🧐 Time to change the cash cow (S&P)?

GM gamers, investors!

This week we explore:

1. Highlights —> What’s moving the market?

2. S&P 500 or 1500? Time to change the cash cow?

3. Parallel —> Hype or the next game?

4. Analysis

   1. Last week: Evmos

   2. This week: Parallel

Let’s dive in

1. Mike Wilson, Morgan Stanley’s CIO and one of the biggest bears, predicts 25% downside on S&P 500, but is optimistic towards 2024 (article, article)

   1. Nothing changes for me, I continue DCA and looking for value stocks.

2. The value of global financial wealth shrank for the first time in 15 years (study)

   1. As per a newly released BCG study, declining by 4% to $255 trillion in 2022.

   2. Drivers include spiking inflation, the resulting rise in interest rates, and poor equity market performance against the backdrop of geopolitical uncertainty.

   3. However, the decline is expected to be short-lived, with a 5% rebound to $267 trillion expected in 2023.

3. Bringing real-life LEGO into Fortnite via Unreal Engine (article)

   1. LEGO and Fortnite are working on Digital Twin, a concept that basically takes a real asset and transforms it into a digital version.

   2. So expect LEGO characters and buildings in Fortnite.

   3. Highlight for me —> Epic keeps showing they are serious about the whole Metaverse bandwagon and won’t jump off anytime soon.

   4. Big web3 titles are coming there weekly (article).

4. Yuga Labs is launching HV-MTL Forge (tweet, article)

   1. A new game by Yuga Labs ($4b web3 IP with CEO from Activision) is coming.

   2. We don’t have much more than a trailer, but usually that’s enough for huge price spikes (+50% after the release, back to +15% 14h later, Opensea)

   3. I’m bullish on Yuga games and I own some land in Otherside, Metaverse created by Yuga Labs

   4. I even DCA into Ape Coin. It’s very inflationary, but I believe there will be enough demand in the long run

5. More ETH is staked than on exchanges (article)

   1. ETH staking is very popular and now there is more ETH staked than on exchanges (big run in the last few weeks due to regulations).

   2. What does it mean? Less ETH in circulation —> Lower supply —> Higher price.

6. NEAR Foundation partnered with Alibaba Cloud to accelerate growth of Web3 in Asia and the Middle East (article).

   1. Near gained 8% after the news, but after 1 day is back.

   2. Not the first partnership, earlier this year Avax announced partnership with AWS (article).

   3. This brings blockchain another step closer to enterprises that are already using the infrastructure on AWS or Alibaba’s cloud.

7. Big tech companies bet billions on AI (article)

   1. We know AI is big, but how big for already big companies?

   2. AWS launching $100m, Salesforce plans $500m, Workday $250m, Accenture $3b, PwC $1b and Dropbox even started its first fund. All into AI.

8. Remember SVB? Moody’s warns of another potential impact (article)

   1. This time in the $1.4t private credit market which uses floating rates (not so sensitive, but still a potential problem).

   2. This might be the thing to “break” and motivate FED to take action.

Sounds bleak, but next year we won’t remember SVB, FED rates or FTX.

S&P 500 or 1500?

I’m reading “The Bible” of value investing (The Intelligent Investor by Ben Graham), and there was a paragraph about S&P 500 beating DJIA (Dow Jones) between 1960 and 1970.

The exciting part is, that people were really surprised by that performance.

“But who would have been so rash as to predict in 1960 that what seemed like a miscellaneous assortment of all sorts of common stocks would outperform the aristocratic “thirty tyrants” of the Dow?”

That made me think of the recent AI-driven rally and that 26% of the S&P 500 is only 6 tech companies.

Is it time to rethink the S&P and consider something broader which is not influenced this much by just a few companies, like DJIA is?

Playing with the numbers, I don’t think so.

First of all, the “classic” (capitalization-weighted) S&P 500 Index has returned 14,5% since January 1, while the equal-weighted (all 500 components are treated equally) S&P Index just 4,5% in returns year-to-date.

On the longer comparisons the difference is minimal, with times where the equal-weighted temporarily outperforms, but in the end the classic S&P 500 wins over the equal-weighted.

Things get exciting when we add mid-cap and low-cap S&P versions.

While considering Forward P/E only (source),

• 18,9 on S&P 500 (Large cap)

• 13,6 on S&P 400 MidCap

• 13,3 on S&P 600 SmallCap

We might think it makes sense to switch to “cheaper” options of Mid or Small cap indexes.

But as the performance suggests, these indexes underperform the main S&P 500 in the long run.

Outcome?

I stay loyal to the classic S&P 500 and continue investing monthly the same amount (DCA - Dollar Cost Averaging).

This strategy is good for mindset, since every time we have a dip in the market, we see we buy more shares —> buy when everyone is selling.

On top of that, I keep scanning from time to time the lower tiers (Rusell 2000 or S&P 400 MidCap) to search for undervalued stocks with potential.

This I do less and less since I prefer to keep stocks on auto-pilot (DCA), and invest my time into web3 projects where if I’m right, the returns are multiplied over stocks, making my “good bets” even better.

Below you can see how I evaluate the web3 projects.

Parallel - Hype or the next game?

I heard about this game from many different sides.

VCs, players, builders, you name it, so I couldn’t wait any longer and wanted to check it out.

Full analysis here.

With over 100k followers, this game is for sure something we can’t miss.

Parallel is a TCG, similar to Gods Unchained (or Hearthstone), but with one big difference.

It should come with AR mode, giving the game a whole new dimension (trailer).

Not to mention they are using the new ERC-6551 standard I mentioned a few weeks back (here), giving your NFTs a chance to be your account.

Gameplay (6/10)

I really like the graphics, the whole design and art is beautiful.

Avatars (Parallel’s NFTs) will also come in AR versions showing you the full 3D model.

Not surprisingly, the team was designing games under EA, Ubisoft, and Epic.

For the rest of the game I have my doubts.

The game itself is classic TCG, you play and collect cards (non-NFT for free), turning cards into NFTs, building better decks, and raising in ranks.

You have your champion (Paragon) who has both passive and active skills, giving us extra space for strategy and skill.

For the cards, some are bound to a faction (Parallels), some are neutral, and the good thing is, you can start getting them for free (like Gods Unchained).

But considering the game runs on ETH I fear those low to no value cards will just make it difficult to play, ruining the experience with high gas fees.

Token (4/10)

The earning factor is surprisingly complex, giving you multiple factors that influence how much you earn in a single game:

• Number of NFT cards in your deck

• Your rating (MMR)

• Other NFTs (keys, core)

• Winning streak

Most of the circulating tokens were airdropped (21,2% of supply) over the last months and the decreasing token price is not surprising.

With the PRIME token you can buy products and services —> in-game items (and another currency), cosmetics, but also governance items.

Complex assets and in-game items are not an issue by default as long as the player understands how the items work and can use them (reason to buy them).

I think the team allocation is pretty high.

With 24m linear vesting of 35,9% supply (Parallel team and investors) starting later this year, and no clear roadmap (when will players start buying to play) we can expect the token to decline further.

🔑 My Strategy

—> I signed up for Beta access and will test the game properly, plus will try to get my hands on Avatar (later in July)

—> I don’t buy tokens, too inflationary atm with no clear demand in the near future

—> Rest of the assets are either expensive or not interesting to me right now (June’23)

Full reasoning here.

Being there early would be a really nice ride. So let’s find ourselves a similar gem next week?