It’s been a while that we do not talk about your favorite topic, me (ah!).
In the last few months I made some investments that would for sure perform nicely in what it looks like, now, the incipit of a new bear market (ah ah!). Enjoy the ride.
A premise
Roughly speaking, the amount of words I will dedicate to each investment topic in this post is inversely correlated to the weight in my net worth. Do not be fooled. Boring portfolios are great for your financial plan but have a very low appeal to an audience that, more or less truthfully, scour the internet looking for the next strategy to become rich fast. Every month a big chunk of my savings goes straight into my mortgage (and as I repay the loan principal, into my apartment) and into my workplace pension, which is a plain low-cost World stock index ETF. These two things combined, the equity in my home and my private pension, represent c75% of what I ‘own’. Not ideal, but:
- home: we (as a family) got the opportunity to buy in the area where we always wanted to live. Unfortunately to close the deal I had to accept a not-ideal financing plan: me and my wife just changed jobs so the bank accepted only my old salary as a collateral, which meant that I had to put as deposit more than the standard 20%. I will soon have to reneg my mortgage and the plan is to do 50% as interest only, so I could divert some savings into something more liquid and diversified.
- private pension: in simple terms, Her Majesty tax system makes private pension savings really tax efficient. My employer offers as well a great matching scheme, so I basically throw in that pit everything that I reasonably expect I would not need until I will be
5557 (and counting). Due to local regulation, I also have part of my previous Swiss life private pension stuck in the land of cheese and chocolate, a pot I would not be able to touch even until later in life compared to UK.
I will not use specific numbers and figures about my investments on purpose. As I wrote in a previous post, there is a trade off between the benefits of having a blog and the risks, in this specific case the big T that comes with the ax(e). I do everything by the book but the system is not really designed for migrant people, unless you are uber-rich and have your name in the Panama papers already. I am in that sweet spot where my circumstances are complicated (not by design) but it does not make financial sense to build an ad-hoc structure to streamline everything.
The IB portfolio
I survived the 2021 bear market. Jokes aside, turns out that bonds still have a place in your portfolio and the above small blip in November tells you why. As presented in my previous portfolio update, AOR represents a proxy for the standard 60/40 portfolio.
Having a portfolio of broad indexes (stocks, bonds, bit of commodities, bit of real estate) ‘protects’ from those high volatility stocks I had to read about otherwise I would have not even noticed. Here a by now infamous picture from Charlie Bilello of what I am referring to:
Below there is the price graph of $LAND, a company that manages farmland. I invested in it on the basis that was going to be a very boring stock and then, look at that. I guess volatility (in this case positive, at least!) can pop out anywhere:
Ages ago on the back of now universally hated Jeremy Grantham advice I included in the portfolio inflation-linked bonds (via $XGIU ETF) and this year I got the payoff: +14% on a bond investment in a rising rates environment. This is the cockroach power in action 😉
I am bullish on Web3 and it has been a few months that I tried to find the best way to express this view. Unless I stumble on an interesting idea (see Decentraland token below) I do not have the time to do the proper research by myself so I was looking for a fund structure type of investment. But also that part-time research was quite fruitless so I decided to settle on Tencent. In short, here are the pros and cons of the idea:
- they have a meaningful stake in Discord and Epic Games. Even if by now these names are quite mature as bets, Tencent management has demonstrated the ability to find the right bets. This is the main reason why I added a relative small position to the name. Now the bad part
- I should not invest in single names. My past track record has been lousy and I still not have a clear strategy on how to exit this type of investment. This is a sin, as AQR woudl call it. Therefore the small position.
- They are a Chinese company listed in US. God knows what Xi will decide to do but their future is not that bright. I hope that all of this (and some more) is already discounted in the price.
Angel Investing via Seedrs
Here a previous general introduction on this. One of the themes I am investing in are trading apps: I had a miss, Evarvest, but I also might have found a winner in Eversend, a financial super-app that targets the African market.
The right way of approaching Angel Investing is not that complicated, it is actually quite similar to stock investing: let your winner run and cut your losses. The cut your losses part is simple: you write a small initial check, because you have limited actions to manage your position, and then the losses are cut by the company you invested into going bankrupt. Easy peasy. If the company perform as you expected, i.e. you have your winner, you participate in following rounds to ideally maintain your ownership and not get diluted.
Being relatively new and by definition private, there are way less public data about investing in start-ups than for the public stock market. Contrary to my initial opinion, I read a research saying that the probability of default for a start-up is not, as I would have bet, inversely correlated with its size and the number of funding rounds it did in the past. In short, this means that letting your winner runs might still offer a bad surprise at the end of the road, because by the time you realise that something wrong is happening at the company your paper profits would be vanished. BUT you have to remember that your gains in this sector will always be concentrated: out of 20 investments, only a couple (if you are good, have access to opportunities, etc etc) would be the 10x and 20x that will represent 80% of all your gains. SO you have to let your winners run BUT somehow minimise your future regrets.
Eversend is trading on Seedrs secondary market at 5x, the top of the allowed range (it will not explain here how that secondary market works, if you are curious, check their website): this is because they delivered great results so far. If Eversend was a public stock, I would set a stop-loss at +100% of my initial entry price, so that if I get pushed out I would still have some gains in the pocket. In this case, I decide to sell a fifth of my position at +500% so that I could at least repay my initial investment. Not a great ‘let your winners run’ strategy but an optimal regrets minimisation one. (There is also a lengthy tax reason that makes this strategy better than it is: my cap gains could be tax free if I declare my investments but I did not study how to do it yet. So as of now, after a certain point, any additional gain is just a gain for Her Majesty, not for me).
With the money I got back I bought some Seedrs, the company itself, shares on the secondary market. I always wanted to invest in their business because I think it is a great business (I use it…) and after their failed merger with CrowdCube they did a down-round that allowed me to buy the shares at a discount compared to their ATH. I was there for the long run…and then got rugged, or sort of. Republic bought Seedrs for $100m: while some big investors got the opportunity to simply exchange their Seedrs shares in Republic shares, therefore maintaining or even improving their long position on the business, we small folks got some cash, that will also be paid in THREE years instalments. I did a 20% profit in a month and I am pissed, this is the world where we live.
A quick additional take on Seedrs. Recently they started to build a secondary market, called Private Deal Room, for shares of private companies that did not close any round on Seedrs itself. While the potential for this new tool is great, their first offer was a disaster: they put on sale shares in Impossible Food at a crazy valuation that generated a true and comprehensible uproar from Seedrs users. The deal was so fucked up that the seller was forced to move the price per share from $42 to $35. I understand that Seedrs is just a marketplace but I think they should put a lot more of due diligence in their process (I guess they are still doing a better job than CrowCube that is selling shares of Bulb, a defaulted company…).
P2P Lending
The good platforms remained good and the bad ones bad, is it positive or negative? I would say positive.
I honestly admire Viventor ability in finding creative ways to steal money. First they introduced a relative high fee, €1.80 if my memory serves me right, for each transfer out, irrespective of the amount transferred. Then they introduced a fee for users that had a positive outstanding balance at the end of each month, with a minimum at €100. Given that the company is in wind-down, all investors are just receiving small flows representing interest and principal from the loans that did not default (yet). So basically every month I pay €1.8 to withdraw more or less €10…great.
In August DoFinance published an update on their blog saying “We are planning to update the recovery plan progress every month from now on“. Guess how many of those monthly updates they wrote?
Looking at the positive side, all other platforms are performing as expected. I continue to take out 50% to 100% of the profits to re-invest somewhere else, mainly crypto, to rebalance the overall asset allocation. My original plan, started 8 years ago, of investing small amounts in a lot of platforms is baring fruits. I knew I was gambling with DoFinance but I was confident in Viventor: while I dodged a lot of scams, my accuracy was not 100%. After the Covid shock, the sector went back to be an uncorrelated to public markets cash flow machine.
Crypto
I remember in 2017 when someone was mentioning a crypto Index I was LOLing. As a matter of fact, I was not taking seriously even Bitcoin, so the idea of buying the likes of Litecoin and Filecoin was indeed an even bigger joke to me. To be fair, other than BTC and ETH, no other token out of that crop is still relevant. Today, I have a different opinion.
There are a lot of cool projects out there, more than I can possibly follow. Even when I manage to select the coins I want to invest in, I would have to either invest pennies in each one or increase my allocation to crypto and neither of these scenarios is fine for me. And I do not have a plan to rebalance. Sounds like a familiar issue? An Index start to make sense.
Anyway, I bought MANA, the Decentraland token in the meantime.
I read about Decentraland some months ago but I put those thoughts in a closet of my brain, did not pay a lot of attention to them. When Zuck came out with his Meta spin, MANA exploded. Now it got my attention. My fundamental thesis is that, outside of the merits of each single projects, to be successful they need network effects. These are momentum trades: you jump on the ship only when the ride is started and hope it is not a pump and dump scheme.
On the 30/10 it went from $1 to $3 and then gave back some of those gains. Now I had a plan: if it breaks again above $3.5, I am in. And so I am. As you can see from the graph, lately it did not go very well and if it goes below $3.5 it will be even worse. The plan was to dollar average anyway, so this is just the beginning but I thought it was a good occasion to share a bit of my thoughts.
Masterworks
We (me and wife) bought our third painting on the platform. I bought the second one year ago, time flies even when you are not having fun! As the overall NW is growing, I thought it would make sense to add a bit also there. Plus, now my wife is even more enthusiastic about Masterworks than me.
That’s all folks, see you at the next update.
What I am reading now:
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