Over the past few weeks, we were consuming even more content around the US market and we thought we wanted to share more about what we learnt and how that is shaping our capital allocation moving forward.
The main content we were consuming were those by Ark Invest’s Cathie Wood. We can only say we wished we found out earlier about Ark.
In a recent interview with Bloomberg, Cathie mentioned a few things around their investment thesis which greatly affects how we think.
Here’s the video which i highly recommend readers to watch:
Area of Growth 1 – Genomic Space
For Ark Invest, the are investing in disruptive technologies, and they have a 5 – 10 years time frame. The specific areas that Ark thinks will see a huge hockey stick J curve due to the effect of compounding returns (she calls it the Amazon effect) is in the genomic space.
Bloomberg asked if Cathie had to choose which area of growth that will see the most performance lift towards her portfolio, which would it be? Cathie revealed that while Tesla is still in the running, she thinks that the most returns will be from the genomic space. And that there are a lot of “amazons” in the genomic space.
That’s especially so because over the last year, the genomic space has seen huge discoveries. These discoveries, along with the improvement in data modelling and AI, will result in even profound discoveries in the realm of gene therapy, vaccines development etc.
Area of Growth 2 – Bitcoin
On top of that, Ark is also very bullish on Bitcoin, and in the white paper they published few months back, they laid out strong arguments for the case of Bitcoin hitting a $300,000 – $400,000 price target.
They also used very strong concluding statements, that investors will need to deal with the opportunity cost of not investing in bitcoin simply because the rewards ratio for bitcoin is just too high for investors to ignore.
To reflect their confidence in Bitcoin, Ark does has a separate private fund which allocated 7% of their portfolio into Bitcoin. 7% is quite significant for any fund size.
Area of Growth 3 – Gaming
A smaller area which we personally were very intrigued by Ark’s research, an area which is less spoke about is in the area of gaming.
Ark mentioned that video game is becoming the third space of community, where people will gather and spend time in after family and work.
The gaming industry is set to grow at 20+% CAGR over the next few years and the idea of gaming being a “third space of community” really resonated a lot with us.
How This Changes Our Portfolio Strategy
Prior to COVID, our goal has always been to look at the Singapore market to pick up strong REIT counters that will serve as a dividend portfolio for us. And we supplement that with some US growth stock on the side.
However, over the past few months as we consume more content and as we shifted our portfolio towards more US centric, we now subscribe to Ark’s philosophy of investing in disruptive technologies in order to secure our future.
Of course, there are a lot of disruption happening all around. We also have very limited funds that we can deploy. Hence we can only select some technologies that resonate with us.
Specifically, the three areas that we mentioned earlier: genomic space, bitcoin, as well as the gaming space are the ones that we are personally excited about.
To take part in the growth in the genomic space, because there are simply way too many companies in this space, we will rely on Ark’s team to do the research for us, and we will partake in the ARKG ETF.
This will be the first official ETF that we will be doing regular DCA into over the next 5 years.
It will take too much effort for us to individually identify the companies in the genomic space and we wont have enough funds to invest meaningfully and have proper diversification on our own.
To be honest, we are also having some FOMO on this – Cathie Woods and Ark has been right so far, and if Cathie continues to be right on the genomic space, we are taking the easy route to just ride on the wave of ARKG. We are lazy that way. 🙂
For crypto, we previously mentioned that we had purchased some bitcoins.
The price has since surged from USD17,000 to now USD23,000. If we have more funds, we will continue to purchase them in the event of market pullbacks of 10-15%.
For the gaming space, we have also been quietly building up on our positions in certain counters we liked. Since 2019, here are the gaming related counters that we have:
Over the last month, we have also averaged up Razer as well as started buying in Unity. We really like the idea of Unity (but not their financials), they are the tool for gaming developers like what spreadsheets are for finance manager, or what word documents are for authors.
Unity is now a sizable position on our overall equity portfolio (5%) and if the counter do experience even more pullbacks, we are happy to average in more.
Of course, other than the 3 space that we mentioned (genomic, crypto, gaming), we will also be looking at other opportunities in the US market.
For example, Mr Budget recently divested his position in Bookings and shifted it to Airbnb. We also loaded up on Palantir, which we were intrigued by the company’s competitive advantage – their technology is 5 years ahead of everyone else. Again this is in line with our overall thinking of investing in the future.
Alternative View On Cash Holdings
Another interesting thing which we learnt from Cathie was that, they are treating FAANG stocks as “cash-like equities” where the stock performance is less volatile than all the other companies in their portfolio. This is very interesting to us – that they are not seeing FAANG stocks as growth stocks now.
For us when we look at Amazon, which is also one of the top 5 positions of our overall equity portfolio, the performance has been lacklustre, and has been flat for us. This really reflects the returns of “cash”. Very very interesting.
Which means, we should probably move more of our Singapore allocation over to these FAANG stocks, and treat the capital gain on these FAANG stocks as the “dividend” we would otherwise get from our Singapore dividend portfolio.
This way, we may have even higher potential upsize.
Of course, the other way holds true too – that the downside is even higher too.
But yeah these really gave us a lot to think about in terms of our portfolio strategy.
As we consume and catch ourselves up with all the research by ARK, i think it is becoming clearer to us that moving forward, we will be investing in the future, especially since we have adopted a 5 – 10 years coffee can portfolio strategy.
Prior to this, we are happy with investing in Singapore real estate that provides us with 5-7% annual dividend, but now, investing in future disruptive technologies are even more exciting for us.
And we look forward to owning all these cool companies.
We also feel like we are probably not the only ones following closely what Ark does, and we are probably a bit late to the party. But after watching Cathie’s interview, you can feel that she really believes in their research and she spoke with excitement about all the disruptive companies she and her team is working with.
Cathie also spoke about how we are not in a bubble territory yet but cautioned investors on any upcoming pullbacks.
In summary, moving forward, we will trim down our cash and Singapore holdings even more to invest in the areas that we mentioned earlier.
We are thinking of shifting our monthly DCA from Syfe into ARKG. We will be initiating a position on ARKG.
We will continue to buy bitcoin over the next year in any market pullbacks of 10-15%.
We are on a constant look out for disruptive companies. In the near term, we are looking to initiate a position on LMND (disrupting the 100yr old insurance space), and average in on any potential pullbacks on Palantir, Tesla, and Unity.
Of course, these may change as Ark will soon release their top ideas for 2021, which may expose us to new opportunities – after which we may research and read more on.
Here’s their list of ideas for 2020:
So yes we will share more about our thoughts once that happens. For now, we will be waiting for their 2021 big idea report. 🙂
We’d also like to inform our readers (that’s you!) that moving forward in 2021, we will be introducing new premium content for readers who are interested in more regular updates from us.
We have not firmed up the details yet, but as a premium subscriber of Mr and Mrs Budget, you will have early access to our trades and investments as soon as we make them. There will be a monthly subscription option and a pay per view option, at roughly the cost of a McDelivery meal.
For our normal readers, you will still get a monthly update (like this article) where we note down our investments and trades of the month. We have been doing this since the start of this publication.
However, there are some feedbacks that these updates can be a bit late as we only make an update the following month, after which the counters and stocks would have moved up by 10-20%.
Hence for premium subscriber, you will be informed earlier on our trades as soon as we make them. Normal readers will enjoy all the content as they have been enjoying them all these while and nothing will change. 🙂
We will be giving out some free lifetime premium membership access to our readers when we launch it next month in 2021. Do drop your interest along with your email in the comment section below or simply drop us an email at firstname.lastname@example.org indicating your interest. Eligible readers will be notified via email.
Merry Christmas! 🙂
Also read: Our New Investment Thesis