Crashing cryptos; Two lessons; Pandemic update
1) The crypto sector has been weak for a couple of weeks and absolutely imploded yesterday (though they've rebounded strongly since then).
What's happened here underscores two important lessons...
One of them is not what you might think I'd say – something along the lines of "never speculate."
In fact, it's OK to speculate with a small portion of your portfolio – but you need to be smart about it...
Lesson No. 1: Every hot sector attracts all sorts of fraudsters and promoters, which you need to identify and avoid.
In the electric-vehicle sector, for example, avoid over-hyped, revenue-less dogs like Nikola (NKLA), Workhorse (WKHS), and Lordstown Motors (RIDE), and instead buy Germany-based Volkswagen (VOW3.DE) – which is up 14% since we recommended it in Empire Stock Investor in March – or the Global X Lithium & Battery Tech Fund (LIT) – which has doubled since we recommended it in February 2020.
In the crypto sector, stick to bitcoin and ethereum, rather than turds like dogecoin (I call it "doggy-coin"), which has crashed 34% since I called the top in my daily e-mail 13 days ago. (It turns out I was too conservative when I wrote, "It will be down 30% within a month"... I stand by my other two predictions that it will fall "50% within three months, and 80% within a year.")
Lesson No. 2: If you're investing, I generally advise being slow to take profits – in other words, let your winners run. If you're speculating, however, you should be quick to take profits.
For example, after we recommended ethereum in Empire Stock Investor on April 7, it doubled over the next month, so we sent a special alert to our subscribers telling them to sell 55% of their position. Thus, even with the recent pullback, they're sitting pretty – and have "dry powder" to buy it back if they wish.
Similarly, my colleague Enrique Abeyta and I were never confused about the nature of what we were investing in when we recommended shares of space-tourism company Virgin Galactic (SPCE) to Empire Investment Report subscribers in December 2019 at $10.20.
We analyzed the company's fundamentals, including estimated future cash flows, and even visited its Spaceport in Las Cruces, New Mexico. Here's a picture of us there with a model of Virgin Galactic's spaceship:
But we also recognized that this was a fairly speculative investment: A lot of things still had to happen before Virgin Galactic could begin flying tourists into space, and profitability was many years away.
However, we were willing to take the risk, in part because we thought this was the kind of company that retail investors might get really excited about – SpaceX and Blue Origin aren't public yet, so this is one of the only ways investors can play the theme of space travel.
Sure enough, that's exactly what happened. Only seven weeks after our recommendation, the stock doubled – and we told our subscribers to sell half of their stake. Only a week later, it nearly doubled again – and we said to sell another half. They were both great sales, as the stock fell all the way back to our purchase price within a month.
But we continued to recommend holding the last 25% of the investment, which paid off when the stock got caught up in January's meme-stock bubble and briefly soared above $50 – at which point we told our subscribers to sell the rest. Another great sale, as the stock closed yesterday at $17.27 per share.
In total, subscribers who followed our recommendations more than tripled their money – a 215% return – though the stock is "only" up 69% since we first wrote about it.
To summarize the lesson here: If you invest in something speculative and get lucky – the price soars despite no change in your investment thesis – take some money off the table. Things that double quickly can also get cut in half quickly...
P.S. You can subscribe to Empire Stock Investor for only $49 for the first year by clicking here. And you can subscribe to Empire Investment Report here.
2) For more on cryptos, see this Wall Street Journal article, which has some interesting charts: From Bitcoin to Dogecoin: What's Driving Cryptocurrencies' Rise and the Challenges Ahead:
Cryptocurrencies such as bitcoin, ether, and dogecoin have surged to highs that few investors would have predicted a year ago. The furious run has even the most optimistic traders asking: Can it last?
3) I continue to closely follow the pandemic, sending lengthy e-mails to my coronavirus e-mail list roughly once a week. If you'd like to receive them, simply send a blank e-mail to: cv-subscribe@mailer.kasecapital.com.
Below is an excerpt from the e-mail I sent yesterday (you can read the full e-mail here)...
Trends in the U.S. continue to be favorable, while the rest of the world is a mixed bag, driven largely by what percentage of the population is vaccinated. Here's the U.S. overview (source):
In Europe, vaccinations are finally starting to catch up with the U.S. and the U.K., while India and Brazil are lagging badly (source):
Not surprisingly, the cases and deaths charts are basically the inverse of the vaccination chart (source):
India just reported a world-record-worst 4,529 daily deaths (and the real number is likely multiples higher), but as you can see in the chart above, cases have turned downward, which is a good sign.
Best regards,
Whitney