“We generally do not enter into business with customers or governments whose positions or actions we consider inconsistent with our mission to support Western liberal democracy and its strategic allies.”

Palantir S-1 Prospectus

On February 24th, Russia invaded Ukraine. As FDR once said, “a date which will live in infamy.” Vladimir Putin is no longer a thuggish dictator, but now a full-fledged war criminal, who will be ostracized from the global community. The global landscape has changed. Everything has changed.

Watching the horrific scenes in Kyiv, I start to realize how lucky I was to be born in a democratic country. All of us have problems, but nothing like that of those that live in an authoritarian country where the meaning of freedom and liberty are much different.

We now have a true declaration of war. This war won’t be fought on the battlefield but in cyberspace. The U.S military is significantly stronger than Russia. When you add the U.S and all of its allies vs Russia, it isn’t even close. Russia knows this but closes the gap with a formidable hacking network where they can inflict massive cyberattacks that can cause large-scale damage.

The recent attack forever changed U.S. relations with Russia and Europe. Preserving western democracy through cybersecurity and focusing on national defense will be a much higher priority for the U.S. and its allies. I see Palantir, a stock that thrives in chaos, as a big beneficiary from the Russia-Ukraine war.

What is Palantir?

The company leverages machine learning and data analysis algorithms to detect unusual or suspicious patterns in large data sets in order to identify, predict, and report conclusions and outcomes. These products and services enable organizations to collect data, process data, analyze data, and use patterns and connections from the analysis to make better operational decisions and predict outcomes.

What is Palantir? Palantir Explained

How does this relate to cybersecurity?

At Palantir, we’re passionate about solving real-world problems. Our software has been used to stop terrorist attacks, develop new medicines, gain an edge in global financial markets, combat child trafficking, and more.

InfoSec at Palantir

How is the company performing?

Palantir expanded its commercial business throughout 2021, with revenue up 34% year over year to $645 million. U.S. commercial revenue alone soared 102% with the customer count jumping 4.7 times to 80. In 2021, government revenue gained 47% to $897 million.

Palantir shares drop more than 15% after earnings

Palantir was founded in 2003 and focused mainly on government contracts. They only recently entered into the commercial space, which makes it the faster-growing segment of their business. Palantir is unique in that they focused on government customers, which is a much more difficult space to grow as a business. Commercial contracts are governed by state law and are much fairer and equal between both parties. Government contracts favor the government for obvious reasons. They have unique powers that a private or publicly-traded business would never have. There is just so much red tape and bureaucracy with government contracts, it becomes an unattractive business model for revenue growth. It makes a lot of sense why Palantir ramped up on hiring sales reps to increase their commercial clientele list.

The invasion changes everything. Government contracts could boom for Palantir. All allies of the U.S. could bolster spending on defense to protect themselves from the Chinese, Russian, and North Korean hacking armies. Germany just recently ramped up its defense spending above 2% of its gross domestic product. German Chancellor Olaf Scholz said during a special session of the Bundestag, “it has become clear that we need to invest significantly more in the security of our country, in order to protect our freedom and our democracy.” Cyberwarfare is upon us and cybersecurity has become an urgent need. Companies like Palo Alto Networks, Crowdflare, Crowdstrike could all benefit, but I like Palantir the most because they are not confined to just the cybersecurity space. They analyze complicated data-driven problems and synthesize large data sets in a much more organized way. That market fits into a lot of different industries, which creates a large total addressable market.

Most investors and analysts assume the reason to invest in Palantir is because of their future growth in the commercial space. It has been assumed that government contracts are slowing down. With the recent geopolitical events, maybe Palantir’s government business is just starting to accelerate, which makes the stock price very attractive at these levels. They already have their foot in the door, so if the demand for more government contracts does increase, Palantir can deliver on that addressable need.

If Palantir grows its revenue at an average rate of 20-30% over the following 10 years, the stock is most likely an 8-12 bagger with a market cap of $400-500 billion. If Palantir grows its revenue at an average rate of 30-40% over the following 10 years, its market cap could be closer to $1 trillion. In that ultra bull-case scenario, this stock is a potential 100 bagger, in the same class as Microsoft, Google, and Tesla. With some luck and conviction, I am holding my shares through a shaky and volatile market. I could accept the pain if the stock price went to zero. I could not accept the regret if Palantir became a superstock and I did not own it.

“The best way to predict the future is to create it.”

Abraham Lincoln, 16th president of the United States

“Things are pumping on all cylinders, and we’re a V12; we’ve got a lot of cylinders.” Michael Mente, co-founder, and co-CEO of Revolve.

RVLV is undervalued. It is easily a 100 stock. I see its stock price having a similar trajectory to Lululemon. The stock is misunderstood by Wall Street. Most analysts do not even know what Revolve sells or how they advertise. They are not just a fashion company, they are a cultural brand, which is not priced into the stock price. They have true staying-power which will allow them to maintain their stellar growth rate.

RVLV utilizes social media influence marketing/data analytics to find the next fashion trends and get trending products to their target audience – Mainly millennials and Gen Z females.

Just to compare how frequently they engage on social media compared with other fashion companies: 

Instagram:

Revolve: 17,422 posts, 5 m followers
Nordstrom: 6,608 posts, 3.4 m followers
Louis Vuitton: 5,870 posts, 47.3 m followers
Aritzia: 3,745 posts, 1.2 m followers
Lululemon: 3,254 posts, 3.9 m followers

TikTok:

Revolve: 309.7k followers, 2.9 m likes
Nordstrom: 22.3k followers, 1.7 m likes
Louis Vuitton: 1.4 m followers, 10 m likes
Aritzia: 28.7k followers, 28.8k likes
Lululemon: 256.2k followers, 2.6 m likes

Thesis: Why I am so bullish on Revolve

Proprietary Technology Infrastructure: Think of Revolve Group as the Amazon for Fashion. They utilize their proprietary technology, data science, influencer marketing, and brand ambassador program to become a lux fashion networking giant. The strategies they use are absolutely brilliant. For example, the majority of Revolve’s influencers and ambassadors do not get paid in cash, they receive store credit. Buy more clothes, sells more clothes! The most important thing with Revolve is no other American fashion company is engaging with their audience like this. They operate more like a European fashion company than an American fashion company. My ultra-bull case thesis is that Revolve becomes the Louis Vuitton of America.

Kendall Jenner Factor: In September 2021, Kendall Jenner was named the creative director for Forward, Revolve’s higher-end faster-growing luxury-focused division. FWRD sales were up 83% year-over-year in the subsequent three months. Jenner is a cash cow who makes about $611,000 (probably more) per Instagram post. From their latest Q4 earnings call, there are “special FWRD activations in the works,” for Kendall later this year.

Revolve Festival Returns in April: Revolve Festival is the “it” party in Coachella. After a two-year hiatus because of the pandemic, the invite-only party returns, which will increase greater brand awareness. They already have the cool factor. In September they had their first-ever New York Fashion Week runway show. “According to Tribe Dynamics, from September 6-11, the hashtag #revolvegallery generated $7.9 million in EMV (earned media value).” Just recently they hosted during Super Bowl weekend a two-day “Homecoming Weekend” event at the Pacific Design Center. The event was headlined by Justin Bieber and Drake. The guest list included the likes of Leonardo DiCaprio, Jeff Bezos, and Russell Wilson. You cannot get better than having a ton of A-list celebrities promoting your brand.

Oana Ruxandra: Revolve’s new board member is the Chief Digital Officer & Exec VP of Business Development for Warner Music Group. This is a tremendous asset to Revolve as she has a lot of connections with TikTok and Snapchat. Given her background, this could signal that Revolve will get into NFTs and/or metaverse. This gives Revolve another arsenal to better engage with their audience.

This isn’t a stay-at-home play. This isn’t a cash-burning speculative company. They are a legitimate cash-flowing business that utilizes innovative marketing techniques that other luxury apparel companies have yet to catch onto yet. There are tons of catalysts events for Revolve this year and next. I did not even mention they are opening their first store in March! “A lounge, cafe, bar, Instagram-bait photo walls… and a gym and wellness center.”

In order for retail to thrive in the future, they will need to drastically communicate with their consumers in a different way. This will require more experience-based retail and doubling down on technology. This is the Revolve business. Their core customers are not just buying clothes, they are getting a curated experience of an affluent lifestyle. The influencers are living that lifestyle, which creates a culturally significant brand.

Revolve is well-positioned in the luxury market for the long-term with several growth catalysts ahead. Our society is moving rapidly from offline to online and this shift is not a fad, it is a secular change. 22% of all luxury shopping is online in 2021. That number will reach 30% before 2030. Patient investors will be rewarded in the long run.

When I bought the stock two years ago, I viewed it as a good re-opening play. I didn’t imagine the success they would have during the pandemic. With live events returning, I expect the stock to soar. I am not selling, not for a while. Wall Street is sleeping on this company.

All these views are mine and do not represent financial advice, do your own research. I am not a financial advisor. This is for entertainment purposes only.

Consumers are spending like there is no tomorrow. One of the biggest beneficiaries is luxury fashion. That shouldn’t be surprising. If people were still buying designer clothes and handbags when everything was shut down, it seemed inevitable spending would increase as things open up. There are obvious reasons why luxury fashion benefits:

• People want to buy expensive clothing for special events and gatherings.
• People want to look good on their preferred social media platform.
• Even with supply chain issues, getting your hands on a designer dress or handbag is much easier than a Tesla, refrigerator, heater, etc.
• High-quality luxury brands have pricing power and can/will raise prices because consumers will pay for those prices.

A Chanel Handbag was going for $3,000-$4,000 in 2019. In 2022 it is now going for over $8,000.

“All the luxury industry is raising prices,” John Idol, the CEO of Capri Holdings (NYSE: CPRI), the parent company of Michael Kors, Jimmy Choo, and Versace. “We’ve seen absolutely no consumer resistance to any of the price increases that we have taken, and there will be more.”

This may disgust the average, middle-class consumer however there isn’t much they can do about it. There are still long lines outside stores like Louis Vuitton and Chanel. Certain consumers may become priced out however the core consumer for these products will still buy. Those consumers that are priced out usually will end up buying from a lesser-tier luxury brand, which is raising their prices as well.

Tapestry, Ralph Lauren and Capri Holdings have all recently raised sales outlook as 2022 and 2023 look like a good time for higher-end apparel companies. Demand will remain high as pandemic lockdowns get lifted. More social outings = Increased Demand.

My biggest holding is Revolve Group Inc, (NYSE: RVLV). If the price falls further due to weak earnings or the fear-driven market we are in currently, I may consider buying more shares, the first time in nearly two years.

Revolve Group has no physical retail presence. Having no stores lets them allocate their funds into advertising, inventory optimization, and operational efficiency. This gives them a leg up over their competitors with physical retail, which requires hiring employees and paying rent to lease commercial stores. In the future I think Revolve will actually need some sort of physical retail presence to help raise brand awareness and boost profits however, that is not the priority at this time.

The Revolve story is about social media and AI machine learning to better engage with their audience. Physical stores do not make much sense now since their brand is being built through influencers, special events, and festivals. This strategy is different from most other apparel companies but one that I think will be a winner and eventually be copied by other apparel companies.

The ultra bull-case thesis is that they become the first American Luxury Fashion company, being able to rival Louis Vuitton. Luxury fashion has been a European concept, it really hasn’t existed in the United States. Bernard Arnault once said, “if you control your distribution, you control your image.” A true luxury brand needs to aspire their audience to reach the top. This cannot be done when a product is discounted in outlet malls. It cheapens the brand. There is a reason why Rolex doesn’t sell “cheap” watches or why fancy restaurants have a dress code.

Since Revolve has no retail presence, its brand hasn’t suffered from massive discounting. It has an aspirational Los Angeles aesthetic feel with the cool factor. While the majority of other aspiring higher-end apparel companies operate in New York, their roots are in Los Angeles. They target a specific niche audience and operate more like a European fashion company than an American fashion company.

The question all high-end apparel companies have to ask themselves is how do you reach a mass audience without diminishing your brand value? Revolve is the only American company in their space doing this effectively. They do not just sell clothing, they are selling a cultural brand. Communication in how you reach your audience is just as important as the product itself.

The other catalyst for Revolve Group is that they appointed Oana Ruxandra to its board of directors. Here is a snippet from her biography:

Ruxandra is Chief Digital Officer & EVP, Business Development at Warner Music Group, where she oversees global digital partnerships and negotiations with a focus on exploring new forms of commercial innovation and creating new digital revenue opportunities. In recent years, Ruxandra’s team has led successful growth in emerging streaming platforms that have become Warner Music Group’s fastest-growing source of revenue by partnering with leading social media, gaming and connected fitness brands. She is also guiding the company’s expansion into other emerging digital market opportunities as the world of web3 evolves and more time is spent in the metaverse and with digital goods (e.g., NFTs).

REVOLVE Appoints Oana Ruxandra, Chief Digital Officer of Warner Music Group, to the Board of Directors

I see this as a potential sign that Revolve may get into NFTs and or the Metaverse. Ralph Lauren already got into the Metaverse last year and I could see Revolve proceeding soon. I see this being relevant for two main reasons. 1. Better able to connect and reach a Gen Z audience and 2. Premium luxury fashion needs to be more than just about selling products. They need to be able to create and sell experiences.

The Metaverse itself is about a digital experience. Revolve already has its own festival, the exclusive party inside Coachella. The Metaverse is another innovative way to connect to a younger audience. NFTs have value depending on who the creator is and what use case they have. Coachella recently launched an NFT marketplace which shows how they can be valued in a utilitarian way. They have an auction selling NFT keys that grant you lifetime access to Coachella. These keys show how they have value more than just aesthetically. The key provides an actual tangible real-life experience, which goes against the idea that NFTs are completely useless.

If the fundamental story remains, I will still hold my RVLV shares. If the stock price falls after earnings, I will strongly consider adding more shares. At this moment I have no plans to sell.

“I have been impressed with the urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do” – Leonardo da Vinci.

I recently opened up a position in Palantir (NYSE: PLTR). In terms of overall value, this company may become one of the most important by 2030. They are not your typical tech company. Unlike Google, Facebook, and Amazon, they aren’t using your data for targeted advertisements. The technology is being used to detect criminal activity and prevent terrorist attacks.

Investing in Palantir goes against my philosophy of “invest what you know,” however, I saw this as a rare opportunity to invest in a start-up company before its growth accelerates. The biggest question for many about Palantir is what do they do exactly? That’s a difficult question to answer. Here is a piece from the New York Times Magazine that might better help:

The company, Palantir Technologies, is named after the seeing stones in J.R.R. Tolkien’s “The Lord of the Rings.” Its two primary software programs, Gotham and Foundry, gather and process vast quantities of data in order to identify connections, patterns and trends that might elude human analysts. The stated goal of all this “data integration” is to help organizations make better decisions, and many of Palantir’s customers consider its technology to be transformative.

What Palantir does is a little more complex than unclogging a toilet. Essentially, Palantir’s software synthesizes the data that an organization collects. It could be five or six types of data; it could be hundreds. The challenge is that each type of information — phone numbers, trading records, tax returns, photos, text messages — is often formatted differently from the others and siloed in separate databases. Building virtual pipelines, Palantir engineers merge all the information into a single platform. They work quickly. According to Jose Arrieta, who was H.H.S.’s chief information officer until two months ago, Palantir merged around two billion data elements related to the Covid-19 outbreak in less than three weeks. Once the data has been integrated, it can be presented in the form of tables, graphs, timelines, heat maps, artificial-intelligence models, histograms, spider diagrams and geospatial analysis. It is a digital panopticon, and having sat through several Palantir demos, I can report that the interface is impressive — the search results are strikingly elegant and easy to understand.

Does Palantir See Too Much?

Palantir’s technology has been credited with saving its financial institution customers hundreds of millions of dollars, being used to detect Chinese spyware on the Dalai Lama’s computer, thwarting Pakistani suicide bombers, and unraveling Bernie Madoff’s Ponzi scheme. Its customers have included the CDC, police departments in America and abroad, and large corporations like JPMorgan and Home Depot. Palantir even sued the US Army in 2016 to force it to consider using its intelligence software after the Army chose to go with its own. Palantir won the suit, and then it won an $800 million contract.

Everything you need to know about Palantir, the secretive company coming for all your data

So why did I invest in Palantir? Here are a few reasons why:

#1 Sticky Product – The growing list of clients shows a. their software works and b. they have high switching costs. At this time, Palantir has no direct competition, and government agencies trust their software. This sounds similar to Intuitive Surgical (NASDAQ: ISRG). A company with little to no competition. I wrote about ISRG in a previous blog post: they have a monopoly on minimally invasive robotic surgeries. They are the leader today and will likely be the leader a decade from now. There is competition ahead however this industry will continue to grow rapidly. As innovation and technology improve, the number of procedures assisted by robotic surgeries will increase. The population is getting older, which means demand will continue. For ISRG, their da Vinci systems can cost anywhere between $500,000 to $2.5 million. It requires a lot of training and education for doctors and the medical staff to use their systems. For Palantir, their clients pay $10 million to $100 million annually. Every client requires an onsite implementation team with high-touch installation and customization. Clients for both companies are likely to stay because it would be so time-consuming and costly to go with a competitor. The technology would have to be substantially better for them to switch.

#2 Importance – Palantir’s software is being used to thwart terrorist attacks, detect money laundering schemes, prevent sex trafficking, etc… It would be hard to see this company go under, given how much they are tied into deterring crime and terrorism. Palantir is to data analysis tool as to what Boeing is to Civilian aircraft and aircraft engines. Like it or not, Palantir’s software is being used by the FBI, CIA, Department of Defense, Homeland Security, NSA, Marine Corp, Army, Navy, local police departments, etc. With their technology being a. more widely used and b. significantly better than anything else on the market, it would be hard to see the government allow this company to fold as they essentially have a monopoly in the government sector.

3. Growth – Palantir was founded in 2003, but its entrance into commercial businesses (B2B) is more recent. The government contracts are what pays the bills right now, but the corporate clients (big and small) could accelerate its growth. If Palantir can find a B2C product (which they don’t have and might never will), its market cap could be over $1 trillion. For this to happen, they need strong leadership, culture, and the most talented software engineers in the world. Check, Check, and Check!

4. Misunderstood – Companies like Palantir are focused on building their infrastructure and making innovative products rather than returning that money to shareholders. In the short term, they are not worried about generating profits. Palantir reinvests heavily, which makes their earnings look artificially low. This is not good for the stock price in the short, but if Palantir’s reinvestments pay off, it can create outsized returns in the future.

Palantir gets a lot of notoriety for working with U.S. Immigration and Customs Enforcement (I.C.E.) I.C.E. has two divisions in Homeland Security Investigations (H.S.I) and Enforcement and Removal Operations, (E.R.O). The fact is Palantir had a contract with H.S.I, which is responsible for cross-border criminal investigations, and not E.R.O., which is responsible for interior civil immigration enforcement, including deportation and detention of undocumented immigrants. These controversial agencies need resources, and if Palantir ended their contracts due to bad PR, what company would service them?

To keep this short, many people, including the media, have an ideological-driven narrative, focusing on some things and ignoring other things. There is no actual intellectual debate or discourse. Yes, Palantir’s technology is used to kill terrorists. Both political parties in our country, Democrats and Republicans, want to stop the bad guys. If this doesn’t work for your moral conscious, you perhaps should not invest in their stock. Apple, which I think is a great company, has been accused of breaking Chinese Labor laws and exploiting Chinese factory workers. These are decisions you have to make when evaluating a companies environmental, social and corporate governance.

5. Transformative CEO – When you invest in a company you are very much investing in the leadership in power to execute on their vision and plan. Remove Jeff Bezos from Amazon or Elon Musk from Tesla. Are these companies still as profitable? There is no way to measure this. Alex Karp borders on an eccentric genius to a paranoid mad man. He once said, “the only time I’m not thinking about Palantir is when I’m swimming, practicing Qigong or during sexual activity.” It is safe to say a lot of the most successful CEOs of companies are not quite normal. Only time will tell if Karp is the next Steve Jobs or Papa John. He’s not your typical CEO of a not-so-typical company tech startup from Silicon Valley. For me, that is what makes buying the stock so intriguing.

Palantir presents a tremendous opportunity for investors willing to take a risk and look foolish now but potentially look like a genius in the future. I recommend being long, risky assets. When a companies growth doesn’t happen until 3-10 years from now, the numbers do not make much sense today. A DCF model with Palantir makes a lot of assumptions that seem absurd when viewed through the lens of the present, but be clear in the future. Palantir follows the same model as Uber and Airbnb, focusing on long-term and sandbagging profits today. This is the strategy Amazon used to grow into the behemoth they are today.

What separates Palantir from other startups is that I view them as more intrinsically valuable for what they do and what their technology provides. There are stocks that I love that are much easier to explain with simpler business models. With Palantir, there is so much depth stacked on top of each other. I view the company as a unique unicorn that cannot be closely replicated. They help solve problems that we do not even know exist today. Once these problems surface, Palantir’s software becomes infinitely more valuable. There is a saying, “data is the new oil,” and with Palantir’s ability to synthesize data, they may become on par with Google and Microsoft. I am holding for the long-term. The Tesla-like growth in the future is just too enticing to pass up.

The market has been painful to watch for the past couple of months.

REALLY PAINFUL the past couple of weeks.

70% of Nasdaq stocks have fallen at least 20% from their recent high, 50% of Nasdaq stocks are down 40% or more!

This isn’t the first time the market has gone down and it certainly won’t be the last time. The truth is this is the cost of becoming wealthy. To go through times like this when you see your portfolio value eviscerated in weeks.

Imagine holding bitcoin when it was $1.

Imagine holding Amazon when the idea of selling items online was considered a novelty.

There was no consensus among experts, analysts, even internet trolls to buy bitcoin in 2011.  

There were no waves of screaming buys when Amazon was trading below 100. 

Those that got rich went against the market. They went against the crowd.

Times like this are the best time to buy stocks when all the “experts” start telling you to sell. Netflix for example had a great earnings report in October. It had a positive earnings report Thursday, but the stock price fell over 20% in one day!

Now you hear a lot of analysts/experts downgrading/selling the stock, the same people who were increasing the price target to above 700. They are all running towards the exit at the same time! Call me crazy, but I do not think much has changed with Netflix since October. The fundamental story for solid companies like Netflix, Amazon, Google, etc.… remains the same.

The only way to buy solid companies at a fair price is during times like this. The risk level seems higher but that is only on a surface level. For example, if you have a high conviction that Lemonade will do well 3-10 years from now and believe the stock price will be 600-700, it doesn’t matter if you buy the stock at 60, 50, 40, 30, or 20. You will still make a lot of money if you buy and, this is the hard part, hold. If you wait until there is less “risk,” and buy the stock after it has a consensus buy rating, you will likely end up buying the stock when it is between 200-600.

In the above example, one investor might or might not get rich and might or might not make a decent-sized profit, the other investor will build serious wealth.

Long-term wealth building is a psychological exercise of patience and controlling your emotions. If you can master the psychology of investing, as a long-term investor, you can build wealth. This is very easy to say but extremely difficult to follow. Even after Netflix fell 20% it can still fall a lot further from here. Nobody wants to hear that there is more pain on the horizon but a sound investing strategy requires logic and common sense, not emotional selling or buying.

Making a scientific analogy, the market is in a constant state of disorder, randomness, and uncertainty. Entropy is the measure of the disorder of a system. It is an extensive property of a thermodynamic system, which means its value changes depending on the amount of matter that is present. 

It is impossible to predict the stock market because there are so many variable factors beyond our control and constantly changing. In general, if you have an optimistic view of the U.S economy in the long-term, you probably will have a favorable view of stocks, meaning stocks on a broad basis will go up, as it has always been doing. If you have an unfavorable view of the economy, you are likely predicting market crashes and hoarding lots of gold.  

As of this present moment, based on sentiment we are headed towards a recession and stocks will fall off a cliff. No matter how good the economy is doing, a recession is not extremely improbable. Every year there is a 10-15% chance of it happening. That sounds horrible however I do not believe the Federal Reserve, the legislative or executive branch of our government has any incentive to allow this to happen, meaning they eventually enact policies that will prevent stocks from crashing. And even if a recession does happen, in the long run, we should be fine. 

Most predictions of a stock crash and doomsday scenarios are proven to be wrong. Remember Y2K or the 2012 Maya Apocalypse? Igor Panarin once predicted the U.S would disintegrate, he even created a map about the new global order.

The 2020 Pandemic was indeed a black swan event however the global infrastructure is stable enough for us to overcome it. That doesn’t mean stocks will stop falling. They could have much further to go down, which means more pain ahead.

So why do I keep holding?

Two main reasons: In the long run I believe the stock market will go up and the U.S. economy will grow. Why overcomplicate things? Secondly, from everything I have learned and been taught, it is impossible to time the market accurately. If you do time the market correctly, a lot of luck was involved. Not only do you have to sell at the right time, but you also have to buy back in at the right time as well making it even more improbable and risky you get it right twice.

From most economic models, our economy is in a healthy state. I will weather the storm, continue to buy high-quality companies at discounted prices, sit on my hands and do nothing – Even if the stock market falls further. This is what I believe is the ultimate challenge of investing. Holding during times like these. I don’t blame anyone for selling, but my goal is to build wealth. Jeff Bezos once asked Warren Buffett: “You’re the second richest guy in the world. Your investment thesis is so simple. Why don’t more people just copy you?” Buffett replied, “Because nobody wants to get rich slow.”

I wish everyone a calm state of mind during these times of intense market fluctuation. We need less judgment and more caring. The best thing to happen to the stock market was this weekend. It provides everyone time to reflect and think. Do I sell? Do I hold? Do I buy? Things aren’t always as bad as they may seem. It is important to take a deep breath and not panic. Best of luck on your investing journey.

As the overall stock market is holding up quite well right now, smaller Nasdaq stocks are getting crushed! 36% of the stocks in the Nasdaq are down at least 50% from their 52-week high! This seems like a bloodbath for most investors. I understand why many investors would be fearful to invest right now or in the next few months. Why invest in such a risky environment? Is it time to sell all my stocks?

My investing philosophy is to scoop up high-quality, or potential high-quality stocks and hold them for a long time. This seems like the perfect time to buy stocks, as I would rather buy stocks near their 52-week low than their 52-week high. I want to warn anyone reading this: stocks can continue to fall. Amazon at one point in its history lost 90% of its value in two years. For those that are patient, great things can happen to those that wait. When you invest in high-quality companies that you are willing to hold for 5-10 years or longer, you will get wealthy. Investors that bought Amazon at the peak and lost 90% of their investment are up now (if they still hold the stock) at least 1,400% of their investment.

I want to make clear, these are investments in companies that I think will thrive 5-10 years from now. These are not trades. I have to fundamentally be excited by the story of the company and its financial outlook in the future. I could never justify investing in AMC because they have $5.4 billion in long-term debt and in an industry that is drastically shrinking. If you were an entrepreneur, would you invest in a start-up company wanting to build movie theaters? I would be highly skeptical and thus could never justify investing any significant amount in the stock.

A lot of traders made a killing when AMC spiked last year. I missed out however, I have a long-term horizon. If you were lucky to get in on ACM I would guess you made a significant short-term capital gain, the keyword being “short.” Short-term capital gains are taxed as ordinary income, which is much higher than long-term capital gains. Investors have to remember fees and taxes are silent killers in wealth-building. With AMC, many traders simply get lucky. Do they have an investment philosophy or process that can be replicated to find the next AMC and get in and out at the right time? For the majority of traders, I would not think so as that explains why so many of them lose money.

One of my favorite Warren Buffett quotes is “if you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” Another is, “our favorite holding period is forever.” The best advice from what I have learned from greats like Buffett is that if you want to get rich, you can sell, if you want to get wealthy, you have no reason to sell. You hold on. These are 10 stocks which I feel are a. high quality and b. beaten up creating a potentially attractive buying price.

MercadoLibre – Investing in MercadoLibre is the equivalent of buying shares of Amazon 5-10 years ago. Imagine if you had a time machine and you could do that? With MercadoLibre you have more geopolitical risk than American businesses but there are so many similarities with Amazon, it is difficult to ignore. The total addressable market is gigantic and both have profit-generating businesses outside of their marketplace. With MELI, I ignore its insane P/E Ratio, just like I did with Amazon, and look at its Price to Sales Ratio, which is a lot more reasonable. I would be shocked in 3-5 years if MELI is not trading where Amazon’s stock price sits at right now – about 3,000-3,500.

Alibaba – Alibaba and many of the high-growth Chinese tech names are at buy-levels. If you can stomach the geopolitical risk, they are worth a look into. My thesis with baba and a lot of these companies on the list are similar. If you liked BABA at 200, you should LOVE it at 130, even more at 120! With how large of a presence Alibaba has in China I do not believe the stock is priced to go down to zero. The business is fundamentally strong and I believe the Chinese government has no incentive to tear it down.

Sea Limited – If you haven’t noticed, I am bullish on the e-commerce sector for the next decade. E-commerce is not a trend, it is a fundamental change in consumer behavior. So it should be no surprise I picked another e-commerce company.

The Honest Company – Perhaps the least upside out of all these stocks, but maybe the safest. This is a recession-proof business. You cannot go wrong with diapers, skincare, cleaning products, and makeup. This is the Procter & Gamble for millennials. While this isn’t necessarily the next Tesla, I would be surprised if this stock isn’t well above its 52-week high of 23.88 once they start eeking out a profit, projected by late 2022 or early 2023. From my observation the business model is sound. A lot of the scaling and growth issues happened before this company become public.

Block/Paypal – These are two separate companies however they are in the same space and the two stalwarts in the fintech sector. Top Financial Apps: 1. Cash App, 2. PayPal 3. Venmo. For diversification purposes, I endorse splitting 50% of an equity position on both Block and Paypal. If I had to guess both companies will be significantly worth more in the future but by diversifying, you protect yourself from single-stock risk. These are two well-known companies so there is no need to go in-depth in each of them. Jack Dorsey has stepped down from Twitter so he should be able to devout more of his time with Block. PayPal is a high-quality company that has been around since 1998. They aren’t going anywhere.

Mind Medicine/COMPASS Pathway/ATAI Life Sciences – The biotech sector is a bit like the Amazon Rainforest. Unpredictable and extreme volatility. This isn’t for the faint of heart and will test you as a long-term investor. The psychedelic sector is down significantly based on no real material news. Clinical-stage biotech moves towards a different beat at times, especially when there are no trial results or FDA rulings. For long-term investors in this sector, massive swings based on non-fundamental news are just noise in the background.

Spotify – I do not own this stock but it has reached a price where it has become intriguing. If Netflix and Google are the kings of video streaming, Spotify is the king of audio streaming. They leapfrogged Pandora and haven’t looked back. With Spotify, you just have to follow the money. It is an ad-revenue play. Follow the money by following the eyeballs, or this case the ears. In terms of high-growth stocks in their early stages, Spotify may be one of the best. They have Joe Rogan, paid $60 million to Alex Cooper and her podcast “Call Her Daddy.” I see Spotify on a similar course to the next stock I will mention.

NetFlix – I have always thought NetFlix was the weakest among the FANG stocks but I underestimated how well the company is managed. Subscribers follow good content and Netflix has proven they can consistently produce a lot of good and varied content for different audiences. Once you think Netflix is on the decline they shell out the Squid Game, which became a global phenomenon. At some point, you cannot credit this to luck when they consistently produce popular original content. Of course, there is a ton of competition in this space however I don’t see Disney+ or any other video streaming service being able to churn as quickly hit show after hit show as Netflix has done.

Lemonade – Timely advice for investors of this company: Scaling growth is not a linear process. It will take time. There will be road bumps on the way. Lemonade offers pet insurance in 34 states, renters insurance in 28 states, condo insurance in 25 states, homeowners insurance in 23 states, and car insurance in 1 state. What does that mean? They have a lot of markets to enter into, and I am not even talking about other countries yet! While pet and renters insurance has been growing at a quick yet steady pace, they are just getting into car insurance. That all changed when they acquired Metromile in November 2021. Metromile is already in 8 states, so Lemonade has now acquired its state certifications in those states. For Lemonade to operate, they need certification in each state they operate in. To do this organically would take a lot of time although, by acquiring Metromile, they sped up that process. The future outlook of this company has never been brighter and is certainly something to get excited about.

Coinbase – If you do not believe in cryptocurrencies, Bitcoin, Ethereum, and NFTs having much value you can stop reading. If you think they have staying power, Coinbase may be the best stock to invest in without actually buying cryptocurrencies. Think of Coinbase as the Goldman Sachs of crypto. Coinbase makes money when there is more trading activity. If you believe interest in cryptocurrencies will permanently die down, you shouldn’t buy this stock. I believe in the bull-thesis for Coinbase, especially more so since they are launching an NFT marketplace soon. If their marketplace can provide a better user experience than OpenSea it will see its revenue soar to record-highs. With Coinbase it is not so much if you find value in NFTS, it is if the market as a whole will. Pokémon cards for example are a decade older than bitcoin, and the value for certain rare cards has skyrocketed. The estimated value of a PSA 10 Base Set Holo Shadowless Charizard is over $300,000.

Over 1 million COVID cases were reported in the United States in a day…

The Fed expected to hike rates over four times…

Worst inflation in nearly 40 years…

Major Supple-Chain issues…

Oh, Ya… I am buying stocks!

Jamie Dimon, the CEO of Chase Bank is super bullish on the economy as well. “We’re going to have the best growth we’ve ever had this year, I think since maybe sometime after the Great Depression.” Dimon and many other analysts however see the market having a volatile year ahead due to expected higher rates from the fed.

As a long-term investor, I ignore the noise, keep patient, and disciplined. Macro headwinds aside, I am bullish on the market, really bullish on certain sectors and stocks for the long term. I exercise delayed gratification, which is a key practice for any long-term fundamental investor. Long-term investing is easy, as you are committing to hold a stock for years, but at the same time very difficult as you have to endure rough stretches, scary headlines, and listen to the sky-is-falling crowd.

What I do is build out a balanced portfolio of high-quality dividend, value, and growth stocks.

Dividend: Focus on the long-term. For every dividend stock, I utilize a dividend reinvestment plan (DRIP). These are companies I plan on holding for 10+ years. I probably hope the stock price remains sideways so I can collect as many dividends as possible at a discounted price.

Value: The key with value is obvious. Value can be dividend or growth stocks. As I learn more about valuation metrics, the better an investor I become. I believe most of your portfolio should be made of high-quality value stocks. Just like in golf, the best golfers are the ones that play high percentage shots. They try to hit par most of the time instead of birdies. Golfers that try to play birdies or eagles are playing with fire and often end up getting double and triple bogeys. Too many times I see investors with a portfolio made up of mostly overvalued, unprofitable, speculative companies. There is a place for these types of stocks in your portfolio however a portfolio mostly made up of profitless tech is a bad risk-management strategy that the average investor probably cannot stomach.

Growth: I put growth in three categories, a. Potentially great growth stocks, b. Great growth stocks, and c. Generational growth stocks. The market is littered with potentially great growth stocks, your job is to find the ones that will turn into great growth stocks. The difference between great growth stocks and generational stocks is that generational stocks are the companies that have a mixture of continuous/growing revenue, large TAMs, and stellar management teams. These companies often cannot be valued by book value alone. For example, how do you value a company like Alphabet (Google)? If its market cap is 1.85 trillion, how do you put a number on all that it encompasses and every business and person it reaches?

The one misguided fear happening in the market today is the notion that stay-at-home stocks are in bubble territory with that bubble popping as things open back up. Cathie Wood, in a monthly market update, said inflation fears are overblown and will l subside as supply-chain issues resolve. She argues that many early-stage innovative companies like Zoom and Teledoc are currently undervalued:

We will not let benchmarks and tracking errors hold our strategies hostage to the existing world order. The coronavirus crisis permanently changed the way the world works, catapulting consumers and businesses into the digital age much faster and deeper than otherwise would have been the case. Dismissing innovation strategies as “stay at home” glosses over a crucial point: innovation solves problems in a way that consumers and businesses adopt with relief, enthusiasm, and delight. Critical to investment success will be moving to the right side of change, avoiding industries and companies caught in the crosshairs of “creative destruction” and embracing those on the leading edge of “disruptive innovation.”

Innovation Stocks Are Not in A Bubble: We Believe They Are in Deep Value Territory

I agree with many of Cathie’s points. The pandemic has accelerated us towards a more global digitalized age faster. Current valuations on areas involving artificial intelligence, cryptocurrencies, augmented reality, autonomous vehicles, etc… are misplaced today and in 2025, 2035, 2045, will be very dramatically different. This permanent acceleration into digital services and applications will also likely mean a downward acceleration toward safe value – companies that lack innovation and technology. In 1998 the top Internet companies were AOL, Yahoo, Geocities, MSN, and Netscape. Back then, Amazon was a high-risk company, Google was just starting up, and Facebook didn’t even exist.

Innovation and technology will continue to have a largely deflationary force on our economy. Amazon has made things cheaper and more convenient for consumers to shop. Netflix has reduced the cost of entertainment. I will argue that quality/disruptive tech companies will trump the movement of interest rates.

For a long-term fundamental investor, if you bought companies like Zoom, Teladoc, Mercadolibre, PayPal, or Square a year ago you should be enthusiastic about price today. They are trading at 30, 40, even 50% lower! These companies can be bought cheaper today with the fundamentals about the same today, if not better. It is important to understand the cycles of market emotions. We are closer to maximum financial opportunity than maximum financial risk. At this time last year market sentiment was about euphoria. You sell during those cycles to build your cash position, which is then best deployed in times like today.

Long-term investors should always try to ignore major macro events because they will always exist. There will be those that try and sell everything and get back in the market when things “calm” down. It is proven for the average investor, timing the market is nearly impossible and they often miss the boat. They end up leaving the market entirely or buying back in at a much higher cost average. The road might be bumpy in the near term but I think we will look back at this time as a great buying opportunity. I will take any short-term pain to receive long-term prosperity. As the great Charlie Munger once said, “If You Can’t Stomach 50% Declines in Your Investment You Will Get the Mediocre Returns You Deserve.”

Investing seems so easy. In 2010 a single Apple stock cost less than $10. If you had bought $10,000 worth of Apple Shares back then, today, it would be worth over $130,000. Seems so simple in hindsight however in practice, investing has been proven to be extremely difficult.

If you can start investing when you are in your early 20s, you should. Ask any great investor, they all wish they started sooner. Though, most people in their 20s are not even thinking about investing. Those that do get started likely do not have the emotional intelligence, patience, or discipline to let their investments grow.

I consider great investors like great pro wrestlers. A lot of wrestlers don’t hit their peak until their mid-late 30s. It typically takes 3-5 years of wrestling experience to even get in the WWE and another 3-5 years to get consistent airtime and opportunities. It is not so much athleticism, as athletes typically peak in their mid-late 20s but developing ring psychology requires years of practice and training.

Most investors in their 20s are intelligent enough to understand the technical aspect of investing. Warren Buffett has said many times that you do not need a high IQ to be a great investor. Being too smart might be a disadvantage in investing because it can cause you to be overconfident in an unpredictable environment. You need emotional intelligence and discipline to be a great investor. Remember, the stock market is an auction-driven market that is driven by human emotion. That’s why you will see stocks priced absurdly low and astonishingly high at times. These inefficiencies are how great investors can become wealthy.

We can reflect on Sir Isaac Newton, who is considered to be one of the most intelligent people in the history of the world, and his investing failure:

“Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he ‘could calculate the motions of the heavenly bodies, but not the madness of the people.’ Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in [2002-2003’s] money. For the rest of his life, he forbade anyone to speak the words ‘South Sea’ in his presence.”

Isaac Newton was a genius, but even he lost millions in the stock market

Humans are emotional beings. Humans often do not know why they make the decisions they make. Often it is based on snap judgments and acting based on faulty intuitive reads. When people see their investments decline by 50, 60, 70, 80, or 90 percent, the majority of people will start panicking. It is basic human nature to want to avoid pain and sell.

That’s why the buy-and-hold strategy is unrealistic for most people, due to faulty human wiring.

To beat the market, you have to divert from the market and think for yourself. There is nothing wrong with cherry-picking other great investors and buying the same stocks they buy. That’s easy. The hard part is to hold onto those investments and stick them out when it drops or to sell them when it seems like it is going to the moon. Investing is a constant process of inquiry. Great investors have to re-wire their brains and become comfortable with uncertainty. As great investor Mohnish Pabrai said, “fear and greed are very much fundamental to the human psyche. As long as humans drive buying and selling decisions in equity markets, pricing will be affected by these fear and greed attributes.”

The key to winning in investing is being emotionally resilient or having a mastery of your emotions. That’s one of the main skills needed to be successful in long-term investing. Believe it or not, the odds of being a successful investor are much better than being a professional athlete, a chess grandmaster, or even a top-ranked poker player. Games like basketball, chess, and even poker require more skill and less luck than investing. Only 0.08 percent of high school athletes will be drafted by an NFL team. Only 0.03 will make it in the NBA. Being a wealthy investor is possible and a realistic goal much more probable than a professional athlete, A-list celebrity, or a mega social-media influencer.

Being a great investor puts you in the minority. Some would call it an exclusive club, but you could also call it a lonely club. 8-9% of adults in the U.S would fit the definition of being considered a millionaire. The more wealth you build up, the more of an outlier you become. Being that wealthy requires you to have a different mindset than the crowd. The great investor is sitting inside a burning building while others are fleeing.

One of the biggest reasons why investing is so difficult is that it puts you in an entrepreneurial mindset, you need to get out of your comfort zone and embrace risk and long-term thinking. You need to take actions that go against what the majority is doing in favor of principled investing strategies. Look at Amazon, which takes much of its revenue and reinvests it into the business. The conventional wisdom is to build a large cash reserve for a rainy day however, a large cash balance is simply eroding over time. Why not use that cash to make your business more valuable? The same principles go with long-term investing.

If you go read Jeff Bezos’ annual letter to shareholders, you can tell he built Amazon like a great long-term investor:

So, if the company is better positioned today than it was a year ago, why is the stock price so much lower than it was a year ago? As the famed investor Benjamin Graham said, ‘‘In the short term, the stock market is a voting machine; in the long term, it’s a weighing machine.’’ Clearly there was a lot of voting going on in the boom year of ’99—and much less weighing. We’re a company that wants to be weighed, and over time, we will be—over the long term, all companies are. In the meantime, we have our heads down working to build a heavier and heavier company.

Amazon’s letter to shareholders in 2000

Investing is an exercise of trying to evaluate a business and a. trying to buy it when it is undervalued and b. hoping its value will appreciate in the future. Seems rather simple however most people don’t even try to do this. They either contribute to a 401K or are passively investing in an index.

If you are investing in a fund, say a random U.S. Large Growth Fund, Apple might be one of the companies inside the portfolio, but it is only 1/296 positions inside the fund. If you really like Apple’s prospects for the next decade, the performance of that individual company has very little to do with the success of that fund. You are not evaluating individual companies, but the long-term prospects of hundreds of large growth companies, or a sector. This type of conservative strategy will net you average results. Better than not investing at all however you are minimizing your risks but capping off your rewards. That is the essence of passive investing, to produce average returns.

The best reasons to invest passively are the reasons to invest actively. You can make a lot of money following an index and netting mediocre returns. The same principles for passive investing are the same for active investing – Time and patience are your best friends. It can make big mistakes look very small over time and make small investments large over time. Many people fear picking the wrong stock; however, I know very few successful investors who only invest in a handful of stocks. Look at investing like drafting the best baseball or football team. In football, you don’t need to have 5 elite quarterbacks on one roster, so you focus on building the best all-around quality team. If you are building a great team, do you sign high school athletes with massive contracts? The answer seems obvious, yet some investors have a portfolio built on risky, unproven unprofitable companies. Much of your portfolio should be made up of quality long-term companies that have proven themselves as long-term fundamentally sound companies.

In summary:

• Ideally, you should be putting up the most money investing when you are young, when time is on your side, however very few people have the traits to commit to it long-term.
• Most young people do not have a lot of money when they start investing and are not conditioned to think exponentially. In investing you can see 10,000% gains. In schooling, the highest test score you can get is 100%. The most you can get for a project is an A+, even if your work merited a higher grade. The modern education system conditions you to follow the crowd and be average, which explains why passive investing is popular.
• Evaluating the value of a business can seem like a fruitless exercise that even the smartest of people are just guessing on. In a 2007 Berkshire shareholders’ annual meeting, Charlie Munger said, “we throw almost all decisions into the too hard pile, and we just sift for a few decisions that we can make that are easy. And that’s a comparative process. And if you’re looking for an ability to correctly value all investments at all times, we can’t help you.” Evaluating a business is a mix of art and science where exact answers are not realistic. You must use your best assumptions and judgments.
• As Buffett has said many times, investing is the process of putting out money today to get more money back at some point in the future. Even though evaluating a company seems impossible, all investors have tools in their favor to become wealthy. Don’t think of investing as predicting the future but as a game of inquiry and thinking.
• Most young investors have time on their side. You also don’t need to be an “A” student to be a great investor. Most investors are wrong more than they are right. A “D” student could make millions investing.
• A risk management strategy implies that you are actually taking risks. If you are not invested at all and all in cash, for example, there are no gains, your cash balance is eroding by 5% due to inflation. If you are not taking enough risk, you are slotted to net mediocre returns.
• Investing is a reflection of you and your financial goals. Some people look at investing as an opportunity to grow generational wealth. Some people look at investing as a sweetener in life, to protect and grow the wealth they already created.

As we head into the new year, I will look at the top investing trends for 2022. Currently, we are still dealing with the Covid-19 pandemic, but I predict by the middle or end of 2022, we should be shifting towards the end of the pandemic and transitioning towards an endemic. Gradually we will see fewer restrictions and more people will feel comfortable traveling and attending large gatherings again. This does not mean Covid-19 will go away, it will stay with us for a very long time. The virus will mutate and require annual booster shots. The virus will go through a stage called attenuation which means weakened, diluted, thinned, reduced, diminished. The pandemic may end, but we will never return to the old normal. International travel will take several years to recover. Some form of work-from-home will continue. Most importantly, most problems before the pandemic still exist, and a lot of them are getting worse.

The Good:

Demand for cruises has been unprecedented for 2022.

Demand for concerts and live events? Same thing. Concert tickets for Olivia Rodrigo’s SOUR tour sold out due to overwhelming demand. Tickets in San Francisco are being resold as high as $9,000.

The people who have money, are spending it, even with higher prices caused by a combination of inflation, low supply, and pent-up demand. In summary, consumer spending should be strong in 2022. I am optimistic about the U.S economy in 2022, more so than last year.

The Bad:

Inflation, supply chain disruption, and the labor shortage are still problems. These issues should not prevent you from investing, as there will always be some headwinds even during the best of times, but these are worth paying attention to. The labor shortage problem deserves a much greater deep-dive however I predict more people will return to work on the basis that they need money. Pandemic assistance will dry up, people will need an income to support themselves. Many people have found funds through being a content creator through onlyfans, youtube, TikTok, etc. But realistically for the average person, can they maintain that steady income stream in a non-pandemic setting? Social media is always evolving, you must be quick to adapt otherwise you become an afterthought.

When federal stimulus support ends, bankruptcies could pick up. The big lingering question is how much has pandemic assistance propped up families and businesses from disaster? We could soon find out. This reminds me of a famous Warren Buffett quote, “only when the tide goes out do you discover who’s been swimming naked.”

Economic inequality will get worse – If you are in cash, due to inflation, your money is eroding around 5% each year. If you do not own real estate and stocks, you will fall further behind. If you are not in a high-demand field like tech, the purchasing power from your wages will decrease. If you are in deep poverty or homelessness, the chances of recovering are not better. The poorest individuals will continue to fall further behind.

Mental health issues will reach a crescendo – This will affect everyone no matter what economic class, race, national origin, sex, religion, or age bracket you are in. The pandemic has left millions of people with PTSD and exacerbated preexisting conditions like depression. Even if you got a raise or in an industry where the demand for your services has increased, the work culture has become far more oppressive and stressful. There is no work-from-home for nurses, flight attendants, pilots, etc. This will take a toll on everyone’s mental health. We see it in stories with the record number of unruly passengers or doctors and nurses being assaulted by patients. What do you get with short-staffed employers dealing with packed concerts, restaurants, and mass gatherings? That is several bad headlines waiting to happen. Everyone already knows mental health issues are a problem and going to get worse, but I believe 2022 it will get to a point where it will start grabbing the spotlight from news media outlets as covid starts dying down.

And as predicted, hot-button partisan issues like gun violence, abortion, immigration, and health care will still be divisive.

Without further ado, here are my top investing themes for 2022:

E-Commerce

E-Commerce is growing fast and expanding everywhere. Every year we will be more tech-driven and E-Commerce will play a bigger part in our everyday lives. In no way is this a fad. The pandemic just sped up the growth cycle with increased online payment activity. We are seeing the acceleration of the trust and adoption of digital platforms globally. We will not be going backward.

Who do I like the most? Choose from the buffet list! I like the big players like Amazon, Alibaba, MercadoLibre, and Sea Limited the most. Even smaller players like Coupang and Jumia are intriguing.

The two companies I like the most are Amazon and MercadoLibre. With Amazon, you have its marketplace/retail business, which we know is still growing globally. Evercore ISI analyst Mark Mahaney, whose book I’ve just finished reading, called Amazon, “arguably the single best fundamental asset in Net-land.”

With Amazon you also get its cloud computing business Amazon Web Services (AWS), which is growing faster than its retail business. And then I am banking that they will find their next AWS. With Amazon, they always have their hands in different cookie jars. These are high-reward pet projects that can change the entire trajectory of the company. It could be AI-powered robots, a cloud gaming service, telehealth, who knows! And even if they do not find the next big growth segment of their business (which I predict they will), the company is still growing at a fast rate, the stock will likely do just fine. Picking Amazon is like picking Stephen Curry on your basketball team and getting his brother, Seth Curry for free.

MercadoLibre is considered the Amazon of Latin America. They are in 18 different countries and expanding quickly. To understand why MercadoLibre is growing so quickly you must be able to differentiate the United States from Latin America. Many people in Latin America are unbanked. The postal system in Latin American countries is not as reliable as the U.S Postal system. Amazon, for example, can’t just open shop in Argentina and expect the same results in Texas. It takes several years to build a strong infrastructure. MercardoLibe has solved this by expanding from just its marketplace business and now has a fintech platform, credit service, advertising agency, and logistics division. They are building such a strong ecosystem they are becoming the PayPal (MercadoPago) and FedEx (Mercado Envíos) of Latin America.

More competitors will enter this space as it grows however this isn’t a winner-take-all battle. In the United States, you have PayPal, Square, Visa, Mastercard, Amex, Sofi, etc. There isn’t one dominant player. The total addressable market is massive. MercadoLibre right now is a big fish in a big pond. In the future, they will still be a big fish but in an even bigger pond. There are 33 countries in Latin America, the space is big enough for multiple winners.

Biotech

Biotech had a terrible year in 2021 unless you were involved with the COVID-19 vaccine, like Phizer, Moderna, or Novavax. A lot of biotech stocks ended the year negative however I would expect that to change in 2022 as many of these companies can be bought at bargain prices. Companies like Gilead Sciences and Bristol-Myers Squibb are undervalued. Johnson & Johnson is one of the safest dividend stocks to invest in, and that stock has a 10-25% upside. These stocks won’t 10x, but they provide lots of safety and easy money. These are companies you can own for over a decade and not lose any sleep.

In regard to riskier long term plays, I really like Field Trip Health Ltd, a company that specializes in psychedelic-assisted therapy. So far, the results are extremely promising:

In the past three years, at least a dozen such facilities have popped up around the Puget Sound region.

“When we started seeing patients a little more than a year ago, I wasn’t sure what to expect in terms of volumes,” said Liana Ren, a nurse anesthetist who runs Lighthouse Infusions, a ketamine clinic in Kenmore. “The last couple of months … our schedule has been full.”

As ketamine clinics emerge in Seattle to treat mental illness, so does debate about safety and regulations

Field Trip Health is a similar clinic with locations in Toronto, New York, Chicago, Los Angeles, and Atlanta. Unlike Mindbloom, which went completely virtual in September of 2019, Field Trip offers an in-person ketamine experience at their spa-like facilities. Put The Wing, a Manhattan therapy office, and a yoga studio in a blender, and you’ll get the vibe.

Is tripping with a therapist the next big thing In mental health?

I envision these ketamine-assisted psychotherapy clinics as the next massage therapy for your mind. These clinics won’t be mainstream anytime soon, but I see this as a brand-new emerging market. Field Trip plans on opening 75 clinics by 2024. I see this as the newest innovation in mental health, and as mental health becomes more mainstream, the better for the psychedelic sector.

Consider in 2003, there were 9,870 Spa locations in the United States, now over 21,500. exist. The number of Americans practicing yoga grew by 50% in four years. I see too much positive news every day regarding Psychedelic therapy/treatment. More and more cities are decriminalizing psychedelics and psychoactive drugs.

Investing in psychedelics is still early in 2022, but I have dipped my toes in the water. I understand the skeptics and unfortunately, unless you have used these drugs, it can be hard to conceptualize the net benefits but ask yourself the first time you got a professional massage. I would guess most people liked it (I did) and will likely get another one in the future. I recently went to Mexico and got a synchronicity massage, which included amplified vibrations, pressures, and patterns. Bass vibrations rippled through the massage table. The experience I would say was quite an enjoyable experience. I view psychedelics in the same manner. It is not for everyone, but there is a high demand for these types of treatments and the market currently has very few solutions that work.

E-Fashion Retail

I am bullish on the evolution of online fashion retail. Large retail chains like Macy’s, Nordstrom, Kohl’s were struggling before the pandemic and that is not going to change in the future. I would guess they will receive a boost when things open however, in the long-term I wouldn’t want to hold any of these companies. I am not saying all these companies will file for bankruptcy, however, online specialty retailers like Stitch Fitch, Revolve, and Everlane are growing in numbers. For traditional retailers to survive, they need to double down on digital transformation and social media, which means they will be playing catch up to companies like Revolve. They need to merry a high-touch customer experience, content curation, and personalization. If they cannot do that they will struggle as traditional retailers are carrying an anchor, empty stores, which online retailers do not have to deal with.

Retailers are in a very tough spot. Those that sell discounted brands have Amazon and Walmart hovering around them like a dark cloud. Luxury brands are very exclusive. It is nearly impossible to compete with brands like Louis Vuitton. Even Amazon, as powerful as they are, would have trouble selling luxury watches and competing with Rolex. That leaves many retailers needing to find their specialized niche and audience. Lululemon is the best example of a thriving retail store because their E-Commerce drives their company, not the stores. They also have excellent branding, reaching more customers yet still maintaining a luxury brand image. I could be wrong however companies like Nordstrom are operating on an outdated business model and unless they can pivot, very fast, they could go bankrupt or go through another decade of stagnating growth.

I Lost $400,000, Almost Everything I Had, on a Single Robinhood Bet

This is my reaction to a recent article on Vice about a 26-year old retail trader who lost nearly all his life savings on a single Alibaba call option.

“I put chump change, like three grand, into crypto, when I only had five grand to begin with in 2017, and I lost all of it. But I was seeing everybody making money hand over fist, and I wasn’t. I work in tech, and a lot of my colleagues were worth, like, $10 million.”

The price of bitcoin fluctuated in 2017 from around 900-19,700. If he had bought bitcoin or any other cryptocurrency, even at its highest price, and just held it, he would have at minimum, a 150% gain today. Anytime someone says they “lost it all” in the stock or crypto market, ask that person specifically what they did. If you get a clear answer, what the trader did had nothing to do with long-term investing or just the classic buy and hold strategy. This trader made a high-risk leveraged gamble.

This trader referred to three grand as “chump change.” I personally would never refer to three thousand as chump change. With the power of compounding interest, or just appreciation, 3,000 can easily turn into 10,000-20,000 in a short matter of time. This is one of the most fundamental rules of finance, respect money. The most powerful thing about money is that it gives you the ability to gain control over your time. A trade like this does not show a great deal of respect towards money.

My job involves a lot of researching companies and trying to understand business and economic models. I like to read a lot, and there’s a lot of books on investing. 

What he did had nothing to do with investing so maybe he is confusing investing books with books on trading or options strategies? For most investors, the best books on investing are more psychological/philosophical based. A lot of the strategies involving technical-based analysis investing are not applicable for the average person. It is geared more towards short-term trading, too complicated, or once again, not related to fundamental long-term investing.

Long-term investing has been lumped in with day/swing trading, which is unfortunate. They have become interchangeable terms. Investing is a powerful tool to create wealth. Trading mimics gambling. Each requires a different skillset/mindset. Many of the principles of trading stocks run counter to long-term investing. It is important to know the difference. You could not say you are a vegan and then start eating meat. A lot of traders say they are investing, which is not true.

It didn’t start with Alibaba. It started with a $5,000 bet on AMC. Then the $5,000 became $15,000 when I bet on something else, then it became $50,000 when I bet on silver. And that’s when I was like, Okay, I’m done with this. Now I want to buy a safe bet. And the safe bet was Alibaba. Then I just went all in on this one single stock option: The $200 strike price call option on Alibaba. ​​I would describe a call option as a leveraged bet on an underlying stock, which helps you increase the upside (or downside) of the bet you’re trying to make. I initially invested $300,000 in February, basically every single liquid asset in my account. 

Buying a call option is quite different from buying the underlying stock. I am not an expert on options trading; however, it is something a beginning trader should not dabble into. Even if you have experience in the market, options trading should only make up a small percentage of your portfolio.

With investing, you have time on your side. It is one of the most powerful forces in investing. It can make small investments grow big and make big mistakes fade away. When buying call options, you lose having time on your side. If your call option cannot get above the strike price before the expiration date, you lose your entire investment. Often when you have time pressure, your ability to make a clear decision can become foggy.

The one thing I really hate about buying call options is that the trader could be right about Alibaba and the price of the stock going higher. However, he has to be right about the price in a certain timeframe, otherwise, he’s toast.

“So I was like, Hey, this is gonna rebound. And as my salary came in, I saved another $100,000. So in July, I put in another almost $100,000. I basically transferred all the liquid cash that I had and maxed out my account. If my company had not paid me at the end of July, I wouldn’t have made my rent payment on August 1.”

This trader made some obvious mistakes that all investors can learn from. One is not taking a risk that can wipe you out completely. Gains are important however you must survive to succeed.

I like to think of investing as gambling, but with the odds in your favor. Imagine making a $1,00,000 bet that the Dallas Cowboys will win at least one Super Bowl with a twenty-year time horizon vs making a $1,00,000 bet that the Dallas Cowboys win at least one Super Bowl in the next two years. One bet gives you a much higher probability of success and is less risky.

“I sold and shut down my Robinhood account in October, right before my birthday. I decided I don’t want to have this hanging over my head. [Editor’s note: He walked away with under $20,000.] The day I sold it, I was like, You know what? I ****** up. It was a mistake. But clean slate, dust yourself off and move on. I felt better when I sold, much better actually.”  

One positive aspect of this article is that this trader learned from his mistakes. It does not appear he has a six-figure income yet was able to save nearly $400,000. Now that is impressive. He is young enough to recover from this however I will not mince words, this was a bad mistake that will likely set him back a few years or more.

I do believe right now Alibaba is an undervalued stock. The actual value of the stock is probably around 190-210. It is a company with strong fundamentals, a healthy cash flow, and consistent revenue growth. In 5-10 years, I can easily see the stock price being in the 600-800 range. If he had just bought and held the underlying stock, this would be potentially a million-dollar missed opportunity.

LESSONS TO BE LEARNED FROM THIS:

• When you have a net worth of roughly $100-500K, you have wealth, but you are not actually wealthy yet. At this net worth bracket, it really is not the time to be buying a Tesla or Rolex. It also is not the time to be making wild leveraged bets. Remember, this trader did not go all-in on a single stock, he went all-in betting on the price of a single stock in a given timeframe. This is a type of bet someone with a net worth of $100 million can make without losing sleep. This trader had an easy path to become a millionaire at a young age, and now is kind of starting from the bottom again.
• Don’t use Robinhood as your main brokerage account. Brokerages like Robinhood gamify investing. It makes it feel like a game rather than real-life. Take this seriously, you are using real money. Treat managing your portfolio like an actual job. It makes it feel more real and less like a game.
• Be Like David Puddy. Famous investor Mohnish Pabrai was recently interviewed about what it takes to be a great value investor. He said great value investors are people that like to watch paint dry or look at the back of an airplane seat for long periods of time (like David Puddy). Patience is the most important trait to be a successful investor and unfortunately, most people lack this ability. They need stimuli or action. For most people, investing is boring despite it being a proven way to become extremely wealthy. Gambling is more exciting and attracts more people despite it being a proven way to lose your money. One analogy I would make is farming vs hunting. For most people hunting is far more exciting than planting a few rows and tending to them carefully however farming has been proven in the long-term to be a more efficient way of producing food.
• Find the order within chaos. Friedrich Nietzsche once said “Whoever fights monsters should see to it that in the process he does not become a monster. And if you gaze long enough into an abyss, the abyss will gaze back into you.” I have said this many times however I will repeat myself again, investing is psychological. The market will eat you alive if you have the wrong mindset. Focus on being an island of stillness in a flow of treacherous waters.
• There is no need to pile on this one trader. There is a famous quote from Ian MacLaren, “Be kind, for everyone you meet is fighting a hard battle.” He made a mistake but seems to have enough self-awareness to learn and grow from this. These painful lessons can be viewed as teaching moments. It is better to learn a “lesson” like this now instead of blowing 4 million on a single-stock call option in the future.