🚂 All aboard. The ASX boomed 1.2% to a 9-month high on news of Australia’s jobless being lower than expected. However, the real hype chat is Bitcoin sailing to nearly 30k AUD as the cryptocurrency goes full vertical… not dissimilar to The Hype Train (see below).
In today’s edition:
🌐 The Warren Buffet of the internet
📈 Predicting the future
🧠 Mental models to improve investment decisions
Random statistic: The Hype Train subscriber growth seems to be correlated with Bitcoin’s price (⁉️)
🇦🇺 DOMESTIC
🎮 Game-dev comes to the ASX
Melbourne-based game development studio Playside Studios (ASX: PLY) has IPO’d hitting a valuation of $73m after it’s first day of trading.
The deets: Playside Studio games command 42k daily active users growing 30% year-on-year and an impressive 698k monthly active users. The stock itself mooned more than double its initial price showing keen interest from traders on its first day.
Thoughts: Despite calling themselves a “AAA” game studio, Playside’s catalog is somewhat underwhelming, boasting no games any serious gamer would consider “AAA”. That said, mobile games have historically been quite lucrative, indicating the $73 Million valuation may actually be in the ballpark of reasonable…
🎲 Gambling trouble
Crown Casino’s (ASX: CWN) shareholders have launched a class-action lawsuit against the company.
The deets: The lawsuit alleges misrepresentations of its compliance with anti-money laundering legislation. The share price remains 18% below its pre-COVID price but seems relatively unimpacted by this lawsuit, continuing to increase from its March COVID lows.
Thoughts: This is the second class action lawsuit Crown is currently facing… alongside a host of other regulatory enquiries. All of this on top of an 80% drop in net profit due to coronavirus lockdowns… A bad year for Australia’s largest gaming company to say the least.
💡 Bits and pieces
The opposite of mooning: Virgin Galactic (NYSE: SPCE) has dipped ~25% following a failed spaceflight.
Detecting viruses using your phone: Sparc Technologies (ASX: SPN) has launched a new division to develop a sensor capable of detecting disease
Airline recovery: In lieu of Tiger airways axing, Jetstar expects to run 10% more flights in March 2021 compared to its pre-COVID levels.
Reddit and Twitter go shopping: Both social media giants have gobbled up video-streaming startups recently with Reddit acquiring TikTok rival Dubsmash and Twitter (NYSE: TWTR) purchasing social screen-sharing app Squad.
China knuckles down: Australia has appealed to the World Trade Organisation as China continues to ramp up trade tariffs and sanctions on Australian imports.
Food drama: The ACCC has commenced legal proceedings against Retail food group (ASX: RFG) alleging the company mislead its franchisees.
The Amazon of Property: Co-editor James’ favorite SPAC is set to start trading as Opendoor under its new ticker NYSE:OPEN on the 21st December
🌎 INTERNATIONAL
🌐 The Warren Buffett of the Internet
One of the world’s least well-known tech-billionaires, Andrew Wilkinson, recently listed his portfolio company Wecommerce (CVE: WE) on the Canadian stock exchange.
The man behind the company: Although he’s not a household name, Andrew Wilkinson’s company Metalabs was in-charge of designing many of the world’s most used applications including Uber, Slack, Google, Amazon and Coinbase. Andrew was offered equity for designing Slack but declined the offer… Slack was recently acquired by Salesforce for $27b. Big regrets… but he’s done quite well for himself as shown by this IPO, the success of his design agency, and his investment company, Tiny.
Thoughts: Despite flying under the radar completely, there is lots to learn from this guy. He has a reputation of the Warren Buffett of the Internet, investing in less techy, more traditional internet-based companies like job boards. As for Wecommerce, only time will tell whether rolling up Shopify businesses is a sustainable strategy.
📈 VALUATION 101
🤔 Thinking smart not hard
Is there a way to vastly improve your decision-making, get gains, and be rich without becoming much smarter?
It’s a question we at the Hype Train have pondered… and that probably everyone desires to know the answer to. Fortunately, great investors and entrepreneurs offer a handy solution: learning to think using mental models.
What they are:
Mental models are frameworks that simplify complexity and help people understand the world. Charlie Munger (Warren Buffet’s right-hand man) helped popularise them and recommends people learn a latticework of about 100 mental models across multiple disciplines to improve their decision making.
Mental model examples:
⭕ YourCoc (Circle of Competence): Only invest in the areas of knowledge you know a.k.a. stick to what you understand and do not buy into hot tips from companies selling unfamiliar products in unfamiliar markets (mining for me).
🎩 Mr Market: Markets are like a moody neighbor that is sometimes happy and sometimes sad. You have to take advantage of him in his bad moods and sell to him in his good moods a.k.a. A company’s true value tends to not change day-to-day but the market price does depending on how investors feel.
🛡️ Margin of safety: Buy only when the market price is significantly lower than your assessment of its true value a.k.a. if I think a stock should be $20 and it is trading at $5, I have a significant margin of safety ($15), so I’m happy to take the bet.
⏱️ Opportunity costs: Doing one thing means that you can’t do another thing a.k.a if I invest in a stock and lose all my money… I don’t just lose the money I invested, I also lose the money I could have made putting it into something else over the same time period.
These are all finance and microeconomics mental models, but co-editor James’ personal favorites are:
🔪 Hanlon’s Razor: Never attribute to malice that which is adequately explained by stupidity a.k.a. bad things tend to happen because people don’t think them through not because they’re trying to hurt you.
🙃 Inversion: Instead of asking yourself how to be successful, ask yourself how not to be successful and just don’t do those things…
Bottom Line: Mental models may help us think smarter instead of harder. They can be applied to all walks-of-life including investing.
🔮 WEB STOCK ANALYSIS
The top stock analysis from around the web this week.
Macquarie’s recommended stocks and price targets:December list of model portfolios
What CEOs are thinking of the current market:CEO Insights - Week Ending 11 December 2020 By NAOS Asset Management
Yet another take on Douugh (ASX: DOU):Is Douugh the best thing since sliced bread?
A dad’s opinion of a baby app (ASX: TNY):Tinybeans strategy
A seemingly unbiased & kinda bearish discussion of Appen (ASX: APX): Who is holding or buying and what are your reasons/rationalization?
A redditor’s (u/Tacomaster33) view on three stocks:Elders, Dow and Appen
Emerge Gaming DD (u/neke86):Emerge Gaming (ASX:EM1) - A Final Word
🧠 BIG BRAIN STATISTICS
📈 Does the past predict the future?
“Please note that past performance is not an indication of future performance” - a phrase I’m sure we have all seen before, but how true is this really?
While it’s clear that there are many reasons why past performance wouldn’t be indicative of future performance (see the efficient market hypothesis), it’s always seemed counterintuitive to me that how a stock has been performing has no effect on how it will continue to perform into the future.
To investigate this, we will be looking at how stocks would have performed if you chose them only based on their historical performance.
Assumptions:
This is to analyze a simple strategy that only looks at the previous 12 months’ performance when deciding what to buy.
This will assume a short investment horizon of 1 year and the decision will be based on performance over the previous year.
This analysis WILL include the COVID period to remain as faithful to the core idea that past performance indicates future performance as closely as possible, rather than trying to simply look at “normal periods” (shit always happens)
So, can you get an idea of the next 12 months of stock price movements by simply looking at the last 12 months? Let’s have a look…
CBA: as blue-chip as they come. Up 19.14% from 2018-2019 and up just 4.73% from 2019-2020.
Not off to a good start, but considering CBA is still up year-on-year, it does hint well-performing stocks can keep their heads above water even in challenging macroeconomic conditions (and if they’re too big to fail).
Afterpay: Up 124.14% from 2018-2019 and up a staggering 300% from 2019-2020. This one is perhaps an indicator that past performance can understate future performance. Essentially here we have got it wrong but in the opposite direction. But the sentiment is the same in that strong past performance DID correlate with positive future performance.
What about indexes?
Dow Jones was up 19.68% between 2018-2019 and up 7% from 2019-2020.
Nasdaq was up 32.15% from 2018-2019 and up 42.89% from 2019-2020
Again our trend continues. While the indexes also were not able to perfectly predict future performance, they were certainly quite close year-on-year.
If it’s stupid and it works, it’s not stupid.
While we only looked at a handful of examples here, the strong relationship between past and future performance of indexes shows this strategy would have worked exceptionally well for stocks on average.
Bottom Line: While I understand this is not at all scientific and does not magically prove historical data can be used to predict price movements, following past price movements would have made a decent chunk of change on many stocks.
🎁 BONUS
👔 For uni students (or those wanting a company hit-list…😈)
Applying for a graduate job is difficult at the best of times let alone mid-pandemic. To make this process better for you, we have curated a list of (nearly) all grad programs available in Australia.
Insight: There are over 450 companies including 24 operating in Investment Banking and Financial Services. See the full google drive here.
🎉 WEEKLY VIBE
Image: u/Maddcondor
Thank you and have a great week.
Email us at thehypetrainaus@gmail.com if you have any hot tips for an article or just want someone to talk to.