Why am I writing this? Well first, as you all should know, my ideas are important. Next, you may ask ‘Why shouldn’t I just read SeekingAlpha, ZeroHedge, the WSJ or some other financial news website for ideas and analysis. You should! I read them, but as a regular retail investor who cares more about my job than making a buck in the market, I just don’t have time to really comprehend analysis past a certain point. I appreciate analysts who can dissect financial statements and find that edge that only workaholic investment banker could, but how am I supposed to know whether or not the analysis is any good? Do I just trust the analyst? And if I did, then why doesn’t he just send out his portfolio and I match that? Funny how analysts and banks that cover companies never divulge what they actually hold. And for that reason, I’ll never fully trust them enough to trust their analysis.
So, where does my information come from?
All over the place. I read things casually, and then they might show up here. I just incantate information. I really don’t know. I’m obviously slanted towards tech, but open to new ideas and not afraid to research elsewhere. I take more of a ‘macro’ approach. I don’t investigate financial performance, build pro formas or even read that many 10ks (they’re basically out of date when they’re published anyways). That said, I might do those things…who knows?
What can you expect from these emails? Not much. Most of these ideas just sit around in my head and I feel they have been pretty damn useless. What you can expect is that I will tell you what I’m buying and selling and why. Who the hell makes a stock recommendation and doesn’t buy it? What has this world come to?
How often will you get them?
Maybe this is the only one. Maybe I’ll send two a week, month or year. Let’s have fun with it.
What’s the theme?
Generally, this wont’ be a how-to on portfolio allocation. Most of my money will be in cash, mutual funds or ETFs. This is my 10% play money that I want to 10x (I can almost guarantee you that will not happen). I also won’t owe anyone my left testicle if one of these ideas blows up. So let’s have some fun.
First up, big news, I sold about 65% of all of my stocks, like my entire portfolio, which is basically my whole net worth, last Friday. At the time of selling, my portfolio was in the same place it was last September. I figure, if 1 in 5 American workers just filed for unemployment, and I only lost gains over the last 7 months, that is a huge reason to celebrate. Also, what’s the upside for holding? The market could go back to all-time highs, where unemployment was 3% and I make 10-20%. The downside is market gets its impending financial reckoning and I lose 30 – 50% of my net worth. No thank you!
I didn’t sell some stocks, that is the stocks outside of my 10% risk money. I kept VHT (healthcare ETF), AMZN, BRKB, VPU (utilities ETF), VZ, T, VBTLX (Vanguard international bond fund), VTABX (Vanguard US bond fund), and 15% of my holdings in VTIAX (Vanguard total International Stock Index Fund) and VTSAX (Vanguard US Total Market Fund). Besides that, I only kept stocks in my home run fund. Let’s save the home run fund for later. That’s what this email will usually be about. I also bought $289 puts on SPY expiry July 17th. Yeah, I think we’re going down. I really hate bears though, so I’m hoping this sentiment won’t last.
First Pick! One Financial
Words of Wisdom: if you like something, find the thing that made the thing.
So if you think an industry will experience rapid growth, go figure out what powers that industry. Then, find out what powers that. Buy that. There will be a lot of firms at the edge of innovation, but they will all get their core resources from somewhere.
Let’s start with a OneConnect Financial. These guys are a Chinese company that somehow managed to get listed on the NYSE. They call themselves a ‘technology as a service’ platform for financial institutions in China. All of China’s top lenders use their technology for, well, something, and so do 99% of the tier down. According to them, they service things like channel sales, product, risk management, services and operations. They’ve got all the right buzzwords such as AI, blockchain and big data. Basically if you are a financial institution in China and looking to go paperless and online, this is your first stop, after the government of course. They’re growing and they are expanding in to Asia.
Here’s what I’m most excited about. China is investing heavily in an alternative to SWIFT. In short, SWIFT is a ‘society’ (hence the S) that provides a network that enables financial institutions worldwide to send and receive information about financial transactions. Basically if you’ve ever had to send an international wire, maybe to some shady-ass ‘services’ company in Mexico for spring break, you sent a SWIFT transfer. It probably cost like $30 and took 2-5 days. The key thing here is they send ‘information’. The ‘information’ usually passes through multiple banks, sometimes obfuscating how much money is actually included in the transfer. It accomplishes security through obscurity and is seriously outdated US tech. Believe it or not, US finance doesn’t like change!
The inefficiencies in SWIFT is one of the main reasons why people were so excited about crypto. Ripple was specifically designed for interbank transfers that are fast, secure, and cost the mining fee to verify the transaction (so less than $1). The Chinese want something better. Alibaba and Tencent have already built parallel banking systems and we are all increasingly using digital wallets. The US has fallen behind, drastically.
I could use this paragraph to give a bunch of stats about how Asian point of sales cash purchases are projected to fall by half by 2023 and last year mobile payments in Chinese customers paid $49tr in mobile purchases, up 35x from 2013, but what does any of that even mean. The point is the opportunity is huge. Some Chinese fintech firms will fail, some will succeed. I’ll make the bet on the software that powers these Chinese tech firms. Also, they were spawned off by Ping An, a $1tr Chinese insurer. These guys have spun off 35 companies and invest $160bn every year in R&D. Its no mistake OneConnect is positioned to win.
So all that’s great, but how do we know there is value (and really, still, what do they do?). They listed on the NYSE last December with analysts projecting 70% growth in a year. Today, they have a market cap of $5bn. To me, that feels low. Their net margin is -71%, but I really don’t have the time to figure out exactly how much of that is spent on future product or supporting existing customers. I’m assuming it’s a tech company looking for massive growth. And that’s the bet I’m making. I only own a little now, but I’m looking to add to the position as I free up some other short term plays (like my SPY puts) and the market, well, looks a lot different than it does now. If it pops, I’ll buy, because, well, FOMO.
Ticker is OCFT.
Ok, that’s my first rec. More to come!