The Hoot #6

 Welcome to February!

My name is Matt Brimacombe. I'm a graduate student studying Finance, and an aspiring fund manager. The Hoot is a weekly newsletter that breaks down some of the biggest and most-relevant economic and business events; analyzes both public and private markets, and all securities that entail; and touches on some sports news, with a focus on rugby. Any feedback is greatly appreciated, and you can do so by responding to this email. Enjoy! 🦉

The Art of Storage

Year-to-date Market Performance:

• The S&P 500 is up 6.08%

• The Dow is up 2.51%

• The Nasdaq Comp. is up 11.04%

• Bitcoin is up 38.85%

• Ethereum is up 33.12%

• The Scatt Capital Strategy is up 21.98% (up 19.63% since inception)

• Big Earnings Week! We had approximately 40% of the S&P500 reporting last week. Majority of companies have beaten Wall Street's expectations, however, dismal guidance has been given for the fiscal year ahead.

• 92% of Scatt Capital's portfolio companies have beaten expectations in terms of EPS and revenue.

• 2022 Q4 GDP data showed quarterly growth of 2.9%, beating expectations that ranged from 2.3% to 2.8%.

• Personal Consumption Expenditure (an index measuring the prices people in the USA pay for goods & services) matched expectations of a 4.4% YoY rise. This is the Fed's 'favorite' inflation gauge.

• The next interest rate hike will be decided on Wednesday this week.

Hot & Cold Storage

After reading The Hoot, you now decide that you'd like to buy some crypto. So you log onto a well-known exchange, create an account and make your first purchase. Now you're thinking, alright I don't want some hairy, overweight slob in the Bahamas looking after my crypto, so how do I safely store this? In crypto, we have wallets, the same way we do in the real world. The difference is that there are 2 different types.

If you feel like this guy... Don't worry. The Hoot will gradually break it down for you 📚

The first is what is known as a 'hot' wallet. Hot wallets are connected to the internet (whether it be through your phone, laptop, iPad, etc.) and thus pose a significant risk of being hacked. Most centralized exchanges offer custodial services (hot wallets), and thus pose the inherent risk of being mishandled/managed, like in the case of FTX. Cold wallets, on the other hand, are hardware (physical) devices which keep your data (crypto) offline. Unlike a hot wallet, a cold wallet cannot be hacked without physical access to the device, therefore making these wallets the most secure & stable. 

The most well-known type is made by a company called Ledger. They offer a variety of products and are widely considered to be the safest and most secure wallet on the market. I store mine on a Ledger Nano X and have just preordered a new Ledger Stax. They're super simple to use, and give me an extra hour of sleep every night. If you want to grab yourself one, I'll leave a link below. 

What to Walk Away With: Store your crypto in a place that allows you to sleep at night. Whatever you decide on, make sure you fully understand the respective risks & consequences. My advice is to choose wisely ❤️.

Chart of the Fortnight: Realty Income Corporation

To give you all a bit of context, in each newsletter I will briefly discuss one or two companies within my portfolio and attempt to make some sense of their chart and any news-related events they are involved in. This week we'll be discussing Realty Income Corporation (RIC), which was down 10.26% in 2022, and is up 7.05% year-to-date. RIC is what is known as a Real Estate Investment Trust - more commonly known as a REIT (pronounced 'reet'). These are companies that own and operate some form of income-producing real estate, whether it be commercial, residential, or industrial real estate. An awesome aspect of RIC is that its dividend yield is relatively high at about 4.4%, which is supported by the company's 11,700+ cash-producing properties - and it pays these dividends EVERY month. Through the dividend reinvestment program, the monthly compounding effect is an amazing feature to add to any portfolio. Compare RIC's performance to the S&P500 below.

Real estate is certainly a more stable asset class, and its historical growth has proven so: Over the last 30 years, the sector has averaged out annual growth of about 5.3%. RIC has been around for 54 years, declared 631 common stock monthly dividends, and increased the dividend 118 times. That, along with its diversified approach to a stable asset class, makes Realty Income Corporation ($O) a great company to consider for your portfolio. 🏡

The Other Hindenburg Disaster

Hindenburg Research (HR) is an investment research company founded in 2017. In addition to their research services, they also have an activist short-selling (betting the share price will go down) hedge fund through which they carry out trades. 2 of their previous targets include EV-maker Nikola, and Twitter (each of which ultimately resulted in a small killing for HR). A new, big target was recently announced: Indian billionaire, Gautam Adani. The Adani Group engages in a broad spectrum of businesses including port management; power generation & transmission; mining; natural gas; food processing, and many others. The 2-year-long investigation claims that the company committed stock manipulation and large-scale accounting fraud. 

Gautam has added over $100 bn to his net worth in the last 3 years 🤑 

The report also happened to be released on the same day the Adani Group had a $2.4 bn equity/stock offering (which generally causes a dive in price due to the dilution of existing shareholders) - How's that for timing, right?! Given their past hit-rate, people are buying into the report! So much so, the Adani group has already lost over $50 bn market cap in less than 48 hrs 🤨. And OF COURSE, guess who held a huge short position on Adani BEFORE the release of the report... you guessed it... HR's Hedge Fund! 

What that means: Due to the timing of their trade, they were near guaranteed to make money as ANY decline in share price would result in profit. Given their previous success, as well as their following - HR were bound to hit bullseye. Well, when you put it like that... Is Hindenburg actually the one guilty of stock manipulation?

The questions then start to roll in: Are the fraud accusations true? Are the companies over-leveraged as per the report? Were the companies just overvalued, and a dive was inevitable? All great questions, which will be answered in time. In the meanwhile, Hindenburg better make sure they're on the money, otherwise I can almost guarantee you that they will be the first hedge fund to file for bankruptcy in 2023, after Adani's countersuits❗️

Rugby-Related

We had more United Rugby Championship over the weekend 🏉 

I'm nervous for the guy Siya is looking at... Good luck brother, whoever you are! 

South African team results: 

• Bulls vs. Scarlets: Lost 28-37

• Sharks vs. Edinburgh: Won 22-19

• Stormers vs. Ulster: Lost 5-35

• Lions vs. Connacht: Lost 24-43

 5 days until the Six Nations 🤑

That wraps up the 6th edition of The Hoot. 

See you next week for another update. 🦉

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.