Early Adopter
Trials and tribulations of being more than a Standard Deviation from Normal
In our junior year in college, my roommate and I each had just received $2,500, the maximum amount for student loans in the mid-80s. As finance majors, we figured we could outsmart the system by using our student loans to acquire stock in an up-and-coming company, double our money, and have a better than average semester. We picked Coleco. In 1983, it had hit a home run with Cabbage Patch dolls and its stock was on fire moving from $7 to $65. Coleco announced its new product, the Coleco Adam personal home computer. We jumped in (or in today’s lingo, FOMO-ed in) looking to capitalize on the next home run. Well, it didn’t do too well. Stock plummeted by 50%. We got out, losing half our student loan money and ate a lot of mac ‘n cheese that semester. Coleco filed for bankruptcy a few years later.
What did I learn from this experience? Although a list of lessons learned could be long, it really didn’t keep me from jumping in on other “opportunities”. So maybe I didn’t learn any lessons, but began to understand that I like to participate, to get into the game, and yes, my risk profile is above average.
Market Adoption Curve
You have likely seen the market adoption curve or innovation curve first created by Everett Rogers in 1957. It is a normal curve segmented into five categories: Innovators, Early Adopters, Early Majority, Late Majority, and Laggards. Although I am not an innovator, I don’t mind “pressing the damn button” as my friend Brian Fanzo says. I identify with the Early Adapter role and mindset as I like to jump in early. I believe that the best way to learn is to get into the game. Probably a poor example, but when Pfizer and Moderna announced the COVID vaccine, I quickly said that I did not want to be among the first 10 million, but I’d be 10 million and one. If the population of the US is about 330 million, 10,000,001st would be about the 3.03% percentile => squarely in my lime green target area. (Since I’m not a health care worker or over the age of 65, I didn’t achieve my target here, but that is beside the point).
See here for a good discussion on adoption curves.
Where are you on the curve? Are you the very first to step into something new? If you bought the first generation of the iPhone when it was introduced in January of 2007, you might be an innovator. But if you are just now subscribing to Netflix, or other steaming service today, you might be a laggard. Most of you are comfortably somewhere in between. The peak of the curve is exactly between early and late majority in which each segment represents one standard deviation (SD) from the mean. Early adopters are between one and two SDs and innovators are 2+ SDs.
Can being early help us increase our investment returns? Yes it can, but usually comes with additional risk, sometimes at lot of risk. This is why it is important for you to know your own investment risk profile, or tolerance. The chart below is a simplification of this concept. Having an early adopter mindset tends to put my risk tolerance much closer to the “aggressive” side of the spectrum.
SPACs have certainly earned the “aggressive” or high-risk badge. Even though SPACs have been around for a couple decades, they were largely unknown concept until the second half of 2020. On September 3, 2020, when I purchased shares of $SPAQ, the deal team that acquired and brought Fisker $FSR public, it was about the 140th deal since 1/1/2019 as compared to the three-year (2019-2021) total of 920 SPAC IPOs, or about 15th percentile. Being early was great for returns in 2020, but I may have been a little too committed to SPACs in 2021 which hurt returns as compared to the general market. The investment strategy needed to evolve and so for the next year, we have created the 2022 Clean Energy SPAC portfolio which features the top 20 stocks in the sector. Hopefully, this is setting up for a superior performance during 2022 and beyond, but we will need to be open to changing strategies again since it is still early phases of this movement.
Angel investors and Venture capital firms invest in high-risk innovative technology start-ups. They invest in good people inventing new ways to do new things. The game is to invest in many companies to expand likelihood of a one/couple/few of them hitting it big. Concentrating in their market niche and spreading the risk around to many companies helps in delivering above average returns over time.
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Next Adventure(s)
Early adopters like to be the first to know about new technologies so we will be quick to sign up to learn. However, early adapters want to form a solid opinion before supporting the new ‘thing’ publicly. While we are comfortable taking risks, we don’t want to jeopardize our reputation on unknowns. When asked about new tech, early adopters want to appear knowledgeable and trendy, which is why they need to test it out before throwing their support behind it.
It is in this spirit that I mention the next two areas grabbing my attention: NFTs and Creator Tokens. Both of these areas are built off the cryptocurrency foundation. Do you have a Coinbase, or another cryptocurrency wallet? Owning cryptocurrency such as Bitcoin (BTC) or Ethereum (ETH) is the first step on this journey. Bitcoin’s white paper was published in 2008, started in 2009, and had its first transaction in 2010. Today in 2022, there are more than 80 million cryptocurrency wallets and forecasts of 300 million by 2030.
I invested into bitcoin beginning in December of 2017 at $19,300 => just days before its all-time high at the time of $19,892. One year later, BTC hit a low of $3,128, a loss of 84%. I may have been an early adopter (19.3 million wallets at time of my start, or 6.4% into adoption curve using the 2030 forecast), but it doesn’t mean it was a good investment. The belief in the technology and future use cases kept me active and dollar cost averaging into BTC and ETH throughout 2018 and 2019, ending up with an average cost of ~$8,500 per BTC. Current all-time high of BTC is $69,000 and today’s price is in the $42-45k range. The graphic below shows the number of cryptocurrency wallets in millions over time (and my first account timing).
If you have not opened a Coinbase account and bought your first Bitcoin, sign up for Coinbase using my link and we can each get $10 in Bitcoin.
Non-Fungible Tokens (NFTs)
WTF is a Non-Fungible Token? Non-fungible means it can neither be replaced nor interchanged because it has unique properties. Your home is non-fungible. A $10 bill in your purse is fungible because it can easily be replaced with another $10, or 2-$5s. This edition is not about getting into the weeds on describing NFTs and how they can be used. I will, however, provide several links for you to dive in deeper on the topic. For now, know that there are new use cases being developed for NFTs every day and the value being created is, and will be, significant in our world. We are very early in the development of NFTs - still energy adopter range. I was one of about one-half million NFT wallets (a MetaMask wallet) in August of 2021, or about 20x the volume of one year earlier. See Statista’s chart # of Unique Active NFT Wallets
When looking for sources for NFT education, this author/researcher put the history into an adoption curve matrix. Very cool. The chart below shows we are in the early adopter target area (see the resources section for link to the full article).
The first thing everyone says about NFTs, “Who is buying a jpeg for any amount of money?”. The Bored Ape Yacht Club is a project of 10,000 unique bored apes and is currently the top ranked volume by project. The cheapest one on Opensea (the premier marketplace for NFTs) is 83 ETH, or ~$275,000. Wow! Owning a Bored Ape and making it your profile picture is the new “flex”; better than owning a Lambo.
What we are learning is that the real value is in the community around the project and utility of the of the NFT. Utility is the benefits and/or value connected to owning the NFT. Let’s use an example of a company that develops educational materials and holds an annual conference. If you hold one of their NFTs, it might allow you to have access to their library of training videos for free and give you access to a member only event at the conference. And the more value the company delivers to NFT holders, the more that NFT is worth. Let’s say you then change careers and don’t find value in this NFT; you can sell it on the open market. I think I’ll stop here for now and provide a few links to dive deeper as you wish or let me know if you have questions. Hope this at least questions in your mind that a NFT does not equal a jpeg.
Creator Tokens/Coins
From the Rally website FAQs, Creator Coins are social tokens that are a fully customizable, branded cryptocurrency unique to the individual creator and their communities. A creator (artist, musician, content entrepreneur, etc.) can have their own digital economy allowing them to connect with their fan communities like never before. On the Rally platform, there are over 300 creator coins. For instance, Grammy winning band from Alaska, Portugal The Man, has its own creator coin that allows them to connect to their fans. Others include a guard for the UCLA Bruins, the top Twitch streamer, a female race car driver, a foundation, digital futurist, and many more.
The key to the creator coin success is building a community. That WE > ME. The more that the community embraces the benefits of owning the coin, the more coins are owned, the bigger the community gets, and the more valuable the coin. Rally platform creates the marketplace to buy and sell creator coins and provides weekly rewards for those growing communities. Start by going to Rally.io where you can buy a creator coin with a credit card. They make it easy to do (easier than the process to buy a NFT).
Below I’ve included some resources for deeper exploration of NFTs and Creator Coins. Please reach out to me if you have questions on any of these topics.
Resources on NFTs
NFT365 Podcast with Brian Fanzo, who does a daily podcast and buys a NFT every day for one year. Link to episode on Glossary in the NFT world
Digital market on Curve link to the article that has the adoption curve chart above.
SimpliLearn short course on What is NFT and how does it work?
The NFT Marketplace Opensea
MetaMask crypto wallet and gateway to NFTs
Free mint to a Giraffe Tower on 1/20-21/22 Giraffe Tower twitter account
Resources on Creator Tokens
Rally.io Creator Coins Website
Creator coin discussion with Tilt’s Joe Pulizzi on the Unemployable podcast The Inside Story of Creator Economy
Blog from an association or organization point of view Creator Coins, the Next Frontier
Having an early adopter mindset can get me in trouble (like buying Coleco at ATHs), but I have fun learning about new things and jumping into the game. One lesson learned is to jump in small. You don’t need a big investment to play and learn. As you gain confidence, you can grow the commitment to the new thing and if it works out, there can be a big reward similar to returns of venture deals.