Crypto and Stock Portfolio Review - Philosophy and Critique
This is a review / self critique of my stock and crypto portfolio, what I did right and wrong over several years investng in the hope that others can learn from my experiences and become better investors. My approach is that I attempt to apply value investor principles to the crypto space. The chart below is current as of NYSE market closing prices.
Stocks
Altria – purchased $6300 worth in 2009 (350 shares) and $4000 worth in 2010 (200 shares). Due to dividend reinvestment this holding is now 708 shares worth about $54,000. This is a wide economic moat stock and owner of the Marlboro brand in the USA with about 49% market share. This has been a home run, the mistake here is why didn't I buy more shares when they were selling cheap below $20 per share? In 2009, the stock markets were collapsing due to the mortgage crisis, but that's no excuse for not putting capital to work. Altria stock currently pays over 3.1% annual dividends which adds icing to the cake and would consider buying more shares if we had a violent selloff. My world view is somewhat bearish on equities, but as the saying goes "the markets can remain irrational longer than you can remain solvent".
Church & Dwight – purchased $2400 worth in 2004 and $1000 worth in 2009. These are now 457 shares worth about $24,000 at a price of $53 per share. CHD is the owner of Arm & Hammer baking soda, Trojan condoms and a few other businesses. The mistake was the same as with Altria, why did I bet so small as if I was scared of my own shadow? The amount of profit you make as an investor is directly proportional to the size of the bet so there was a clear opportunity cost with this stock. The stock has relatively low beta and is a steady performer across cycles with stable earnings growth even during the 2008 to 2009 crisis. Nonetheless, the CHD P/E ratio of 29 and P/EBITDA ratio of 16.4 suggest the stock is overvalued at the current time so I would not be buying these shares any time soon.
My biggest mistake as an investor in stocks is I failed to see the network effects at Amazon, Facebook, Netflix and Google. I missed the appreciation on all of the FANG names. On the bright side I have been able to identify boring but steady businesses with leading market share in consumer staples including names like Pfizer and Smucker's.
Crypto
Bitcoin – purchased 12 BTC in March 2017 and April 2017 in the $1000 to $1500 range and invested a portfion of this in junior currencies, which have had a very pleasant run. Since then have partially rebalanced out of junior currencies including Antshares, Bitshares, Reddcoin and GridCoin when these appreciated outside of my valuation expectation and increased to 24 BTC. At the current $2600 level Bitcoin seems somewhat overbought and I would not be surprised if we have a selloff back to $2000. I am pleased with Bitcoin, and like the idea of censorship free capital on a payment network with a fixed money supply. My detailed reasoning for investing in BTC is in another post that compares Bitcoin vs Gold.
Ethereum – purchased 74 shares with a dollar-weighted cost of about $54 per share and assumed a price of $302 to construct the pie chart. This is the smart contract platform with fast increasing transaction volumes and said to be a potential replacement for Bitcoin. I am deeply skeptical of the conventional wisdom since ETH does not yet scale to Visa card levels of transactions per second and the ICO boom reminds me too much of the internet IPO craze in 1999. At current prices around $299 this is a 6x gain and very good investment. Maybe I get lucky and get filled on a flash crash order so that I can build up my position, but don't plan to buy anywhere near current levels.
Other Crypto – This is a large bucket of mostly mid cap and small cap names and includes ArtByte, Bitshares, Digibyte, Factom, LBRY Credits, Lisk, NEM, Steem, VeriCoin, Viacoin and Voxels. Only some of these currencies are listed in the chart due to space limitations. The bucket has outperformed all the other investments I have, thus I have had to prune some of the winners to scale back and manage the volatility of the portfolio. In this bucket I have recently been buying ArtByte, Darcrus and LiteCoin. The volatility of the small cap cryptos takes getting used to. In fact I feel like I am trading option premiums when I buy a small cap crypto token with immediate violent swings.
Summary
What's happened is that I have evolved as an investor and learned to take on more risk. My BTC bet is much larger than previous bets I have made in the equity markets. The cryptos have appreciated faster than I thought might be the case. Now cryptos are very volatile and the profits could easily disappear in two or three volatile days. In fact I feel we might be in for a selloff as the crypto space market cap has increased exponentially from $30B to $100B. But the long term trend toward appreciation in crypto currencies and franchise stocks should remain intact. My two largest investments, both Altria and Bitcoin should do fine over the long run (5+ years). Finally, I welcome feedback from readers on my portfolio.