Randominvestorhttps://investinmyselfcom.wordpress.comThis is my personal blog about finances, the stock market, and investments. Disclaimer: I am not a financial advisor. Take anything I say for entertainment purposes only.
According to her financial disclosure report, Alexandria Ocasio-Cortez has a checking account, brokerage account, and a 401(k) plan through the National Hispanic Institute. All three accounts reportedly have between $1,001 and $15,000 each. You can view the PFD of the disclosure report here. According to the House of Representatives, she has a salary of $174,000 a year.
For someone that lives in a swanky D.C. apartment building and drives a Tesla, how does she have so little in financial wealth? Alexandria Ocasio-Cortez serves on the House Committee on Financial Services. She should have the knowledge and understanding of the importance of investing early in life. Of course, a lot of people AOC’s age have little, or nothing invested, but the majority of them do not have access to the same people and information that the congresswoman from New York has.
AOC is a star; she has made it. Whatever glass ceiling that was above her, she broke through it. She did not succeed through just luck or happenstance. She has superstar-like qualities and traits that should not be dismissed. But someone in her stature, with nearly 13 million Twitter followers, serving on the House Committee on Financial Services, should be held to a much higher standard.
On average, Latinas in the U.S. are paid 43% less than white men and 28% less than white women. A lot of young Latinas look up to AOC and for good reason. Instead of talking about eliminating student debt or creating a public banking option, she should also be discussing the importance of investing early. In general, if more people invested early, issues like a national hourly wage, or crushing student loan debt, would not affect as many people as it does now. I am not here to discuss if AOC is right or wrong on the hot button issues. These are prominent issues that need to be addressed but given how easy it is today to open a brokerage account, and how easy it is to invest in an individual stock or an index fund, AOC should set a better example for the millions of women and girls that look up to her.
Investing is something people can do within their power right now. Due to inflation, having cash right now is very dangerous. In a recent interview, Ray Dalio said, “Cash is not a safe investment, is not a safe place because it will be taxed by inflation.” Eliminating student debt and raising the minimum hourly wage will not dramatically lift people out of poverty. Investing early and letting the magic of compounding interest do its thing are proven winning strategies that can create life-changing wealth. AOC may become extremely wealthy without investing however her situation will not be so easy to replicate for the millions of her supporters.
“We’ve always said, ‘ignore the noise.’ So living by, and practicing that, rather than ‘this is our rallying cry, this is our motivation,’” Tom Brady said. “The reason why we win was not because someone insults us. The reason why we win is we ignore it, and everything everyone says, and focus on the tactical things that matter.”
The New England Patriots have been among the most successful sports franchises in the past twenty years. The Patriot’s formula for success is fairly simple yet nearly impossible to replicate. They don’t follow the herd or what is currently in vogue. In fact, the Patriots are often the team creating the trend, with other teams copying them. In regards to managing their roster and game planning, they have a set of principles that they tend to follow every year:
Re-sign players to fair market deals, if not, trade, release them or let them walk
Accumulate lots of draft picks despite not having a top-ten draft pick since 2001
Trade for players with favorable contracts who provide high-reward, low-risk.
Draft and sign players who can play multiple positions.
Prioritize drafting and signing players who are under the radar. I am unsure if any other team finds more value in late-round draft picks and undrafted free agents.
Open-minded: The Patriots will tweak and improvise on schemes.
All of these principles/concepts seem fairly simple, yet in reality, very difficult to implement in real life. Mike Tyson said, “Everybody has a plan until they get punched in the mouth.” If you have a plan of running into a burning building and know that is the right plan yet see everyone running away from the burning building, you will probably question that original plan.
The Patriots are unique. They won their seventh straight victory on Monday night against the Buffalo Bills by attempting only three passes. The last team to do that was in 1974. “We don’t sit around listening to what everybody else says,” Belichick said. “With all due respect, I mean really. Look, we have a job to do. We’re focused on doing that job. We’re not going to sit around and listen to what everybody else says. We try to do the best we can.”
After the win, they celebrated but in a very workmanlike manner. They don’t get too high after victories or are too low after defeats. This contrasts with teams like the Detroit Lions, who won their first game of the season and celebrated like they had won the Super Bowl.
Patriots celebrate a win over the Bills:
Lions celebrate a win against the Vikings:
You don’t see bearhugs with the team owner and coach or choreographed dance celebrations in the Patriots locker room. They tend to do things differently. Humans are generally hard-wired to want to belong to a group. Back when humans were all in tribes, this was necessary to survive. The Patriots have been great for so long because they have been able to turn off the noise and do it the Patriot Way.
The Patriots adhere to a specific process that has created a long-term successful winning strategy. The process is not fixed but dynamic, which has safeguarded them from falling out of contention. If the Patriots were a stock, they would be the best-performing company in the past twenty years. They have been the standard of the NFL. Most importantly, the Patriots do not follow the herd. As Charlie Munger once said, “crowd folly, the tendency of humans, under some circumstances, to resemble lemmings, explains much foolish thinking of brilliant men and much foolish behavior.”
Being a great investor requires turning off the noise. This doesn’t mean being a contrarian but not following the herd and executing your own set of procedures. There are some principles that I try to implement in my own investing strategy.
No matter how bullish the market is, a good portion of my portfolio is in safe and reliable stocks. In times of euphoria, I do not buy, instead, I sell and build on my cash position.
No matter how bearish the market is, a small-medium portion of my portfolio will go into higher-risk higher-rewards stocks. In times of despair, I start deploying my cash into assets.
Often our performance is based on simply holding a stock, not buying or selling. When there is uncertainty in the market, the best thing to do is nothing and be patient. Investors often overreact and panic. I try to ignore the noise. There is a reason why it is said patience is a virtue.
Margin contracts, buying on credit, and leveraging assets to buy or short the stock market are high-risk.
Although it can be difficult to determine when to buy a stock, I would rather buy a stock at its 52-week low than its 52-week high. If a stock is at or near its 52-week high, there is a good chance you will be allowed to buy it at a much lower price if you wait.
I never go into buying a stock thinking I will hold it for a short time period. I generally buy a stock with the plan to hold it for at least 3-5 years. This will save lots of money in tax advantages.
Never take a risk that can wipe me out completely.
Take simple steps to diversify.
Look for founder-led companies. Although not all founder-led companies succeed or are good investments, companies still led by their founder or founders tend to have an intrinsic edge over non-founder-led companies.
Every month try to read a book related to investment strategy.
Create my inner circle for investing counsel and advice. With social media, this is a lot easier to do today. I am not looking for stock pick recommendations, more so understanding the thesis and formulation for certain investing decisions.
Stay neutral and remain calm. Munger once said, “heavy ideology is one of the most extreme distorters of human cognition.” Keep your politics, religion, and ego out of your investing philosophy. Safeguarding your emotions will prevent you from buying in bubbles and selling during a panic. This, perhaps, is the most difficult part of investing: acknowledging and overcoming your own cognitive bias.
This is not a complete list, but I have found this framework to work for me.
“Don’t need the cash,” Elon Musk tweeted. “Devoting myself to Mars and Earth. Possession [sic] just weigh you down.”
Why are the majority of Americans so poor? This chart shows they have too much exposure tied up in housing and not enough in stocks. The wealthiest Americans show much higher ownership of stocks and significantly less in housing.
The irony is that when you ask most Americans why they don’t any stocks, the most common answer besides not having enough money is that they are too risky! Unfortunately for the majority of Americans, not having exposure to “risky” stocks makes them vulnerable to being wiped out.
Two solid investing rules I learned and follow are;
Reduce or eliminate debt: Avoid leverage, and beware of excessive expenses.
Requires a safety of margin: Be an informed realist but do not allow your awareness of risk to become too fearful, paranoid, or pessimistic.
Sound/simple advice, yet it is something a lot of people do not follow. There are some common reasons why having most of your wealth tied up in housing is a bad idea. I will go over a few key bullet points:
Expenses: Property taxes, homeowner’s insurance, mortgage insurance, flood insurance, earthquake insurance, maintenance, repairs, renovations, acquisition costs, realtor commissions, etc. With stocks, you generally have none of this. Also, property taxes and insurance are not fixed prices and are likely to rise over time.
Debt: Although you have many pros with getting a low-interest mortgage, it is still debt.
Time: The time spent on buying and selling homes is much longer than buying and selling stocks. Even if you are flipping houses, it’s a much longer process than going online in your brokerage account and buying a stock. More sweat equity is involved with housing that requires your time and physical presence.
Mobility: If you own a home, you cannot just move and bring that house with you. Of course, you could rent out your home, which can provide a monthly income, but this can take up more of your time and expose you to landlord-tenant risks. Many cities have passed fair housing laws that make owning a house much less lucrative for a landlord.
Lack of education/preparedness. 64% of millennials have regrets about buying their current home. When you hear people say they don’t invest enough because they do not know enough about stocks, that somehow doesn’t apply to housing as so many millennials have buyer’s remorse yet still feel an obligation to buy a home. Just because something is tangible doesn’t make the process easier.
Per a study from the Federal Reserve, 90% of respondents preferred owning their primary residence rather than investing in the stock market.
Yikes.
I hate to say it, but the majority of Americans have it wrong. This keeping up with the Joneses’ mentality definitely explains why a wealth gap exists. Based on statistics and charts, the bottom 50% owns about the same amount in housing as the top 1%. Flipping it the other way, the majority of Americans own such few stocks.
It seems like I am completely railing against homeownership, but I am not. Like with stocks, if you can buy a home at a fairly-priced entry point, I am all for that. That being said, the amount of sweat equity involved in housing can mute the actual benefits. I also have trouble seeing any property that can net the same return as Tesla, which earned a 2,719.81% gain five years ago, or Apple, which has a 403,425.00% all-time return.
The reason many people buy homes has nothing to do with it being a good investment, as many other external/internal factors exist. For some, buying a house is an aspirational purchase. Buying a home can be seen as a sign of financial success but not actual wealth. The question you have to ask yourself is, would you rather appear wealthy or actually be wealthy?
I also believe many people have a cognitive bias against non-hard assets. This person’s profile typically finds tremendous value in housing or gold (It has value because I can feel it). If that person does own any stocks, it is in companies like Boeing or Caterpillar. They see the value in manufacturing, semiconductors, and commercial aircraft carriers, not so much in social media or e-commerce. Since they did not grow up or live on the internet, they have trouble finding the true worth of a company like Amazon or Facebook. They most likely have determined cryptocurrencies to be a scam. I would say this type of mindset is outdated, and as technology advances, it could leave millions of Americans desperately in the dust.
People need to invest more in stocks or invest anything at all as many people have zero invested in the market. Housing can be a valuable tool in growing your wealth, but I would caution anyone that concentrates their entire portfolio into it. As Zillow learned the hard way, flipping homes successfully depends on what local market you are in. Unless you are committed to getting into real estate/owning multiple properties as a career pathway, most people are better off investing.
Luxury Fashion is back with demand building and the pandemic easing. From a recent fashion report from ReportLinker:
The luxury fashion market size was valued at USD 110.64 billion in 2020 and is expected to reach USD 153.97 billion by 2026 growing at a CAGR (Compound annual growth rate) of 5.66%.
The following factors are likely to contribute to the growth of the luxury fashion market
• Leveraging augmented reality • Growing inclination towards sustainable products • Internet shaping purchasing behaviour • Increasing acceptance by millennials & Gen Z population • Growing high net worth individuals • Growth in travel & tourism
This shouldn’t be at all surprising. The pandemic slowed down the personal luxury market however the demand never went away. It was forcefully bottled up and suppressed but as things open up, we will see spending dramatically increase. This pent-up demand will likely lead to violent upward spending on luxury goods. New customers are buying and existing customers are buying more. Luckily for premium luxury brands, they are somewhat inflation-proof. If a consumer has already decided to spend $500 or more on a handbag, is increasing the price by 5-10% going to slow down spending? I do not think that is the case.
Are the Roaring Twenties back?
The numbers:
Global consumer spending on personal luxury goods, including the latest sneaker trend or design collaboration, is forecast to spike by 29% this year, to 283 billion euros ($325 billion). That’s a return to 2019 levels and a turnaround from the gloom of the 2020 pandemic lockdowns that shuttered stores and halted international travel.
U.S. consumers have at least temporarily supplanted the Chinese as the biggest spenders, accounting for one-third of all sales this year, compared with about 23% by Chinese shoppers, who were on par with Europeans. That trend is expected to invert by 2025, with nearly half of all spending by Chinese consumers, just over 20% by Americans and 18% by Europeans.
Revolve is the biggest position in my portfolio. It provides travel, live events, high-end fashion, data, and tech all-in-one. I kind of view it as if Instagram and Amazon had a baby. Revolve’s business model is designed to not miss trends, giving it a massive edge over other luxury fashion companies.
I view Tapestry as greatly undervalued. I invested heavily in this company because of its increased penetration in China, digital sales/growth, and re-branding towards millennials and Gen Z consumers. If the company continues to execute, I have no doubt the stock will soar past all-time highs before 2026. I have so much confidence in this happening, once it does hit a new record-high I will buy and ship any item under $500 on Coaches website to one random subscriber of this blog completely free as a thank you.
Sometimes the market provides you with a very easy opportunity to make money. In a sports comparison, this would be like bunting against the shift. The defense is giving you a free base hit, so take it. Increased consumer spending on luxury fashion is one of the easiest consumer trends to predict after the pandemic. I will gladly take advantage of what the market gives me. Thank you!
There is the potential of using smart contracts to incentivize coffee farmers to adopt more productive farming practices. Coffee is Ethiopia’s largest export, and improving this industry would add massive societal benefits.
Cardano has become my favorite altcoin. I consider Bitcoin and Ethereum the blue-chippers of cryptocurrencies however Cardano may be the least speculative out of all the altcoins.
To explain better Cardano, I will try to explain what it is. Three full-time organizations are working on Cardano:
Cardano is viewed as many as blockchain 3.0. A blockchain is simply a chain of blocks of information. You can kind of look at it like Wikipedia.
There are three main aspects about a blockchain you want to know about:
Security – Defined by its consensus mechanism or how participants in the network come to an agreement about a certain truth or record that should be recorded in that particular block of the blockchain. For bitcoin, its consensus mechanism is called proof-of-work. Computers have to do a lot of work called mining in to prove that they have the right history or data in the blockchain. The proof of work algorithm is highly effective and secure however it is slow and consumes a lot of energy. That’s why when many people think of bitcoin mining they think of these odd-looking computers or mining rigs.
Scalability – How many transactions you put through the network, how much data can you store on it, how big can the network get and how many people can it reach.
Decentralization. At the protocol layer, decentralization means that anyone can openly see the code that they’re running; what’s in the protocol, what it means, and that people can suggest changes to the protocol. At the next layer, the network layer, decentralization means that people who want to can easily and cheaply run nodes, put their transactions onto the network, and validate transactions of others.
Blockchain 1.0 technology is the transfer of decentralized money between two people without a middle man. This is what we see with Bitcoin. There is not much else to this technology, just that it works.
Blockchain 2.0 technology adds smart contracts and has much more conditions than simply a transfer of money. This is what we see with Ethereum. Cheaper and quicker than Bitcoin.
Blockchain 3.0 technology increases transfers per minute and utilizes the proof of stake protocol. This is what we see with Cardano, which uses the proof-of-stake model, which follows the ouroboros protocol: “Proof-of-stake answers the performance and energy-use challenges of proof-of-work, and arrives at a more sustainable solution. Instead of relying on ‘miners’ to solve computationally complex equations to create new blocks – and rewarding the first to do so – proof of stake selects participants (in the case of Cardano, stake pools) to create new blocks based on the stake they control in the network.“
Cardano is still in the creation phase of a crypto lifecycle so it is still very much volatile and speculative. Cardano’s development process is divided into five different eras: Byron, Shelley, Goguen, Basho, and Voltaire. These five eras make up Cardano’s roadmap.
My favorite aspect of Cardano is its Africa strategy which you can read more about here.
The reason why I invested in Cardano, is because I believe the project has substantive value. There is a story. The Africa strategy focuses on banking the unbanked in underdeveloped countries. This is why blockchain and cryptos have value. Traditional banking does not work for everyone, it is not considered universal banking. Imagine if internet routers were not backward compatible or if they were only compatible with one type of modem? How many fewer people in the world would be able to connect to the internet? Even in developed nations, we see people or businesses being unbanked. If you are starting a cannabis business, even in states where it is legal, most banks don’t offer services to these types of businesses. Or take example strip clubs, imagine how much easier transactions would be if they accepted crypto? It would be less expensive, faster payments, and more privacy for clients.
The other reason why I could see Cardano exponentially grow in value is that it is more sustainable than Bitcoin and that is the long-term social trend happening in our country. 54% of teens consider their carbon footprint when making a purchase. The most important social/political issue for Gen Z is the environment. There are thousands of cryptos in existence right now. The ones that will survive are the ones that have the network effect and actual value. I mentioned scalability earlier and Cardano has the potential to be more technically and socially scalable than Bitcoin and Ethereum.
I try to apply the same principles for long-term investing in stocks with cryptos. These are assets to hold in the long-term as they appreciate in value. A lot of people will refuse to even acknowledge cryptos as useful until it is fully mainstream. Remember in the 90s there were smart educated people that thought the internet was a fad. People like Jeff Bezos and Elon Musk were laughed at in business meetings. Being long on volatile assets can minimize your risk and provide exponential growth. Even having a rudiment understanding of cryptos or the blockchain puts you at a significant leg up over the majority of the population in regards to investment opportunities.
If these terms are foreign and make no sense, I completely understand. I am a novice in this space as well. This is early-stage tech. A lot of this terminology is still being defined and there isn’t yet standard terminology in the blockchain space. One important investing rule is to find order within chaos. Cryptos are extremely volatile because since it is new, you will see a lot of speculation. The space is filled with a lot of people who got lucky or believe they can forecast future prices or events with certainty. No matter how smart you are, in certain situations, smart people can make very stupid decisions. The Dunning-Kruger effect, coined by the psychologists David Dunning and Justin Kruger in 1999, is a cognitive bias in which poor performers greatly overestimate their abilities. I would be skeptical of those forecasting prices of any crypto. A famous economist John Kenneth Galbraith once said, “We have two classes of forecasters: those who don’t know and those who don’t know they don’t know.” My best advice would be skeptical, focus on the story and learn about the fundamentals, enough to want to keep learning more but open-minded enough to take advantage of new and exciting opportunities.
“The stock market is a device for transferring money from the impatient to the patient.” Warren Buffett
Lemonade is a very intriguing company because it is disrupting the insurance industry. Lemonade is less than 10 years old yet it is competing with legacy insurance companies over 100+ years in the business! Although they are unprofitable and on the higher risk of investments, I believe the risk-reward profile is justifiable given the rewards are 5-10x, possibly much higher. I will hold the stock for several years may be much longer. I understand the insurance industry isn’t going to change overnight and that’s not something people want to hear who have made massive gains in cryptocurrencies or meme stocks. With a little patience, I think Lemonade is worth holding in an investor’s portfolio.
Competitive Advantage: Artificial Intelligence.
AI, Forensic Graph Network, behavioral economics, machine learning, data points, etc. Basically, this is Lemonade’s secret sauce. I don’t want to get so much in the science of this competitive advantage but just that Lemonade is AI-powered while the majority of their competitors are not. The thesis for Lemonade is their AI better assesses risk, lowers loss ratio, creating a more efficient business model, which will eventually lead to higher growth and profit margins.
The term network effect refers to any situation in which the value of a product, service, or platform depends on the number of buyers, sellers, or users who leverage it. Typically, the greater the number of buyers, sellers, or users, the greater the network effect—and the greater the value created by the offering.
There are tons of examples of how network effects work. Companies like Facebook, eBay, Amazon, or Google are valuable because a lot of people are on the platform. The fewer people in their ecosystem, the less valuable the company becomes.
So is there a network effect happening in Lemonade? I believe so:
Lemonade ranks highest for Renters Insurance for 2021 in J.D. Power Study. There are some key nuggets in this study. Three of the biggest reasons why people stick with a certain insurance company long-term are trust, good service experience, and convenience. Price is obviously important but not the main driving factor for sticking with an insurance company.
Through Lemonade’s giveback program they donated $2,303,381 to 65 nonprofits in 2021, more than double from last year.
From my conclusion, Lemonade’s AI is creating a network effect and the proof is in their high customer growth rate. Another thing I like about Lemonade is its high customer ratings. Owning a Lemonade policy myself, I have to say the process was convenient, easy, and fast compared to going with a legacy carrier like State Farm or Allstate. This customer-first-centric business model goes into the premise if you create a company that provides a superior experience, consumers will better trust the company and be willing to pay more. Luckily for Lemonade, it won’t be that hard to win in this area. Who do you know that passionately likes their renters or car insurance company? The fact Lemonade donates part of your unclaimed premiums to charities provides that good feeling deep inside you typically never get with an insurance company. Through Lemonade’s giveback program, as their network grows, so does their social impact. More policyholders equal more revenue plus more good for society. It’s a rather genius business model if you ask me.
I believe in order to be a good investor you have to have your chips on the table. You are typically not going to get massive returns after a stock has made its big move. With Lemonade the hype and momentum are justified although the insurance industry is a bit slow-moving and lacking innovation. Those investors that are patient could see massive gains. Every additional Lemonade policyholder adds value in an exponential way. This is the network effect in play. When something has a network effect it is a rule and law that cannot be broken. Legacy insurance companies have their own network effect however there are three ways to stop a network effect: government regulation, technological failure, and significantly better competitor arriving. I believe Lemonade is that competitor that will lead consumers to swap out their insurance policies. Given how big the insurance space is and depending on how well Lemonade executes and harnesses its network effect, I could see this growing from a 2-3x bagger to something even more incredible in the range of a 10-20x bagger.
Revolve is still undervalued and mispriced by Wall Street simply because the majority of analysts who cover it do not understand the nuances of the company. Heck, most of them are still figuring out what they sell. This isn’t surprising. Revolve’s demographic is female Millennial and Gen Z consumers. The demographic of Wall Street are typically white Gen X males like this analyst covering the company.
Here is a video of one analyst giving his assessment of Revolve. This is a sound analysis from a book value perspective but even he admitted: “I am not a Gen Z’er or Millennial so it is too fashionable for me, I am old school.” Were no female contributors not available to give their opinion? If you were to ask his wife or daughter, they probably would be able to give a more accurate description of what the company does.
The analyst said, “I don’t get this kind of retail,” and “I went to their website because I had to figure out what they sell.” Can you imagine a professional analyst covering Tesla or Apple saying they had to go on their website to figure out what they sold? This seems shocking but not surprising. The majority of people on Wall Street have a limited scope of expertise. It is plagued by herd mentality and an inability to think outside the box. Regurgitating financial statements is not enough. What many on Wall Street are missing on Revolve is that they represent the future of e-commerce fashion retail. This may be obvious for someone born after 1980 but not so much for out of touch Wall Street.
Revolve from a financial perspective is doing well and has a positive outlook, but that is only half the story. Here’s a summary and what many analysts are missing. Revolve is a luxury lifestyle/fashion brand located in Los Angeles (specifically Cerritos) California. Los Angeles is emerging as the fashion capital of the United States. The “Big Four” global fashion capitals are widely considered London, Milan, France, and New York. Fashion is to New York as Big Tech is to Silicon Valley. Any legitimate luxury fashion brand is located on Fifth Ave.
Los Angeles has been emerging as a growing fashion hub where it will eventually become the 5th global fashion capital. I am no expert in fashion, so please take whatever I write with a grain of salt however it doesn’t take much research or an open mind to learn this trend by reading any random reputable fashion blog.
GETTY IMAGES
Reasons for this shift:
Instagram’s popularity has allowed emerging designers to showcase their work much more easily and LA has become the preferred destination of choice.
Celebrity brands/culture has grown (fueled by social media) much more popular within the past decade. Look at Robyn Rihanna Fenty, who launched her lingerie line in 2018 called Savage X Fenty. The company is headquartered in El Segundo California. Rihanna is now a billionaire and has a higher net worth than the majority of rappers she collaborated on songs with this past decade.
Los Angeles culturally is considered more about wellness and leisure. This more health-conscious laid back lifestyle is trending upwards and becoming more popular.
What Revolve has done in a short amount of time is quite remarkable. They may become the first true American luxury fashion brand outside of New York. Los Angeles’s growth in fashion also coincides with it becoming an emerging tech hub as well. This isn’t just about a fad fashion retailer but a growing fashion empire that is attracting the most influential social media influencers and designers in the fashion space. This shift just happens to coincide with retail spending rapidly moving online. I like to make bets on trends and in my opinion Revolve is grossly underpriced. I see Revolve priced similar to where Lululemon was priced in 2017. I will gladly hold onto my shares of RVLV and watch it appreciate as Wall Street figures out what they do as a business.
There is a lot of excitement regarding psychedelics in treating serious illnesses. I believe this sector can one day be bigger than cannabis. Psychedelics refer to:
Psilocybin (Shrooms)
Ketamine
DMT/Ayahuasca/Dimitri
Peyote/Mescaline (Cactus)
MDMA (Ecstasy/Molly)
Salvia Divinorum
LSD
Ibogaine
In the future, I believe many of these drugs will be used to treat mental illness and addiction. I am super excited and optimistic about this space in general and I prescribe to the idea a rising tide lifts all boats. A lot of these psychedelic biotech companies will likely be really profitable down the road. We are only in the beginning stages of this sector as none of these drugs have been approved by regulators yet. I think companies focused on Psilocybin treatment will gain market share the fastest as Psilocybin is the easiest of these drugs to be distributed. In the psychedelic sector, the biggest companies focused on mainly Psilocybin are:
ATAI Life Sciences Compass Pathways Plc Mind Medicine Cybin Inc
The science supports it:
There is evidence that the reduction of astrocytes in your brain is linked to depression. Psilocybin and other psychedelic drugs may increase or boost astrocyte function. Recent studies have been overwhelmingly positive:
Dr. Charles Grob, a professor of psychiatry and biobehavioral sciences at UCLA, who worked with terminal cancer patients in the early 2000s, says many of the patients he worked with emerged from the experience with a newfound ability to focus on the present moment.
Most of his patients came in experiencing high levels of existential distress, demoralization, depression and anxiety. After the psilocybin treatments, they often left with a newfound sense of peace and a determination to spend the rest of their days connecting with loved ones and making the most of the time they had left.
“Because there are several types of major depressive disorders that may result in variation in how people respond to treatment, I was surprised that most of our study participants found the psilocybin treatment to be effective,” explained Roland Griffiths, PhD, study author and director of the Johns Hopkins Center for Psychedelic and Consciousness Research.
By the late 1960s, funding and research on psychedelic therapy stopped due to politics and regulation. Today the politics and mood have changed. In 2019 The FDA greenlighted Psilocybin medical research. Now regulation has eased with several cities decriminalizing Psilocybin. In 2020 Oregon legalized Psilocybin for therapeutic use. The fact is that science was right 50-70 years ago and it hasn’t really changed (which is a good thing). What has changed is the money. This type of research was only getting a small amount of funding up until recently. Now VC deals and institutions are pouring million into psychedelics the past two years.
Don’t bet against Peter Thiel:
Peter Thiel is a co-founder of PayPal. He was the first outside investor of Facebook. He is the chairman of Palantir Technologies. His track record is impressive and shadowing some of his investments would seem like a wise decision. Both Compass Pathways Plc and Atai Life Sciences are backed by Thiel. I would assume Thiel having a Silicon Valley background, knows how big Micro-dosing is thus, understands how big the market would be if Psilocybin received a medical pathway from the FDA. This to me is a no-brainer. If it’s good enough for Thiel, I will follow his lead. One of my favorite investing quotes is from the great Charlie Munger: “I believe in the discipline of mastering the best that other people have figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody is that smart.”
There is simply too much good news not to invest in Psilocybin. I believe in the science and data. Will there be political and regulatory hurdles ahead? Absolutely, but let’s exercise some common sense. If you believe the thesis that Psilocybin can significantly help many people with depression, addiction, or mental illness, wouldn’t it be better for this to be on the market, covered through insurance, vs the current antidepressants available? We wouldn’t be having this discussion if there was a viable legal solution readily available to combat mental illness and addiction. Psychedelics/Psilocybin is trending upwards for the past 15 years on Google trends. Clinical trials today are much safer compared to the 60s. The face of the Psychedelic movement is not nutty psychologists giving acid to random people but well-respected entrepreneurs with money and influence. They give credibility to this space and can help with the regulatory approval process. Aside from the actual science is the story. Mega Influencers like Peter Thiel can help shape the story of this industry and avoid the roadblocks we have seen in cannabis.
The fight is won or lost far away from witnesses—behind the lines, in the gym and out there on the road, long before I dance under those lights.” – Muhammad Ali
FUD: Fear, Uncertainty, Doubt
“The biggest risk is not taking any risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”- Mark Zuckerberg
Often many of the decisions we make are based on fear. We may not like the decision, but we do it anyway out of fear. We work at companies we may not like for fear of not being able to support ourselves. We get married out of fear of being alone. For investing you would think more people would invest out of fear of not having enough money for retirement however the majority of Americans do not invest anything at all. A big reason for this is due to a fear of loss. This fear could be correlated to loss aversion, which is the tendency for humans to experience a loss with twice as much impact as an equivalent gain. This fear causes people to not invest at all or invest too conservatively to avoid the pain.
The media helps play on these fears as negative headlines tend to garner more attention than positive ones. How many times have you read the word “crash” in a headline when the stock market falls? A stock falling a few percentage points is technically not a crash, yet we see that word being used liberally regarding the financial market. These scare tactics are poisonous for novice investors or those starting on their investing journey.
The truth is stocks going down is quite normal and a sign of a healthy stock market/portfolio. They are inevitable and happen quite happen. Pain is something we cannot avoid in all aspects of life, especially regarding the market. When people say they don’t like volatility, they are saying they don’t like downward volatility. If you take volatility away from the market, you essentially have a savings account. Volatility provides the ability for your portfolio to beat inflation and get massive gains. One of the best analogies I can make to being an investor is to that of being a boxer. In boxing, it is inevitable for a boxer to get hit. Every boxer expects to be hit however they simply cannot stay on defense the entire fight. To win a boxer needs to take an offensive position and throw punches, even if that means an increased likelihood of being hit themselves. A boxer that takes no risk, will never win. A boxer that takes too much risk, might get knocked out. The key is to find some sort of balance
Great boxers and investors:
Get hit and suffer losses, that is inevitable.
Try to avoid getting knocked out
Understand this is a long game. Boxing is 12 rounds. Not every fight will end in a round one TKO. Not every investment will be a 10x gain in one month.
Make adjustments. Remember Mike Tyson’s famous quote: “Everybody has a plan until they get punched in the mouth.”
Train, study, and prepare. It is said the fight is won long before the bell rings.
How 10,000 invested in the S&P 500 index, for the 20 years of 1999 through 2018, would have performed under various scenarios.
Staying in the market in the long term is important. We simply do not know when a stock will have its biggest upswing. It can happen right after a stock has its biggest downswing. Trying to avoid pain altogether is typically a losing strategy. When you pull out of the market simply to avoid short-term loss, you risk missing out on the best days. Not accepting risk is a big mental hurdle preventing many from investing. The stock market is impossible to predict accurately in the short term and trading in and out of stocks too frequently puts you in a trader’s mentality. Stats have shown the majority of day traders lose money.
Psychology plays a lot in investing and life in general. These barriers are a big reason why people stop or never invest. Here is some general advice that could help you as an investor.
Evaluate companies based on what you project they will do in the future. Remember, no company beats on earnings every single quarter. Don’t be a prisoner of the moment.
Understanding the price of the stock may not be the best indicator of how a company is performing or how it will perform in the future.
Growth stocks like Tesla, Lemonade, Affirm are volatile by nature because they are valued on future potential earnings which are 3-5 years down the road, potentially longer.
Earnings drive stock prices in the long run. How the company performs, not macroeconomic events or sentiment will determine the projection of the stock price.
There is no exact formula or metric that will tell you where the stock is headed. Anyone can look up a company’s EBITDA or P/E Ratio. Investing is not a math equation.
My best response to comments rooted in FUD about investing.
I am not a financial expert, I don’t know which stocks to pick.
If stock picking was purely a science, wouldn’t the majority of mathematicians, accountants, and college professors all be millionaires? If you could predict stocks based solely on a formula or chart patterns, why are so many smart people wrong so many times?
The truth is stock picking is not purely a science, it is just as much an art. If you listen to some of the wealthiest investors, they all say something similar. One book I would highly recommend is One Up On Wall Street: How To Use What You Already Know To Make Money In The Market. It is a very quick read and although Peter Lynch wrote the book in 1989, the advice in the book is just as relevant today as when it was originally written.
Believe it or not, retail investors have a major advantage over Wall Street. The majority of retail investors live in the real world, they experience it. Wall Street is a bubble made up of mainly upper-class, older white males with an east-coast bias. Institutional investors have an advantage with transactional data however they have a very antiquated approach to interpreting that data. The advantage we have is in our imagination. We are a diverse group of people with different backgrounds and experiences.
90% of Wall Street is looking at the same data under a herd mentality doing the same thing. There is very little diversity or creativity involved. If you are looking for a fresh idea, the last place you would want to go to is a financial institution. Set up a meeting with a bank or Wealth Management Group and ask them a few questions. They typically provide the same investing approach. If you want creativity, go to an art studio, a music festival, or talk with a fashion blogger. You will probably get more relevant ideas that could spark your next great investment.
We all have unique perspectives, so utilize that in our investment philosophy. Identify change by making casual observations. Consume information to identify a change which could be anything – politics, consumer behavior, science, etc… Based on what you observe connect that to an investment opportunity. We are all experts in some sort of field. Some fields like chemistry, energy, or medicine require more knowledge to understand however things like brands, products, consumer behavior, pop culture, or entertainment are things that millennials and Gen Z are quite knowledgeable about.
If you are going to invest in something regarding social media, why would you listen to the segment of the population that never uses TikTok or Snapchat, or don’t even understand how these platforms work? Wouldn’t you want to listen to the people that use that platform daily?
Developing a quick thesis is not that hard. If you can come up with a few logical bullet points in owning a stock, you will likely hold it longer and know when to sell it when that thesis changes. Here is an example of how to develop reasoning to own a certain stock:
I know what Instagram is. I noticed a lot of luxury brand companies like Louis Vuitton on it. They have a big following. Instagram seems like a great platform for luxury brand companies to build awareness and gain customers. The site is a perfect environment to promote an aspirational lifestyle and luxury experiences.
Luxury companies have already learned that Instagram is a driver of sales and have responded by dramatically increasing their social media presence and budget. Based on my research going on Instagram this is evident. When a consumer sees Louis Vuitton’s Instagram page, it’s just as influential as going to the store in person. Just in a day, a consumer can purchase a $2,000 dress, $1,000 top, and $800 hat all in a single purchase based on one Instagram post.
This is why I consider Apple, the Louis Vuitton of Electronics. One of the top five richest men in the world is Bernard Arnault, the head of Louis Vuitton who has no tech background. Consider the cost to make a Tesla or iPhone vs the cost make a handbag or dress. The margins are quite intriguing.
When I see some high-end fashion stores packed with customers I wonder “who is buying all these overpriced items?” Instagram is fueling these sales as multiple posts can create demand for buying multiple outfits and the luxury fashion brands that can best utilize social media will likely see higher revenue growth in the future.
Cost of dresses on Louis Vuitton’s website
Reasons to Invest in Louis Vuitton.
Reason 1: Pent-up demand from the pandemic. A lot of people have money to spend and a lot of that will go into luxury products.
Reason 2: Social Media platforms like Instagram are fueling the growth of Luxury Brand companies
Reason 3: Inflation proof: If you are already going to spend $5,000 on a Louis Vuitton handbag, is increasing the price to $5,500 going to deter you from buying it? When you decide on buying a handbag, you also need the matching outfit and accessories, which means more spending.
Reason 4: Louis Vuitton has a strong luxury brand name. Biggest fashion brand in the world outside of Nike, clearly number one in luxury fashion, not even close. Unless they do something to hurt their brand name like go into factory outlet malls, that won’t change soon.
FYI I have never invested in Louis Vuitton, but have considered it though. I have used this thesis/thought process to invest in companies like Stitch Fix, Revolve, and Coach. The biggest thing you should ask is why? It is one thing to understand that Louis Vuitton is the top brand name in luxury, but a good investor will understand why it is.
I work too hard. I won’t risk losing it all
If you are that risk-averse, you should most likely invest in low-cost index funds or put a small percentage of your net worth in individual stocks. Only put what you are willing to lose, but also be prepared on missing out on gains. When you are investing in an ETF or Index Fund you are mitigating your losses but also capping your gains.
An ETF can have hundreds if not thousands of stocks inside the fund. An Index Fund is typically designed to mimic the index or benchmark, not beat it. With lower risks comes lower rewards. Single stocks appear to carry more risks however some stocks are conglomerates. Companies like Tencent, Berkshire Hathaway, and Louis Vuitton can be considered well-diversified as they are multiple businesses under one parent company. Given how diverse one company can be, investing in multiple ETFs can be considered a cluttered investing strategy.
The stock market is a giant casino/Ponzi scheme. It is designed for me to lose money
When you think about that statement more in-depth, do you wonder how people lose all or near 100% of their wealth in stocks when in the long-term the stock market goes up? Did they engage in options trading, margins, shorting the market, or buying penny stocks? Ask and you might not get a clear answer. The problem with the Wall Street mentality is that they focus too much on quarter-to-quarter results. It’s as if once they get a decent gain, they already have their eyes on the sell button. Having this type of mentality puts you closer to a gambler rather than an investor. Why sell a stock you know likely will 10x 5-10 years later? If you view stocks as a get-rich-quick scheme then yes, it can feel like a casino. The shorter your investment strategy the more risk you are assuming. Psychology and emotions might take over and allow you to cut corners or do something stupid. We are all guilty of making make bad investments but again, the common theme of investing is that you have to be invested and assume risk to make money. That is the necessary risk to become wealthy.
There is too much risk in the market
If one could time the market accurately, you would likely have at minimum, a billion dollars. There is no such thing as a risk-free stock market.
The amount of risk you subject yourself to in the market is probably more based on your personal qualities rather than external factors. Good traits for investors are typically patience, use of common sense, open-mindedness, humility, a willingness to learn and admit mistakes. If you have ever watched an episode of Gordon Ramsay’s 24 Hours to Hell and Back or Bar Rescue, you see many owners stick with a failed business strategy (stubbornness/close-minded) and ignore good advice (lacking common sense) despite bleeding their business dry.
Stocks can be viewed as an educated gamble where the odds are tilted in your favor. When you engage in more short-term riskier activity, you are mimicking the gambling you see in a casino, which is more luck-based. Patience and time are some of the greatest edges an investor has but many don’t utilize them enough. It can erase big mistakes and turn a small amount of money into a fortune.
My best advice is that when you invest, you should have some sort of plan. Whatever you do, measure the survivability of your plan. The more risk, the less likely that plan is to survive. If one risk can wipe you out completely, it is probably not worth taking. Genius can be defined as seeing opportunities so obvious they go unnoticed by 99% of others. The best investment you make is more likely to come from something you wear or eat every day rather than a company working on advanced genomic testing or hydrogen fueling stations. Allocate your risk accordingly but remember to take risks.
Buy Now, Pay Later services have gained massive popularity recently. Three of the biggest BNPL companies are Klarna, Affirm, and Afterpay. Klarna is headquartered in Sweden and will likely IPO eventually. Affirm (NASDAQ: AFRM) partners with companies like Peloton and Amazon. Afterpay, which is headquartered in Australia was acquired by Square (NYSE: SQ) in August. BNPL is point-of-sale, or POS loans, which allow consumers to make monthly installments – often in four months. Klarna and Afterpay require 25% due at purchase. Both do not charge any interest but do charge late fees. Affirm could charge 0 due at purchase and does not charge any late fees. Affirm does charge interest as low as 0% and as high as 30%. Klarna and Affirm may do credit checks and report missed payments to credit bureaus. Afterpay does not perform credit checks.
For these companies to become profitable, they will need the majority of their customers to consistently make their payments on time. Unfortunately about a third of users in the U.S. who have used BNPL have fallen behind on one or more payments. The typical item being purchased is under $500. There appears to be a lack of consistency or reporting to credit bureaus but it is safe to assume that many that do miss payments will see their credit score decline, although the exact number is not clear. These companies do not have consistent data as underwriting standards seem minimal.
The delinquency rate for all consumer loans runs between 2-3%. The highest it has ever gotten is 6.7% in 2009. The Australian Securities and Investment Commission (ASIC) found that 21% of BNPL users in Australia had missed a payment. As of right now, there is no real incentive for someone that can make a full payment to utilize BNPL. If they offered some type of reward program, like credit card rewards, it would entice a lot of consumers that are consistent payers to utilize this payment feature.
I have 18 active credit cards in my portfolio. I obtain credit card reward points on everyday purchases. A lot of the cards I applied for, like the American Express Platinum, require a credit score of over 700 to be approved. A lot of people who are getting these reward points are not lower-income households. You could argue that lower-income households are subsidizing those reward credit cards from their purchases. At this point, I am wondering who is subsidizing consumers utilizing BNPL. For these companies to become profitable, they will need to keep increasing their footprint but have to decide if they are a true alternative to credit cards or a modern-day version of a payday loan.
BNPL companies could be good investments however regulations are likely so there could be better buying opportunities in the future. Right now BNPL is a very niche space in the financial market. As it currently stands, companies like Affirm are more like Moneytree rather than a go-to financial services company. The upside and opportunity are there however I would rather stay in companies like Square and PayPal which in my opinion have less risk.
I am a big fan of the fintech sector. I believe this space is growing and profits will keep steadily increasing. Now is BNPL good for the average consumer, and will it increase consumer debt and misery? I do not believe loans are inherently good or bad. People can obtain student loans and credit card debt and pay them off responsibly. I am not the arbiter of morality. If someone without the money wants to make payments on a sweater or shoes, it is on each individual to pay off those items. I believe the government has some sort of obligation in protecting consumers however regulation won’t prevent people from making poor financial decisions.
* On a side note, I hate talking about politics and I hope this is not perceived as a political statement. Our country will be at its best when we focus on lifting people out of poverty. There shouldn’t be dramatically different class systems. Lifestyles should be more equal all around. When we focus on that, and not so much on promoting individuals and corporations to gain massive wealth, our economy will truly stabilize. It took a Great Depression for the government to create a response (The New Deal) to help millions of families out of despair. We should always prioritize lifting those in poverty and preventing them from falling through the cracks. By increasing the wealth gap further and further, we risk a higher likelihood of economic cratering. When more and more people go into extreme poverty and fewer individuals reach extreme affluence (shrinking the middle class) our entire system becomes less fair and more dangerous.
The United States made it a priority to normalize debt after World War II to prevent another great depression. The government has promoted the mantra that having debt is okay and an acceptable way to finance your lifestyle. Student loans and credit cards began in 1958. Our government has equated owning a house, to the American Dream, even if that means you cannot afford your mortgage payments in the long term. If you ever wonder why personal finance is never taught in public school, you should know why. Increased consumer spending helps prop up the economy and is favorable for businesses.
I want to be financially frugal and responsible. I want others to do the same as well. The sad irony is that I benefit personally from increased consumer debt even though I don’t have any myself. If consumer behavior dramatically changed overnight and a large segment of the population became financially responsible, that would not be good for the economy overall. A lot of the companies I invest in would lose revenue, and may even become unprofitable. The economy would likely suffer and go into a deep recession. What would become of American Express and other banks? Who would financial advisors help if no one had debt? That’s why I believe things will not change anytime soon. Based on studies, 60-70% of people would rather talk about sex, politics, religion, or their mental health before finances. It is just a very taboo subject people do not want to discuss openly. Not enough people talk about personal finances, and there are too many debt instruments that create negative compounding interest, which destroys an individual’s wealth. This may not be the brightest outlook but that doesn’t mean you will become a victim to this instant gratification culture. You (and only you) are responsible for the financial decisions that you make.
Invest in Myself 