April (Non-)Performance Results are in
Portfolio performance: Clean Energy SPACs, Cryptocurrency, Creator Coins, and NFTs
Guess I picked the wrong year to write a newsletter about investing. With that said, this newsletter continues on as we publish the 31st edition. Why? Because I have a long-term investment thesis that is not cancelled because of a war, higher interest rates, inflation, and other FUD (fear, uncertainty, and doubt). The thesis:
Smaller innovative companies in the clean energy industry will outperform the general market during the 2020’s decade.
If I didn’t have the conviction of the thesis, it would be easy to quit, sell the holdings, and eat mac and cheese for a few months. But it is a long-term game → a decade worth of time. And the current world environment makes for an even stronger argument for clean energy in the not-so-distant future. There will be poor performing months (like this past month) and we will have fantastic months as well (hopefully some yet this year?) to keep our spirits up.
In my search for alpha, I leaped into the world of NFTs and Creator Coins (also called Social Tokens). I’ve been in cryptocurrency since 2017, so the jump into this world was not necessarily a large one. But it is very different and I’m learning lessons all the time. Earlier this year, a couple of new portfolios were built for us to follow along on this journey. Let’s look at the benchmarks and the (bloody) tracking table.
The Tracking Table Benchmarks
The brutal market action of 2022 continued its crusade to slaughter stocks during the month of April. The major indexes of the S&P500 and the NASDAQ were down 8.8% and 13.3%, respectively (but not respectfully). The Russell 2000 was down 9.9% and the clean energy ETF, QCLN, was crushed with a 19.2% loss for the month.
Bitcoin and Ethereum, the “bell weathers” of crypto, were down a whopping 17.3% and 16.9%, respectively while the basket of the other seven alt-coins were down anywhere between 31% and 45%. Yikes, a bloodbath (I’m running out of terms to use for the drubbing our investments took in April).
Excited by the returns last month (haha) then hit the button to subscribe.
Clean Energy SPACs
One of my early decisions to finding companies to buy per the Investment Thesis was that the “small innovative” category would be represented by clean energy companies coming public through Special Purpose Acquisition Companies (SPACs). One could certainly argue that part of the problem for the poor performance of the portfolio is the general treatment by investors on this market platform. But again, we knew the risk would be high. We are getting a chance to own companies that historically would have remained in the private sector and not available for retail investors to buy in. One of the complaints on SPACs is that they get to share an investor presentation that all look too rosy for real life. Hockey stick projections, bright technology roadmaps, and big-name collaborations all come together in potentially a misleading way (some have been proved out). DYODR = do your own (damn) research is a key to not getting sucked into the wrong company or the wrong team leading the company.
Our solution was to create a portfolio where we would pick the top ~25% from the universe of options. This strategy worked with the “Top Picks” beating the “Equally Weighted” by 8.5% through the first quarter. But there was no place to hide in April and our Top Picks actually underperformed by 3.9%. All clean energy portfolios were clobbered down 22.3% and 18.4% for the month.
Four of the 75 stocks finished even or up while there were six that lost 40% or more in April. See the table below for the names. The only stock from this list in our Top Pick portfolio is the winner, Benson Hill up 12%, who is still off 50% year-to-date (so positive return in April isn’t really a huge win for the stock).
There was just nowhere to run or hide this past month. In hindsight, I could have protected some of the gains from March by writing covered calls and collecting a premium but didn’t pull the trigger on that strategy. An example of how this could have worked is with MP Materials. It rocketed higher in late-March where it traded in the high 50’s. I considered selling one put option for each 100 shares owned and collect about $500 per option ($5/share x 100 shares per option). The option would have expired worthless, and our premium would have been profit — adding $5/share to our value of the stock. Although it would not have covered the whole down move from $60 to $38, writing calls is a relatively low risk way to enhance return as most option contracts expire out of the money. Covered Calls explanation
MP’s daily price chart shows the price action and all the red candles during the month of April. However, we haven’t taken out the early February lows, so there is still hope for recovery here.
Cryptocurrency, Creator Coins, and NFTs
In February of 2020, Bitcoin (BTC) was trading just over $10,000. Then, as with other investment assets when the COVID lockdown started, BTC tumbled as low as $4,107 on March 13th. In unison with the rest of the market, it recovered quickly and spent the time from May to September trading in a range close +/- $10,000, but then it took off in October finishing 2020 at just over $29,000, up 300% for the year.
The calendar year 2021 was a whipsaw (kind of in a good way though) as BTC made new all-time highs in April at $65,000 then lost over 50% down to $29,000 by June/July before rocketing back up to new highs in early November at almost $69,000. It was a weak last six weeks of the year as BTC closed at $46,300. The table below shows the Open, High, Low, and Close for each 2020, 2021, and 2022 YTD (year-to-date).
Why share this history? Well, in recent history from the November 2021 all-time high of $68,790 down to the April 2022 close of $38,610 we have experienced a loss of ~44%. And for the alternative cryptocurrencies, the loss has been 50% or more in many of them. It doesn’t feel very good. But when you pull back a bit and look at the bigger picture, Bitcoin is strong and still in a long-term bull market.
I bought my first Bitcoin in December of 2017 at nearly the tippy top of the cycle → $500 of Bitcoin at $19,561. It hit just over $20,000 but then I watched it drop to a low of $3,191 one year later, or a loss of 84%. Many ran from the market after the crypto winter of 2018. I sold some, then bought some, then thought I could trade and make money (not easy), and finally decided to accumulate through dollar cost averaging and HODL (hold for long-term). I still have a bunch of BTC and ETH in cold storage that I haven’t touched in over two years. That portfolio is up about 5x+ in total since 2017 (was almost 10x last November at the peaks — dang).
Tip: buy a little bit of BTC and ETH each month and don’t sell it. Keep a long-term view of five years or more. If you don’t sell, no tax impact either. NFA.
Below is expanded table of OHLC going back to 2017.
In the past few months, I have gone down the rabbit hole of creator coins (social tokens). A social token is similar to what you get at a Chucky Cheese. You put cash money dollars (also called “fiat”) into the token machine, and you get a handful of Chucky Cheese tokens to play the games. The cheesy token can’t be used to buy groceries at the Whole Foods or used at the Exxon station to buy gas (boo! to ICE vehicles, go Electric!).
Content creators are using their own social tokens to establish an economy around their brand or content. It works like a rewards program or membership. For instance, if you own one token, you may get access to new channels on Discord in order to discuss the topic (i.e. maybe investing in SPACs). In this economy, the creator may not even have a monthly fee for being part of their community; you may just have to own set amount of tokens at different levels of membership. So based on the number of tokens owned and held, you get a level of benefits. No more monthly fees! This sounds great from a customer standpoint.
In fact, you are not a customer any longer in web3, you are a community member. If the community is strong, the market price of the token could increase. Maybe you bought 100 tokens at $2 each to earn a level of membership. Six months later you change jobs and this community isn’t important for you now so you sell at an appreciated value of $4 per token. You were able to get the benefits of membership for six months and then sold your tokens at a profit. This is the opportunity of web3.
Rally is a platform for creators and their communities to build their own independent digital economies. Over 300 creators have social tokens on the platform. Rally rewards holders of tokens each week for those communities that are growing beyond their four-week average. The more buyers, the higher the token is valued, and vice versa.
Go to Rally social tokens to set up an account and back a creator. May I suggest the NFT365 community that is buying an NFT every day for one year and has an accompanying podcast each day. The token is the $ADHD token.
Offer: Anyone that sets up a new Rally account, email me your Rally ID and I’ll forward you one additional ADHD coin. (DTfromGB@gmail.com)
I am not being paid to promote this token, but I do own these tokens.
The Creator Coin portfolio has trailed all benchmarks YTD 2022. However, this is due mostly to the performance of the Rally coin which the valuations of the creators’ coins are tied to. Rally is down almost 60% YTD whereas the creators have built up value on their coins versus the Rally coin by 27.9% plus Rally has provided rewards of over 14% YTD. These 15 creators in the portfolio (a small subsection of the 300 total creators on the platform) had growth of 29.1% members holding tokens in their communities since January 1st.
The NFT portfolio was hit hard just like all other markets. This edition will not dive into details of it here, but the reduction of 27% is in line with the cryptocurrency and creator coin portfolios. Hopefully the end of this storm is nearly over and we will experience a brighter summer in the markets.
Let me know if you have any questions or have topics you would like me to address in future editions of the newsletter. Do you miss the mid-month topic of the month? Like to hear from you.
Have a wonderful May.