You're Not Picking The Bottom

Estimated read time: 4 minutes 10 seconds

In this week’s email

1. FOMO and proctologists

2. What metrics top investors look at in recessions?

3. My portfolio + goals

FOMO

FOMO is uniquely human

We fear loss more than we enjoy gain

The key with markets and investing is to not get suckered into FOMO bounces

You can’t stress about a 6% up day in ETH and panic buy when it’s down 30%+ YTD

You have to try and avoid FEELINGS and EMOTIONS and rather focus on the data

Yes the Nasdaq bounced this week, but it's down 24% in the past 3 months

Don't try and be a proctologist picking bottoms. This isn't the bottom in the US market

The data still shows:

1. The US GDP slowing into Q2 of 2022 (recession) and possibly longer

   1. Valuations contracting

   2. Profits/earnings slowing QoQ (year over year)

2. The federal reserve raising rates slowing inflation

3. China's GDP accelerating in Q2 and Q3 of 2022

There will be days where the ball bounces the other way, sometimes a week, but we focus on being right over the 3 month + duration

Stick to the data

What do investors look at now?

There are 3 types of buyers in mergers and acquisitions world:

1. Financial - Private equity, venture capital, etc

2. Strategic - Buyer in the same industry (e.g, Moderna buying Pfizer)

3. Hybrid - Strategic backed by a PE firm

Based on conversations with both strategic and financial investors, valuations have come down significantly

When markets are booming money flows out like water to buy or invest in companies at crazy valuations

When public markets turn, it carries through to the private markets as we showed last week

With startups, a lot of investors are focused on growth metrics:

• User growth

• ARR (annual recurring revenue)

• MRR (monthly recurring revenue)

• Average ARR per customer growth

• Employee growth

• Custom retention rate

All of these metrics show that the company is continuing to grow and expand, which means that if they invest now and growth continues, they can exit at a higher valuation and make money

HOWEVER

When markets start to flip, investors focus switches from GROWTH to FCF (free cash flows)

Free cash flows - what are the cash flows generated by the business

• NOT cash flows from selling assets like equipment

• NOT cash flows from taking out debt/loan from the bank

Cash flows generated by your core business

This chart and analysis from Guggenheim shows that in the current market environment, valuations are driven 2x more by free cash flows than by growth

Valuations and what investors care about has changed drastically in the past 12-18 months

In The Account | my top holdings

1. US BENJAMINS

   1. It's not exciting but not losing money is just as good as making money

2. $UUP - US Dollar Index

   1. We are still bullish on the US dollar. The US dollar hates 75% of macro economic environments, but, we just happen to be in the one it likes. It's not sexy like 3x leveraged TSLA yolo's... but it gets the job done

3. $GLD - Gold

   1. Gold has been underperforming and I will keep a close eye on this one. But for now... long $GLD

Scaling these suckers up

1. CHINA

   1. My top ETFs: KWEB (Chinese internet), KBA & FXI (large-cap), CHIQ (think Chinese Amazon)

   2. My top stocks: PDD (Pinduoduo - Retail), BILI (Bilibili - Gaming)

   3. Also may add $NIO - Think Chinese TSLA (the volatility signal looks good and it's in an economy we like)

Remember - this isn't day trading or swing trading

This is positioning yourself correctly over 3-6 month timeframes to avoid massive drawdowns of your capital and to compound your wealth

My ultimate goal: To teach people about all things finance and help them make more $

-DevOB

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.