week and their $10B investment commitment.  There is no universal definition of the metaverse, but it seems like a natural evolution of the internet as gaming, social media, commerce and digital assets (NFT's/cryptocurrency) continue to merge and evolve into robust online communities.  While Facebook (FB) is an obvious investment play into this emerging area, I wanted to look into other investment ideas.  As always, do your own research and make your own investment decisions based on what's best for your portfolio, timeframe and risk tolerance.

Stocks

Roundhill Ball Metaverse ETF (META) - this ETF includes stocks related to the metaverse theme, most of which you will recognize.  It hasn't really performed that well since it launched back in June, most likely due to the up and down performance of tech so far this year, but maybe the future will look better for this ETF.  It has seen a pickup in volume and inflows after the Facebook announcement last week, as discussed here.

Top 10 Holdings include:

  • NVIDIA
  • Roblox
  • Facebook
  • Microsoft
  • Snap
  • Unity Software
  • Autodesk
  • Amazon
  • Tencent
  • Sea Ltd.
I think Roblox (RBLX) is generally regarded as a pure metaverse play and might be worth considering for a stand-alone investment.  Judging by the amount of time my son spends playing it (and the amount of money he spends on "Robucks," the currency you use to buy in game virtual items), it has quite the appeal and is very "sticky."  Indeed, Roblox has live events like concerts and digital item "drops" that are highly anticipated and very well attended.  Roblox is scheduled to report earnings on 11/8 and that might be an opportunity to buy on weakness if the stock sells off after earnings.  The quarterly results for the past few quarters show remarkably strong free cash flow (almost $200M in the June quarter, a 58% increase from the prior quarter).  This was quite surprising to me, especially given the history of losses and earnings disappointments.   


Snap recently had disappointing earnings and was beaten down pretty bad and I bought some on the dip.  Didn't realize it was a metaverse stock, though.  Should recover nicely given enough time and especially if the metaverse momentum picks up.  


Crypto

There are also a few crypto projects that are deep into the metaverse including RedFox (RFOX).  They are involved in gaming, shopping, finance and media as shown in the graphic below.  


Here's the company description from their website:

RedFOX Labs was founded in 2018 with the purpose to be Southeast Asia's first digital venture builder and internet-technology company to improve the mass adoption of crypto and blockchain as well as other new and emerging technology.

We identify and replicate successful pure-play business models for the local markets within the fastest growing sectors across several industries.


Our core focus is to open the true business potential of the digital economy for high demand products and services such as e-Commerce, e-Media (video live streaming app), Esports and gaming, e-Travel, and ride-hailing/logistics.


Through our fast-growing and advancing ecosystem as an internet-technology company for digital economy development, we are becoming one of the leading, go-to decentralized mobile applications (dApp) in Southeast Asia.

Investing in the RFOX coin is not for the faint of heart.  Take a look at the price action since inception below.  It's currently making a parabolic move, no doubt resulting from last week's Facebook announcement and investors looking to get metaverse exposure.  As I was writing this, the price went from $0.18 to $0.20 in just a few minutes.

 


On Twitter, this project is quoted a lot as a good metaverse play.  There are other coins that you can invest in including Decentraland (MANA), an Etherium token that powers the Decentraland virtual reality platform.  MANA can be used to pay for virtual plots of land in Decentraland as well as in-world good and services.

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2021.  To see all my books on investing and leadership, click here.  

  
Stay safe, healthy and positive.  


Saturday, October 16, 2021

Monthly Portfolio Update (October 2021)

 

It's time for my monthly portfolio allocation update.  Here's a quick overview of recent market activity:

All three major indices (Dow Jones, Nasdaq and S&P 500) have broken their upward trend in September and seem to be headed downward, albeit with some very big bounces including the last few days of this week.  Many believe that the market trend has changed and so there will continue to be volatility and bounces but the overall trend will be lower for the rest of the year.  Others believe a new rally into year end is at hand, driven by strong earnings and receding COVID cases, but complicated by inflation, unemployment / job openings mismatch and supply chain issues.





Certain sectors, like energy have been on fire and have gone parabolic (seems like XLE is due for a pullback soon):

Financials also had a strong and fairly consistent upward trend, supported by a steepening yield curve (strong bank earnings this week seem likely to continue to provide a catalyst for more gains in this sector if supported by yield curve):

Of course, commodities have turned in a very strong performance recently thanks to inflation:

Gold is still struggling to break out of its downtrend and return to previous all time highs; could that be around the corner?:

The big story of the week is the Bitcoin rally to break above $60K and getting very close to prior all time highs; SEC approval of new bitcoin futures ETF's expected to start trading next week, as well as continuing interest as an inflation hedge and substitute to gold may be driving some of the rally (institutions vs individuals):

Here's the portfolio breakdown for this month:

  • Cash - 5.3%
  • Stocks - 20.2% 
    • US Large Cap - 6.5% (59% I manage myself in a hedged trading portfolio and remainder is actively managed fund in retirement account)
    • US Mid Cap - 2.6% (100% actively managed fund in retirement account)
    • US Small Cap - 2.5% (100% actively managed fund in retirement account)
    • International - 8.6% (100% actively managed funds in retirement account, including developed and emerging markets) - I transferred half of my bond portfolio into an international index fund because I'm worried about rising bond yields / falling prices due to inflation;  international stocks, particularly some of the larger China stocks, have been beaten down lately and seems to offer good value
  • Commodities - 6.8% (15% actively managed myself and 85% actively managed fund in retirement account)
  • Bonds - 7.6% (48% actively managed fund in retirement account and remainder is Schwab TIPS ETF (SCHP))
  • Real Estate - 21.1% (26% actively managed fund in retirement account and remainder is investment property I manage myself)
  • Private Equity - 12.7% (includes numerous small Seed Invest and Republic investments - try to invest small amounts across a large number of companies following disruptive themes like artificial intelligence, genomics, fintech, blockchain, energy, cybersecurity, eSports, etc.)
  • Bitcoin - 16.8% (mix of direct Bitcoin ownership, some GBTC and MicroStrategy; sold majority of GBTC position - recently added a small Etherium position and continuing to dollar cost average small amounts twice a month into ETH and BTC in my Coinbase account)
  • Gold / Silver / Other Alt - 7.8% (gold/ silver is 50% physical coins and 50% miner ETF's GDX and GDXJ (I like the miners because they pay a dividend and they also are a leveraged way to play gold since they tend to move up faster than the gold price, of course the opposite is true as well) - gold has been beaten down lately but is expected to recover as inflation and money printing continue for the foreseeable future; also hold a small position in VIX (UVXY) as short-term equity portfolio hedge and recently opened a Masterworks account to invest in art - see my review of Masterworks here)
  • Other - 1.9%
This month, I added a little more exposure to small private equity deals and the new Masterworks investment and sold GBTC to fund these investments and raise some cash, which kept my overall Bitcoin allocation about the same after factoring in recent appreciation.  Continue to keep a broad diversification across asset classes and favor hard assets (Bitcoin, gold/silver, real estate), private equity and inflation protected bonds.  Cash is a little higher than last month for new investments.  Overall portfolio grew 6% since last month, mostly driven by Bitcoin and commodities.

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2021.  To see all my books on investing and leadership, click here.  
  
Stay safe, healthy and positive.  
 

Saturday, October 9, 2021

Masterworks.io Review

 

As an investor that favors hard or tangible investments, I'm always looking for new alternative assets for portfolio diversification.  Quite a while ago, I was introduced to Masterworks.io, but only recently did a bit more research and finally made my first investment in artwork.  This post is a general overview of the site, pros and cons and my overall take on the product.

Overview

Masterworks.io is a site that allows you to make fractional investments in fine art.  They research the art market, have developed relationships with major auction houses and have built a database tracking a massive amount of historical sales data.  Using this data, they have developed a selection process whereby they are able to vet through art offered for sale to them and select the pieces that are expected to have the best long term investor returns through the use of algorithms.  Each piece of art they acquire is held by an entity that is registered with the US Securities and Exchange Commission and shares are sold to investors representing fractional interests in the work.  They also maintain a secondary exchange where you can sell your shares to other investors if for some reason you need the cash.  Otherwise, you would just hold your investment for 3-10 years until it is ultimately sold.  They only end up buying about 2% of the art they are offered in about 1% of the artist markets they have analyzed (the ones they believe have the best returns based on their data analysis).  The amount of historical price data they have is impressive - they have a proprietary data set that spans 70+ years of data and 60,000 datasets.  They boast a 16% average annual rate of return on all their artwork, after deducting fees, which is pretty impressive.  Fees are 1.5% annually (collected in additional shares issued to Masterworks vs cash) and a 20% fee upon sale.

Benefits

There are several benefits to investing in fine art through Masterworks:

  • Each piece is carefully vetted and unique and therefore scarce, which improves chances for strong returns
  • Additionally, over time the works of popular (deceased) artists find their way into museums and off the market, thereby increasing scarcity of the artist's work over time
  • Can potentially be a hedge against inflation 
  • Diversification of portfolio
  • Low correlation to other asset classes (see chart below - top performing artists as represented by the Artprice 100 have far outpaced S&P 500 historically)
  • Anyone can invest (no need to be an accredited investor) and low initial offering price of $20 per share for each work of art
  • Works of art valued in the millions or tens of millions that would not ordinarily be available to small individual investors can be invested in
  • Art is protected and insured

Disadvantages

There are also some disadvantages to this investment:
  • Counterparty risk (i.e., Masterworks.io continues to stay in business, adequately safeguards the works of art, has appropriate due diligence prior to purchase of works of art including careful authentication and also knows when to sell)
  • Secondary market may be illiquid and pricing in the event of the need to sell may not be very favorable
  • Requires "patient money" since this is a very long term investment and ideally shouldn't be "traded"
  • Fees are pretty substantial, however the 20% back-end fee does align Masterworks' interests with the shareholders
Overall Take

  • Sales process is very smooth; you make an appointment to talk to an agent who walks you through the investment process and answers any questions you might have
  • Website is intuitive and very easy to navigate
  • Investment thesis and investment deal sheet are well written and very straightforward
  • Funding investment and closing were easy (link bank account using Plaid)
I plan to continue to build my Masterworks portfolio over time by adding some other artists and works.  Eventually I plan to target about 2%-5% or so of my portfolio in this asset class.  It should perform well in the coming years, especially if we experience above average levels of inflation, which may be a lot higher than the official numbers as I have discussed before (see chart below).


I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2021.  To see all my books on investing and leadership, click here.  

  
Stay safe, healthy and positive.  
 

Monday, September 27, 2021

Energy Rally Ideas

There is a growing realization that energy (oil and gas) could be a great fourth quarter 2021 investment thesis for several reasons:

  • Major and growing supply constraints due to "green" / "ESG" / "carbon footprint" public policy worldwide
  • Oil and gas stocks have been shunned by investors for some time in favor of renewable energy stocks
  • Economic growth in the wake of the pandemic, driving demand
  • No way that renewable energy can replace fossil fuels for a very long time
  • Short term bottlenecks driving prices up due to supply chain issues in the wake of the pandemic and hurricanes
  • Inflation
In short, a classic situation of supply shortages meeting growing demand plus inflation provide an excellent backdrop for investing in energy stocks.  





Indeed, from negative oil prices last year for WTI (<-$25/barrel!), we have come a long way recently approaching $80/barrel and with $90-$100 per barrel in sight.

Some stocks on my watchlist for investing in this trend include the following ideas:
  • Chevron (CVX) - 5.21% dividend yield
  • Exxon Mobil (XOM) - 5.87% dividend yield
  • Energy Select SPDR ETF (XLE) - 4.1% dividend yield
  • Pioneer Natural Resources (PXD) - 1.33% dividend yield
Other ways to play the space include US Oil Fund (USO) for direct exposure to the commodity (no dividend yield, however, which is a nice bonus with the ETF's and operating companies).

Natural gas has recently gone parabolic as shown in the chart below.  While it can continue to move higher, especially with colder weather on the way and supply shortages, a pullback seems more likely in the near term back to the trendline (just below $5) - this looks a lot like lumber's recent parabolic move upward, which was followed by a collapse.  Personally, I would probably stay away from this one until it corrects.


I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2021.  To see all my books on investing and leadership, click here.  
  
Stay safe, healthy and positive.