Nathan Worden's avatar

$320M follower assets

Buy and continually verify. MBA and MLD. Long term mindset. Innovation enthusiast.

Optimistic, but not inappropriately so.

DMs open
Nathan Worden's avatar
$320m follower assets
Compound Collaboration, Month #23
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 22 months:
‌‌Month #1 Aug 2020: $ARKK -55%
Month #2 Sep 2020: $ARKG -51%
Month #3 Oct 2020: $BTC.X +55%
Month #4 Nov 2020: $BTC.X 0%
Month #5 Dec 2020: $NVDA +17%
Month #6 Jan 2021: $VT -7%
Month #7 Feb 2021: $PACB -86%
Month #8 Mar 2021: $TSM -26%
Month #9 Apr 2021: $KLIC -26%
Month #10 May 2021: $TTD -19%
Month #11 Jun 2021: $ETH.X -51%
Month #12 Jul 2021: $ETH.X -55%
Month #13 Aug 2021: $ROKU -78%
Month #14 Sept 2021: $ETH.X -65%
Month #15 Oct. 2021: $RBLX -57%
Month #16 Nov. 2021: $APPS 74%
Month #17 Dec. 2021: $VMEO -67%
Month #18 Jan. 2022: Cash 0%
Month #19 Feb. 2022: $OPEN -47%
Month #20 Mar 2022: $RRC -8%
Month #21 Apr 2022: $TPL +7%
Month #22 May 2022: $ETH.X -41%

Total Portfolio Return: -31%

Well things have gone from bad to worse.

Pretty bad timing all around— just closed on a house yesterday and will be moving to Orange County as my wife got a job down there. Had to sell a lot of stocks for the down payment.

This month's addition to the portfolio is Nuscale Power Corp $SMR

Newscale designs and markets small modular nuclear reactors. It is headquartered in Tigard, Oregon, United States. They were founded in my hometown of Corvallis, Oregon.

NuScale has been approved to build test reactors in Idaho, in 2029 and 2030.

It's a very long term bet on nuclear power.
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I hope we as a planet gets past the stigma of nuclear as an energy source. I’m watching for companies using Gen IV technology. They can use what would previously be spent nuclear fuel (uranium) from older gen reactors as their fuel
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Nathan Worden's avatar
$320m follower assets
You're raising cash to buy a house, what stocks do you sell?
The market has dropped a lot, it's a bummer to sell into weakness, but you'll have enough to achieve one of your biggest financial goals. But you have to choose which parts of your portfolio to sell.
Asking for a friend 😆
Which stock should you sell?
61%Teledoc (TDOC)
25%Tesla (TSLA)
1%The Trade Desk (TTD)
11%Twilio (TWLO)
52 VotesPoll ended on: 07/01/22
Before seeing the options I was gonna say $PTON, but not quite sure how much capital that would actually free up 🥲😭😆
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How to Say "I Don't Know"
@deerpointmacro ran an incredible Space yesterday that went for 8+ hours. There was tons of great conversations— you should definitely follow Deer Point.

There was one specific dynamic I was reflecting on this morning:

No matter how much research one does on a topic, when engaging in public discourse on platforms like Twitter and Commonstock, there will always be someone who knows more than you do. This isn't a bad thing— it's actually the main reason to engage on these platforms: to find other smart people and learn from their expertise.

But because this is the case, it requires one to have a certain balance of confidence and humility. You have to be able to present your points confidently AND be ready to admit when you hit the limits of your understanding.

The thing I noticed about the Twitter Space yesterday was how good people were at communicating when they had reached their limits.

It struck me that this is a skill one learns through experience in order to keep the conversation quality high. Admitting where you lack knowledge increases credibility for where you do have knowledge. Additionally, when you admit ignorance it invites someone with more knowledge to engage. You win because you fill gaps in your knowledge and you also make other people look good. Positive sum dynamic.

With that spirit in mind, I wanted to offer up some of the vocabulary I heard yesterday. If you internalize some of these phrases and are quick to use them in situations where you have reached the limits of your expertise, I think you will find yourself leveling up as an investor, a speaker, and as a general human being 😊

How to Say "I Don't Know"

  • I'm not an expert, but this has been a recent interest of mine
  • I’m not sure I’m the best person to answer that but 'xyz' person would be great to ask
  • I'm actively learning about this, I'm all ears if you have expertise to share
  • I have my personal thoughts, but I'm not sure they'd be useful to you
  • I am ignorant on the subject
  • That's the limit of my understanding
  • Here’s what I know and here’s what I don’t know…
  • Based on my understanding, I believe that…
  • I don’t have the foggiest idea.

What are effective ways you say "I don't know?"
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I used to be terrified of saying “I don’t know” now, if it’s something I really am out of my depth on I have no problem saying it. In fact, I’ve found my clients appreciate it and I gain trust. Trust, in my opinion, is one of the most valuable intangibles you can have in business. The way I do it is, listen to their question/concern, ask a few clarifying questions ESPECIALLY “what do you think this information will help you do and what do you hope we can accomplish with it”. Then, I simply say, “While I do not know at the moment, now that I understand why this is valuable information to have and what we can use it for, I will find out.”

Give it a try. You’d be surprised that in most situations your credibility goes up not down!
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The Market Stock Pitching Game is this Wednesday, June 22nd @ 10am PST / 1:00pm EST!
"The Market" stock pitching game is a bracket-style elimination tournament for investors.

Six brave contestants will each give a three minute pitch on an investment idea.

Quality discussion ensues—

The audience decides the best pitch of the day!

Here's an example of the kind of discussion that goes down at the game: VIDEO

Sign up to get the Zoom link for the game HERE

Here's the awesome lineup!:

@market.original — pitching CoreCard $CCRD
@mavix — pitching Leatt $LEAT
@stockgeek — pitching Dropbox $DBX
@growthinvesting — pitching Palantir $PLTR

What is the best investment idea of the month? The Market will decide!
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When assessing management teams…
Trust needs to be:
77%Earned before it’s given
22%Given until it is broken
18 VotesPoll ended on: 06/05/22
Great Follow: Peter Offringa, Software Stack Investing

Peter has been leading software engineering teams for Internet-based companies for 20 years. He has served in VP of Engineering and CTO roles at a number of high traffic properties, ranging from growing start-ups to publicly traded companies.

Peter has a deep understanding of modern software development investing, and writes about his analysis of the industry, product development, competitive positioning, market demand and future potential for software companies.

He has been on the purchasing side of software services for many years, and has unique insight into the nuances of technology capabilities, developer mindshare and product fit.

Peter invests in the companies that he intimately understands, and now you can see his portfolio and follow him on Commonstock— Go give him a follow! ---> @stackinvesting
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Compound Collaboration, Month #22
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 21 months:
‌‌Month #1 Aug 2020: $ARKK -46%
Month #2 Sep 2020: $ARKG -46%
Month #3 Oct 2020: $BTC.X +152%
Month #4 Nov 2020: $BTC.X +60%
Month #5 Dec 2020: $NVDA +40%
Month #6 Jan 2021: $VT +2%
Month #7 Feb 2021: $PACB -80%
Month #8 Mar 2021: $TSM -15%
Month #9 Apr 2021: $KLIC +4%
Month #10 May 2021: $TTD -25%
Month #11 Jun 2021: $ETH.X -12%
Month #12 Jul 2021: $ETH.X 18%
Month #13 Aug 2021: $ROKU -74%
Month #14 Sept 2021: $ETH.X -37%
Month #15 Oct. 2021: $RBLX -58%
Month #16 Nov. 2021: $APPS -60%
Month #17 Dec. 2021: $VMEO -51%
Month #18 Jan. 2022: Cash 0%
Month #19 Feb. 2022: $OPEN -11%
Month #20 Mar 2022: $RRC +34%
Month #21 Apr 2022: $TPL +13%

Total portfolio return: -9.9%

Return if every month I had just bought the S&P 500: +2.16%

Being down ~10% isn't fun. But here's a quick reflection on how we got here:

• This portfolio is for long term bets
• Since the time horizon is so long, I've been inclined to bet on innovation; things that might be worth a lot more in the future than they are today. i.e. their cash flows will come primarily 20 years in the future
• In the last six months we've seen the fed funds rate go from 0 to 1%, with anticipation of getting up to 3% by the end of the year.
• Changes in interest rates have a huge effect on companies whose cash flows are in the future. Supposed future earnings 30 years from now get priced into the value of the asset today.
• Example: If you think a company will earn $100 dollars 30 years from now, at an interest rate of 1% that $100 is worth ~$74 today.

Here's the formula:
Present value = Future sum / (1+ interest rate)^number of periods
PV = $100 / (1 + .01)^30
PV = $74.19

Stated another way— if you have $74.19 today and you also have the ability to get a 1% guaranteed return every year for 30 years, you will have $100 in 30 years.

Here's the proof:

Now let's say you can get a 5% return on your money year after year instead of 1%.
How much is $100 worth 30 from now if you can invest at 5%?

The answer is $23.

At a 10% interest rate, the present value is $5.

The value of high growth stocks, whose cash flows are far out in the future, are greatly affected by the compounding nature of today's interest rates.

As an aside, this is why people obsess over what the Federal Reserve does with interest rates— it has huge investing implications. Having an essentially risk-free alternative to investing in growth stocks changes what investors are willing to pay for cash flows far out in the future.

Whether or not there's a sustainable way to predict the Fed's rate changes is another story, but the point stands that when the Fed telegraphs rate increases... you should take note.

One adjustment I've made to my "Compound Collaboration" portfolio is adding companies that are profitable today (as well as taking a cash position) in three of the last four months. But that doesn't change the fact that the rest of the portfolio is heavily overweight growth stocks and has a correlation of close to 1.

Ray Dalio outlines here that once you add around 7 assets to your portfolio that have similar correlation, you are not going to reduce your risk much by adding more highly correlated stocks. So if we're doing a post-mortem on why the above portfolio is down so much even though it has 18 different holdings— the answer is that the current holdings are very correlated.

So what's the new addition this month?

Ethereum $ETH.X

Wait, didn't we just get done talking about how growth assets that aren't making money now are getting destroyed?

Correct— however, Ethereum will be shifting to a Proof-of-Stake consensus mechanism soon (The latest speculation is this September).

Ethereum will have positive cash flows once it switches to proof-of-stake, and I believe this will catch the market's eye.

After moving to proof-of-stake, $ETH.X will much more resemble equity in a company than a currency or store of value. This is because the revenue and profit generated by the network accrues to the token holders.

You can see on cryptofees.info that Ethereum does indeed generate fee revenue.

People who stake their $ETH.X get paid out a staking rate, which is like a stock-based dividend.

Ethereum will resemble equity in a cashflow generating company.
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Signs that Work From Home is Here to Stay
This is kind of amazing to think about:

A couple of days ago it was announced that AppFolio sold one of its three office buildings in Goleta, CA. The building was sold for $13.9 Million.

When I was working at AppFolio in 2018-2019 they could not get enough space.

They were doing huge remodels to be able to cram more desks in and even bought a nearby building and started a multi-year renovation on it.

There was even time set aside during the company all-hands meeting every month for the manager of facilities to give updates about what was happening with buildings, parking, etc.

Ever since Covid, many AppFolio employees have been working from home. Lots of employees have moved away. And the ones that have stayed in the area work from home— even ones that live very close.

This goes to show you that Covid was a big catalyst for a sustained trend towards work from home. AppFolio would not be selling this building if they were planning on forcing people back into the office.

Work from home is the new normal. It's here to stay. At least for AppFolio.

I think that now remote work is embedded into workplace culture the next bastion to fall will be the 40hr working week.

The 40hr working week was devised to give workers, 8hrs of work, 8hrs of sleep and 8hrs of recreation. This is largely a relic from a Victorian era styled manual labour workforce.

We are seeing 32hr work weeks for 40hrs paid cropping up through Europe and North America with California (unsurprisingly) looking to take trials to the next level.

If I were holding a large city centre commercial real estate portfolio I would definitely be concerned but hey that’s just capitalism, survival of the fittest and the best will adapt and thrive.

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Cattle futures
Futures markets exist for risk management.

Let’s say you are a cattle producer. The price of cattle can be impacted by many factors— weather, seasonality, global supply & demand. Whether you’re selling or buying cattle, something random like a fire at the Tyson Foods factory can mess up your long term financial planning.

If you are a cattle seller, you could use cattle futures to lock in the price for your cattle a year in advance. That’s a bit of a super power for you, because now you know how much you can pay for inputs like corn and still turn a profit. Cattle futures protect you against decreasing cattle prices at the wrong time.

Without futures, cattle producers would always be at the mercy of market prices at the time of sale.

For investors, cattle futures offer an interesting way to go long (or short) the commodity.

Before I go any further I want to note that futures contracts use leverage. A relatively small amount of money is required to control assets having a much greater value. The leverage of futures can work for you when prices move in the direction you anticipate or against you when prices move in the opposite direction. Futures are not for everyone.

Additionally, in order to trade futures you need a special account. Your normal stock brokerage won't let you trade futures directly, which is why I bought an ETN— but ETN's introduce their own risk tradeoffs:

ETN stands for 'Exchange Traded Note'— and they are riskier than ordinary unsecured debt securities because they have no principal protection. Owning the ETN is not the same as owning interests in the cattle futures contracts that the ETN is based on.

The reason I bought $COW:

The Annual Cattle Inventory Report published by USDA estimated overall inventory on January 1st, 2022 is down 2% from 2021. This declining cattle inventory suggests we're heading into the last couple of years of the contraction phase of the cattle inventory cycle:

Supply is decreasing at the same time as demand for beef is being under-appreciated. The USDA has forecasted a small decrease in consumer demand for meat in the next year, but I think beef demand will increase because:
• Consumer income levels will continue to increase, surprising people with how much consumers are willing to pay for beef.
• Prices of substitutes and complements will rise as fast or faster than beef.
• Consumer tastes and preferences will return strongly to beef as beef substitute fads start to wear off.

Low supply and high demand for beef make me bullish on beef the commodity. I'm not so sure the $COW subindex ETN is the best way to play it, so my starter position is very small as I continue to research whether or not I want to actually go buy the futures directly.

If anyone else out there has more experience with futures, would love to hear about your experience.
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I'm playing cattle futures by buying a steer, feeding him over the summer, and butchering him in the fall. 😉

Actually going to pick one up tomorrow (I'm late due to travel this year). All said and done, it comes out to about the cost per pound of hamburger in the grocery store, but you get all the prime cuts of meat as well.

We raise a steer every other year, and play pork futures the same way... by raising 2 hogs a year and having them slaughtered. This years are already here... 😊
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Shell Midstream stock pitch by Yonathan Daniel
@y4l.investing did a great pitch on Shell buying out Shell Midstream Partners $SHLX
You can watch the pitch HERE, or check out Yonathan's memo on it.

It's a special situation I'd be interested in hearing @investedcomms's take on 😀

Shell Midstream Partners is an Master Limited Partnership. It was offered to be bought out by the majority stakeholder, Shell at $12 and 80 cents a share in February.

Right now it's trading for around $13 and 80 cents. And I think there's a really high likelihood that the bidding price will get moved up to around $14 to $15 a share. And along with that while the acquisition finalizes,

investors will be able to get around a 20% something percent dividend yield.

And so you basically be able to easily get a 7% to 10% return in a space a few months for a deal that's overwhelmingly likely to happen. And I'm going to explain why:

When it first came out there was a huge MLP craze back in the early 2010s.

And it wasn't really an efficient way to store capital.

In the past few years a lot of the MLPs I've been bought out by the parent companies, BP bought out BP Midstream, Chevron bought out Noble Energy.

And they all initially brought a first bid that was just around the share price that it was trading at and three months later, upped there bid to about a 15% premium.

Now you'd wonder "why would they do that to begin with?"

First, buying out your MLP is just simply smart financial engineering. You save a lot of money and extra costs. There's no real reason for these entities to exist anymore in terms of tax preferences because of the new Trump tax law.

It's not new anymore, but it's been around for a bit. And finally Shell Midstream owns a ton of really important and powerful assets in the Gulf Coast area. Especially in offshore drilling. So to give an example of why I think this will happen:

Chevron for their MLP, they initially offered $12 and 47 cents a share for Noble Energy in February, 2021.

Then they reached a deal in early March at $14 and 27 cents— a 14% premium.

BP bought out their midstream company. They initially had bid $13 a share and four months later upped it to $14 and 75 cents a share. The trend is pretty clear. All these companies have made an initial bid and bumped the bid up by 13% to 15% in the few months following to get the deal done.

Beyond that, it's nice that it's not really correlated to the indices and you're also getting asset exposure to oil prices. And along with that too, there's very little downside. That's the huge part about it.

The stock is trading at like $13 and 80 cents.

And if, for example the deal were to get repriced up to $14 to $15, you make an easy gain right there. And if it doesn't, and let's say it stays at $12.80, you lose out on a maximum of $1 per share, considering the general trend, that seems highly unlikely. And there are very few opportunities where the options are either make a ton of money or not make as much money.

And I think minimizing risks, especially in this general macro environment is really helpful and important. Which is why this isn't like a 50 bagger.

I can post a link to the writeup where I actually discussed it in better detail.

Cause it's a lot more information than you can really go over in just three minutes.
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