Portfolio Review - Feb-2022 (Crypto and Equities)

Full article on Substack can be found here. My substack profile here.

January's crypto article on Seedly can be found here. Equities here.

Equities portfolio breakdown

Green: Value as % of my portfolio
Orange: Cost as a % of my total cost invested into equities

This chart simply visualises the divergence between my investment thesis and the current market expectations of the company. No hard rule on % cost allocation for stocks yet, nor a threshold where I will trim them.

Equity Portfolio Performance

Time-weighted returns (IRR) - Past 12 months

Cumulative IRR returns

CAGR* Performance

Note: Brokerages and most investors use IRR (time-weighted returns) as a metric. A crude but also widely used measurement is CAGR, which is basically value as a % of cost, annualized (i.e. $1 invested at the start will be $x now). Given our monthly DCA strategy that isn’t as accurate.

In any case, it’s a good measure for non-investment savvy folks who just want to know how much money they take out vs they put in. Value over cost. My chart is an attempt to simulate this by using MoM returns of classic benchmarks to compound my cumulative additions into stock markets. I’m doing this bc investment calculators for NASDAQ & SP500 isn’t as accurate I would like them to be.

That’s more for my own analysis. You just need to know that inflation has bested me…

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Equity Portfolio Changes

Added: $SNOW $TSLA $SE $ROKU

Started: nil

Trimmed: nil

Sold: nil

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Crypto Portfolio Performance*

• Charts start from end of November 2020 when I started recording my crypto portfolio. Summarizing:

2020 performance: 2.7x-ed my portfolio
2021 performance: 5.5x-ed my 2020 portfolio
Lifetime performance: 11.6x-ed my cost

Lifetime result:

• Outperformed BTC by 2.04x (11.6/5.7)
• ETH outperformed me by 1.81x (21.0/11.6)

Goal is to try and outperform BTC and ETH from here on out. 👍🏻

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% of Net Worth (direction change from previous month) in:

Stocks: 17.8% (🔼)
Crypto: 74.8% (🔼)

Net worth excludes fixed assets (e.g. house)

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Portfolio TL;DR

Overall Commentary

With such a black swan event materializing, I think it’s apt to talk about my overall portfolio, given how correlated both components (growth stocks and crypto) are to each other. Another reason why these 2 should be combined is that I realised I tend to blabber on about the same few stuffs every month.

Zoom out. Think long term. Don’t time the market. Own good companies / projects. Take advantage of volatility. Know your risk appetite. Don’t set yourself up for risk of ruin.

Did I miss out any? I’m sure you get these bites of timeless wisdom shoved down your throat on FinTwit. Doesn’t mean it’s easy to internalize and apply. I think the most difficult lesson to learn is perhaps taking advantage of volatility. See below, taken the on US market open after Ukraine was invaded by Russia.

To take advantage of volatility, it doesn’t seem _difficult. Buy low, sell high. Rather, buy when there’s an widespread risk-off scenario not related to the fundamentals of your company (_bonus if it’s at a low price!), and sell into peak euphoria. Right? To actually make the purchase though, a few more things need to align before you can truly seize the moment.

• Do you have enough cash?
• Do you know what to buy? What is your max allocation to a stock?
• What if stock A has reached max allocation, and you’re bullish, but stock hit a fresh 52 week low? Wouldn’t it make sense to buy the dip?
• Are you sticking to your DCA, or cash deployment plans?
• Would it be wise to bring forward the DCA cash from next month as you’re seeing some delicious dips?
• Is it too early to buy?

Seedly, please introduce indented bullet points for god's sake

Selling is of course a necessary yin _to the _yang (buying) to ensure your portfolio flourishes over the long term. We’re not Warren Buffett (despite our best efforts), but we aren’t as lousy of an investor as we think we are (especially if you put in the effort to study). Why should we sit helplessly, exposed to the tide as it recedes? Or is it better to ride the wave?

Sure, trading (especially short-term) is one of the hardest trades (ha) in the world, but I think its necessary to at least understand and try to be semi proficient in it. It’s a very delicate balance between wanting to hedge purely as a means to reduce volatility and drawdown (especially in tail risks / black swan events such as the Russia invasion) and trying to make money on the short side. My opinion is that the subconscious element of greed in the latter action will greatly induce behavioral biases that are, well, human.

Essentially, hedging is proven to reduce drawdown, but it always comes at a cost. Don’t make the cost higher by hedging discretionarily. You’re welcome to disagree too, and I totally get it. Especially in easy or _uncertain _times where markets are trending up or are just ranging (normal trend-following strategies wouldn’t work as well here), it’s probably true that hedging will incur a greater cost (as you short & markets rip higher thus stopping you out).

If anything, the strategy must definitely be rule-based to eliminate any sort of discretionary behavior. What rules though? This is something everybody has to create themselves based on how they think about investing.

I don’t want to start giving excuses, but I am quite tied up with life matters now and the ongoing volatility has pushed me into more of a _reactionary _mode. I think when the dust settles, I would (hopefully) spend more effort on ensuring that the investment strategy (for both stocks and crypto) is one that is sustainable and one that emphasizes on risk management.

Related to my life matters, my cash deployment horizon will be forcefully lengthened. I am struggling to see the native demand for stocks and crypto in these kinds of environments; sky high inflation in electricity and other consumer goods, rate hikes & quantitative tightening (QT) coming (which is the opposite conditions of bull markets) as well as sustained volatility from any prolonged Russian-Ukraine war.

As I stated last month, I think having cash on the sidelines (albeit a low amount) acts as a mental anchor, which I think will prove useful in the months to come. Media outlets & internet giving us a front-row seat to this warfare and it can induce some unprecedented market behavior vis-à-vis efficient market hypothesis.

Attention aside, this situation is really depressing. We’ve got COVID, can’t move freely across borders, mental health issues are brewing beneath the surface. Add to that regular folks without access to investment vehicles gets marginalized via inflation (which is a regressive tax) that worsens income equality.

People are actually dying needlessly and it’s really a sad state of things. Anyway, it’s rather pointless worrying about things beyond our control. What we can control is how we want to react to this event.

Events like these are impossible to predict. The best we can do for our lives and portfolios is to 1) Do what you can to support any efforts, 2) stick to the plan, 3) Seize opportunity if it presents itself and 4) zoom out.

Funnily enough, our attention will inevitably be drawn to the Fed meeting in March where JPow will decide whether to hike more than what the markets expects to temper runaway inflation (even higher due to natural gas dependency from Russia).

I will just be moving along in my life, taking advantage of opportunities as they arise. Otherwise (if markets go green in March), I’ll continue to own good stuff over the long term. War will only teach us that life is more important than money.

Best spend more time on life itself instead of staring at markets. That’s why I will try to do.

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Equities

A few of my portfolio companies released their earnings this month. I summarized them in a 1 pager and provided metrics that I track. Previously I was doing threads on twitter further summarizing the 1 pager but I felt that was unnecessary and time-consuming. The summary for Q4 2021 earnings for my portfolio can be found here.

I also shared my highest, lowest buy and length of investment to serve as a reminder to me (see $TSLA!):

The higher the current prices, the lower the expected future return.

Yes, if conditions are willing, I would also like to own companies for 5-10-20 years. But I guess this all boils down to how you manage your portfolio.

How expensive is too expensive? How cheap is too cheap?

This is where analysts and _smart _money have the upper hand since they do detailed estimations to derive the present and future value of the company (I don’t). Our upper hand comes from surviving the early 50-90% drawdowns before getting that 10x or 100x after decades in owning the stock (company).

Every time I approach this question (is your stock cheap or expensive?), I don’t have a clear answer. Perhaps in a few years as I accumulate more cycles (or bubbles) under my belt, my spidey senses will become sharp and I’ll think twice before buying $TSLA at $1140.

The guiding principles (for me at least) can be summed up as much:

• Never be in a situation with risk of ruin (e.g. leverage, naked options) 0
• Have a meaningful margin of safety (aka cash to deploy opportunistically)
• Buy only when company theses is continually proven
• Sell when thesis is grows weaker or exit entire position
• Buy more at peak panic, sell some at peak euphoria

I’ll stop my market commentary here (have addressed it in the earlier section). Don’t think anybody is interested in hearing the same wisdoms month after month. I also didn’t have much time to write in detail (prob more procrastinating) as I was doing assessments and interviews (more in my life section) to secure job offers (didn’t realize how tiring it was).

Maybe I’ll talk about my broad investment plans next month as I try and construct a framework that is sustainable through multiple life cycles and is synced with my risk appetite over that timeframe.

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If you're not interested in crypto, there's no need to read the sections below (there are also other section(s) I've omitted out from substack to post on Seedly). Thanks for reading!

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Crypto portfolio commentary

I made quite a few changes to my portfolio - unsure if that was due to the “Crypto moves fast” hype, or that I don’t have high conviction in the things I own back in January. In any case, you can find my breakdowns below.

Token holdings

Holdings not in order of size, degen plays (if any) excluded:

L1s: LUNA SOL AVAX (incl. XAVA JOE) NEAR Cosmos (ATOM JUNO OSMO)
ETH L2s: METIS
Gaming: MC RAIN JEWEL PYR MMA
Infrastructure: SHDW POKT OCT RNDR HNT
Large caps: BTC ETH
Others: BASIS SD

Not financial advice. I may rebalance my portfolio at any point of time.

I’ll elaborate my thought process behind some of the things I’ve done over this month including my portfolio rebalancing. It costs next to nothing for me to rebalance vs stocks, which is why I do it so liberally. Crypto is also a larger % of my net worth (will likely be that way for many more years, hopefully). Therefore I put in greater effort to learn about crypto than I do about new companies.

While it’s not a viable LT strategy to keep rebalancing while having a full-time job (and starting a family), it works for now as I identify projects with long-term outlook that I can bet on and hodl for years (e.g. major L1s like SoLunAvax are such an example).

DeFi Kingdoms

The APR% rewarded to us LP holders in the JEWEL-ONE pool was still at a pretty high 250%+, even after JEWEL cratered from $20 to now $5+. I have a mid to high conviction in this game as users + transactions stayed resilient during the crypto crash (from dappradar).

This is even before the start of DFK’s expansion to Avalanche, where they are rumored to launch on the blockchain’s subnet. Basically subnet shares the security, decentralization of the main chain (avalanche) without the operational overhead, allowing them to (theoretically) optimize for UI/UX and speedy game play. It will also has its own token ($CRYSTAL) which will be airdropped to JEWEL LP providers & xJEWEL stakers.

So the play here is quite clear. Get more JEWEL and stake it before their snapshots are taken; once airdrops are distributed, bridge CRYSTAL over to avalanche and farm it (e.g. via CRYSTAL-AVAX) for more CRSYTAL. Over time, as the game fully matures (now in ~phase 2/3 out of 6), we should see value accrue to the game tokens (especially if DFK launches to other chains).

The key reason why I removed the LP position was that I didn’t have a good impression of the Harmony blockchain. DFK has a 50% dominance of TVL but yet somehow the transactions kept failing. It got irritating after awhile and I didn’t feel like Harmony was up to par especially with the greater L1s (SoLunAvax). So I converted the ONE in JEWEL-ONE into JEWEL and staked them all.

The staking APR is pretty low, but I’m more than comfortable holding it for the long-term.

BASIS

This token is related to a protocol (Basis Markets) that purportedly helps user implement delta-neutral strategies via its Trade Engine (still WIP). The strategies are particularly useful in DeFi situations where you have a LP position (e.g. ETH/USD) that is exposed to the price risk of ETH (aka Impermanent Loss).

As ETH price goes down 20%, the balance between ETH and USD will stay at 50/50, which means more ETH is required for the same dollar value (USD still $1). Because there’s no additional liquidity injections (aka you don’t usually add extra ETH yourself), the pool rebalances ETH vs USD in a 50/50 fashion. So USD is sold for ETH until the dollar value between ETH and USD reaches parity. A good and simple explanation on IL loss here.

To hedge against this risk, we can simply short ETH perps on exchanges (usually get paid shorting it during bull runs). If ETH drops 20%, your short position will yield you extra money thus protecting you from downside.

My exposure to this was via a leveraged LP position to farm the asset (about 2x leverage, with a mixture of borrowing BASIS as well as USDC). However, the yields have dropped beneath what is considered optimal to prevent impermanent loss. I also wanted to free up some cash for the next few months in case new opportunities come along.

I do think this protocol will be very popular in the future, but given that its main product is still under testing and is not released, I’ll reduce my exposure to this protocol to a smaller position which I staked (earning ~100% APR).

L1: Fantom Cosmos + Metis

Over the past few weeks there was talk about Solidly (DEX with ve-nomics) launching on Fantom which got Crypto Twitter buzzing about the underlying blockchain. The hype seemed somewhat justified since Solidly is developed by Andre Cronje, which is the key builder behind the pioneer yield aggregator, Yearn Finance.

That, and the overarching alt-L1 narrative (aka trying to steal market share from Ethereum) got me into the Fantom blockchain, first starting with TOMB-FTM on Tomb Finance. It didn’t help that I started my position at a high price (due to the hype).

Anyway, the macro environment was unforgiving + I didn’t spend enough time researching on how to get in front of the $SOLID emissions that will be directed to the top 20 dapps on Fantom by TVL. If interested in the #veSOLIDWARS, you can check out these tweets (and accounts): here, here and here.

While the tweets above seems to suggest that the ongoing narrative can a decent opportunity, I think people who don’t spend enough effort can get burned quite easily. I personally don’t spend enough time on this, so I am confident that my edge for this is 0, and my Expected Value (EV) will be negative.

About 2 weeks ago I also listened to a podcast from the CEO of Fantom blockchain. I was honestly underwhelmed by what the founder said (though he should be tech savvy to have created Fantom). On the whole, I can’t understand the use case for Fantom besides being an ETH-killer and a place for SOLID wars.

What makes Fantom unique? I can’t answer this so I sold off my Fantom position.

I moved the position to Metis. Metis is a layer 2 protocol designed to help Ethereum scale via optimistic rollups. You can read about Metis and its underlying technology here. My investment thesis is mainly that the L2 narrative will take off progressively as ETH is gearing up for ETH 2.0 on Proof of Stake and Sharding.

There’s not a lot of things to do vs Arbitrum or Optimism, but for the L2s that have a token, it has the highest TVL. It’s kind of a no brainer especially if TVL progressively goes onto Metis. There’s no value capture on say Arbitrum because there’s no native token with which to accrue that value. But for Metis…

During the 2nd half of the month I also looked closer at the Cosmos ecosystem. I have not done much note-taking for this but have started positions in OSMO JUNO and ATOM and have staked all tokens. If you’re interested can refer to the links in this thread (and his previous reading lists) on the technology and the broader ecosystem. Their staking yields are also decent (OSMO and JUNO both 80% APR) for securing the blockchain, so I think the risk/reward is asymmetric, and will look to accumulate more as part of my alt L1 narrative.

Trader Joe launchpad

I have been bullish on Trader Joe for quite some time (have held it since August 2021) since most of avalanche’s DEX activity are being done on its dapp. This of course excludes lending protocols on avalanche like Aave which has about 3x TVL of JOE. I felt that the revenue share (xJOE where 0.05% fee is deducted from each swap and used to buy back and redistribute JOE tokens) would have been a decent value accrual mechanism, especially in light of Ohm-fork fiascos happening on Avalanche ($TIME) which generated even more revenue.

Of course, all the value accrual could not withstand the weight of crypto crashing down, and JOE crashed alongside. The team also realised that the JOE rewards will only lead to users harvesting those rewards (in JOE tokens) and dumping them for cash (especially in this environment) Over Jan the team reimagined the tokenomics which only makes the value accrual even stronger (biased as I’m a bag holder). The main change is to the staking mechanism; instead of rewarding in JOE tokens, the revenue collected is distributed in stable coins (USDC). This represents a dividend, if you will, that flows back to the shareholders. Once the rewards go live (from 28th Feb), we should be able to value the token better using Trad-Fi metrics like dividend yield.

There are other changes to the tokenomics too. You can read the full changes here. The other main change is the launchpad, which draws parallels to conventional IDO platforms (like avalaunch). The key difference is that instead of paying $AVAX for the native token, you instead get an AVAX-token LP position thereby bootstrapping liquidity for the protocol in the process as well. As the token supply is fixed and there is no listing price set, the initial token price increases the more AVAX is deposited. The LP position is usually locked for x days to prevent farm/pump and dumps, though that is pretty difficult to actually prevent.

You have to stake JOE as rJOE to earn credits for launch allocation; 100 rJOE entities you to ~1 AVAX and 100 JOE staked as rJOE gives you about 12.1 rJOE a day.

The dynamics of this launchpad should provide some sort of above average returns, but given the volatility of the current markets, it can be a little hard to ignite rallies off of token sales. Furthermore rJOE gives you LP tokens in the end which is subjected to impermanent loss. That said, I am still participating in the launches that come up (have a minor loss over the first 2 launches) and will assess post TGE (token generation event) for the price performance.

In summary, I like this project, but am biased. But now token has more value than in the past. If AVAX stays resilient and is still relevant (or even bigger) by the next cycle, I am sure this DEX will do just fine. 😎

Compass Mining

February turned out to be a great month for me. No miners went offline for an extended period of time; they just kept on hashing. Overall though, while there were some lucky periods (aka chance of finding blocks were high), I think you could say lady luck is fair to everyone. Over time, we aren’t overly lucky, or overly unlucky.

From Dec last year I started to pay off my instalment for another miner bundle that are supposed to come online by End Feb. Needless to say, it has been delayed,

though I can’t remember for what reason specifically (though I recalled it was mainly logistical / supply chains). I also already have 2 miners hashing, and the delay didn’t feel like an execution failure of Compass Mining (though there was bits of overpromising).

I am rather satisfied with my current BTC mining situation and will hope that more miners start hashing over the next few months (every month from End Feb there _is _supposed to be 1 miner coming online). I was also happy that Compass Mining allowed us to pool all credits given to us together for payments. Otherwise I’d be applying those credits over the years like food coupons.

Conclusion

Thanks for everybody that read it through. I tried my best to be concise this month, but the crypto section is so hard to reduce. Welp, I guess I’m not as prolific a writer yet. I hope what I write in this article is of use (if even a little bit).

It’s also my 1 year anniversary of writing! If you’ve been reading my articles since the start, I genuinely appreciate it, and your support will only fuel my commitment to sharing about my life journey as well as my adventure in stocks/crypto.

Talk soon, and remember, if nuclear war does indeed happen, your crypto and stocks will be worthless anyway (well maybe except BTC), so you may as well spend more time on real life with your loved ones and family.

Cheers,
Joey