By Andrey Dashkov, analyst, Casey Research
 |
This year has been wild for everybody.
Looking back, you’re probably re-thinking some of the investment decisions you made in 2022.
But don’t worry. Everybody’s in the same boat.
Although, what happened only matters to the extent of informing your next step.
And history isn’t a particularly helpful guide.
If your stock positions are showing a loss, it’s not a reason to give up on stocks.
If you made a chance gain on a bond exchange-traded fund (ETF), don’t go all-in on bonds next year.
History is a tricky teacher…
But some patterns hold over the long term. Such as inflationary environments… recessions… booms and busts. And some investments deserve your skepticism… especially given our current market environment and economic outlook.
So today, I’ll take a step back and suggest two investments that you need to stay away from as we head into the new year.
#1: “Growth-At-All-Costs” Stocks
The Silicon Valley “growth” mantra has made its way into the thinking process of millions of investors.
They are mesmerized by the prospect of a quick win. Of another story that starts in a garage and ends as a Nasdaq-listed unicorn.
Approach these types with caution. Unless you have extreme confidence in the team and the product, stay away.
This is not the best time to be a company that has little or no revenue and is burning through cash in pursuit of growth.
Easy capital is gone. And it may be gone for a long time. Be prepared for interest rates to remain well above their pre-tightening levels. And be prepared to see the companies that rely on “free money” to tank and bring their shareholder value to zero.
Take Uber. The company was founded in 2009. It went public ten years later, in 2019. It only began returning positive free cash flow in the second quarter of 2022.
Uber got lucky: its period of “growth-at-all-costs,” or the strategy of putting revenue growth first and disregarding profits, coincided with the era of free money. Cheap capital continued supporting the company even though it was recording losses. Then, it became profitable at the exact same time as when investors started demanding it.
I’m not recommending Uber now, of course. The company is just an example of how much time it takes to get from the “garage” stage to profitability. For Uber, it took 13 years.
So a cash-burning start-up that’s still far from profitability in 2022 may need even more time. If you’re absolutely certain it’ll get there despite the tighter monetary environment, it’s your call.
But as a rule, stay away from these “growth-at-all-costs” companies.
#2: Centralized Crypto Plays
This one should be easy, right? Every investor has been following the collapse of FTX, a crypto exchange.
It went from being one of the market’s darlings to bankruptcy. And the story isn’t over. We may see more bitter legal proceedings, especially as Sam Bankman-Fried – the founder of FTX – was arrested in the Bahamas last night.
If you’re into crypto, this event must be extremely disappointing. Crypto has been an exciting asset that not only performed well until recently but also promised a complete transformation of the financial system as we know it.
After the debacle, however, people have become skeptical. And rightfully so, as some of the companies that stole the crypto spotlight turned out to be borderline fraudulent.
At Casey Research, our advice is to let this situation resolve itself. In the future, better business models and improved software will emerge and deliver on the core crypto promises.
But for now, anything that has to do with “centralized crypto,” or businesses that act like intermediaries for the buyers and sellers of crypto, should not be on your radar.
Crypto itself, in its pure and decentralized form, is another case. But avoiding “middleman” businesses in the crypto world is essential.
The collapse of FTX showed how little, if any, due diligence even the world’s biggest hedge funds and other institutions do.
Investors are discovering that crypto isn’t simple. And while we’re still learning how much “contagion” the FTX collapse will have on the crypto ecosystem, again, be wary of anything that has to do with “centralized crypto.”
Investors are also realizing that some of the people who looked like true believers have been scamming them out of their savings and retirement funds.
Do your own due diligence. And as always, we’re here to help.
Good investing,
 |
Andrey Dashkov
Analyst, Casey Research
P.S. If you’d like to be better prepared for the new year, then you should also be on the lookout for an event happening in Washington this month.
It could trigger a major housing crisis – similar to what happened in 2008. The good news is, you don’t have to get caught on the losing side of it.
That’s because Casey Research colleague, financial expert, and journalist Nomi Prins is hosting a special strategy session tonight, on Tuesday, December 13 at 8 p.m. ET, to show you how to turn this crisis into an opportunity.
Plus, Nomi will reveal a little-known strategy she learnt after 15 years on Wall Street that could help you come out of this storm with big profits. She’ll even give you the name and ticker of an opportunity set up to be one of the top plays of 2023 – all for free.