My Updated Crypto View

Occasionally I use this space for further elaboration on topics that recently garnered my attention. I spent the better part of this past week on one such beast thanks to Caleb over at Buy, Hold Long. He recently added a You Tube channel to his site and the topic on crypto diversification got my attention (as well as a few views). I can’t say my opinion was changed (it wasn’t) as a review of my original thesis reflects (by chance) I pegged the top of the crypto market (almost). His approach though had me reflecting on the similarities to DGI strategies.

The BHL analysis essentially takes the top 100 currencies by market cap to determine the most profitable investing approach. One of the two Crypto ETFs awaiting SEC approval uses a similar methodology, albeit with the top ten. Some of the questions I posed to BHL are indeed reflected in the Bitwise ETF Trust‘s S-1. For instance, an inflation adjusted formula is used and trade suspensions and hard forks are addressed. Private keys and cold storage (security) have been anticipated and rebalances are monthly. The biggest difference between BHL’s Top Ten and Bitwise is that BHL is equal weight and Bitwise is more market cap (with some constraints) weighted. Additionally, Bitwise will carry a 2-3% fee.

There are some intricacies needing to be fleshed out notably in the KYC and FASB/IFRS space which may result in crypto purists losing faith primarily due to the potential loss of any remaining anonymity. Yet some (like me) may come around thanks to the ease of negotiating multiple wallets, exchanges, and yes, diversity. Until then, I’ll keep my head in the sand waiting for the day US investors have a legitimate crypto ETF alternative.

My final concern with the BHL study (date bias) can not be proven in my cursory review, as my question also reflected date bias. I can state the broader model outperformed as it did in BHL’s although with lower gains. Second was the Top Ten. I do think BHL may be onto something and encourage you to take a look at his efforts!

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Squirrel!!!

Dug (the dog), from the movie Up, 2009

Which is essentially a metaphor for being easily distracted. Which may be the answer to Buy, Hold Long’s comment on last week’s post. The more complete answer would be the final 10% is more complex than anticipated and other than one outlier (so far), the corrections to my cost basis has generally been within a couple of dollars – mostly lower. So yes, I recognize the need – and have the desire for – accurate reporting, but complex algorithms take a brain toll and to rest I hunt (figuratively) squirrels!

A thought can be like squirrels and one of my recent squirrels was compliments of Buy, Hold Long’s post (congrats on the good month, by the way) where he comments on his recent purchase, APN Asian REIT. His statement, “Take a look here to see how its going” is like telling me ‘hey, how about this rabbit (in this case, squirrel) hole‘. Simply irresistible.

Not a bad choice, in my view, but the fees, structure and liquidity raise a few questions mitigated by the historical performance and geographic diversification. As essentially a REIT of REITs (kind of like a reverse engineered Banker’s Bank), my adversity to fees (even reasonable ones) got me questioning why not a company with diverse real estate holdings (like Hong Kong’s Swire Pacific (SWRAY) with property in Hong Kong, mainland China and the US? Only then did I realize it was a moot point (squirrel) as APN Asia is not registered for sale outside of Australia and New Zealand.

Another type to consider is the rabid squirrel with one of the symptoms being unprovoked aggression or unexplained fearlessness. One of my ongoing diversions concerns the banks caught up in the ongoing investigations surrounding our illustrious president and his surrounding minions. While I have yet to identify a sound investing thesis, the list continues to grow. From a former board seat (Ivanka, SBNY), suspicious activity reports (FRC, RY), subpoenas (DB, COF) and questionable loans to Cohen and/or Manafort (CFG, STL, BANC). Perhaps most rabid being the private Illinois bank that allegedly loaned Manafort a sizable sum that representing about a quarter of their loan portfolio. I’m still waiting for the Fed’s answer to that one.

Then there’s the rabble-rousing one best illustrated by the Ray Stevens classic, Mississippi Squirrel Revival. From the ‘amen pew’ we hear from the Green New Dealers. While generally in agreement with their goals, I’m troubled by parts of their messaging. One area that has my sporadic attention is the topic of corporate welfare. I’ve been working on a file of subsidies granted since Trump took office. While far from complete, the initial findings are that the majority of subsidies are SBA loans for small businesses, which have roughly a 17.5% default rate. Next up are loans for hurricane recovery (as most of these are managed by the SBA, they are in the “corporate welfare” classification). Surprisingly, Federal research grants for alternative fuel sources (battery, solar) were granted by the Energy Department. The larger problem I envision is the fact that these subsidies are provided to large and small companies, foreign and domestic. Charities and religious organizations get a piece of the action as well. Inquiring minds are begging for an answer as to how this will be voiced through the upcoming election cycle. Although not directly an investing theory, my attempt is to identify foreign companies that have proven adept at being subsidized by the American taxpayer. It is another area that heeds Dug’s Squirrel! siren call.

Some of these ideas will bear investing fruit, most probably won’t. The larger question will probably be whether these types of subsidies are permitted under WTO regulations. But the research is enlightening and provides a welcome relief to the tediousness of spreadsheet formulas!

Half Year Dividend Increases (2018)

Last quarter, I initiated a series on dividend increases experienced within my portfolio.  The data used was based on actual announcements and identified increases that were “Outsized” as well as those that were merely “Tiny”.

In Lanny’s recent piece, The Impact of Dividend Increases through June of 2018, though thoughtful and in a similar vein, was troubling to me in a subtextual way.  Not that the data presented was inaccurate per se, only that the derived message was a little (likely unintentional) deceiving to the majority of his followers.  The two deficiencies I found in his data were:

  1. Visa reported a dividend increase of 7.69% while he reports 7.73%.  This is likely caused by rounding as his data source (dividend increase from the monthly posts) is based on whole dollars.  A dividend change from $.195 to $.21 will likely result in broker rounding distorting derived percentages.  Not major as he probably saw a 7.73% personal increase.
  2. His approach on annualization is wrong.  The statement, “Of course, one can annualize the percentage and equate to 6.78%.” which is a doubling of the six month number, ignores conventions established by the Global Investment Performance Standards (GIPS) which include, “any investment that does not have a track record of at least 365 days cannot “ratchet up” its performance to be annualized.”  The basic flaw in his approach lies in the fact that his data is not normalized to reflect varying declaration (effective) dates throughout the date range used thereby distorting any derived “annualization” process.

Like some of the commenters, I too began the process of calculating my personal results in this manner until my eureka moment arrived.  There is minimal correlation between actual results and the Dividend Growth Rate. The greater correlation resides in the allocation (quantity) within the portfolio.  Yes the power of DGR is real but is not static. It will fluctuate over time across companies, industries and investment allocations. Nor is it predictable. At which point I ceased this replication exercise.

On a similar note, Buy Hold Long issued a challenge to increase total forward dividend income by 4.24% during the month of July.  A noble challenge indeed. However, the unintended consequences are potential reinforcement of bad habits.  For example, how many investors will be researching high yield or investments inappropriate to the degree of personal safety required?  Or putting their strategy aside to engage in this quest? On the other hand, I’m with Mr SLM’s comment when he says, “I think I’m on the part of the curve where increases aren’t linear from contributions”.

I guess my root issue with my disdain with these endeavors is the fact that we know not our audience.  One could assume a baseline knowledge level – but this would be strictly an assumption. This brings to mind another study of mine from a couple of years ago.  At that time I was unable to prove any confirmation bias but still have been unable to shake the sense that there is some within the community – especially with newcomers.  Also, we can’t discount the number of mirror, copycat or coattail strategies that are prolific today. Which is the probable reason I shy from these types of analyses/events.  I like to think that my results can be replicated (if desired) whether a portfolio is robust or just beginning which highlights why I report percentages.

As usual, I digress.  The purpose today is to share the first half increases – by percentage – reported by my dividend payers.  One item to note is the increases enjoyed by financials (banks, in particular) will be tough to replicate going into 2019.

And this, my friends, is the message this week with the upcoming earnings season sure to present some interesting commentary 🙂

A Look ‘Down Under’

It’s been about two years since I first invested in Australian issues, choosing to take a slow approach while I obtained some practical experience first hand.  Certainly many of the yields are good, but the economy – much like Canada – is resource based.  Then there’s the whole franking deal.  Plus the foreign exchange conversion – but this has been relatively stable at 75 – 80 cents per USD.  Add to that, until recently the selection was limited to ADRs or using a cost prohibitive foreign desk.

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