The year started off positive, at least based on surface factors. Granted, 2020 set the bar low. But anyone looking closely at the markets still sees worrying signs. Even as markets continue to pump, fueled by too much money chasing too few investable opportunities (and ever-more sketchy ones), it was obvious that the party was winding down.
Fast forward to March and signs of inflation became the headline story. Into May and the Repo Market (a nasty, infected boil on the ass of the economy) started flashing red, again. This as the US housing market and commodities were overheating and a variant strain is prolonging last year’s big bad.
Current Investment Strategy, Highlights and Lowlights
As reflected in my previous updates, I feel there are numerous economic fractures and factors contributing to market instability. The rush into alternatives and collectibles, and the rapid sector rotation we saw in Q1 are classic signs that a blow-off top is imminent.
There was a reverse repo spike over 25% higher than the last one (in March, 2020), which coincided with multiple mini-corrections and the aforementioned inflation warnings. Overall, the early March correction left me down 20-30% on a number of smaller, speculative plays, across multiple themes. But, as a well-diversified portfolio will do, I saw gains in other areas as well.
|You are reading my latest investment update. After reading below you can also review the investment report that precedes it.
My overall view that our best case scenario for public markets is choppy at best for the next few months. As such, I’ve been focused on raising cash. For a portion of that I have also been investing in income-oriented ETFs. An outsized chunk went in $HIPS, wooed by that tasty monthly pass-through income. It’s a parking lot that pays.
Public Market Investments
It is the overall implications of what is moving (and why) that keeps me on alert. And, more than usual, I am less sure about the best, next steps to take in my current investment strategy. So, optionality is the order of the day and I’ve been rebuilding cash reserves the last few months.
Investment Positions and Trade Ideas
To that end, I’ve been taking profits, where possible, on some of the larger positions I’ve had the most gains in, with the plan to average back in at lower prices. I’ve done the same with holdings I have less short-medium term commitment in, and setting break-even targets or even taking losses where the likelihood of recovery is low.
I’ve also continued to dabble in premium harvesting strategies, as discussed in previous updates. However, with volatility relatively low there is less low-hanging fruit on that tree.
Fun and Fumbles With New Stock Listings
Over the last few quarters there has been no shortage of IPOs, direct listings and SPAC mergers to fiddle with. Like many things in this market (and life) there are bright spots and face-plants.
On March 10 I got into Roblox on the open at 64.50. I’d been a fan of the company for some time and had been waiting for their listing. $RBLX has incredible future potential and performed well from day one and is trading in the 90s as of this writing. That’s a winner.
Then there is Coinbase. Here is another company I’ve been a fan of for a long time. I also bought $COIN on day 1. It’s a strong company in a big and expanding market, and has pole position in the US, so it’s a long term hold for me. But direct listings, I’ve come to realize, tend to sell off on day 1 and can continue to do so for some time after.
I should have at least legged into the position. The worst intraday draw-down so far was -45%. I would have taken the L and stopped myself out if it was not part of a longer, larger play. I have not, so far, and the stock has been recovering, despite the losses in the overall crypto market (which is a good sign). Lesson: chill out and look before you leap (into IPOs, etc).
Know Why You Buy (and Sell) Investments
Even though I got my start in the commodity futures markets, I forget how much impact base materials and supply chain interruptions can have on every other sector. To wit…
In late February, shortly after the first market tumble of the year started, I took profits on some of my larger holdings, shaving 20-50% off numerous positions. These included $GTBIFb, $IIPR, $JMIAb, $LAZRb, $MAXRb, $MPb, $PINSb, $PLLu, $SCHWu, $SQb. In many cases, these trades covered the entire original investment and realized some nice profits to boot.
Bigger drops would follow and I have added back to a few of these at lower prices. And while the market indexes have since recovered and made new highs, in most cases these stocks have not returned to the exit points.
I managed to cash in some $IIPR near its all time highs. On the other hand, $SCHW has continued to rocket higher and I should have given more thought to the sector dynamics. Of course, pulling cash out at a profit is certainly better than at a loss.
Another case of leaving money on the table was Piedmont Lithium ($PLL). I was in this stock at under $6 and had a great run, exiting half of my position in early January at $33.95 and the balance in late February at $61.85. Who can complain about a 10X return? And I planned to buy back in at a lower price. As of this writing, it’s trading over $78 and moving back towards ATHs. My mistake was…
Electric vehicles might be part of the story but the stock is also being driven by simple raw materials demand and (future) supply chain advantages.
I was wrong to think that $PLL would drop with the EV stocks (being tied, as it is, to electric battery manufacturing). Electric vehicles might be part of the story but the stock is also being driven by simple raw materials demand and (future) supply chain advantages. It’s relative strength versus competitors could have told me something as well, if I had been listening.
High Conviction at Low Stock Prices
There were stocks I considered lightening up on but did not. On that original prospective sell list were also $FUV and $QS. For the February cash-out I decided to leave these as is, but not because I thought they would continue rising in the short term despite the broader EV trend (they are well off their highs, with the rest).
I held out because these are high-confidence, long term positions that I am in at ultra-low prices. Had I known how far they would fall I might have done different but I am still up 00s of percent on both. I would even add to these if the price was right.
But Arcimoto ($FUV) is a good example of how conviction can get you through the dips and reward you on the other side. On Feb 24 (the last day I pared positions) it was trading around $19. That was still more than 3x my average price but well off it’s all-time high of $36.80. Still, I didn’t hold because of where the stock had been, but where I believe it will go.
And in subsequent months it got as low as $7.32. 🙁 Which was still in the green for me. But then in early June it was announced that $FUV would be added to the Russell 2000 and 3000 indexes and the stock made an assertive breakout from the sideways range it’s been in the last 2 months. And it’s now back in striking distance of that Feb level, and rising.
As for solid state battery tech developer Quantumscape ($QS) and EV conversion solution provider XL Fleet ($XL), both have been as much as 65% off their 52-week highs. While they share this inauspicious (dis)honor with some truly janky stocks, I have my reasons. And while my long-term confidence remains high for both, my cost basis is also low, which helps.
Of Primates & Profits
I’m kind of neutral on the whole meme stock/Wall Street Bets stuff. The players and platforms change but none of this is really new. Shorts get over their skis and the longs push and squeeze them.
…it made clear to the public the realities of Robinhood’s business model; that they are selling their users, not serving them.
The best thing I can see that came from the GME and AMC drama of last year was that it made clear to the public the realities of Robinhood’s business model; that they are selling their users, not serving them.
Regardless, I generally base investment decisions on a broader range of factors, and stay with them longer. So, I was just an observer of the meme stock rallies. Until I wasn’t.
Clover Health ($CLOV) was one of my less thoughtful buys from last year. I’ve always been iffy on insurance plays but my SPAC picks are partly based on the acquisition team that is curating the deal. So it was with $CLOV, and I owned it at $11.05. My position had also been underwater for months.
Then on June 7th the merry monkeys in r/wallstreetbets took an interest and $CLOV took off like a rocket emoji. This gave me the chance to exit with a nice gain. So I took it, sort of.
The next day saw new all-time highs. After the close, I did some fibonacci fiddling and picked an optimistic exit price of $23.95. On June 9 the stock opened ~$4 higher, and I sold half the position around $28, near the high of the day. The stock promptly dumped over 40% and is now trading in the low teens.
I covered my original investment cost and took some profits. So, why am I still riding with apes on the Wall Street Bets bus?
Portfolio Hedging & Counter-Trend Trading
Traditional investment theory commonly categorizes commodities as alternative assets. My investment approach treats commodities and raw materials/players as hedges and counter-trend protection. I consider true alternative investments (discussed below) as a way to diversify my portfolio and generate alpha from different sources.
Material Interest in Commodities Markets
I had been building a defensive position in precious metals for a while. Gold has been a sizable portion of that, along with silver. The former has languished for months while the latter saw decent strength, largely (I suspect) due to industrial use and the broader inflation-driven surge in commodities.
In February there was also a brief, meme-driven silver spike, though the Wall St Bets crowd never squeezed very hard. My silver position got up over +15% but is now around +6.5%. My view is that there’s more to come on this front over the next 12-18 months.
The real story here is a Basel III rule change to how banks can treat physical gold reserves for collateral purposes. As a result of the rule change, physical gold will be considered a Tier-1 asset (versus Tier-3 previously), which allows physical gold bullion to be counted at 100% value for reserve purposes.
This is expected to drive significant demand for the metal over the coming months and is contributing to laggard gold showing recent signs of life. I re-initiated positions in some gold streamers and diversified metals miners starting in late April, and picked up additional shares on a Fed meeting downdraft in June.
More Macro Moves
Also from the macro department, in late April I exited my short dollar position for a ~2.5% gain; I’ll take it given the dollar is rallying as of late June. And here’s the conclusion to my ride on the crude oil crazy train…
On 04/22/20 (the day crude oil prices went negative), I initiated a long position in (the somewhat sketchy) ETF $USO. I went in with eyes open, well aware that such instruments are sub-optimal for longer holding periods. I finally exited the balance of that position on 05/12/21 for a ~357% gain. Oil has continued a bit higher but I’m more than happy with the outcome.
I just keep reminding myself that this part of my portfolio is a shield not a sword.
The market structure factors that contributed to this event were varied and, in retrospect, well-understood. But such market dislocations inevitably create massive opportunities for those that can act fast. I’m pleased with my modest little results. Here is another much bigger example.
So far this year I’ve made meaningful moves to add diversification to my overall portfolio. These include additions to my crypto and direct private investment mix. My investment strategy treats such assets as medium to long term holds. As such, most of what follows is about the what and why of positions I initiated. Exits are still a long way off (though I reserve the right to cash in some crypto chips if so inclined).
The first two quarters of 2021 have seen exciting (positive) changes on the regulatory and institutional front, that bode well for a whole range of alternative and private assets.
While some of these have been headline news in the investing world, other major breakthroughs have gone largely unnoticed or under-appreciated.
Crypto Asset Investments
The institutional and regulatory shifts in stance towards crypto assets obviously bode well for the future. I expanded my crypto portfolio, adding some more speculative projects to the core crypto positions I added to last year.
Overall crypto portfolio performance peaked at +771% on May 12 as ETH (and some alt coins) hit new highs. In less than 2 weeks, during the May correction, it lost ~50% versus that high water mark.
It’s usually better to look at overall gains rather than interim losses when deep into a dip. And consider buying the deep, which I did. I added to my ETH position (1,877 Avg) and BTC (a less impressive 34,374 Avg).
ETH is by far the biggest portion of my crypto assets, at 60%+ of the total. BTC, LTC, ADA and MATIC round out the top 5 as of this writing. Additional positions include UNI, AAVE, YFI, DOT and LINK plus a dozen or so others, mostly small pilot positions.
My crypto portfolio ended the half +463%. I also have a portion of USD stable coin currently parked and earning 10%+ interest. This holding is not reflected in the positions above.
Real Estate Holdings
Real estate in the US (at least) has been going crazy. Anyone that owns property has likely seen some of their best valuations ever in 2021. So it is with mine.
Refinances were done across the board, lowering overhead and improving net cash flow. The main update on this front is the upgrade project in progress to the East coast rental property. Unlocking some of the amassed equity and reinvesting it into some overdue renovations is going to significantly increase the rental income the property will generate. I will include some details and results in my 2021 year-end update.
The recent update to the 2012 Jumpstart Our Business Startups (JOBS) Act increases companies’ fundraising limits by nearly 5X. This dramatically expands the range and quality of opportunities available on the Reg CF and private placement platforms such as Wefunder, Republic and StartEngine. Another big change happened in the private investing space.
Regulation CF & Regulation A Offerings
March 15, 2021 was an important day for would-be and rising angel investors. Changes to Regulation Crowdfunding rules went into effect, increasing the Reg CF investment limits for companies doing fundraising through Reg CF to $5M (up from $1.4M). But another important change, which will have a major impact over time, is the new accredited investor test.
This makes it easier for starting investors to qualify as accredited investors. These two changes, taken together, will open up many more startup investment opportunities to more small investors.
I had accredited investor status prior to 2021 but these changes, taken together, seem to be yielding some new and good investment opportunities.
First $5m Crowd SAFE
Gumroad is an OG in the ecom/payments space, making it ultra-easy for creators to sell their digital products. The company also has a history with VCs and traditional funding channels (the founder, Sahil Lavingia, is worth following). It was not, therefore, a surprise that it took advantage of the higher limits and became the first company to do a $5M fund raise through Reg CF, on March 15.
I have followed the company for a long time (and used them in the past). So, I jumped within hours of the announcement. Of the $5M being raised (through Republic.co), all but ~$5K was subscribed. Then, some other apparently important task distracted me and when I checked shortly after, the round had closed! $5M raised in less than 24 hours.
Good for Gumroad but bad for me. 🙁 It seemed that I missed the boat. But I put myself on the wait list (which I never put much faith in). But about 3 weeks later I got my allocation! Lesson: Act fast (and whether you do or don’t, keep trying).
Two more private investments made this first half that have me excited. Both underscore my interest in innovation of the marketplace.
Backstage Capital Focused on Untapped Talent
The lack of traditional funding for large cross-sections of society is not just an injustice for them, but is a tragic loss to society. This massive, underutilized ocean of talent represents advancement and breakthroughs the world will never realize.
I invested in the Backstage Crowd IPA because I see them as innovators of venture and funding, targeting talented change-makers from all communities (and profiting in the process). Also, founder and managing partner Arlan Hamilton is super sharp and worth a follow.
Fixing the biased and unbalanced funding pipeline problem will be rewarding for investors and ultimately serve the interests of all in society.
Wefunder Leading Into the Fintech Frontier
This one was another pleasant surprise and really was an easy call. With solid execution and funding volumes well-ahead of others in the space this was the player I had always wanted to invest in.
As it happens, I’ve done most of my investments with Republic.co and I love their mission and execution, and dipped my toes in when their wacky rev share Republic Notes hit the wire. StartEngine has been pushing hard and I’m a fan of the CEO (and their shark is OK too, I guess). They had offered a number of other opportunities to get exposure but various (and numerous) platform mishaps kept me from investing and left me very frustrated. Turns out, no position is sometimes the best position.
A little while later another Wefunder raise popped on my radar. Unlike that previously mentioned company, Wefunder did the raise using another, competing platform. That seemed obvious to me and apparently them since they felt “it may not be allowed for Wefunder Inc to fund itself under Regulation Crowdfunding via our (own) funding portal…so, to be safe, we’ve partnered with Honeycomb.” Props to Honeycomb as it was a fast and painless process to invest in Wefunder.
Private Placement Investment
Having invested previously with the management team, I jumped at the chance to take equity in Onfolio, an established online businesses portfolio management company. I invested prior to the preferred shares currently on offer (which offer an admittedly juicy yield).
SEC filings are in and the guidance from the company is that a public stock listing could come as soon as this year. Based on their latest acquisitions I’m perfectly happy to wait for the IPO, as the team acquires more solid businesses and adds new cash flow. The public markets will still be there when the time comes.
Time Investments (Business Experiments)
This update has obviously grown way longer than intended, so I will not go into detail on this yet. But it occurred to me to add this section on how I am investing my time and energy (perhaps the most precious capital we have) into business ventures and other rewarding endeavors. Watch this space.
As noted above, what is and is not moving, and the potential reasons, keeps me fully alert to a wide range of potential outcomes. We have to be ready for just about anything. But, as the last few years have shown repeatedly, we also have to stay invested or else no growth at all is the only certainty.
Such uncertainty makes it hard to commit significant capital to any single investment strategy or direction. I am being cautious, even when considering mini investments into new ideas. Having said that, I am still buying selectively where good prices and opportunities present themselves.
All the same, building up cash reserves, monitoring the markets and doing good contingency planning is probably the best defensive and offensive investment strategy right now.