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Bitcoin and ether cryptocurrencies

It is very tempting to write off bitcoin and other cryptocurrencies as wildly over-hyped speculations. Human beings often do that; it is easier than thinking. Establishment figures like the Governor of the Bank of England don’t like bitcoin and so make disparaging comments but that is hardly surprising and certainly not conclusive.

What I noticed a long time ago is that bitcoin is about the most perfect speculative instrument ever devised. The supply is fixed even more rigidly than the supply of such other famous stores of value as gold while demand is arguably related to the fast-growing amount of paper money in the world.. This is why one very simple target for bitcoin is the value of all the world’s gold, circa $7.5 trillion, divided by the maximum potential number of bitcoins, fixed by the founder at 21m. This gives a figure of $357,000 per bitcoin.

This is an arbitrary figure but not an unreasonable one if bitcoin is taking over from gold as the world’s favourite store of value and if bitcoin can reach a third of a million dollars there are going to be plenty of people targeting a million dollars to take the value of all the world’s bitcoin to $21 trillion.

One of the beauties of bitcoin is that it and other cryptocurrencies have no fundamentals which can be used to say they are cheap or dear. The right price is the one determined by the interplay of buyers and sellers at any moment in time and one thing we do know is that there is huge global interest in buying bitcoin.

My simple approach to bitcoin which has guided my strategy from the beginning is (a) to assume that the price could rise much higher. If it can go from being priced in cents to over $1,000 and now to over $50,000 anything is possible. Then (b) I use chart signals to tell me when to buy. Because of the long term uptrend these have worked so well in the past that since 2015 bitcoin has been the single best performing asset on Quentinvest.

One thing that has worked very well with cryptos, especially the main two, bitcoin and ether, has been to ride out volatility and never sell. The chart buy signals have also worked well but this is always the case when an asset is in a long-term secular uptrend which is why I work so hard on Quentivest to identify such assets.

Microstrategy and Silvergate Capital Corporation offer alternative ways to buy shares in companies whose fortunes are closely linked to cryptos.

I am looking at a chart of the Nasdaq Composite index, which measures the performance of the more important Nasdaq-quoted companies since launch at 100 in 1973. It has risen from 100 to 14,639, a rise of 146 times. The climb has been punctuated by three severe bear markets, in 1974, 2003 and 2008 respectively. The normal direction of travel is up and the forces pushing it higher seem to me to be becoming stronger all the time. I expect it to reach six figures within a decade although that is obviously pure guesswork.

My impression also is that bear markets have been replaced by volatility, which can be very extreme. Covid-19, for example, triggered a full scale bear market move compressed into two months as the index fell from 9,824 to 6,628. There have been further bouts of wild volatility since then and there will no doubt be more in the future. Volatility has become a fact of investing life, especially with the kind of high-growth, high-momentum stocks favoured by Quentinvest.

This is why as well as the focus on share selection, which has always been a feature of the Quentinvest approach I am also developing strategies for exploiting that volatility to add to holdings at favourable prices.

Every time the market has a wobble, what I describe as snakes in an endless game of snakes and ladders, people worry that an old-fashioned two year bear market is developing. It is always a possibility but I think unlikely. Since 2009 no reaction has lasted longer than three months. Part of the reason for this is that the toxic cocktail of higher inflation, rising interest rates, governments slamming on the brakes leading to recession doesn’t seem to be happening any more.

Why? I believe this is precisely because of technology and globalisation which have made the global production process dramatically more flexible and efficient with further improvement coming all the time. Strong demand, quantitative easing and fiscal expansion are being absorbed without causing a significant rise in inflation. Also central banks are on the watch and only have to breathe caution for everybody to calm down.

Labour shortages are emerging in some countries but will this lead to inflation or more investment in automation and robotics.

So I believe it makes sense to buy and hold, to add into strength after weakness and to expect most well chosen stocks, no matter how severe their sell-offs, to eventually rally to new peaks. As I say in my e-book on the golden rules of investing with Quentinvest (launching soon) – it pays to be an optimist.

It also pays to choose the right stocks which is where the QV focus on technology comes into play. Big share price moves come on the back of something big happening. The technology revolution is a massive something big driving huge share price moves and ones which run and run. I recently alerted yet again in Quentinvest all the big names in technology, Apple, Alphabet, Amazon and others, even though they have already been recommended countless times across the QV ecosystem. The Apple share price has been rising, with periodic interruptions, since 2003 and looks set to keep climbing for years to come.

This is not surprising given the role that Apple devices and services play in our lives. Stocks like Apple are the technology revolution so 10 years from now these companies, huge as they are could be dramatically bigger as could all the companies in the second, third and fourth tiers playing their exciting part in driving the revolution forwards.

I am starting to become more excited about the immediate stock market outlook. There willl be more to say about that below but first I want to talk about what I see as the primary role for Great Charts in the Quentinvest ecosystem.

Great Charts for Quentinvest is the new name for Chart Breakout, which gives you a strong clue to what the publication is mainly about. I am looking for stocks with 3G characteristics – that requirement will never change – which are making chart breakouts.

Beauty is in the eye of the beholder. Your idea of a chart breakout may be different to mine. In Great Charts you get to see my selections.

Great Charts has become a part of what I am starting to think of as the Quentinvest ecosystem. This also includes Great Stocks, QV Share Alerts and for subscribers who take the full package QV for ETFs alerts.

Within that I have also broken QV Share Alerts and QV for ETFs into alerts for shares and groups of shares that I like for whatever reason including being new additions to the portfolio, which I am continually refreshing with new ideas.

It also includes buy signals based on my programmatic strategies and what I call buying the green. Programmatic buy signals are primarily based on moving averages. I look for golden crosses where monthly or weekly moving averages cross higher after a period wen they were falling.

Buying the green involves monitoring candle stick charts and issuing buy alerts when a green candle follows a red one.

If this all sounds impossibly complicated the good news is it works for me and there is no need for subscribers to become bogged down in the details. The whole strategy could be summed up as (a) selecting shares to go into the portfolio and (b) monitoring the price action to identify subsequent timely moments to buy the shares. This could be either adding to an existing holding, sometimes called pyramiding or opening a position for the first time, which I sometimes call climbing aboard.

As I keep saying the strategy works in part because of its one decision core. We only buy. We almost never sell. I see sell signals on the charts all the time. These could be programmatic, when the moving averages turn down or selling the red, when a red candlestick follows a green one. Sometimes the signals work very well but overall my judgement is that they lead to a trading mindset and in the long run that does not work.

The Quentinvest strategy is totally pragmatic. Investors who never sell do better, I believe much better, than those who do. The underpinning for this is good stock selection but that I believe is the forte of Quentinvest and the best thing I can do for my subscribers. I pick most of the shares that over time go up a lot, the Amazons and the Netflixes and most of the stocks I pick go up. Allied to a never sell approach and where possible a policy of adding to holdings on subsequent buy signals it is a powerful strategy for building a portfolio that over time delivers large capital gains and often works well on the income front as well.

So, back to Great Charts. As subscribers know I have various tables of past recommendations, which form the heart of the QV strategy and enable me to monitor performance. I use my tables to tell me that I am doing a good job for my subscribers and don’t need to retire yet. I even have a master table to which I add shares in companies that look to have 3G characteristics but have not yet been recommended. These so often end up being recommended at a higher price that I am considering having a section in the QV eco system for new entries to the table.

When I am about to write Great Charts I go through the master table looking for chart breakouts. I am influenced by what already I know about the shares in the table. For example, the most recent issue of QV for Shares featured 10 of the world’s biggest technology companies. My impression is that they are still full of running like the technology revolution they are spearheading and I expect their shares to keep climbing.

I also suspect that they are like an early alert system telling us that technology shares generally may be about to head higher. This is exciting because technology shares form the heart of the QV portfolio, which is stuffed with fast-growing technology companies. It is amazing how many of these companies are delivering supercharged growth in some key metric, often as high as 100pc or even more. Indeed, I am also running a series in QV for Shares looking at some of these explosively growing businesses, which are exciting for their founders, their managers, their investors and their employees. There is a horde of super-exciting companies quoted on global and especially North American stock markets but also elsewhere. I want subscribers to own as many of them as possible.

These shares are volatile. Early investors have huge profits. They benefited from lockdown which sent digital transformation into overdrive. Profits are deferred into a distant future so they are vulnerable to rising discount rates when interest rates rise and investors are always scared that even a slowing in growth or a cautious statement will make the shares collapse.

Investors should remember that these are classic ‘win in the end and win big’ stocks. You have to hang in there, have faith and ideally use that volatility to add to your holdings. However I never advocate buying into weakness because you never know when a business is losing the plot. I prefer always to buy on buy signals, what I sometimes call leaning into strength.

This is important because Quentinvest is all about backing winners and allowing losers to fade into obscurity. It is a form of capital allocation rather like what we see in the broader economy. I always want may money to go where the action is even if this upsets my subscribers.

A lady cancelled her subscription the other day partly on grounds of age but also because she didn’t like the fact that I recommend so many US shares. This is a perennial complaint and one with which I have very little patience. Come on guys, which would you rather hold, Netflix, up 1,500 times in the 21st century or Barclays, down by 66pc on its level in 2000. The answer is surely so obvious that no-brainer hardly does it justice.

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I have grown up with the idea that shares were either in a bull market, generally rising or in a bear market, generally falling. Since 2009 the pattern has changed somewhat with a long bull market, led by technology shares, interspersed with periods of profit-taking that have occasionally been so dramatic that they looked like what used to be called panics. These new style panics could be very severe but also have been short-lived, typically around three months from peak to trough.

Covid-19 and the associated lockdowns led to a change in the pattern. Lockdown forced activity on-line and had a devastating impact on all activities which involved people gathering in groups or even coming close to each other. A big chunk of the stock market went into meltdown with businesses fighting for survival and clinging on with government support.

Meanwhile technology shares were off to the races. They benefited from booming demand as digital transformation swept the planet. They also benefited from the build up of savings as people trapped at home spent less and saved more and looked for a home for their money that paid more than cash in the bank. Last but not least their shares flew higher as they became the only game in town.

After the party comes the hangover. Technology shares, we can now see, flew too high in this halcyon period and many are suffering as a result. I define a down trend as occurring when the monthly averages I use (five and nine months) are falling with the five below the nine. A number of exciting names are in downtrends by this metric.

There is as yet no sign of any noticeable deterioration in the fundamentals. I look, in all my publications, for stocks which are 3G (great chart, great growth, great story). At the moment the great chart bit is not always behaving but the great growth and the great story remain fully intact. Companies I like on fundamental grounds are mostly still growing strongly and addressing large markets pointing to sustainable growth well into the future.

The fundamentals appear to be so strong that even when waves of profit-taking are hitting the market many names are not in downtrends but are consolidating. This applies to some very important names. Apple is not only consolidating but the chart looks very like an upward sloping triangle. Any chartist will tell you that this is normally a bullish pattern waiting to be confirmed by an upside chart breakout.

Apple began consolidating in August 2020 and the shares have been trading broadly sideways for about nine months. It’s a grey area where to draw a line but I would feel excited on a close above $135, especially if the close had breakout characteristics – higher volume, a gap in trading or an exciting piece of ‘something new’ news.

Some sort of breakdown would be disappointing but unlikely to be disastrous. Apple is a business with outstanding fundamentals. I think it is reasonably priced on a PE in the middle to low 20s, especially given that the company’s gargantuan free cash flow enables it to buy back its own shares in industrial quantities. For Apple to really break down something visibly disastrous, a catastrophic black swan, would have to strike the global economy.

Bottom line, the odds strongly favour an upside breakout eventually. Other big names consolidating include Adobe, Amazon and Nvidia. Other giants like Alphabet and Microsoft are still firmly in uptrends and Facebook has broken out firmly higher and is worth recommending at $318, which is one reason why the indices, even heavily tech-weighed ones like the Nasdaq 100, are trading close to their all-time highs. This is why I say it looks like a bull market but for many holders of middle ranking technology shares that have been such favourites across my publications it may feel more like a bear market because they are the ones bearing the brunt of the profit-taking.

I have just been listening to a radio programme, where comedians where making fun of bitcoin for a studio audience. One claimed to have written a book about bitcoin and asked the audience to explain what bitcoins were. Nobody felt that they could. After noting that the price in the past had varied between incredible high and very low levels the speaker rhetorically asked the value of bitcoin and then immediately answered it as – ‘s*d all’, inspiring much hilarity from the audience.

This in itself makes an interesting point about human behaviour. We are all very ready to acknowledge that we don’t understand something but equally ready, despite this admission of ignorance, to jump to the conclusion that something new and unfamiliar is a load of rubbish. Maybe we all need to learn to pause for a moment and engage our brains. Just possibly the people buying and believing in cryptocurrencies are not idiots but are actually onto something important. Maybe not, but let’s at least try to think about it and keep an open mind.

It is a truism of investing that markets climb a wall of worry. This means that paradoxically widespread scepticism about an investment can be bullish. In the early days everybody thought Tesla was a train crash waiting to happen and the shares were massively shorted [sold by speculators looking to profit from a falling price]. Tesla is now one of the world’s most valuable businesses.

This same widespread scepticism is now directed at cryptocurrencies. The Governor of the Bank of England, Andrew Bailey, said in January that he doesn’t believe cryptocurrencies will last. No surprise that before becoming Governor he was chief executive of the Financial Conduct Authority (FCA) which, in a breathtakingly patronising move, recently banned spread betting firm, IG and other such investing platforms, from allowing retail investors to buy bitcoin.

Many of the great and the good are not just sceptical but actively hostile to cryptocurrencies. Bill Gates dismissed them recently as ‘useful for criminal elements’ and Warren Buffett described bitcoins as “rat poison squared”.

There is one thing though with which the sceptics cannot argue and that is the price. In 2013 a computer developer, who knew about a new virtual currency that had been created by a mysterious figure or group known as Satoshi Nakamoto, in 2008, swapped 10,000 of them for a pizza delivery. ‘Big mistake’ as Pretty Woman’s Julia Roberts said so satisfyingly to the snobbish shop assistant, who had refused to serve her, thereby missing out on some serious spending.

Since then the price has risen from effectively zero to a recent peak above $57,000 making those 10,000 coins worth $570m. There is a theory called the rubbish theory of value, where scarce items start valueless and become incredibly valuable. Bitcoin may end up as one of the most staggering examples ever of this process in action.

I understand why people find it hard to ascribe a value to bitcoin which, as far as I can tell is essentially a piece of open source software. However it is a very clever piece of software because it has set strict limits on the supply . There can never be more than 21m bitcoins of which some 18.5m have already been created and of which many were lost before people realised their value.

Rumours also suggest that Nakamoto may have squirrelled away 1m coins.

It is not only difficult to make them involving using massive amounts of computing power [and a significant share of the world’s total electricity generation] but it is becoming progressively more difficult [and expensive].

“The bitcoin mining process rewards miners with a chunk of bitcoin upon successful verification of a block. This process adapts over time. When bitcoin first launched, the reward was 50 bitcoin. In 2012, it halved to 25 bitcoin. In 2016, it halved again to 12.5 bitcoin. On 11 May, 2020, the reward halved again to 6.25 bitcoin. This effectively lowers Bitcoin’s inflation rate by half every four years. The reward will continue to halve every four years until the final bitcoin has been mined. In actuality, the final bitcoin is unlikely to be mined until around the year 2140. However, it’s possible the bitcoin network protocol will be changed between now and then.”

This process of changing the bitcoin protocol is complex and mysterious. However one thing seems clear. Given the influence of powerful interested parties it is unlikely ever to be done in a way, which will lead to lower values.

Quentinvest for ETFs is doing amazingly well, so well I am a bit stunned. Who would have though ETFs could be such exciting investments. The average gain on ALL recommendations since the service was launched in the summer of 2017 is over 57pc! Virtually every single ETF recommended is higher. I think there is one for gold which is down a bit.

I strongly recommend having some ETFs in your portfolio and if you decided to go 100pc ETFs I can see the logic. They are safer than shares but deliver a not dissimilar performance.

There are so many options. For example, if you are attracted by the gains delivered by QQQ3 but wary of the volatility, you could put three quarters of your allocated funds into QQQ and a quarter in QQQ3 and wait for the latter to catch up and overtake the former.

Good fun but also potentially very profitable.

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We are apparently on the brink of a no-deal Brexit, which if the media, social and professional, is to be believed means the end of civilisation as we know it. Really! I suspect that most people will hardly notice, which I realise could be famous last words. But what most amazes me is the lack of confidence of those who regard continental Europeans and their ossified customs union, now known as the EU, as a role model.

I see mainland Europe as a text book case of how not to run a modern economy with Brussels as a retirement home for past their sell by date politicians.

It baffles me why everybody who works for the BBC or is under 40 thinks the EU is so great. We shall see how it all pans out. It may take a while but I think the day will come when we will be delighted to have thrown off the shackles.

Other EU nations may not join us but that will be because they are trapped in the euro nightmare and need the German handouts. The world I like consists of free currencies, free markets, free trade and free movement of people, all people, not just those who live in Europe.

 This ties in with an observation that so much of the media has an extraordinary bias to pessimism. I have noticed this in relation to financial matters which is why I have learned to discount and ideally not even read the doom and gloom that pours out of the press. 

Look at this heading from Saturday’s Daily Telegraph business section, which I would normally never read – “Are tech pioneers leading Wall Street to repeat errors of the dotcom bubble?” The whole article consisted of a litany of doomsday utterances from fund managers. It was only as a last paragraph footnote that we learned – :”Others are more sanguine.”

Taylor Tamaddon, who I salute for his wonderful name as well as his sound judgement, said this was too gloomy and that there was no comparison between what is happening now and the ‘more flash than substance’ shooting stars of the dotcom era. He added – ‘the technology driven changes taking place throughout the economy are widely acknowledged’.

I lived through the dot-com era and remember that so many companies were ideas with business models premised on a wired world that did not exist at that stage. As soon as investors lost confidence and the stream of fresh equity capital dried up a whole generation of companies were revealed as non-viable.

The current situation is very different. Many exciting businesses are still not profitable but that is by design. They are choosing growth and the vital task of grabbing territory over short-term profits and that is the right choice. Many loss making businesses are cash generative and self-funding. Look at Amazon, which grew rapidly for years while making losses but not needing to tap investors for fresh capital.

My guess is that many of the doomsters only look at macro numbers and don’t do what I do, which is to read what the companies are saying about the progress they are making and the very real opportunities they are exploiting. There is a whole generation of businesses floated in the new millennium, which have grown sales by 10 times or more in a decade. Why wouldn’t investors be excited by businesses delivering that level of progress? 

The doomsters are worried by the frenzied dealings in just floated businesses like Airbnb and DoorDash. The latter is a food delivery business,which plans to create a world where everything can be ordered online and delivered to your doorstep and it is growing very fast.

I have not yet studied the Airbnb prospectus but it is obvious that the business concept is great (Uber for homes) and the business has grown dramatically, while dealing with an incredibly challenging period. The advantage of the float is that the group is now well funded to exploit the huge opportunity it is addressing. I don’t know what is the right price for the shares, who ever does, and Uber has been a bumpy ride since its IPO but these are real businesses, not dot com bubbles.

Investors generally should realise that when it comes to predicting the future trend of stock markets there are no experts. The only thing we do have, which is useful, is common sense. Simple observation tells us that stock markets, especially Wall Street, spend most of the time going up and over prolonged periods make incredible progress.

In January 1932 the S&P 500 was five (that’s right – 5). The latest level is 3,663. I decided, when I was old enough to be aware of stock markets that I would spend my life as a bull because that way (a) I would be right most of the time and (b) I would be right in the end.

The technology revolution 

And then something happened, which gave me even more conviction in my bullishness. The industrial revolution gave way to the technology revolution and this revolution is changing the world at an accelerating rate and in a way which is enabling a growing number of companies to grow at rates never before sustained by so many companies for so long and to become bigger than any corporations in history.

Not only has this ushered in an extraordinary period of growth and progress for global shares led by Wall Street but it may also still be at an early stage – just beginning, to use the terminology of so many CEOs of fast growing US-quoted businesses.

 This is no time to be moaning about bubbles. This is a Carpe Diem moment as it says on my wrist bracelet. It’s time to seize the day.

Climbing in a series of steps

When I encounter a share for the first time, the first thing I do is look at the chart. Is it broadly going higher? If it isn’t I am unlikely to be interested. Then I check out the fundamentals. Is it what I call a 21st century business; doing something that is likely to prosper in an increasingly technology-driven world. I look at the performance, the growth, the story, the leadership and what management say about their plans.

I sometimes sum up what I am looking for as 3G (great story, great chart, great growth). I also look for that quality which is harder to sum up in words, some magic quality about what they are doing that suggests that this business is special.

I also look for a strong tail wind. For example, I am more interested in e-commerce than bricks and mortar commerce, fintech than traditional banking, software as a service than traditional packaged software, electric cars than fossil fuel cars and so on although I recognise than businesses can change and reinvent themselves. Witness the exciting things happening at Walt Disney (see below).

Once I have established that a share meets my criterion and remember that I am only interested in growth shares, I add it to one of my various tables some of which have grown very large over the years even though I periodically cull my master table to eliminate shares in companies, which I believe have lost the plot.

Let’s put this in a more extreme way. I call companies valued at over US$1 trillion super behemoths. There are presently four such super behemoths in the world – Apple, Amazon, Alphabet and Microsoft. Ten years from now I think there will be more, perhaps many more. As a wild guess I think that by 2030 there will be over 100 companies in the world valued at over $1 trillion and there will be some over $10 trillion.

Behemoths for me are companies valued at over $100bn. This is still a select club but more companies are joining, not every day but certainly ever month. By 2030 I think the number of behemoths will be over 1,000 with many Chinese businesses joining the Americans in reaching this elite level.

If I am right then the key to successful investing is to find exciting companies, buy their shares and build a portfolio of such shares. My master publication, an online alerting service called Quentinvest for Shares, is all about putting this strategy into action. 

Look on my web site and you will find details of Quentinvest for Shares to which you can subscribe for £249.99 a year or £24.99 a month. Better still if you subscribe to QV for Shares you will receive the old Quantum Leap and Chart Breakout (rebadged as part of the Quentinvest service) thrown in with your subscription at no extra cost.

Just for reassurance, Quentinvest for Shares has been going for three years and the gain on all recommendations is 60pc plus at a time when many European indices including the UK’s have been going nowhere.

QV for Shares has a sister publication, Quentinvest for ETFs (exchange traded funds), which has also been going since the summer of 2017 and the gain on all recommended ETFs is fast approaching 40pc.QV for ETFs is available as a standalone service for £99.99 a year/ £9.99 a month. Alternatively you can have everything I do including ETFs for £299 a year or £29.99 a month. 

This is an extract from a recent article available now only for subscribers.

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