To The Moon

There’s a randomness to building any investment portfolio. We can do the same amount of work on two stocks, build the same conviction, and arrive at wildly different outcomes for reasons that are out of our control.

As I’ve built out the Asymmetric Portfolio, this randomness has been in full view. On the downside, companies I love like $Portillo’s Inc.(PTLO)$ ’s have performed well operationally, but have lost money on the stock market. And stocks that I’ve been less certain about like $Crocs(CROX)$ have crushed the market.

No stock in the portfolio has done better than $Coinbase Global, Inc.(COIN)$ , which is up 215% since the Coinbase Spotlight article was published on June 1, 2023. Today, I want to not only celebrate that success but take an honest look back at how this position got here and what we can learn from it.

Balance Downside and Upside

I think a lot about what the downside risk is versus the upside potential in any stock. Ideally, downside risk is low and upside potential is enormous.

Coinbase wasn’t a particularly risky company when the spotlight article was written. According the to article, the market cap was $14.6 billion and cash on hand was $5.3 billion, a nice cushion for any company.

Operationally, the business wasn’t in great shape, but operating costs had come down sharply and cash flow had improved.

If there was a recovery in the crypto market, Coinbase was a natural winner. The risk was low and upside potential was high.

Since last summer, the risk profile has changed, but that’s natural as a stock rises and executes on some of its optionality.

Lean Into the Unknown

I could never have guessed that Bitcoin would rise to new highs within a year or foresee the approval of Bitcoin ETFs by the SEC.

What I could see was the optionality in Coinbase’s business.

In the spotlight, I covered potential growth areas like payments, digital assets, loyalty programs, smart contracts, financial instruments, USDC, and more. I didn’t know what would stick, but if the blockchain ends up being disruptive I think Coinbase will be a winner.

We often look for certainty in investing. I’m looking for the uncertain upside. That’s where the asymmetric gains are made and where we have an advantage over the market.

Be Confident in Your Analysis

My biggest mistake with Coinbase specifically was my confidence level and how much I allocated to the portfolio. Go back to the Coinbase Spotlight from June.

I did the work.

I built the conviction.

And then I made Coinbase a TINY position in the portfolio. I wanted to buy more, but I had other people in my head.

What will my friends think?

What will people I respect who call crypto a scam think?

Aren’t people going to laugh at me buying a stock that’s down 90%?

I got in my own head. I had conviction, but I didn’t trust it enough. If I had, the portfolio gains could have been even bigger.

Buying unloved stocks is uncomfortable.

It’s supposed to be.

Investing is hard.

Beating the market is even harder.

What I’m Doing About It

This week, I’m making my monthly allocations to the Asymmetric Portfolio.

There are two stocks, in particular, that are unpopular, down big from their highs, and people I respect may think I’m crazy for buying them.

I’m buying anyway because I did the work and I’ve built my conviction.

I’m learning and putting lessons from Coinbase into action.

https://asymmetric-investing.beehiiv.com/p/coinbase-stock-up-215