Long Runways Make Many Opportunities
I have been busy this summer with the slow steady progress of building my personal “stack”: updating my skills, reading and learning more — including about the current animal spirits hot-zone of crypto-related currencies and technology. Has the initial gold-rush from mining bitcoin, when it was a fraction of a dollar, become a part of history? Yes. The original age of right on the edge cypher-punks has given way to institutions and governments figuring out how to elbow their way into the room. But we are in early days.
Thanks to an on-going house-cleaning task, where I prepped old files for paper recycling, I looked back on my personal track-record of identifying potentially broad secular/tech trends, including: fiber-optics would drive down data transmission costs* and that media would grow thanks to the fatter “pipe”, more folks would create their own identities online and talk to each other all the time, that online journals would blow up and “googlezon” was more fact than fiction. I had a background in economics and law, what did I know about tech trends? And yet all these notes ready for the shredder revealed one thing as well. There was one common connecting thread for all these ideas which seemed crazy at the time: they required patience and persistence.
During my house-cleaning, I also rediscovered quite a few multi-bagger winning trades during an earlier phase in my development as a trader. (examples included: Go long gold in the high $200s/oz when all the old bulls had passed away, find small tar sand plays with lots of leverage for oil, find tiny raw material/mining stocks in the emerging markets, buy tobacco companies under legal fire which turned them into dividend monsters.) I noticed that many of my best trades had the same thing in common as my “crazy” tech ideas. If an idea with a kernel of a valid premise was given a runway long enough, they had the potential for runaway success. (See what I did there? runway? runaway? I’m sorry, I couldn’t help myself.)
(*The fiber optic gold rush would inspire me to push friends I was helping in a small startup to drop their overseas callback business in favor of direct relationships with as many broadband companies as they could arrange. The startup faded but the trend played out.)
Looking at the crypto runway, we all know the days of Digicash have receded in the rear-view mirror and players like Digital Asset Holdings are in the front seat. One set of multi-bagger players and ideas have already happened but if history is any guide, there will be other opportunities. The kernel of a valid premise is present. We naturally debate about value vs. price when it comes to the tokens, and wonder about whether the cryptoeconomic incentives have either permanent or impaired value but I think it’s just like every other amazing idea which needs the indulgence of time. There will be collisions and multi-car crackups during the road trip ahead — there already have been casualties and a few arrests. Early days.
You’re thinking, “No, no, it’s too late, you weren’t there at the beginning when bitcoin was less than a penny or even a dollar”. I think history says “Wrong”:
Now you know why denim jeans are famous thanks to “Levis” and afficionados are not hunting for “Davis 501s”. Jacob Davis may have innovated heavy work wear that became a global clothing staple but it would be other people who would go on to fame and fortune. The funny thing was it wouldn’t have happened if it weren’t for another gold rush, literal, to inspire the birth of this success. In a way, however, the runway for the growth of denim jeans as a global fashion juggernaut was not about gold and was really about the growth of the west coast and American pop-culture and less about mining shiny rock from the earth.
I could go on with other examples of this and talk about the “homebrew computer club”, the Altair, and the Alto if we used the history of personal computers to understand what happens with what seem to be crazy ideas with barely visible runways of potential. I could talk about McDonalds and Ray Kroc, or how the designer of the “Lara Croft” video game character, made famous in part in film by actress Angelina Jolie, never made as much as other folks, including Ms. Jolie. A lot of things happen during the long road-trip on a runway started with a crazy notion, an accidental discovery or act of necessity.
Below is a chart of where consulting firm Gartner thinks all the various new tech opportunities are. The chart hints that blockchain protocol appears headed for the infamous “trough of disappointment” but it doesn’t mean that’s the end necessarily. It’s the same as it ever was. So many tech and secular trends, including “Internet 1.0", have had runways shaped just like this rollercoaster of a chart but new industries, careers, innovations and fortunes were still made during this long ride up, down and then up again. I think back on the cost of having your genetic code read and reported. Just as the price dropped over the past 10+ years, the financial rewards and the market for the technology just grew and grew. Staying on the ride for the right runways can be life changing (if we don’t have a car-crash of course.)
Look at Redhat. The stock chart for RHAT, in its entirety, has traveled the entire arc of the rollercoaster runway. It’s now up 35X from the trough of September 2001, when it was $3+/ share, after crashing from 100+/share year 2000 heights, and now we all take open-source for granted. Anyway, it’s also yet again a potential chart to trade during a somewhat more comfortable plateau of productivity. For stock jockeys it looks great again.
Meanwhile, back in the humdrum world of trend following stocks, I think the long awaited and inevitable turnover in Rooster360’s Top 20 leader-board has arrived. The stopped ideas list I always start with each week, now hints at less electrons and more atoms, and it looks like we have a new runway long enough for us to profit from this change in trend leadership.
Allow me to explain.
Over the course of the summer, quite a few hot leaders with 50, 75, 100+ percent returns have been stopped out and the new sectors coming up are very different. I’m seeing less tech, or at least a pause in tech, and I’m beginning to see more raw material-related trends unfolding. The first is all about electrons speeding around getting things done, including rendering Rooster360’s email newsletter for subscribers to read. The atoms I mention include the metals in the device you are using to access this newsletter along with all the equipment which supports the “stack” all those electrons flow through.
More details about recent developments in the market from Rooster360’s vantage point are available through the following link.
For forex traders who follow trends like Rooster360, I have to share that the one thing which has bothered me during the summer is the heavy “spec” weighting in short US Dollar. I am a price follower but it is still unnerving. But as my mentor taught me, sometimes it’s just “noise” when price is all you have to work with ultimately. This year’s Euro long is just as confounding as Euro short was back in summer 2014, or Japanese Yen short in late 2012,and now that I think about it both were still about listening to price.
I had a tiny long dollar hedge on and that closed out this week. As absurd as it seems, I may find myself back into long euro, thanks to what has been happening for some time. I don’t like it but price might be hitting me over the head so many times I have to listen.
I want to share a few of the charts I looked at as ideas with a potentially good runway. They are just a few examples of a few sectors which could have a decent 3, 6, 9+ month runway for all of us to benefit from. No price targets, I focus on stop loss price “targets” and I do my best to let Mr. Market do the driving and stay buckled up on the passenger side.
In summary, new emerging trading ideas are familiar: emerging markets (headlined by China) and raw materials again (or at least in industrial metals).
I think Q4 2017 to Q1 2018 could be a very different market. I will try to write more about this as more charts and big-picture ideas emerge as great runways to ride on.