What were you thinking?

My thoughts, actually ramblings, on the froth and frenzy in today's global (US) markets. High growth stocks. Hot IPOs. SPACs. ARK. Tesla. Crypto. And more.

Dear owner-investor,

The intent of this note is simply to share my observations and half-baked thoughts; no action needed from your end. Should you have better use of your weekend time - and I sincerely hope you do - please skip this note.

For those still choosing to continue, there are two broad parts to this rambling: my interpretation of the current US market action and a short portfolio update (at the end).

While the US market indices seem stable at first glance, the broader market is anything but. Under the surface, pockets of froth (if you are polite) and frenzy (if you prefer), have been declining since Feb21.

Let's dive in.

Pocket 1.

Some examples of high-growth, high EV/sales (see 1Q21 newsletter for more on EV/sales) names and their decline from Feb21 peaks through 12May21:

• Fastly -66%

• Desktop Metal -62%

• Opendoor -61%

• Teladoc -55%

• Bumble -52%

• Nio -48%

• Chewy -45%

• Snowflake -40%

• Datadog -34%

These are a select few from across various categories: cloud computing, 3D printing, fintech, real-tech (apparently that's a thing now - it's basically technology applied to real estate), e-healthcare, e-commerce, online dating, and EV (yes, we'll get to Tesla).

My larger point here is that this is a broad selection. And actually a fairly representative sample. If you were to extrapolate using, say 3 to 5 firms from each of these categories, I'd bet that their directional tickers aren't any different.

Pocket 2.

Stay with me. Now let's look at some 2020 "Hot IPOs" (declines are from peak price, not necessarily Feb21):

• Nikola -89%

• Agora -67%

• Lemonade -65%

• Rocket -60%

• Palantir -58%

• Unity -57%

• DoorDash -55%

• Draftkings -43%

• AirBnB -38%

Again, broad categories. EV, media and video communications, e-insurance, real-tech, big data, gaming, software, food delivery, e-sports-betting, and more.

Pocket 3.

Wait, we're not done. Told you, read only if you have time. Let's move to SPACs (see my article on SPACulation! for more) and look at some of the largest, high- flying names (declines from peak price, not necessarily Feb21):

• QuantumScape -78%

• Virgin Galactic -71%

• Skillz -69%

• Butterfly Network -62%

• Luminar Tech -58%

• Chargepoint Holdings -57%

• MP Materials -49%

• Social Capital VI -44%

• Social Capital V -41%

Several here are from the poster-boy of SPACs - Chamath Palihapitiya.

See how Virgin Galactic played out with $0 in revenue and $130 million in net loss. Check Chamath's role in there: classic pump-and-dump.

I am not blaming anyone, to each their own. I am simply presenting facts and asking you - what were you "thinking" "playing" with your own money?

Speaking of poster boys (and girls), I think this froth and frenzy has a few:

• Elon Musk. Tesla and Cryptos. Tesla down 34% from peak, Cryptos change by the minute. But Elon Musk has a role in both. He is one of the rich faces (whales). More below.

• Chamath - SPACs. Down 40-80% YTD. Covered above.

• Cathie Wood - ARK, High growth, Negative free cash. Down 33% YTD. Correlation to Elon, SPACs, Cryptos. More below.

• Several rich faces (whales) - Cryptocurrencies and the speculative mania. By the time I write, they'd have changed (both the whales and their currencies). More below.

This isn't a personal vendetta against anyone. Heck, why would I have one? I have benefited from all. I am merely talking about excesses in the current scenario and to help simplify for the audience, I'm using these "poster labels". There is no good or bad here, things simply are.

The first three poster labels are well-known. Let me talk about the fourth. Because I believe they are all linked in this market.

Pocket 4.

On cryptocurrencies, I have one simple observation. Crypto is derived from the Greek word "kruptos" which means hidden. Later its meaning evolved to a "vault". And forgive me for being literal, but to me, a vault resembles safety, stability and security.

Today's cryptos are no vaults. If a crypto on-boards a rocket, says hello to some undiscovered planet (name your own - that's the trend nowadays) and returns to the earth before you blink (daily volatility can exceed 15% some times), then these "hidden things" are surely not a store of any value. And they are by no means a currency.

I am learning that 2% of the world's digital wallets own 95% of Bitcoin. That 65% of Bitcoin mining is done in China. That the Bitcoin network consumes more electricity than most countries on this planet.

Citing concern for the environment, a couple days back, Elon Musk tweeted that Tesla will no longer accept Bitcoins. We all know what the real reason behind backtracking from Bitcoins is.

Hope you can see why Cryptos, Tesla, Elon Musk, Cathie Wood (ARK holds Tesla, Coinbase and Square in its top 10 portfolio) are linked under the surface.

Over the past 24 hours, Binance - the largest crypto exchange in the world that traded over $80b in volume - is facing investigation on money laundering from the US Internal Revenue Service and The Department of Justice. By the way, the SEC is already busy with charging Ripple Executives, next development is on 21May.

To me, this is absolute bananas! I can't believe I'm writing about a real world in which we exist. Everything seems up-in-the-air!

Enough, wrap up now.

Oh well. Back to planet earth. High growth, Hot IPOs and SPACs have corrected or are in the process of correcting significantly.

Keep an eye out on the crypto developments. Couple that with a close watch on the Fed's behavior (which partly enabled this in the first place). Between these two, we might have the key actors of the unwinding play.

One caveat though. Does that mean that all of the businesses I've listed in this note are necessarily bad businesses? Not at all. Far from it.

While I don't follow all the names here, I do follow a few. There might be some solid ones to own. Give them to me at a price that I like, and I'll bite. Till then, they could as well be serving their hypothetical "total addressable markets" on Mars. Doesn't bother me. And I sure hope it doesn't bother you either.

Speaking of not bothering us, let's move focus to our portfolios. You know what we own. You must have received and reviewed your April monthly activity statements.

You'll see we have plenty of dry powder (even after deploying 20% cash in 3 days during March21 correction). Our Top 5 Holdings, include direct and ETF positions, cover US, China and rest of the world, are health-and-wellness-biased, and constitute about 50% of the invested capital.

These holdings remain largely unaffected by the drawdowns so far. Earnings results of most of our investment positions have been encouraging (several came in over this week).

Please note that we are in a portfolio rotation and build-out phase. Both our core and new holdings have room for more. All else equal, I am hoping to take advantage of price corrections as they present themselves.

That's it for now. Trust you and your dear ones are in good health. Please follow "common sense" protocols amidst conflicting regulatory announcements across the world (I don't care whether you're vaccinated, please wear a mask).

Stay careful, stay safe,

Kunal