Dan: Okay Stephen, on Wednesday we discussed the 2023 performance of your flagship service Disruption Investor.
Today’s Report Card day. I’ll give you a final grade taking everything into account.
But first... the core of your Disruption Investor service is the Disruptor 20. At any given time you recommend up to 20 investments that are the best disruptive opportunities on the market.
Almost all of these opportunities are stocks. But you did recommend one crypto in the Disruptor 20 in 2023. How’d you choose it, and why only one?
Stephen: It’s simple really. As we discussed last time, we only recommend profitable investments in the Disruptor 20. That excludes pretty much all cryptos except one—Ethereum (ETH).
Ethereum is the only crypto of significant size that’s profitable.
Dan: Explain how a crypto can be profitable.
Stephen: In short, tens of millions of people use the Ethereum network to make transactions outside the regular financial system. Transaction fees get paid in Ethereum. Some of these fees are used to “burn” Ethereum, or retire them from existence. It’s similar to a company buying back its own stock.
Dan: So the total number of Ethereum in existence is declining. Like the opposite of fiat currency which is always being diluted.
Stephen: Exactly. That’s an important reason why Ethereum’s price appreciated 91% in 2023.
Dan: Okay, we’ll do a full review of your crypto service, RiskHedge Venture—in which you recommend much smaller cryptos with much higher risk/reward—in another Jolt.
Moving on… let’s talk about what you got wrong in 2023.
Stephen: I held on to a few cloud stocks a bit too long. As I’ve written about, I think artificial intelligence (AI) is going to permanently disrupt many cloud-based companies. I didn’t fully realize the scale of the disruption until early this year.
We also held on to Albemarle (ALB) for too long. Albemarle mines lithium, a key ingredient in electric vehicle batteries. We made money on it overall—a 94% gain—because we owned it since 2019 and took a “Free Ride” along the way. But it declined in 2023.
I should mention we also sold another commodity producer, Cameco (CCJ)—the world’s largest uranium producer—as part of the refocusing of our strategy on only owning great profitable businesses in megatrends.
Dan: In other words, commodity stocks don’t qualify for the Disruptor 20.
Stephen: Both Albemarle and Cameco are great businesses. But like all commodity producers, they’re highly dependent on the price of the stuff they sell—lithium and uranium—going up, which is outside their control.
We only invest in megatrends that are all but guaranteed to persist for many years—AI, chipmakers, cybersecurity, the biotech revolution, for example. As much as I cheer for more nuclear energy, and as much as I like Cameco stock, it’s more of a speculative opportunity due to the unpredictability of commodities prices.
Dan: Okay, results time.
Disruption Investor posted a total return of 51% in 2023.
The benchmark S&P 500 posted a gain of 24%.
When I look back at your year, here’s what I see objectively.
You and your team beat the market by over 100%. You posted an 80% win rate. You owned the #1 S&P 500 stock all year.
You were bullish and correct when most others were bearish. And you provided smart and prudent guidance to Disruption Investor members in what was a confusing year to many.
And you were one of the earliest to identify both the huge potential and the disruptive ripples unleashed by AI.
You had a few misses. But you took responsibility and corrected course quickly.
I hate grade inflation. But you, Chris Wood, and your team have genuinely earned an A+ for 2023.
Great work, you’ve made RiskHedge and your subscribers proud.
Before we go, can you give readers your thoughts on 2024?
Stephen: Let’s paste in here exactly what I wrote in the January issue of Disruption Investor:
While 2024 is setting up to be another great year, I’ve learned to expect the unexpected.
Everyone and their mother thought stocks were going to fall in 2023. We took the other side of that bet and made a lot of money. Now, it’s time for prudence.
With the S&P 500 inches away from new highs, I see a lot of people getting very bullish. Speaking from experience, that makes me nervous.
Our research suggests 2024 could be rockier than last year. The biggest “known” risk is the US presidential election.
This will be the most extraordinary US election ever, and not in a good way. Prepare to be depressed by the rhetoric, especially heading into November. This will likely weigh on the national psyche. Investors will go “risk-off.”
I wouldn’t be surprised if stocks sell off heading into November’s political “Super Bowl.”
For perspective, stocks typically go up in election years. Since 1928, US stocks were positive 90% of the time—gaining 11%, on average.
Dan: Could I sum that up as “cautiously bullish?”
Stephen: Yes. I expect the market will end the year higher—but the path will be rocky.
Dan: Thanks, Stephen.
For readers looking to join Disruption Investor for your guidance through what’s sure to be an interesting 2024, now is the best time.
I’ve opened the doors to your flagship service for a special January-only price, $100 off. Details here.
Chief Analyst, RiskHedge