What a difference a year makes. Last year I penned My Views on Crypto. Since hitting its peak of $19,783 last December (17th) the drop has been breathtaking to say the least. The -84% haircut (through today) makes even GE (-63% this past year) look like a great investment. Though enthusiasts maintain the theory that a need exists for an alternative to fiat currency, the reality is that other than some emerging and frontier markets the real world has yet to embrace this concept. The continuing requirement to classify many ICOs as securities may be a contributing factor to the malaise. Yes, the wild west is being tamed.
I think it may go a little deeper though. Consider this:
- the majority of ICOs require Bitcoin to purchase
- If the US market is limited until SEC compliance is obtained the supply/demand ratio is impacted
- As the price drops, mining becomes unprofitable
- With pricing pressure, the speculation component becomes riskier
In a nutshell, my belief is that the ICO aspect is artificially drawing down the cryptocurrency space but remain doubtful that the glory days will return anytime soon.
Yield On Cost Update
In September, I mused on the YOC metric. A current, real-time example of a valid potential use is probably worthy of discussion. The view presented by YOC is generally framed by initial yield and dividend growth compounded by the time held. Over the past two years I’ve had a stagnant YOC for two primary reasons:
- Some of my longer term holdings were lost via mergers for cash, and
- My current focus on M&A action – which tends to initially be more of a short-term view – for a third of my portfolio.
My portfolio’s average YOC today sits at 3.54%. When compared against treasuries (with their increasing yields) my view is the risk premium associated with equities, coupled with the tax benefits with treasuries are beginning to converge. My cross-over point is about a 1% differential and when attained, I’ll reenter the bond market following a 10-15 year absence. Catfish Wizard recently wrote on his particular strategy.
The annual addition to the trust has been completed with the first foreign issue. With Friday’s market swoon, Royal Dutch Shell (B shares) was added to this portfolio. The other change during the year was the loss of WGL via merger for cash in July. This cash was redeployed in August into Atmos Energy (ATO). Incidentally the acquirer, AltaGas (ALA.TO,ATGFF) was subsequently forced to cut their dividend by 56%). Kind of like taking the money and running on that one!
There it is – akin to a Greatest Hits release. In all seriousness though, I think it’s fair to share some of the thoughts that play a role in the direction my actions take me.
Until next week …