12/15/24
Brighton: Early season skiing, we need some more damn snow!
In this week's issue:
Equities deep dive for value
- The Magic of Silos
- Commodities
- Market Cycles
Crypto market update
- Something to consider:
- Monero Update
Equities
The Magic of Silos
Think of your portfolio as a number of silos, maybe not exactly like below but provides a healthy representation of how to construct a portfolio.
The different silos represent different markets we believe will have an upside in future years and reduce our overall risk to a certain sector. Notice in the image above the silos are connected back to a main line which relates to our overall portfolio. Within these silos we need to make sure we have a basket of equities that give us exposure to the overall sector. How do we express our view on future capital flows while mitigating risk? And remember volatility is not risk. Higher volatility allows for increased returns but with a little market cycle knowledge and a lot of risk management we can unlock higher returns. Hereās a tip: Wall street canāt invest in most the shā¦t we invest in. Few reasons, they have limits on certain market cap companies they can invest in, and they have quarterly targets to hit.. as though they are always looking down the barrel of a gun. As retail we have an edge, and this is the best edge I have found. Buy small profitable companies at low multiples that no one wants to touch. Then sit on our hands.. and I mean sit on them. Until capital comes flooding back into the market and we can take our cash elsewhere.
When all is said and done you will have a portfolio set up with a varying number of stocks in each silo as seen below. You will notice that in the uranium silo we only have one stock, that is because it is an ETF which includes a basket of stocks and is a broad representation of that idea.
With the other categories we have found some highly profitable companies with relatively low price to earnings ratios with minimal debt. These stocks are equally weighted within each silo as we believe all boats rise in a high tide. Ideally youād have 10 or so silos to equally distribute your wealth with each getting the same allocation of capital. More in future newsletters.
Commodities
For good reasons I have a strong belief that commodities have lacked capital for a significant amount of time. Commodity cycles generally last 12-15 years on average but the most recent cycle has had a bigger effect than previous cycles. Maybe itās the woke DEI BS that is getting thrown around now. Lets think about this logically for a second.. Oil one of the larger commodities that has been criticized extensively recently is vital to the world spinning around. I often say we would all be walking around naked without it. Majority of our clothes these days are manufactured out of plastic, which is made of oil. If that didnāt hit hard enough, the majority of our electricity comes from commodities in one form or another. You get my point? Essentially, they want us to move back into caves with no light. Strange to me.
With the top of the last cycle coming in around 2011 this market is ready to for some capital inflows. I wouldnāt be surprised if this lasts longer than most people think based on how much capital is lacking in this area of the market.
Market Cycles
When it comes to equities, I am a deep value investor that finds opportunities in markets that have been decimated for a period of time, which are now waiting for capital to return to certain markets. Although many people believe that crypto is completely different to equities, I firmly believe that my investment approach is relatively similar. Buy when prices are low ā sell when prices are high. Seems simple right? Letās look at silver vs. tron.
The first thing you will notice is that silver is on a monthly timeframe whereas tron is on a daily timeframe. Completely different assets from completely different asset classes, yet if we remove time bias we see they are creating nearly identical structures. My point here is that all asset classes breathe in and out depending on their place in that certain cycle (business cycle, commodity cycle, crypto cycle) and it is our job as investors to find out where we are within the cycle and deploy capital at a time where the risk to reward is in our favor. This also helps set our time expectations and allows us to sit on our hands until whatever we buy is no longer cheap.
Crypto
The overall crypto market had a significant small pull back of 17% earlier this week but that was to be expected after a 90% rise in the last few weeks. A number of liquidations were forced due to the drop which is why I always choose to buy spot and hold for market cycles to play out. It helps control emotion and if you have the right set up you can still make significant gains along the way. Based on my longer term approach I still see another run to the upside before the bubble comes to an end. At this time, I am planning my exit plan to take some money out of the market on the next move up and redistribute that capital elsewhere. Remember I brought when their was fear in the market and I will exit as greed begins to return to the market.
A little update on our dear friend Monero. We talked about the range that it has been stuck in for over 2 years and compared it to the range of link. We have since broken out of this range as expected with a beautiful retest thanks to our friendly liquidation. The volume required to break out of a range that is this tight and for so long gives me confidence that price will likely trend higher. The risk to reward on the overall set up is strongly in my favor with any break back below the range would lead me to concern. Otherwise sit on my hands until its over +/-$1k.
My portfolio is packed to the point of slight discomfort, so I will not be adding more positions but instead be layering out as price increases.
Until next time, Merry Christmas and happy investing.
Sincerely,
Matt Lieshout
A kiwi guy living in Utah
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