I Lost $620k From Just 2 Holdings In 2022!

This is not click bait, I really did. Sort of.

Decembers are when I make plans for the upcoming new year, thinking about where to find new organic growth for the upcoming year. Januarys are when I reflect on the previous year, and do a bit of data analysis on what went wrong and how to improve my portfolio’s “defence”.

I have several small, negligible mistakes in 2022, and I don’t think much can be gleaned from those. I already know what went wrong, and anyway, many times, the results are not reflective of some error. Small “mistakes” may not even be a mistake, and the same action and thought process could be a big win under different circumstances. I did make 2 big mistakes in 2022 though, and here they are:

Greenidge Generation Holdings Inc (GREE)

As you can see, the share price has been 1 way south the entire way. Well, I didn’t get in right at the peak, adding mostly after it has tanked something like 50% from the peak. At the start, the company was profitable, committed to large capex to acquire more bitcoin miners to expand operations and had the pedigree of an established shareholder and backer. They also had the required financial loans to back their future expansion. Everything pointed to huge growth in the coming years. I thought at that price, it’s worth holding a position, at least for a few years.

Literally right after entering, whatever can go wrong, did go wrong. Whatever you couldn’t think of going wrong, went wrong anyway. From the regulatory and licensing woes, all the way to the collapse of BTC prices… there was just absolutely nothing nice to say about the company. I really can’t think of 1 thing that didn’t go wrong.

On hindsight, what even piqued my interest to begin with, was 1 solitary line in 1 of their early investor deck: By controlling their own energy source, the company touted an average BTC mining cost of $10k USD/btc

I’ve been trying to search through their own press releases but can’t find that 1 powerpoint presentation that said this. But I swear that’s what caught my attention then.

“Mining cost of $10k USD” would mean a massive ramp up in profits because such operations are highly scalable, similar to the big tech kinda businesses. With the “through train” set up, with all the required infrastructure in place, future incremental in revenue and profits doesn’t incur that much expenses.

Well, as it stands, the current price of BTC is way above $10k USD, even after the crash, yet the company is bleeding boatloads of cash, and as the financials stand currently, they’re slated to be on their way to Chp 11. So much for that “mining cost” of $10k USD per BTC. That obviously didn’t pan out.

Was the number touted a lie? Perhaps. Or rather, it’s just “creatively” conjured: the $10k number could be “just” the mining cost as in energy cost, not including all the interest expenses, capex for future orders, and all other operating expenses.

End Result: I took a loss of 99% and sold most of it (still kept some of it). The total quantum loss is about USD 240k or so (Who’s counting the few thousands here and there when it’s a 6 digit loss right? LOL)

System1 Inc

This is the 2nd jilted lover of TTF for 2022.

I don’t think this is a total write off right now tbh, and I still hold a substantial stake, but I did recognize some losses by cutting the portfolio exposure substantially. Business is largely impacted by the cut in advertising budgets globally in 2022, similar to other big tech like Meta.

That’s not the mistake though. The mistake was getting too emotional and attaching too high a valuation when things were rosy. I don’t usually make such a mistake though: I’m just not easily swayed by most things. Not sure what happened here, could be the late 4am nights making me act out of character. Maybe I was feeling too rich and had too much capital to deploy. Even the brightest minds in the world would do stupid stuff that’s totally out of character once in a while.

End Result: Some unrealized loss, some realized losses. Total quantum (both unrealized and realized) is approximately USD 220k.

Collectively, these 2 were TTF’s Thanoses for 2022, combining their Infinity gauntlets to whack me with a -USD460k, and at an exchange rate of 1.35, that’s approximately SGD 620k! Ouch ouch ouch.

Without the losses from these 2 Thanoses, back of the envelope calculations tell me TTF would’ve added another +25% to the annual ROI, bringing it up from +11.94% to around +37% instead!

But that’s not the real story here. I just needed to open with this headline cos people out there like to read/watch others fail. It’s fun.

The real story is, I finally bit the bullet and decided to start cutting these 2 stakes in earnest sometime in end Oct 2022, having suffered the abusive relationship for the bulk of the year.

Check out how TTF’s performance has fared since then:

Without the albatross of losses these 2 Thanoses have been dishing out to TTF for almost the entire year, TTF’s performance took off like a freaking rocket! no shit man, my methodology and analysis has been working like a charm, yet for every dollar I earned, these 2 Thanoses had been losing 2 for me.

At the start of November 2022, TTF was still at a -22.56% MWR, far underperforming the SPY index. Yet by the end of the year, TTF has far surpassed the index. (https://thumbtackinvestor.wordpress.com/2023/01/02/thumbtack-fund-report-13-hello-2023/)

The coincidence is not coincidental.

Lesson here is this, and it’s going to sound amazingly simple and even stupid to many folks reading this: When you have a Barca team with a frontline of Messi, Suarez and Neymar, supported by Iniesta right behind the front 3… don’t go into the transfer market looking for another striker or playmaker, go look for better defenders or a keeper!

Find a Javier Mascherano or a Claude Makélélé to sit in front of the back 3 perhaps, or just find a Jaap Stam to front your central defence. Whatever it is, get out of the way, just watch your backline closely, replace the ones at the back not doing their job and let your frontline do their job.

TTF has generated double digit money weighted returns every year since inception:

2020: +89.83% (https://thumbtackinvestor.wordpress.com/2021/01/02/thumbtack-fund-report-6-rose-of-jericho-2020/)

2021: +24.91% (https://thumbtackinvestor.wordpress.com/2022/01/07/thumbtack-fund-report-10-hello-2022/)

2022: +11.94% (https://thumbtackinvestor.wordpress.com/2023/01/02/thumbtack-fund-report-13-hello-2023/)

For 2023, it’s only been 4 trading days into the new year, but TTF is firing on all cylinders, proving the methodology and edge over the markets exists:

Just 4 days into the new year, TTF has generated returns of +8.05%, outperforming SPY’s +1.45%, and along the way, added a very cool USD 193K (growing from $2.11mil to $2.30mil) to the portfolio’s AUM, in a mere 4 days.

(This chart above is TWR, not MWR, cos I’m lazy to go generate another report from IB, but for 4 days, it won’t differ much anyway)

As one can see on the chart above, on days when the S&P has gone down, TTF has gone up slightly. On days when S&P has gone up, TTF has gone up even more.

As I’ve mentioned right at the start, TTF was always structured as a long-short fund. On top of that, I’ve tried to make it into an all weather portfolio: one that’d do ok, maybe slightly underperforming or slightly outperforming the markets during periods of bull markets, but showing it’s true class by staying in the green when the markets are tanking and everyone’s portfolios are bleeding.

By compounding outperformance on the red days, even if it’s small quantum wise, whilst matching or even slightly outperforming on the green days, over the entire year, the alpha would be massive.

To achieve this though, risk management is key. This means, in my experience at least, giving up on POTENTIAL alpha, even massive alpha, if it’d mean massive losses if I turn out to be wrong. At the end of Dec, that’s exactly what I did: Covering a short position with a key crucial event coming up. As it turns out, the key event turned out to be nothing, and I could’ve garnered an additional gain of USD 40k in a matter of 2 weeks if I didn’t cover the short position. Yet if I was wrong, the losses would’ve easily been closer to 6 digits. (Yes, it’s a pharma company. What else could’ve this sorta
key events”?) I couldn’t afford to risk that, and covered the short position early.

Currently, TTF is still a puny fund and with such a small AUM, it’s easy to generate massive alpha by applying an edge over the markets in little known, little talked about areas of the markets. I don’t do too many complicated stuff, but instead, look out for a very specific, precise situation, and such a situation presents itself, sometimes, in a very transient manner. So yeah, it is time sensitive in that aspect.

This approach is not just time sensitive, but also very much effort intensive. But with a small AUM, it’s still pretty much do-able. I think I can still find places to deploy capital efficiently. As the AUM gets larger though, I foresee I’d have to adapt and change my approach. It’s going to be very very hard to still do the exact same things that I do right now, when TTF’s AUM reaches say $10mil, and still achieve the same results. I just don’t think there are so many opportunities in what I’m doing for a larger portfolio.

Warren Buffett famously said that if he was managing only USD 1million, he is confident he could generate 50% returns annually:

So WB says he could GUARANTEE 50% on $10mil AUM…

I don’t think I can beat WB, so I guess, I’d have to “settle” for maybe annualized CAGR of 30% from now till $10mil.

That’s really fine by me. I think I could sleep very very well with that. Hehehe.


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