April 2022 Bloodbath - Names Down >30% Since April 1
April 2022 was one of the worst market months of all time. In fact, it was the worst since October 2008. Here are 100 stocks down >30% since April 1:


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Nathan Worden's avatar
$312.8m follower assets
Compound Collaboration, Month #21 — Texas Pacific Land
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 20 months:
‌‌Month #1 Aug 2020: $ARKK -42%
Month #2 Sep 2020: $ARKG -44%
Month #3 Oct 2020: $BTC.X +223%
Month #4 Nov 2020: $BTC.X +105%
Month #5 Dec 2020: $NVDA +42%
Month #6 Jan 2021: $VT +2%
Month #7 Feb 2021: $PACB -78%
Month #8 Mar 2021: $TSM -15%
Month #9 Apr 2021: $KLIC -9%
Month #10 May 2021: $TTD -15%
Month #11 Jun 2021: $ETH.X +34%
Month #12 Jul 2021: $ETH.X +25%
Month #13 Aug 2021: $ROKU -74%
Month #14 Sept 2021: $ETH.X -4%
Month #15 Oct. 2021: $RBLX -59%
Month #16 Nov. 2021: $APPS -51%
Month #17 Dec. 2021: $VMEO -43%
Month #18 Jan. 2022: Cash 0%
Month #19 Feb. 2022: $OPEN -15%
Month #20 Mar 2022: $RRC +11%

Total portfolio return: -1.02%

Return if every month I had just bought the S&P 500: +2.69%

Well this is humbling

For the first time, the total value of the portfolio has now gone negative— meaning if I needed to withdraw the money today, I would have been better off saving.

Fortunately, my kids aren't even born yet so I don't need the money today. Hopefully this memo will be a humorous stop along the journey. We shall see.

Many years from now, I hope my kids will get the chance to read this and take away the following lessons:

  • After 20 months of building this portfolio, all the work that has gone into it has cost me 1.02%. This illustrates the argument for putting your money into an S&P 500 index and calling it a day. It's way less work, and you may just come out ahead in the long run.
  • In the short term, you never know where the stock market is going to go, especially individual stocks.
  • 1-2 years is considered "short term." Investing really is played on long time-horizons.
  • Expect to be wrong a lot in investing. So far 12 of the 20 picks I've made have lost money. My hit rate at the moment is 35%.

Things may keep getting worse before they get better. The extremely long time horizon intended for this portfolio allows me to sit tight. It's not fun to be down vs. the S&P 500 or in general, but for now, it's one stop along the way.

This month's addition:

Texas Pacific Land
Ticker: $TPL
Market Cap: 10.66B
Should tip the hat to Horizon Kinetics who have been big believers in $TPL for a long time (decades).

History
Texas Pacific land started out as a railroad 1871. The idea for the railroad was to connect West Texas with the coast of California. A federal charter granted land to the company for every mile of railroad it built. The company earned three and a half million acres of West Texas land from building the railroad. But guess how many people lived in West Texas in 1871? Pretty much no one! So the railroad went out of business— but the company still owned all that sweet land. So the Texas Pacific Land Trust was formed to manage the land, which it would sell and then return the money to owners of the trust certificates. In 1920, they stopped selling the land because, you guessed it: they discovered oil. Texas Pacific sold over 75% of its original landholdings. But even after all that, it is still the largest landowner in Texas. The remaining land is in the Permian basin of west Texas, the most productive oil field in the world right now. Texas Pacific now leases its land to oil companies and collects royalties from them.

Investable Attributes
  • The Dividend payout ratio is about 65%. Part of the thesis is that this will increase.
  • The company doesn't have any debt. It doesn't need to take in capital to grow.
  • It's all about the royalties. They are the biggest catalyst going forward for dividend growth. They don't have to drill the traditional oil. Companies lease land from Texas Pacific and pay them about a one 16th of royalty on the oil they extract, not to mention any water, right usage and other usages.
  • Texas Pacific's gross margin is always close to 100% EBIT and EBITDA margins are usually around mid 90%.
  • Free cashflow margins can run the high sixties, but in recent years this has dipped down into the low forties.
  • Texas Pacific has great operational leverage to rising oil prices and with no need to retain cash, the company returns the bulk of it to us, the shareholders.

Another part of the thesis is that in January 2021 Texas Pacific Land went from being a Trust to a Corporation. The reason this is important is that as a trust, $TPL was not part of the 'investable universe' for a lot of funds and ETFs. Now that it's a corporation, many more entities have access to invest in it.

The Main Thesis:
Texas Pacific Land is a way to get exposure to the price of oil without all the operational execution risk of an oil company. If the price of oil goes up, more oil companies will want to drill on $TPL's land, and the more royalties they will be able to collect.

I think oil demand will stay strong for years, and even in a world where we move primarily to renewables, there will still be a lot of uses for oil in the making of solar and renewable energy infrastructure. Even if oil prices stay where they are now, Texas Pacific is going to be highly profitable and flush with a ton of cash to return to shareholders.

Texas Pacific's estimates that the breakeven oil price for the bulk of their reserves is about $40 per barrel. If the price of oil stays above $40, Texas Pacific should see increased drilling activity on their land and increased revenue growth.

Now, oil reserves are a declining asset. One day Texas Pacific's oil reserves will be gone, or at least only economically viable with a really high price of oil. Right now, Texas Pacific projects that they have 19 years of reserves at a $40 per barrel breakeven price.

Risks
  • Oil Prices decline below $40 a barrel.
  • $TPL's reserves are depleted quicker than the expected 19 years

Things that aren't as big of a risk as people think
  • A fracking ban — fracking bans usually only apply to public land owned by the government. Texas Pacific land is private land. They own it and they can do what they want with it. And with their mineral rights, they would not be effected by a fracking ban. They'd actually be affected positively because other sites going offline means $TPL's resources are more valuable.
  • Electric vehicles — The expectation is the electric vehicle will cause oil demand to fall off a cliff. Today EVs are an expensive niche product. They are a small percentage of total auto sells. If EV sales were to double, they'll still only account for less than 10% of all automobile cells. We need a step change in battery technology to bring the cost per vehicle down and to increase our range, to make it a daily driver for the average person. Personally, I hope this happens, but I think it will take longer than most people anticipate. I'm assuming that in the medium term oil demand will go up, and in the longer term (30 years) oil demand will remain relatively flat.

Here's my trade— bought at $1,390. Currently at $1,366.
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Noticing some other Commonstock users who hold Texas Pacific Land. Nick Rasmussen @nras00 has been holding for 564 days and Ram V @sirthroedness for 409 days, impressive! Would love to hear ya'lls thesis as well.

Same with @joryko — how long have you been holding $TPL and what's your main motivation for holding?
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Nathan Worden's avatar
$312.8m follower assets
Compound Collaboration, Month #20
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 19 months:
‌‌Month #1 Aug 2020: $ARKK -18%
Month #2 Sep 2020: $ARKG -24%
Month #3 Oct 2020: $BTC.X +294%
Month #4 Nov 2020: $BTC.X +150%
Month #5 Dec 2020: $NVDA +107%
Month #6 Jan 2021: $VT +12%
Month #7 Feb 2021: $PACB -68%
Month #8 Mar 2021: $TSM -3%
Month #9 Apr 2021: $KLIC +10%
Month #10 May 2021: $TTD +2%
Month #11 Jun 2021: $ETH.X +60%
Month #12 Jul 2021: $ETH.X +49%
Month #13 Aug 2021: $ROKU -65%
Month #14 Sept 2021: $ETH.X +15%
Month #15 Oct. 2021: $RBLX -37%
Month #16 Nov. 2021: $APPS -32%
Month #17 Dec. 2021: $VMEO -33%
Month #18 Jan. 2022: Cash 0%
Month #19 Feb. 2022: $OPEN +8%

Total portfolio return: 22.5%

Return if every month I had just bought the S&P 500: 13.7%

Addition for Month #20: Range Resources $RRC Resource.

Range Resources is a petroleum and natural gas exploration and production company headquartered in Fort Worth, Texas (I used to live in Dallas circa 2019).

Macro Thesis:
I want the world to transition to sustainable energy as much as anyone. But I think the current expectations of how fast we can move completely to renewables is unrealistic.

It generally takes about 5 decades for the world to transition from one energy system to another. If we are extremely disciplined, we may be able to speed up the transition to renewables in as little as 20 years.

But much of the investment world is acting as if electric cars will make oil obsolete in the next five years.

Oil demand is not going away in the next five years.

While the use of renewables is expected to grow faster than fossil fuels, the US Energy Information Administration (EIA) says coal, oil and natural gas will still account for 77% of our energy in 2040. The EIA reckons that total world energy consumption will rise by nearly 30% over the coming decades. Even if renewables grow exponentially, they will still need a lot of help from fossil fuels to meet demand.

You may see Teslas on the road every day and think that the whole world is on the cusp of going green. But it's a privilege to have the resources to go green. Developing nations have disproportionately younger populations which are incentivized to pursue high growth industries that can make use of their cheap labor and growing consumer base. The economies of these countries literally need energy to run. Going green for these countries is cost-prohibitive and quality-of-live reducing.

The fastest way to make green infrastructure is by using the tools we have today. Which means using a lot more oil.

Range Resources is bet that the oil industry has been overly discounted and still has a long life ahead of it.

Company Specific Thesis:
Range Resources is:
• A top 10 U.S. producer of natural gas
• Top natural gas exporter
• The most capital efficient operator in Appalachia
• Has the longest core inventory life in Appalachia
• Is a leader in environmental practices

Range Resources has a low decline rate. The 'decline rate' is a method for estimating reserves and predicting the rate of oil production. It shows the pace at which production is expected to decline over the lifetime of an energy asset. The lower the decline rate, the longer the oil well will last. $RRC's low decline rate drives sustainably low capital requirements.

Because their core inventory has a multi-decade life expectation, Range Resources has a long runway of free cash flow generation, which they are returning to shareholders via dividends and a $500 million share repurchase program.

$RRC is also a leader in environmental practices. They are targeting net zero greenhouse gas emissions by 2025.

Summary:
I'm adding Range Resources to the portfolio because:
• High FCF yield
• Low decline rate
• Dividend and buyback in place
• Good balance sheet
• Trades at a discount to NAV
• Has a strong environmental track record
• Energy demand will force investment oil to return in full force
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"It generally takes about 5 decades for the world to transition from one energy system to another." - Interesting! If this is the case for energy, imagine how long it takes for a transition to an entirely new reserve currency 😉 Nice $BTC.X gains, btw
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Nathan Worden's avatar
$312.8m follower assets
Compound Collaboration, Month 18 & 19
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 16 months:
‌‌Month #1 Aug 2020: $ARKK -16%
Month #2 Sep 2020: $ARKG -22%
Month #3 Oct 2020: $BTC.X +265%
Month #4 Nov 2020: $BTC.X +132%
Month #5 Dec 2020: $NVDA +82%
Month #6 Jan 2021: $VT +8%
Month #7 Feb 2021: $PACB -61%
Month #8 Mar 2021: $TSM -3%
Month #9 Apr 2021: $KLIC +2%
Month #10 May 2021: $TTD +22%
Month #11 Jun 2021: $ETH.X +39%
Month #12 Jul 2021: $ETH.X +30%
Month #13 Aug 2021: $ROKU -62%
Month #14 Sept 2021: $ETH.X 0%
Month #15 Oct. 2021: $RBLX -32%
Month #16 Nov. 2021 $APPS -27%
Month #17 Dec. 2021 $VMEO -28%
Month #18 Jan. 2022 Cash 0%

Total portfolio return: 17%

In January I didn't make a buy— markets have fallen a ton and there isn't necessarily any mandate to buy a new stock every month. Roku and Pacific Biosciences have gotten torched; everything bought after September of last year is down 30%.

Addition for February: Opendoor $OPEN

My thoughts on Opendoor can be found here.

Opendoor is a very risky bet. They're extremely early in what they're trying to do. Over 20 years, this will likely be either a 0 or home-run.
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Question: why are some tickers green, and others red? Is that based on the most recent trading day’s change in price?
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Compound Collaboration, Month #17
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 16 months:
‌‌Month #1 Aug 2020: $ARKK +14%
Month #2 Sep 2020: $ARKG +0%
Month #3 Oct 2020: $BTC.X +286%
Month #4 Nov 2020: $BTC.X +146%
Month #5 Dec 2020: $NVDA +120%
Month #6 Jan 2021: $VT +17%
Month #7 Feb 2021: $PACB -32%
Month #8 Mar 2021: $TSM +9%
Month #9 Apr 2021: $KLIC +18%
Month #10 May 2021: $TTD +32%
Month #11 Jun 2021: $ETH.X +73%
Month #12 Jul 2021: $ETH.X +61%
Month #13 Aug 2021: $ROKU -37%
Month #14 Sept 2021: $ETH.X +24%
Month #15 Oct. 2021: $RBLX +36%
Month #16 Nov. 2021 $APPS -7%

Total Portfolio return: 53%

This month's addition: Vimeo

Quick Thoughts:

$VMEO has 200 million users, and less than 1% of those are paying subscribers.

Vimeo is shifting their strategy towards enterprise. They're going to start charging "per seat", which means that if one person in an organization is using Vimeo, it is easier to get other people in that organization to become paying subscribers as well.

70% of existing paid users were one free users. So their current users are a great place to start converting people.

This is a bet that this new business model takes hold.
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Compound Collaboration, Month #16
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 15 months:

‌‌Month #1 Aug 2020: $ARKK +26%
Month #2 Sep 2020: $ARKG +2%
Month #3 Oct 2020: $BTC.X +378%
Month #4 Nov 2020: $BTC.X +203%
Month #5 Dec 2020: $NVDA +144%
Month #6 Jan 2021: $VT +13%
Month #7 Feb 2021: $PACB -24%
Month #8 Mar 2021: $TSM +6%
Month #9 Apr 2021: $KLIC +12%
Month #10 May 2021: $TTD 47%
Month #11 Jun 2021: $ETH.X +123%
Month #12 Jul 2021: $ETH.X +108%
Month #13 Aug 2021: $ROKU -38%
Month #14 Sept 2021: $ETH.X +60%
Month #15 Oct. 2021: $RBLX +66%

Total portfolio return: 69.1%

This month's addition: Digital Turbine $APPS

Digital Turbine is an ad-tech company.

What they used to do: Pre-install apps onto mobile phones.

Over the last couple of years through a series of acquisitions they've completely transformed their business.

What they are now: A platform for mobile advertising which has both supply-side and demand sides of the market.

Four or five years ago they were only installed on around 15 million devices. Today they are now installed on almost 600 million Android phones.

A key product: single-tap app installs. Instead of going to the Google play store and hitting download and install, you can just click on an ad and immediately download the app to your phone. This is something app developers are willing to pay a lot for.

They are now producing profits on an Adjusted EBITDA basis and non-GAAP EPS basis.

The Bull Case:

  • Strong Macro trends: Mobile advertising is a huge category and there will be a lot more dollars transitioning to mobile advertising in the coming years.
  • Sales and marketing spend is small compared to their gross profit, which means they can grow without spending tons of money on sales and marketing.
  • Network effects around building a buy and sell-side platform for mobile advertising. There are switching costs once mobile carriers and advertisers start using Digital Turbine's platform.
  • Free cash flow and earnings are positive, which is great because they can fund their own growth going forward.

Bear Case
  • Balance Sheet: Lots of goodwill from the acquisitions (goodwill is not good), and also lots of long term debt and not a lot of cash in comparison.
  • Concentration risks: $APPS sells into several of the large mobile phone carriers. Revenue is only coming from a few sources.
  • Has primarily grown by acquisitions. Integrating acquisitions successfully is hard.
  • Dependence on Google. Google could pull the rug on Digital Turbine and there wouldn't be much they could do about it.

Digital Turbine is down 41% in the last month— which is even more than some similar growth names like:
$ROKU (-28%)
$PYPL (-20%)
$MELI (-20%)
$FVRR (-18%)

The Bet:
Now is a good entry to buy a fast growing company that can really shine in the mobile advertising space in the coming years.
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Compound Collaboration, Month #15
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 14 months:

‌‌Month #1 Aug 2020: $ARKK +45%
Month #2 Sep 2020: $ARKG +21%
Month #3 Oct 2020: $BTC.X +407%
Month #4 Nov 2020: $BTC.X +222%
Month #5 Dec 2020: $NVDA +91%
Month #6 Jan 2021: $VT +16%
Month #7 Feb 2021: $PACB -13%
Month #8 Mar 2021: $TSM +3%
Month #9 Apr 2021: $KLIC +11%
Month #10 May 2021: $TTD 7%
Month #11 Jun 2021: $ETH.X +100%
Month #12 Jul 2021: $ETH.X +86%
Month #13 Aug 2021: $ROKU -17%
Month #14 Sept 2021: $ETH.X +44%

Total portfolio return: 86%

This month's addition: Roblox $RBLX

Roblox is a video game company that is enabling developers to create games and get paid for doing so. Rather than trying to build everything themselves, they are creating tools so that others can build whatever games they want, and then help them distribute and monetize their games.

Some impressive stats, courtesy of @sidnistandard (you should follow her):

  • More than two-thirds of U.S. kids aged 9 to 12 play Roblox
  • Those kids spend an average of 2.6 hours a day on Roblox
  • 43% of Roblox users are 13 and over
  • The fastest-growing demographic is ages 17-24
  • Ad solutions are being made available to creators as a revenue stream
  • Roblox has 43 million daily active players
  • Revenue is expected to be between $167m & $170m, up ~98% YOY
  • Roblox is on both mobile and desktop
  • Virtual concerts show the potential for further digital events

Risks are that the young users might 'age out' of Roblox as their tastes change when they get older. But video games as a career, live events, and full economies being built might be able to mature with the current users. That's this month's bet.
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I've got a 5yr old and a 3yr old and they already know it's a good thing when "green is winning".

But I've never thought about what you're doing, and I think having the thought it will be for them in the future rather than for me in the nearer-term will result in even more prudence. I'll think I'll be pinching this idea.
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Compound Collaboration, Month #14
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 13 months:

‌‌Month #1 Aug 2020: $ARKK +32%
Month #2 Sep 2020: $ARKG +21%
Month #3 Oct 2020: $BTC.X +267%
Month #4 Nov 2020: $BTC.X +133%
Month #5 Dec 2020: $NVDA +55%
Month #6 Jan 2021: $VT +11%
Month #7 Feb 2021: $PACB -16%
Month #8 Mar 2021: $TSM -1%
Month #9 Apr 2021: $KLIC +13%
Month #10 May 2021: $TTD 0%
Month #11 Jun 2021: $ETH.X +42%
Month #12 Jul 2021: $ETH.X +32%
Month #13 Aug 2021: $ROKU -15%

This month's addition: Ethereum

The bet is that Ethereum in 2021 is like Bitcoin in 2017. Here's the chart:

If this correlation continues through the end of the year, Ethereum could end up anywhere between $10k and $20k.

The theory for why the two are so correlated is that both are priced using Metcalfe's law.

Metcalfe's law states that the value of a network is proportional to the square of the number of connected users of the system.

Example: A single phone is useless, but the value of every phone increases with the total number of additional phones in the network, because the total number of people with whom each person can call increases exponentially. Similarly, in social networks, the greater the number of users on the platform, the more valuable it becomes to the community.

Ethereum, like Bitcoin in 2017 is becoming exponentially more valuable as more people join the network.
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Compound Collaboration, Month #12
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday- in the hopes of using it as an educational tool alongside the memos I write to teach them about the world and to have a shared activity to work on together as they grow up.

It is one of the main reasons why I invest.

Performance from the first 11 months:

‌‌Month #1 August 2020: $ARKK +43%
Month #2 September 2020: $ARKG +36%
Month #3 October 2020: $BTC.X +244%
Month #4 November, 2020: $BTC.X +119%
Month #5 December, 2020: $NVDA +46%
Month #6 January, 2021: $VT +13%
Month #7 February, 2021: $PACB +22%
Month #8 March, 2021: $TSM -8%
Month #9 April, 2021: $KLIC +6%
Month #10 May, 2021: $TTD +17%
Month #11 June, 2021: $ETH.X +15%

Addition for this month:

Going back for a second helping of Ethereum.

Why?

In the next year Ethereum will be getting upgrades to its protocol that will transform it from a speculative asset to a cash flow producing asset.

This will fundamentally change the type of investor that is drawn to Ethereum which will result in $ETH.X's price becoming more inelastic.

Elasticity refers to the amount that supply and demand change in response to a shift in price. If investors of a particular asset have a "buy and hold forever" mentality, then an increase in demand won't automatically produce an increase in supply. Price will have to go up a lot before these 'hold forever' investors are willing to sell.

When Ethereum changes to a Proof of Stake consensus mechanism, investors will be able to earn yield by 'staking' their ETH. This comes at a time when there has never been more passive investors who would love a 'set-it-and-forget-it' asset with a high yield and uncorrelated risk exposure.

I believe these passive investors will embrace convenient staking services with open arms, treating it like the Vanguard funds they refuse to sell for decades. This will make ETH's supply more inelastic to price changes.

The switch to Proof of Stake is slated to occur sometime in the first half of 2022.
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Compound Collaboration, Month #11
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday- in the hopes of using it as an educational tool alongside the memos I write to teach them about the world and to have a shared activity to work on together as they grow up.

It is one of the main reasons why I invest.

Here is the performance so far from the first ten months:

‌‌Month #1 August 2020: $ARKK +47%
Month #2 September 2020: $ARKG +46%
Month #3 October 2020: $BTC.X +182%
Month #4 November, 2020: $BTC.X +82%
Month #5 December, 2020: $NVDA +53%
Month #6 January, 2021: $VT +12%
Month #7 February, 2021: $PACB +65%
Month #8 March, 2021: $TSM +7%
Month #9 April, 2021: $KLIC +8%
Month #10 May, 2021: $TTD +52%

This month's addition to the portfolio: Ethereum $ETH.X

Why?

Ethereum serves as the base layer protocol for the first real product-market fit in crypto: Decentralized Finance (DeFi).

Educational piece: The long-term promise of a more decentralized and equitable internet is an idea I want to talk about with my kids someday.

Investment points:

  • With over $53 billion in total value locked (TVL), user engagement is unmistakable, and the growth continues to be extraordinary – up over 6x since the start of 2020.
  • Of the top 100 DeFi projects, 99 of them have been built on top of Ethereum, per DeFi Pulse.
  • Ethereum should act as a 'value layer' of Web3. Web3 is a potential next iteration of the internet, and is based on the idea that you should be able to own your data.

Short term catalysts:

  • EIP-1559: an Ethereum Improvement Proposal that improves the bid process for block space and changes the mechanics of gas fees. A substantial portion of gas fees will be “burned” instead of going directly to miners, thereby reducing the overall supply of ETH. Less supply means the value of existing ETH should go up. EIP 1559 is set to go live on July 14th.
  • Layer 2 scaling solutions Arbitrum and Optimism go live later this summer.
  • The transition to a Proof-of-Stake consensus mechanism seems close – most likely by the end of this year. This will dramatically improve the energy efficiency of the Ethereum blockchain, thereby making the ecosystem far more environmentally sustainable. Additionally, it will enable “stakers” to earn yield, somewhat akin to a stock dividend.

Risks:
  • DeFi remains very early and the long-term winners are still very uncertain.
  • Execution risk for the implementation of EIP-1559 and Proof-Of-Stake

Part of my bet on Ethereum is that institutional allocations to Ethereum will grow meaningfully because it fits more closely with how investors are used to evaluating investments.

Bitcoin may be a superior digital analog to gold, but most investors don’t own gold. When talking to my older brother about crypto, he dismissed Bitcoin, but was immediately interested in utility of Ethereum.

It will be interesting to check back in in 2041 and see how Ethereum evolved over the last 20 years.

See you then.
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I really like this approach of choosing an investment each month, doing the research, and tracking your performance over time.

Do you have a process to decide which company to invest in from a set of candidates, or a watchlist?
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