Portfolio review - June 2022 (Crypto & Equities)

Full arhere ticle on Substack (including my life journey!) can be found here. My substack profile here. My Twitter profile here. May's Seedly opinion article can be found here (crypto) and here (equities).

Equity Portfolio Breakdown

% Value: Value as % of my portfolio % Cost: Cost as a % of my total cost invested into equities Cost allocation: Based on my set target in USD. 100% means over-allocated…

This table 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

I’ve recently switched brokerages, and so the cumulative returns will be a little wonky. It is clear as day though, that my portfolio was dying a slow death in June, after getting pounded in May.

Down, but not out. 💪🏻

Time-weighted returns (IRR) & CAGR - Past 12 months (right), New brokerage (top left), and cumulative (bottom left)

CAGR* Performance

Note: CAGR for my portfolio is calculated as (market value of portfolio including cash) as a % of cost - 1. The CAGR returns are compared in the above table instead.

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: 8.77 my cost

Lifetime result:

• Achieved 3.02x of BTC performance (8.27/2.74)

• Achieved 1.05x of ETH performance (8.27/7.90)

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

Thank you for reading my monthly journal of my portfolio. I keep it very real and authentic because nobody can buy the bottom and sell the top. Life is full of mistakes and writing this helps me identify what went wrong and how I can improve. Besides investment I also talk about my life (also a journey) as I live through it.

Catch the monthly update of my personal and investing life by subscribing here.

Equity Portfolio Changes

Added: nil

Started: nil

Trimmed: nil

Sold: nil

Overall portfolio Commentary

It’s only June, which means another 6 months for (another) something to break.

Kidding, I actually enjoy the volatility (despite me being down bad), and would take this path over easy markets any day. In the Chinese language we have a saying, which literally translates to “Bitter first, then Sweet”.

先苦后甜

Markets teach valuable lessons, even when it’s something we don’t want to learn. It’s kind of like exercise. We are well aware of its benefits, but laziness sets in, and sometimes we skip it in favor of junk food. That’s obviously non-optimal to health. All it takes is a lesson (in the form of a chronic illness) to wake you up. By then, it’s clearly too late as you’re reacting _to it rather than _preventing.

Forcing ourselves to do that extra exercise, or face Mr. Market now, prevents us from having to suffer more in the future. We will likely have more investing dollars in the future too. I would’ve been a decent investor riding the wave up if there was only QE and no QT/Rate Hikes; The complacency will likely be through the roof. Simply put, the margin of error is much higher in the future because I have more capital.

Nothing like a straight slap from the markets to wake us up. We all need it, even though we say we don’t want to. Looking back (an opportune time midway through 2022), I think there are a few important lessons learnt that will benefit me in the next bull market. Hope this is of use to you as well.

• Don’t chase & Don’t fight the trend

I felt FOMO rather often during the 2020/2021 bull market, mostly during event-driven days like company earnings, or Fed meetings. Thankfully, being the spreadsheet guy that I am, I keep track of all my buys/sells and note down my reasoning for buying / selling. My reasoning allows me to reflect on these buy/sells months after and evaluate my decisions critically.

It’s clear as day that the buys didn’t age well at all. Unfortunately, this is the same for most of my speculative crypto plays. Though, similarly I’ve started to pen my thinking behind buy/sells.

For crypto, relying on staking APRs made it easy to justify buying at $x or $y in crypto. After 1 year, your # of tokens will become (# * a) + #, where a is the staking APR%. Clearly, in hindsight it is not as simple. I bought plenty of tokens at prices which are too high, even while anchoring it to x% off all-time-high. Being a silent observorrr (as opposed to active enjoyorrr) of the crypto market of 2018, I didn’t register just how much off of their ATHs these tokens can get.

A key example: $POKT (Pocket Network). I bought Pocket Network at various prices (via OTC trades): (06Jan2022) $2.9 _800, (16Jan2022) $2.75 _400, (23Jan2022) $1.3 * 436.19. Do you want to guess the price now? $0.1163.

:'))

Of course, with Pocket Network it is a play on how many relays go through their decentralized network. The staking rewards were quite thick which was why I adopted a set-and-forget mentality, even if down 90+% now. There’s not much use in selling because the $ recouped is really negligible. But, this goes to show the cost of FOMO.

I hope my buys have painfully shown that it does matter which price you buy it at, because $SNOW at $360, while a ~3x at today’s (16June2022) prices, is only about 15% profit on my buy on 12th Jan. Even as it crashed, I felt I could fight it, since it was already x% off ATHs. I had repeatedly anchored to ATHs, and this had no impact on the bottom. Peter Lynch’s reply to this anchoring issue gives us a great lesson.

Obviously, if your financial history is any good, you’ll recall that even Microsoft ($MSFT) took around 15 years after the Dot-Com bubble just to break even. Bruh.

A key part of working through the FOMO and trying to be counter-trend is being able to recognize where we are at in terms of market cycles.

• Fed, Market cycles, and Liquidity

The market bows to the invisible hand of the Fed. Kidding, of course. They telegraph their actions and plans well in advance, but it is us, the market & its players, who are fickle-minded, constantly overthinking on the choice of term used (inflation has edged higher vs inflation climbed higher) to assess magnitude and subsequent impact.

I really _don’t want to bore you (_again) with details about how the Fed printing money causes stocks to go up, but I recall a very simple example for this:

Given $100, and 100 financial products, on average each product is $100/100 = $1

If money is printed (QE); given $200 & 150 products, the average = $200/150 = $1.33

If money is burnt (QT); given $50 & 80 products the average = $50/80 = $0.6

The final amounts in bold are the representative prices for your stocks/crypto. Printing / burning money in this example is the same as liquidity. P.S. Rate hikes have the same effect as burning money.

When money is being burnt, it’s best to keep cash, and only when it’s being printed should you dip your toes into the pool of markets. I’m not ashamed to say that I’ve sinned and have been dipping my entire body into the sea of red over the past 6 months. Lately though, I’ve woken up to this as I’m waiting for the point of maximum financial opportunity to drown myself into the markets (equities, crypto).

Where is the point of maximum financial opportunity though?

Don’t know, but my gut feel is the months of August/September/October. Will probably be wrong though; I’m still stuck in the incorrect thinking that I should buy on the way down instead of on the way up. I don’t know, but the past 6 months have been very illuminating, revealing a lot of things I’ve to work on as a future investor.

For now, my job is to survive.

• Have a framework (for DCAs and Take-profits)

Finally, anything worthwhile in life, should be worth doing in presence of a framework or mental model. Especially so if you’re an investor, shouldn’t you rely more on rules to make your decisions, rather than emotions? It’s something I mention quite often, but clearly I don’t listen to myself.

Though, I think (hope) I’m slowly iterating and improving on my mental model. I have already limited myself to my base monthly contributions and forced myself to wait this out. Then again, we are closer to the bottom than to the top, imo. When do you back up the truck (in downtrends), and when do you stop adding (in uptrends)?

For investors who aren’t that interested in investing in the markets (but want to harness the power of compound interest), DCA is pretty much the way to go. It’s something I’m doing for $URA, $NVDA, and also my broader equity portfolio (more dependent on valuations). Not much for crypto, though, despite its correlation with NASDAQ recently, crypto-specific problems have crushed crypto prices so much more than NASDAQ, and with all on-chain loans and their liquidation prices marked with a bright red target, I’m saving what little chips I have for ultra-depressed prices.

Anyway, summing this section up, in case if it wasn’t clear, be prepared for anything, and have a plan. I am prepared for ALL of this to go to $0, literally. Life will go on, and I will still have my job, with the ability to meet my financial obligations.

Don’t ruin it all just for this “get rich” scheme. If you get rich too fast, chances are pretty high you’ll lose it all anyway, so I generally prefer get rich slower, but _faster _than many. :)

Equity Portfolio Commentary

Yet another month reading Bloomberg headlines on Twitter about whatever the Fed talked about. TL;DR, nothing much has changed since May, in that Fed has not changed course. On 15June2022, Fed announced a 0.75% (or 75bps) rate hike (instead of 50bps), and in doing so resulted in a pump immediately after the meeting, and a huge dump the day after, see below.

The day ended strong after Jay Powell spoke, only to crash the next day. The gaps during the overnight sessions show how many traders are caught in volatility, and if this isn’t an indication to stay away from the markets for the time being, I don’t know what else to tell you. Fed isn’t even done yet, guys. At the next meeting it will be another 50 to 75 bps hike and _whatever it takes _to rein in inflation. (yes think long-term but capitalize on the short-term too).

The state of the market is just doom and gloom nowadays. This was written on 17June2022, and will likely be true at the end of the month. Everyday it’s just tweets about new lows or how this financial event hasn’t occur since the depths of the great depression of 1929. I’m sure you’re tired of hearing it from me too. Edit: The last 2 weeks of June have seen a surprising rally in equities (before dipping near the Quarter-end). Is it a new market trend, or just a bear market rally? We shall soon find out.

As we flex during the bull market of 2020/2021 to anybody willing to listen about our 50% annual returns, we must now suffer as our portfolio bleed out in a slow and painful death. After all, that _is _the definition of a market cycle right? What goes up must come down, and after heading to the moon, the higher they have to fall to get back to Earth.

Can we enjoy the gains without the pains?

That is hopefully something I can implement for the peak of the next bull cycle. Does not really make sense to me that we never sell. Of course, I understand the need to let winners run, but capital preservation is really key (having learnt that lesson from crypto). There’s no harm in taking profits, and just leaving that cash untouched for a peace of mind. Another crucial point is not to chase (per my lessons above). My investing buys, if you plotted them over my portfolio stocks, would show me buying all the way up, even right near the top, as well as on the way down, which is a lesson in itself.

I’ve said a few editions ago that valuation doesn’t really matter much, but I think they deserve a secondary spot in the minds of investors when it comes to evaluating an investment. Buying a fantastic company at the top will give you no profit until said company breaks even. How long will that take?

Anyway, here is the updated shopping list (from May article)

• now $152, low $152 NVDA: $175 / $150 $140
• now $673, low $623 TSLA: $900 (200DMA) / $750 (local low) $550
• now $139, low $112 SNOW: $155 / $140 (10-20% lower) $120 (IPO $)
• now $168, low $130 CRWD: $175 / $160 (local low) $120
• now $67, low $55 SE: $75 / $65 (my first buys in Q2 2020) $50
• now $82, low $76 ROKU: $85 / $75 (near Covid lows @ $56) $65
• now $44, low $40 NET: $75 / $65 $45__** **$35
• now $84, low $77 TWLO: $110 / $100 $90
• now $95, low $82 DDOG: $100 / $90 $80
• now $37, low $29 U: $65 (IPO price) / $55 $30

Funny how my targets get lower and lower; My fickle thinking is gonna make me miss the bottom…

There’s so many bottoms to buy, but so little cash for me to do it. Hence the moving targets; I have to be really smart about deploying my capital, especially in light of my future expenses. It has been awhile, though, that I went an entire month without any buys.

To end this off, this memo by Howard Marks really hits home, and carries a great deal of insights.

Crypto Portfolio Commentary

May was a month to remember with the crash of Terra/Luna and the birth of Luna V2. Please refer to my May article if you’re interested to know what happened. June literally said: “Hold my beer”.

I’m quite sure nobody had this sequence of events in their 2022 bingo cards…

1. Terra LUNA crash
2. stETH fears (explained below), Celsius
3. 3AC - Margin called over large loans, Insolvency, 3AC owing Voyager
4. Coinbase Layoffs
5. USDD (Tron stablecoin) depeg fears
6. USDT FUD
7. ETH < $1000, $BTC < 20k

Need I say more? The prices seemed to hit a local low (around 20Jun2022) of ~$18.5k BTC and $888.8 ETH on certain exchanges before reversing course. Everybody was so confident that this will be the local bottom, until on 22Jun2022 equity markets are currently set to open down. This shows the vulnerability of crypto as an asset class and its dependency (correlation) on equities. Everything revolves around Fed anyways, so no point, pointing fingers.

There’s no real need to focus on CT happenings anymore, since the markets generally correlate with liquidity (which is controlled by Fed). So what do you do then?

I can already foresee some eyes glancing over this entire section and just passing on crypto as a whole. If there’s anything I know about crypto, it’s that it is the rawest representation of human nature. This is a global casino that operates 24/7.

Picture a physical casino, where at a particular roulette table, a medium-size crowd just packed like sardines, furiously punting on one side. You look at the monitor for that table; black has won the past 10 rounds, and there’s _always _one guy in the middle of it all (who ‘started’ the streak), and everybody’s just ‘following’ the guy and ensuring that they ‘ride’ on their good luck.

The ball rolls, eventually stopping at black, yet again. The crowd goes wild. Just as the markets suck in the last remaining noob who invests for the thrill of it, the table will suck in the last remaining degenerate who just want their 2x.

This is crypto.

This unadulterated form of human nature showed itself best during the bull market of 2020/2021, where BTC went from 3k to 68k, and ETH topped out from $4.8k. I feel quite confident that this swarm of mania will come back to crypto, but not as soon as people think. All eyes on Fed to give that signal.

For traders, it is less stress-inducing for them to buy on a uptrend, but for us folks who can’t discern between a bear trap and a uptrend, buying at low prices is the next best alternative. How low can we go though?

There is no specific number, but I’d say slowly scaling into your desired investments will bear fruit again in the future. $16k BTC and $800 ETH already seem like great entry points (for me), but I also have enough capital to buy $12k BTC or $400 ETH.

Will you?

Anyway, my portfolio holdings, per the below:

Token holdings

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

L1s: LUNA (v2) SOL AVAX (incl. JOE) Cosmos (ATOM JUNO OSMO)
Gaming: MC RAIN JEWEL (incl. CRYSTAL) PYR MMA
Infrastructure: SHDW POKT
Large caps: BTC ETH (all in stETH)
Others: BASIS FTT

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

To clarify, I didn’t sell any LUNA (besides the ones I sold earlier on). The current LUNA allocated to me in v2 is staked, and it’s conservative to just write assets from that ecosystem to 0, perhaps until the next bull market.

Overall though, I didn’t make much position movements, but only covering some BTC ETH or buying ETH in USD - all of which will be converted to stETH to earn yield.

I am optimistic that my cash balance can be deployed in due time. For now, time to sit on my hands and let the market come to me.

I’ll keep the next sections short in case Substack doesn’t want to publish my long-ass article (which was why I had to split last month’s article into 2).

stETH vs ETH - Arbitrage? (written 12June2022)

During the first half of June there were loads of threads and posts about the de-correlation (not to be confused with de-peg) of stETH and ETH. Here’s a tweet which summarizes the whole event beautifully.

Instead of writing lengthy sections that might confuse the average reader, I shall summarize 2 very insightful articles about this event, which helps with my chronic issue of writing posts that are too damn long. The first one comes from the OG, Cobie.

Basically, the main takeaways of the articles are listed below:

• stETH is a token representing locked collateral (ETH staked in Beacon Chain)
• Redemption of locked collateral (on 1:1 basis, including staked rewards) can’t happen until after merge (& then some), which some speculate to be 1 year out.
  Users can ‘redeem’ their ETH on the secondary market at a rate which discounts the liquidity premium of the locked collateral.
• Since the main use case of stETH is for loans, there exists a price point, below which stETH collateral will be liable for liquidation. Such dumping of stETH will naturally lead to worsening of stETH:ETH ratio (not a peg)
• Should that happen, stETH may get discounted into 0.9 or even 0.8 or lower. If you are a long-term unleveraged investor in ETH, such a discount can be an arbitrage opportunity to scoop up stETH on a cheap, since stETH will be redeemable for 1:1 ETH when devs finally do something.
• This “de-peg” is NOT the same as UST/Terra.

Well, why is Celsius linked in the picture, then? Another great thread specifically on Celsius

• Basically, bank run. Celsius offers attractive rates for depositing into the protocol, similar to Anchor Protocol but without the 19%.
• They should have learnt from Terra, but didn’t, and due to low prices, many loans from Aave or other platforms (borrowing USD to deposit into Celsius) were at risk of liquidation.
• Thus ensued the rush for the exits to payback the loans. Celsius couldn’t take the massive liquidity drain as they’re earning yield with their depositors money too, by providing loans to big players.
• This is bank run in its entirety, because Celsius’ loans to big players can’t be fully repaid (3AC got margin called just recently), which prevents them from paying back their depositors (who themselves may also get liquidated). Outcome = liquidations after liquidations, and everybody loses money.
• Summary: Celsius = Bank run. Net effect = downward pressure to crypto tokens as people dumping everything to raise cash to repay loans.

The next article goes into the finer details about the potential value required to throw the stETH:ETH ratio into further disarray, potential parties at risk of liquidation, and how deep of an arbitrage opportunity should we be waiting for (0.94 as of 16June2022): 0.8, 0.7? How efficient is the market pricing this liquidity driven event?

The threads (honorable mention here) that are linked within the 2 articles provides further context around the same event. A good timely summary of the stETH situation here as well.

The key takeaway across all of this is: what should we, as retail investors, do with this information? I can’t speak for the rest of my readers, but here’s what I’ll be doing (to the best of my efforts).

It is quite clear that BTC/ETH are the Nasdaq/SPY of the crypto markets. Both are usually mentioned in the same article or even the same sentence. The lindy effect of these 2 tokens is well understood, and they have different investing use case (Digital Money vs Smart Computer). BTC & ETH is therefore a blue chip.

Investors generally trade to stake more BTC/ETH and both coins are often held as an index; if you can’t outperform these 2 coins by e.g. trading SOL, then you are better off DCA-ing into BTC/ETH. Profits from speculation are often used to rotate into more of BTC/ETH, since that experiences the least amount of beta and thus lower volatility (aka stability).

As such, when god extends an olive branch and gives you 1 ETH for 0.9 or 0.8, would you take that olive branch in a heartbeat? Imagine the faces of investors that bought ETH for 0.95, only to find the ratio (of stETH:ETH) trading at 0.8. When is the right time to capitalize on this arbitrage?

I have honestly no idea. I have already converted my existing ETH in the 0.97-0.95 range, which isn’t that much to begin with. My current balance as below (16June2022).

Any dip-buyer in stETH has to be aware of the fact that you’re still exposed to price volatility. So, there’s 2 factors you need to consider:

1. stETH discount rate
2. ETH price

Buying stETH at 0.9, when ETH price is $1000, is the same as buying ETH at $900. If you’re looking for a multi-year investment for ETH, do you want a (1) lower discount rate or (2) lower ETH price? Greedy folks (like me) will say both, because that’s the best of both worlds; We want to buy the bottom in both ETH and stETH. In terms of actual price point, though, would defer to what is mentioned by the OG duck here.

Like Duck, I don’t think $400 ETH is likely, and will buy more ETH at the $1000 price point. The reason why I think $400 is unlikely is because of the investor base we have now (includes some sort of institutions like Greyscale). CoinShares provides a very useful visualisation of weekly fund flows. Though, it should be said that they are generally price insensitive, unlike cash-strapped retail folks.

Honestly, it is a little too early in the year for me to see these prices. Had thought that prices will naturally float down, but here we are at 3-digit ETH. Given the hawkishness of the Fed, I think there’s no use fighting them, and instead just wait the storm out. ETH could actually hit $400, which is only 2x above what I bought it for in 2019. That’s a generational buying opportunity, imo (not financial advice).

I’m no trading guru either, will just be chucking lowball buys of BTC/USD ETH into stETH and leave it for a few years, since my goal is to stack BTC/ETH.

Compass Mining

Nothing much to update, am seeing pretty stable miner outputs, but going forward the facilities will engage in load shedding, which basically shuts off some miners so that other customers (e.g. homeowners) can use the electricity that they need in the heat of the summer (🥵).

This happens a for a few hours a day, and is an expected downside that I will have to absorb. The 6th miner got delayed, and should be online sometime in mid-late July.

The metrics of my miners are below. Total field refers to the total cumulative days since my miners came online.

June was also the month where I had to start paying facility costs, and with BTC near cycle lows (now $20k), it is uneconomical to sell my Bitcoin; therefore I would need to raise cash. I probably have enough cash to last me for at least 1 year, but that was originally earmarked for buying dips. I guess I’ll swap via ETH/BTC or SOL/BTC then, since that’s the 2 main coins I’ll be accumulating.

Onwards and upwards.

Life

Feel free to read about my life here, in the life section.

Conclusion

Thank you for reading thus far. Each view means a lot to me, even if you don’t care about the markets. Stay safe, size your bets well, and hope to see you harness the power of compound interest well, and hopefully achieve early retirement!

See you next month :)

Cheers,
Joey