Whitney Tilson likes to toot his horn sometimes in his daily Empire Financial Research email. But that’s fine because he has a track record of recommending a lot of big winners.
Plus, he’s got a wealth of investment experience and knowledge that’s of value to investors.
Here are two tried and true lessons that were reinforced this week by the latest crash in cryptocurrencies.
The crypto sector has been weak for a couple of weeks and absolutely imploded this week (though they’ve rebounded strongly since then).
What’s happened here underscores two important lessons.
One of them is not what you might think I’d say – something along the lines of “never speculate.”
In fact, it’s OK to speculate with a small portion of your portfolio – but you need to be smart about it.
Lesson No. 1: Every hot sector attracts all sorts of fraudsters and promoters, which you need to identify and avoid.
In the electric-vehicle sector, for example, avoid over-hyped, revenue-less dogs like Nikola (NKLA), Workhorse (WKHS), and Lordstown Motors (RIDE), and instead buy Germany-based Volkswagen which is up 14% since we recommended it in Empire Stock Investor in March – or the Global X Lithium & Battery Tech Fund (LIT) – which has doubled since we recommended it in February 2020.
In the crypto sector, stick to bitcoin and ethereum, rather than turds like dogecoin (I call it “doggy-coin”), which has crashed 34% since I called the top in my daily e-mail 13 days ago.
It turns out I was too conservative when I wrote, “It will be down 30% within a month”. I stand by my other two predictions that it will fall “50% within three months, and 80% within a year.”
Lesson No. 2: If you’re investing, I generally advise being slow to take profits – in other words, let your winners run. If you’re speculating, however, you should be quick to take profits.
For example, after we recommended ethereum in Empire Stock Investor on April 7, it doubled over the next month, so we sent a special alert to our subscribers telling them to sell 55% of their position.
Thus, even with the recent pullback, they’re sitting pretty – and have “dry powder” to buy it back if they wish.
Similarly, my colleague Enrique Abeyta and I were never confused about the nature of what we were investing in when we recommended shares of space-tourism company Virgin Galactic (SPCE) to Empire Investment Report subscribers in December 2019 at $10.20.
We analyzed the company’s fundamentals, including estimated future cash flows, and even visited its Spaceport in Las Cruces, New Mexico.
But we also recognized that this was a fairly speculative investment: A lot of things still had to happen before Virgin Galactic could begin flying tourists into space, and profitability was many years away.
However, we were willing to take the risk, in part because we thought this was the kind of company that retail investors might get really excited about – SpaceX and Blue Origin aren’t public yet, so this is one of the only ways investors can play the theme of space travel.
Sure enough, that’s exactly what happened. Only seven weeks after our recommendation, the stock doubled – and we told our subscribers to sell half of their stake.
Only a week later, it nearly doubled again – and we said to sell another half. They were both great sales, as the stock fell all the way back to our purchase price within a month.
But we continued to recommend holding the last 25% of the investment, which paid off when the stock got caught up in January’s meme-stock bubble and briefly soared above $50 – at which point we told our subscribers to sell the rest.
Another great sale, as the stock closed yesterday at $17.27 per share.
In total, subscribers who followed our recommendations more than tripled their money – a 215% return – though the stock is “only” up 69% since we first wrote about it.
To summarize the lesson here:
If you invest in something speculative and get lucky – the price soars despite no change in your investment thesis – take some money off the table.
Things that double quickly can also get cut in half quickly.
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