My motivation and mission:
Google sheet that contains list of all WCD lessons and links to all content:
Lesson reviewing how to use Google sheet:
Lesson 040 is part 2 of “my portfolio”. I had to split the original post in half due to length. If you haven’t read Lesson 026 yet, I would recommend reading that post first. When it comes to portfolio building, asset allocation comes before selecting which sectors to be invested in.
Asset allocation >> Sectors >> Individual positions (e.g. which stocks/coins)
Lesson 026 - Part 1 - My portfolio and asset allocation strategy.
Lesson 040 - Part 2 - (current lesson) Deep dive on the sectors I am most excited about.
Lesson Topics:
Below are the sectors that I am heavily invested in:
Cryptocurrencies (ETH and BTC)
Cloud Computing
Semiconductors
E-Commerce
Cyber Security
Advertisements
Medical Innovation
Housing Market Innovation
Fin-Tech
Cryptocurrencies
Cryptocurrencies are the wild west of technology. People like to make analogies between cryptocurrencies today to the internet in the early 1990’s.
I could easily see the market cap of all cryptocurrencies going from $2 Trillion today to $20 Trillion in a decade and possibly $200 Trillion by 2050.
Fidelity just claimed they think Bitcoin is going to $1 Billion per coin.
That is a bold call!
That would make the market cap of just bitcoin equal to $21 Quadrillion! (That is $21,000 Trillion). That’s about 100x higher than I think the entire market could grow, but the point is you have smart people and large institutions that see cryptocurrencies growing into a world-dominating medium of value.
Crypto has tremendous potential to benefit the world; my only fear is that governments around the world mess it up because they realize they might lose a lot of their power. Some would argue the decentralized nature of cryptocurrencies make them immune to governments, but I definitely don’t want to see the USA banning crypto exchanges like Coinbase.
Here is my elevator pitch as to how cryptocurrencies can benefit the world:
Cryptocurrencies have the potential to provide billions of people with banking, access to capital, access to lending, access to yield, and a global payment system that is ubiquitous and instantaneous that does not have sovereign control. In doing so, cryptocurrencies have the ability to
Protect the world’s purchasing power against corrupt monetary policy
Eliminate global poverty
Level income inequality
Help 3rd and 2nd world countries rise to 1st world countries
People to follow in the space:
Anthony Pompliano. He has the pomp podcast and a large Twitter following. I recommend listening to his podcasts from the early episodes as they are dense with good content.
99Bitcoins on Youtube. This is where you can watch simple videos to help you learn about some of the technical details.
Raoul Pal - Provides insights to crypto from a macroeconomics and hedge fund perspective.
Will Clemente - Blockchain data analytics.
Ethereum
Ethereum is by far my largest holding. What gives it value is the value of the eco-system that is being built on top of it. Ethereum is the purest form of Metcalfe’s Law. As the network grows linearly, the value grows exponentially… when the network is growing exponentially (and it is), the value goes up logarithmically.
Someone who has helped shape my perspective on this is Raoul Pal who is the founder and CEO of RealVision which is one of my favorite macroeconomic podcasts. Raoul has a thesis which he refers to as the Exponential Age. In effect, we are entering a time where a confluence of technologies are going to combine and create exponential technological advancement and business models.
Additionally…
After EIP-1559, ETH is being burned at a rate such that more ETH is being destroyed each day than created. Supply is decreasing.
Once Ethereum makes the switch to POS, a high percentage of the circulating supply will be staked. Effectively, this can have the same impact as a halving cycle.
All of this considered, I think ETH has the most potential of any asset to appreciate over the next 12-24 months and potentially 5-10 years (as long as it doesn’t get disrupted by another layer-1 smart contracts protocol.
There are a few alternatives, such as Solana, that people claim are “ETH” killers, but I think Ethereum has such a large head start, that it will be the winner.
Bitcoin
In the short term (<1 year):
See L-34 - BTC/ETH - ON CHAIN ANALYSIS for why I am presently bullish on BTC. The on-chain data looks like the long-term-holders are accumulating and the short-term-holders are almost finished selling. Once the short-term-holders switch from selling to buying, there could be a blow-off top similar to the bull run at the end of 2017.
A popular model for valuing Bitcoin is the stock-to-flow (S2F) model. Bitcoin has been very cyclical and there has historically been a blow-off-top towards the end of each bull cycle. The on-chain data suggests we have not reached that blow-off-top yet and the price could get up to $150k-$200k per BTC if it does occur.
In the medium term (1-10 years):
I think the simplest way to look at Bitcoin is as a replacement for Gold as a store of value. Gold has historically been used as an inflation hedge against fiat currency debasement. Bitcoin is a superior store of value in every way. I explore this debate in Lesson 039.
Calculation for what Bitcoin should be worth (assuming its only value is from being a better store of value than gold):
Gold has a market cap of about $11 Trillion (about 50% used for store of value)
If BTC only takes 50% market share from Gold as a store of value, then you get $164k BTC. To me this is about the bare minimum valuation one could use for BTC in the next 10 years. Today’s price of BTC is about $50k, so this is still a 3x from here.
I think Bitcoin has a lot more value that just a gold alternative…
In the long term (10-50 years):
Bitcoin can take market share from other assets as well… not just gold.
In L-7 - ASSET CLASSES I discussed the total global asset market.
Fixed Income (Bonds) - $253 Trillion Global Market Cap
Equity (Stocks) - $89 Trillion Global Market Cap
Cash and Cash Equivalents - $96 Trillion
Real Estate and REITs - $280 Trillion Global Market Cap
Commodities - Gold - $11 Trillion Global Market Cap
Cryptocurrencies - $2 Trillion Global Market Cap
I think Bitcoin will take market share from some of these other asset classes (mainly gold, bonds, cash, and maybe some real estate).
Here is just a rough estimate of what I think could happen if your are looking decades in the future.
Maybe you are skeptical about this asset migration? Let me ask you this:
Why would you want negative yielding bonds?…
Why would you want cash that is getting debased at 5% per year?…
Why deal with the hassle of real estate?…
….when you could own an asset that has a CAGR of almost 200%?
Rational people, companies, and governments might start adding BTC to their balance sheets and removing some of these other assets that are losing money or difficult to manage.
People - About 20 million people own BTC
Companies - Tesla and Micro Strategy have added BTC to the balance sheet
Governments - El Salvador has made BTC legal tender and purchased 550 BTC
We are still here on the total adoption curve:
Stock Market Sectors
Cryptocurrency is exciting because it has a huge TAM and is still in it’s infancy. However, there are some stock market sectors that are almost as exciting and still have a huge runway in front of them.
Cloud Computing
I think the graphic below says it all. Cloud computing is still growing exponentially and will continue to do so for years.
AMZN - AWS - Cloud Platform
MSFT - Azure - Cloud Platform
GOOGL - Google Cloud - Cloud Platform
SNOW - Cloud computing-based data warehousing company. It supports AWS, Azure, and Google cloud.
DDOG - Data observability service for cloud-scale applications, providing monitoring of servers, databases, tools, and services, through a SaaS-based data analytics platform
I’m not betting on this happening soon, but if there are ever self-driving cars, the data per person will 1000x. That is a nice tail-kicker that could happen. I’d rather bet on the cloud stocks than Tesla though (take my advice with a grain of salt… I only worked there for 14 months).
Semiconductors
The Covid-19 pandemic highlighted how essential semi-conductors are to the world. I think semi-conductors are the new oil (they are the essential input required for a tech-based economy).
NVDA - My favorite semi-conductor manufacturer.
ASML - Makes the capital equipment to make the semi-conductors.
E-Commerce
Why is e-commerce so valuable? Because it saves people time. Time is the most valuable resource anyone has. As the demographics change, e-commerce penetration worldwide will eventually reach 75-100%.
SE - South East Asia e-commerce platform (also has payments & gaming)
MELI - South America e-commerce platform (also has payments)
ETSY - The handmade and vintage e-commerce platform
AMZN - The O.G.
SHOP - The e-commerce platform for small and medium businesses
Cyber Security
War will not be fought with weapons in the future. It will be fought with code. Cyber security is now a nation-state level risk. Every individual, company, and government will need cyber security to protect their identity and data.
CRWD
ZS
KNBE
OKTA
Advertisements
Facebook, Google, and Amazon have a huge percentage of the advertisement markets share.
For the 35% of ad-spend that is not a platform company, they need the help of the two stocks below to place advertisements efficiently and cost-competitively.
These two companies are helping the little guy place adds:
TTD - Global technology company that markets a software platform used by digital ad buyers to purchase data-driven digital advertising campaigns across various ad formats and devices
ROKU - Manufactures a variety of digital media players for video streaming. Roku has an advertising business and also licenses its hardware and software to other companies.
Medical Innovation
I think medical innovation is going to be one of the biggest winners over the next 10-100 years. Everyone wants to live longer and healthier. The total addressable market for living a long and healthy life is trillions of dollars.
Our raw computing power continues to grow exponentially and this leads to technological break throughs that have a chance to completely disrupt the legacy systems.
I like to take a basket approach because a lot of these technologies are still in their infancy stages, but I just need one of them to be “the next big medical breakthrough.”
NARI - Removes clots from veins instead of arteries
SMLR - Portable Peripheral Arterial Disease (PAD) testing
NVCR - Tumor treating fields (electrical fields to stop cancer from growing)
DMTK - Skin cancer detection patch
NNOX - Building X-rays at 1/1000 the cost (…hopefully… still pre-revenue)
VVOS - Retainer to reduce/eliminate sleep apnea
DXCM - Diabetes continuous glucose monitoring
OM - Portable dialysis machine (kidneys)
Huge shout out to Brian Feroldi who is a podcaster for the Motely Fool and has his own YouTube channel. He is by far the best at finding tech stocks that are integrated into the medical field. He is definitely a great follow on Twitter and posts a lot of great content about investing.
Housing Market Related Disruption
The housing market is huge. If there is a company that can take even a small piece of the pie, then it can be wildly successful.
RDFN & Z - Disrupting realtors - people can find their own home
ABNB - Disrupting hotel industry (destination housing)
LMND - Home Insurance (using AI and a different insurance business model)
Fin-Tech
I love financial technology. I think it is going to change the world. If I can go back 12 years, I would major in finance and/or computer science.
However, UPST is my only significant holding in fin-tech. I have cut my exposure to other fin-tech stocks because I believe that cryptocurrencies are going to disrupt the space. SQ might be a benefactor, yet to be seen, but I could see Ethereum and Defi (decentralized finance) completely disrupting SQ, banks, and any payments company.
UPST - AI lending platform that partners with banks and credit unions to provide consumer loans using non-traditional variables.
SQ - Leading financial services and digital payments company
NCNO - Premier cloud banking platform
Summary
We are living in a crazy time. Technology is moving faster and faster. We truly are in an Exponential Age (credit to Raoul Pal for the term).
Below are the industries and sectors that I believe have the greatest potential to grow over the next decade.
Cryptocurrencies (ETH and BTC)
Cloud Computing
Semiconductors
E-Commerce
Cyber Security
Advertisements
Medical Innovation
Housing Market Innovation
Fin-Tech
Reference Material & Social Media
In Lesson 030 I cover how to navigate and utilize the Google Sheet I have built for all WCD lessons. This Google Sheet contains a worksheet for each WCD lesson. Each sheet has all of the Excel calculations, tables, graphs, and charts that I have posted in the respective WCD lesson. Additionally, the Google Sheet has a master “Index” worksheet that has links to all of the content associated with each lesson.
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