Painfully Late: Year-End 2022 Investment Update
This update is painfully late. The start of the year and entire first quarter were jammed up in a major way.
Some of the side projects and business efforts that have been percolating started to boil. Also, I undertook some major job-related changes (which certainly impacts my income segment of my life portfolio).
…“painfully late” might also be a good way to describe the market over the last 6-9 months.
As 2022 came to an end there was less in the way of investments and rebalances. That in relative terms, of course. Some adjustments, gains and losses were realized. But, compared to the same period last year, there was less. I do provide more than the usual updates on private investments and business projects.
As I reflect on it, “painfully late” might also be a good way to describe the market over the last 6-9 months. Let’s start there.
This is the look of a very sick market. Due to my late publishing, many will be reading these words some time later, and recognize that 2023 has started off somewhat schizophrenic. Beware. The way 2022 ended may say more about full year 2023 than you think.
Core Portfolio Investment Performance
This +29.56% realized P&L looks good but is the result of a handful of specific exits. They were good calls, but not rocket science. And I missed a number of other potential winners. So, bitter sweet.
My unrealized -17.41% is barely ahead of the market. Statistically insignificant. But better than an L.
Top 10 Holdings
These top 10 holdings constitute ~57% of my total invested capital as of year-end 2022, ordered by % of invested capital. That represents more concentration than ever, partly do to some strong relative performance but a good number of small holdings that further deteriorated (the long tail of the portfolio continues to get longer).
In contrast to my last update, my top 10 changed very little, other than some minor moves in relative rank.
Public Market Investments
Albert Einstein said, “occurrences in this domain are beyond the reach of exact prediction because of the variety of factors in operation, not because of any lack of order in nature.” Al might have made a good portfolio manager.
With a new year around the corner, it was more like ‘red sky in morning’ (sailor take warning).
The US market had largely been supported by energy prices but energy started falling as recession realities settled in. Of course, the Fed was raising interest rates, which is always short-term bad for risk assets. Fixed income investments such as aggregate bonds and junk bonds were looking good in comparison.
Despite gold shirking its historic responsibility as the hedge boss, most safe haven assets (short duration government bonds, and quality stocks, etc) were responding to the macro trends of inflation and an earnings recession.
|After reading below you can check out my previous investment update. You can also check out my other investment reports.
It’s been an ongoing theme… there are numerous low probability but high impact events that could suddenly emerge to impact markets and portfolios. And in the latter half of 2022 institutional investors were very concerned about the prospects for continued inflation and a strong recession.
Other risks were further escalation of the Ukraine conflict, geopolitical tensions with China, market liquidity strains, a crypto collapse, higher energy prices, and overall volatility. Many of these have, of course, come to pass.
IMF forecasts for the global economy showed widespread GDP deceleration continuing…
Yet, traditional measures like Yield and the Forward Price to Earnings multiple suggested the US market was (still) not cheap. Some would say it was not expensive either (I was not in that crowd). Profits were flattening in the US and valuations in other major markets (India, Australia, Europe) were also expensive, even as Japan and the UK were looking more fair. Yet, IMF forecasts for the global economy showed widespread GDP deceleration continuing, in both advanced and emerging market and developing economies.
I was being very selective through the latter half of the year. I did not initiate any new positions. But I was still looking for opportunities to add to existing positions, if good stocks go on sale.
In late December, when I should have been looking for consolidation and take-loss candidates, I added to an already struggling, long play position.
I previously only had a ~half-sized position of $GOOG but I started to build a larger stake in the second half of 2022. This was based on lower prices and to get more diversified exposure to quality growth. This buy was pre-split @ $2,245 on 07/13. Subsequent (expected) downward moves resulted in additional buys, which I will cover in future updates.
In late December, when I should have been looking for consolidation and take-loss candidates, I added to an already struggling, long play position. On 12/28 I added to $ASTR @ 0.41 based on an announced deal with MAXR (which is currently a much more successful space play for me).
With energy prices easing throughout the latter half of the year, I sold out of my position in $BP. I closed it at $34.70 for a ~133% gain. At the time of the sale the US had gotten a crude oil price cap agreement, and it seemed pretty clear that we are going into a prolonged recession.
Twitter.. Ah that delightful dumpster fire. I didn’t precisely exit this position but was exited. After all, I realized a ~17% gain on my $TWTR position, when Elon closed the deal on 10/28.
Lossy & Low Res
It’s natural in such markets. There are many losers, and I own some.
I particularly hate reverse splits. All the more when they happen with positions that I like. Arcimoto is a company I still have a crush on (look back at previous updates if you are curious). And $FUV went through a 20-1 reverse split. Ffs. Shift Technologies, $SFT which went through a 10-1 split. Not such a crush on this one, and I should have purged this early in the year.
Other big losers were (and continue to be) are $DMS (Digital Media Solutions ), $SLGG (Super League Gaming), and $OPAD, which started on its back foot but will seriously struggle with the housing market headwinds. All of these are mini or micro positions, but the % losses still sting.
I have a mini folio of psychedelic stocks and.. let’s just say they’ve been on a bad trip. All are down substantially, and a few also took the extreme measure of doing a reverse stock split to give themselves breathing room. These include MNMD (Mind Medicine) and HAVN (Havn Life Sciences). FTHW (Field Trip Health) did a reorg and spin out, to become two companies (and spread the pain?). Watch for more on this subfolio in coming updates.
As usual, my biggest loser move is not taking my lumps and cleaning house. These bits of would-be investment brilliance are now just janky shards of financial flotsam and jetsam. And they shouldn’t still be floating around in my little bucket but they are.
In contrast to my more active dividend harvesting and income generation activities, I was focused on other things in H2 of 2022. There were no dividend plays and only a few covered call sales. The net yield of those was ~4.3%.
Initiated a position in US iBonds: $10K (max annual investment) at 9.7% coupon on 07/10 NOTE: these funds were moved from cash reserves outside my existing active investment accounts, so, additive.
Hedge & Alt Investments
A more active focus over the last year has been downside hedge plays. I wish I could say that these have been more successful than they have. In summary, I’ve managed to get in the right positions at the right time, but have not been exiting these positions nearly as well.
I have continued to trade downside moves using slightly oblong SPY butterflies. I legged into these 16 Dec flies from mid-August through mid-September and had the potential to get out at 3.5X. Potential. 🙁 In the end I closed on Nov 16 for only a 4.7% gain.
As you are reading this now, the collapse of FTX must seem like ancient history. With the topic of AI sucking up all the attention and many people in the crypto space probably wanting to forget that last 6+ months, we hardly hear about the shitfest that is/was SBF and FTX. I never had an account at or investment in FTX.
With stable coins losing their peg and other serious signs of instability I moved to a fully defensive mode.
But I was at my desk and watching in real time on Nov 8 as the news hit. As the truth about FTX emerged, and the would-be acquisition by Binance (and subsequent withdrawal of the offer) circulated, the crypto market unraveled. I added about 20% to my BTC position at $15,900 on Nov 10.
I had staking balances in a few different coins and tokens heading into year end. With stable coins losing their peg and other serious signs of instability I moved to a fully defensive mode. By early Dec I had unstaked everything (ONT, ATOM, ADA and SOL) and collected all rewards. Yields varied from 2.9% to 13.3%.
In down markets like this there are always consolidations, mergers and shut downs. Companies that depend on private market funding will continue to feel the pain for a long time. Some have taken their medicine and tightened their belts. Those will be the survivors.
One of my private holdings is Wefunder, largest US operator of the crowd funding platform of the same name. I made a (relatively) small amount in 2021 with a ~$200M valuation; the latest previous valuation was $160M. In their latest fundraising (debt) round they were priced at $290M. Up is good, especially in a down market.
My private stake in Rocket Dollar has shown signs of growth. Rocket Dollar is a financial services platform that allows for alternative investments in self-directed IRAs and 401Ks, expanding investment options for individual retirement accounts. The 2019 valuation was $16M; I invested in 2020 at a $20M valuation cap.
In September 2021 the company had a series A round that raised $8M and brought in some solid strategic investors. And in Nov 2022 my Reg CF investment on Republic converted to special preferred shares, at a 20.3% gain. I continue to hold the position.
Onfolio ($ONFO) Goes Public
Technically, this update should have been in the H1 2022 update since $ONFO went public in June. But the extra time helped me get my thoughts in order.
I was an early investor in common shares of Onfolio. I made a direct investment in its first fund raise. I’d been following CEO Dom Wells and the company for some years. As an active investor and operator of digital businesses (like the ones that Onfolio includes in its portfolio), I’m a fan of the thesis and consider it a high conviction investment.
The IPO was part of the plan from the start, but I could see potential challenges a long way off. The market was showing signs of exhaustion in late 2021 and the management team was still wading through regulatory filings through much of 2022. As the market was weakest, they got the greenlight.
I understand their thought process and motivation, based on the likely input from the investment bankers and a desire to get going with the strategy. It’s a sound business and a compelling model, but the macro environment and market trend meant a terrible storm would rain on the Onfolio party. The storm clouds were obvious. And you only get one shot. No IPO did well over these months. But they insisted on going forward anyway.
…with no lock-up I expected to be able to exit part of my stake and get my original investments back (and then some), while staying partly invested.
On top of the bad market conditions, some sub-optimal management decisions were baked into the cake early on. And, under pressure from institutional investors, management made changes to the cap table/shares outstanding just prior to the IPO. This meant a nearly 1 for 5 reverse share split slashed early investor stakes. Management was empowered to do it but in the crypto space this would be called a rug pull. My revised cost basis was $4.76 per share.
In the end, Onfolio Holdings IPO’d at $3.35. It raised ~40% less in proceeds than expected and commanded a market value of $65 million, less than hoped. It was a bad result all around. Of course, the deep slide from the IPO price to where it currently stands was entirely predictable. IPOs of this size do not get the kind of support from their lead bankers that big listings do.
The last minute restructuring was the result of institutional investors strong-arming the management team and screwing early investors in the process.
That slide is basic market physics (and not a reflection of the future prospects of Onfolio). However, with no lock-up I expected to be able to exit part of my stake and get my original investments back (and then some), while staying partly invested. Without my full, original investment that wasn’t possible.
The last minute restructuring was the result of institutional investors strong-arming the management team and screwing early investors in the process. If they had just postponed the IPO 1-2 quarters it could have been a whole different outcome.
I remain positive on the Onfolio, and they have made some solid acquisitions since then. But the way management handled the lead up to the IPO showed a lack of diligence and foresight. The CEO, Dom Wells, has spoken passionately and (I believe) sincerely about making a ‘good home’ for acquired companies. But early investors were left feeling less than taken care of. No choice now but to wait and see.
Micro SaaS Go-Live
As noted in the previous update, I started working on a Chrome plugin micro-SaaS, SERP Sonar, early in 2022. I finally set the plugin to public in the Chrome store around mid-year. However, I continue to manage it effectively in stealth mode. While I have discussed and shared the progress in certain digital marketing and indie hacker/maker circles I have done no promotion.
That will change in the first half of 2023. The free plugin will primarily be monetized through ad-revenue and affiliate sales. I reportable cash from before year-end. Watch this space.
That has been the overall theme as well, these last few quarters. Wait and see. Keep a defensive posture and stay alert. Whatever happens its likely to be big.