Crypto... As a Value Investment? And the Moral of the Allbirds Story

Other than having previously owned the Grayscale Bitcoin Trust (GBTC) and one other entity (which I still own), I've steered clear of crypto... It's not because I think it's a farce or a fraud or a fad, but because... I just haven't been able to wrap my head around it enough to have conviction one […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Crypto... As a Value Investment? And the Moral of the Allbirds Story By Herb Greenberg Other than having previously owned the Grayscale Bitcoin Trust (GBTC) and one other entity (which I still own), I've steered clear of crypto... It's not because I think it's a farce or a fraud or a fad, but because... I just haven't been able to wrap my head around it enough to have conviction one way or the other. And I just get too busy to give it the time I believe it requires. I know plenty of smart folks on both sides of the story, and almost all their arguments are compelling. My friend, the journalist Michelle Celarier, does a good job summarizing both in an October story in New York Magazine headlined, "[Why the 'Big Short' Guys Think Bitcoin Is a Bubble]( The bearish argument is straightforward: Think tulips. The bullish argument is more complicated, and plenty of famous investors have been quoted with their bullish views... Among those in my orbit who also have been loud and proud - but don't get their due because they're not up-in-neon-lights famous - include Ronnie Moas of Standpoint Research, who was telling anybody who would listen to buy it back in July 2017 when it was trading at $2,570. Also included is retired radiologist Jeff Ross of Vailshire Capital, who has been working two careers since 2014 – one reading as a physician and the other running his fund. As any follower of his Twitter (TWTR) feed knows, he is now a full-time investor with plenty to say about crypto. Then there's my friend and colleague Enrique Abeyta, who likes it so much he started a newsletter dedicated to it, appropriately called Empire Elite Crypto. And then... there's Mike Alfred. I met Mike when he and his brother Ryan ran BrightScope, a startup not far from me in San Diego that provided ratings on 401(k) plans. They wound up selling it in 2016. In 2018, bitten by the bitcoin bug, they started Digital Assets Data, which provides data and research into all things crypto. Earlier this year, they sold the business to NYDIG, which specializes in all things bitcoin. Now, Mike is doing his own thing. Among them: sharing his very bullish thoughts on Twitter about crypto and anything else that pops into his head. It's not that he's bullish on crypto that caught my attention, it's the role it plays in his very value-oriented investment portfolio... As background, we were doing a long-overdue catch-up call that both of us thought would last maybe 30 minutes but stretched to more than an hour and a half. It was a wide-ranging conversation, much of which centered around the seeming lack of discipline in the public markets... but that ties to the increasingly insane valuations in the private markets – something I wrote about here recently. As Mike put it... In public markets, you have to be discerning in price. That discipline is eroded by the private market activity. As he explains, an early so-called "Series A" angel investment in a company that is barely crawling used to be – if lucky – worth $5 million. As Mike told me... Now I'm seeing Series As in the $30 million to $50 million space. I'm seeing companies that don't have proof of business but in are proven segments, such as payments example – everybody has to be in those deals. It's not necessarily irrational, but [a] lack of discernment on price is. They don't care if it's a $200 million or $300 million valuation. They have to be in it. The trouble occurs when that mentality seeps into the public markets, as is bound to happen – and is happening. For example, he cites the valuation similarities between new and old tech companies... There's a big difference between a Microsoft (MSFT) and a Facebook (FB) and companies like Zoom (ZM) and Peloton (PTON). They all aren't going to be great tech platform companies, but they're trading like they could be, which is a very venture way to invest. However, he adds... A VC [venture capital] portfolio mentality doesn't work in public markets over the long term. It only works as the greater fool theory because you think somebody will pay you more. That's where this starts to get interesting and where our conversation shifted to crypto... Market extremes always have a comeuppance, but when they do, Mike points out, "They also accelerate forward to the next cycle." Such as the way the dot-com crash spawned investments in Internet infrastructure and sparked an inflow of capital to tech companies, in turn powering the Internet's growth into the mainstream. Mike thinks the same thing will happen to crypto, but here's what surprised me – and it's a reminder that even diehard crypto bulls have diversified portfolios... Crypto is only one-third of Mike's portfolio, and most of that is in bitcoin. Another third, which he is equally excited about, is the traditional value side of his portfolio – or at least they were value stocks when he first bought them. They're a mix of health care, consumer staples, or financial services. They include the likes of CVS Health (CVS), Prudential (PRU), Target (TGT), Bristol Myers Squibb (BMY), Diageo (DEO), Blackstone (BX), PepsiCo (PEP), and Kroger (KR). Surprisingly, he also lumps crypto broker Coinbase (COIN) in the traditional value bucket, not as a crypto play. Ditto for Vertex Pharmaceuticals (VRTX), a biotech company which, like Coinbase, he believes has long-term upside earnings potential. The final third of the portfolio is small-cap stocks that could be activist targets. To that end, he's a limited partner in Outerbridge Capital Management... and was among its slate of board members when it rattled Barnes & Noble Education (BNED) in 2020. But we're here to talk crypto, so how does crypto fit in the mindset of a value investor? Among the heavily edited snippets from our conversation, he told me... I want to own things like equities that can do annual growth of 15% to 18% across multiple decades. And I believe bitcoin can have a cumulative average growth rate of 40% to 50% over 10 to 20 years. He went on to add... For me, bitcoin is sound money – a digital form of real estate. You really own block space on the blockchain. What about the risk of regulation in the U.S. and/or other countries? As Mike put it... Regulation would change [the] slope of the curve, but one of [the] fundamental reasons you invest in bitcoin is that it can't be turned off entirely by any single actor. Just like China could shut down the Internet, but that wouldn't impact America. But isn't the real reason everybody likes bitcoin is because it's scarce, sort of making it like a Ponzi scheme? "Scarcity," Mike said, "is a big part of the value proposition." And somehow, this fits in the paradigm of value investing? Most long-term value investors are afraid of new things. I'm trying to be a long-term value investor who isn't afraid of new things. And besides... The best compounders always look overpriced. Until they don't, which is often too late. --------------------------------------------------------------- Recommended Links: ['This 20-bagger is a no-brainer']( A Cambridge professor hired by the FBI just revealed his highest conviction stock pick ever. He thinks it could 5X in the coming weeks... and 20X over the long term. [Forensic Analyst Joel Litman reveals every detail in this video](. --------------------------------------------------------------- [Buy this $9 'driverless car' stock immediately]( A man who has identified two different 10-baggers says this tiny stock could become the most lucrative he's ever seen. It's a new kind of company with almost no revenue, no product, and no employees that could 10X your money... even if stocks keep falling. [Click here to learn more](. --------------------------------------------------------------- Moving on, here's a quick update on the lesson of Allbirds (BIRD)... As Berna pointed out yesterday, Allbirds flew high on its initial public offering ("IPO"), but shares tumbled after the retailer reported earnings earlier this week. As you may recall, a few weeks ago, I suggested that Allbirds appeared to be relying a bit too much on the environmental, social, and governance ("ESG") part of its story to drive investor interest when it went public. Except... what really counts now is how its business is doing. And for the sake of investors, let's hope that the performance of a few of its stores isn't a sign. In San Diego, my pal Jeff Macke, who specializes in retail, tweeted:  Source: Twitter/@JeffMacke Then, my friend and colleague Berna Barshay, who lives in New York, posted this:  Source: Twitter/@Hedge_FundGirl Both of their tweets were in response to what I tweeted: No idea what will happen to $BIRD long term... maybe it'll be the best of the best... but the moral of this story: It's one thing to wrap itself in ESG for its IPO, another now that it trades. Case closed. As always, feel free to reach out via e-mail by [clicking here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Herb). And if you're on Twitter, feel free to follow me there at [@herbgreenberg](. My DMs are open. I look forward to hearing from you. Regards, Herb Greenberg December 3, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](