The Revolutions Are Dead. Long Live The Revolutions!

I’m taking some profits on about half of my call options across the board and reducing my long exposure a little bit here as the big rally in the markets has been everything I’d expected it to be and more. Not sure the move is over, but it’s never good to be greedy.

Here’s part of my year-end letter to my hedge fund partners that looks at the economy, markets and, most importantly, the outlook for Revolution Investing. We’ll do this week’s Live Q&A Chat on Monday at 11am ET (markets will be closed in observance of Martin Luther King, Jr. Day) but I’ll be stopping by the office that day for a bit. Meet me in the chat room or hit reply to this email with your question.

Here’s part of the year-end hedge fund letter:

The wild ride from the past few years certainly continued in 2022 as almost every tech stock on the planet got crushed and many of the most speculative stocks and recent SPAC collapsed 90% or more. I looked back at the list of stocks I sold during that Great Rest and many of those also got hit hard as they did what I’d expected they’d do when I’d made the hard choice to sell them near the top — their valuations came back down to Earth…

…Speaking of Tesla, I recently got approved by the Tesla gods for my Model S Plaid to receive the latest and greatest Tesla FSD Beta update, which I’d expected to be better than the prior versions I’m used to. I didn’t expect that my Tesla can now drive me completely without intervention from my office door in the middle of a tiny town in NM to my home’s front door at the end of a long rural road with a long driveway with cattle guards and gates. It’s not perfect and it hesitates sometimes at tricky gravel crossroads, but it works nearly 99% of the time pretty darn well. When the system gets confused, you just take over and drive the car yourself. It’s not ready for full autonomy just yet. But let me put it this way — it drives much better than the assistant junior college basketball coach who used to lean on and off the gas varying 5 mph back and forth over the speed limits of the highways in rural Texas when I was in a van with six other giant athletes thirty years ago. Frankly, Tesla FSD Beta blew my mind in ways I haven’t had it blown since, well, a few weeks ago when I ChatGPT came out (more on ChatGPT below) and for the first time in years, I do think full autonomy in most driving scenarios is just about here. And Tesla looks ready to win it all first perhaps.

I wrote recently about how by far the most unexpected scenario for the US economy and stock markets is one of normalcy. That doesn’t mean the stock markets won’t be volatile and it doesn’t mean that the US economy will grow 2% with 2% inflation, but I don’t think it’s terribly unlikely that the economy and inflation are okay and interest rates are rational and the wonders of the private markets can heal some of the damage that’s been done during this latest Bubble and Crash.

I got more constructive on many tech stocks in the last week of 2022 as many hit valuation levels that I find compelling for the long-term. We might even look back in ten years at a few 10-100 baggers that we’ve nibbled on recently. As I wrote last week when the markets were putting in what’s turned out to be at least a short-term bottom:

“The hard trades and investments are often the best ones. The fun ones rarely are. I do expect that some of the stocks we’re buying these days are putting in their bottoms and are going to be the next batch of 10-100 baggers that I’ll write about in another ten or fifteen years. It won’t be easy along the way but it will be fun to have a few more of those as this down cycle plays itself out and the next phase eventually begins.”

I continue to judiciously buy puts on troubled companies including most recently, some Bank of America puts, as I expect they have a bunch of real estate and other debt on their balance sheet that’s going to be problematic for them.

I’m also thrilled to announce that I’ve hired a rock star partner to help me with everything I do. I’ve known Bryce Smith for 12 years now and he’s been reading Trading With Cody for all that time too. Bryce left his job as a corporate lawyer in Albuquerque representing some of the largest oil and gas companies in the world to come to work for me. He graduated summa cum laude at Baylor Law School and before that at New Mexico State University where he also graduated with two degrees with honors. He worked at Merrill Lynch and in banking before he went to law school. He has helped me research stocks and had become a trusted sounding board for my economic and market and stock ideas over the last five years. He’s also my wife’s nephew and I’d spent the last four years wishing I had “A Bryce Smith” working for me. We realized we should just get THE Bryce Smith. He’ll be starting next week and we’ll be working as hard as I ever have on finding the next great Revolution investments for the next 10,000 days.

I (we!) also continue to work hard on learning everything I can about the Space Revolution and the potential for the multi-trillion dollar space economies that I’m looking forward to over the next two decades. While the rest of the innovation capital and venture markets are shut down right now, space companies continue to fare better than most other sectors. It seems the US government’s recognition that the US, as a matter of national defense, needs to build up Space Assets to preempt China, Russia and other nations from getting their Space Assets built first is driving a relentless growth of resources and funds being channeled towards space by the government — and that is likely one of the most important reasons that The Space Revolution and the multi-trillion dollar economies that it’s about to unleash will continue to develop regardless of the broader economic cycles.

Meanwhile, SpaceX continues to raise money at ever higher valuations and its valuation of nearly $140 is more than 4x higher than it was when we initially invested in this company in the private markets in 2019.

We will be spending a lot of time working on the potential opportunities in Artificial Intelligence. In fact I asked ChatGPT the following about The Space Revolution:

My input: Write an article about: “It seems the US government’s recognition that the US, as a matter of national defense, needs to build up Space Assets to preempt China, Russia and other nations from getting their Space Assets built first is driving a relentless growth of resources and funds being channeled towards space by the government — and that is likely one of the most important reasons that The Space Revolution and the multi-trillion dollar economies that it’s about to unleash will continue to develop regardless of the broader economic cycles.” Be sure to talk about the growth of satellite constellations and orbital launch frequency/access to orbital launch capabilities. Create a matrix showing each country that has satellites in space and how many satellites they have and whether each country has the ability to do orbital launches domestically.

ChatGPT output: “The United States government has recognized the importance of space assets for national defense and has been channeling significant resources and funds towards the development of these assets. This recognition has come as a result of concerns over the potential for China, Russia, and other nations to build up their own space assets and gain a strategic advantage in the realm of space exploration and utilization. As a result, the United States has been working to accelerate the development of its space capabilities and infrastructure, including satellite constellations and orbital launch capabilities.

The United States government has recognized the importance of space assets for national defense and has been channeling significant resources and funds towards the development of these assets. This recognition has come as a result of concerns over the potential for China, Russia, and other nations to build up their own space assets and gain a strategic advantage in the realm of space exploration and utilization. As a result, the United States has been working to accelerate the development of its space capabilities and infrastructure, including satellite constellations and orbital launch capabilities.

The growth of satellite constellations in recent years has been nothing short of staggering. These networks of satellites are used for a variety of purposes, including communications, navigation, and remote sensing. The United States has been a leader in the development of satellite constellations, with many of the largest and most advanced systems being operated by American companies or government agencies.

One of the most notable examples of this is the Global Positioning System (GPS), which is a constellation of satellites operated by the United States Air Force. The GPS system is used for a wide range of purposes, including navigation, timing, and location-based services. The system is widely used by military, civilian, and commercial users around the world and is considered to be a critical component of the global infrastructure for satellite-based services.

Another major player in the satellite constellation market is SpaceX, which has been working to develop its own satellite constellation called Starlink. The company has already launched hundreds of satellites into orbit and plans to eventually have thousands of satellites in its constellation. The goal of the Starlink system is to provide high-speed internet access to underserved or unserved areas around the world.

In addition to satellite constellations, the United States has also been working to increase its orbital launch capabilities. Orbital launches are essential for placing satellites into orbit and are a critical component of the infrastructure required for space exploration and utilization. The United States has a long history of orbital launches, with the first successful launch taking place in 1958.

In recent years, the United States has been working to increase its orbital launch frequency and improve its access to orbital launch capabilities. One way this has been achieved is through the development of reusable rockets, which can be launched multiple times and significantly reduce the cost of orbital launches. Companies like SpaceX and Blue Origin have been at the forefront of this effort, with both companies successfully launching and landing reusable rockets in recent years.

As the United States continues to build up its space assets, it is likely that the Space Revolution and the multi-trillion dollar economies that it is expected to unleash will continue to develop regardless of the broader economic cycles. The growth of satellite constellations and the increasing frequency and access to orbital launches are just a few of the ways in which the United States is positioning itself to be a leader in the realm of space exploration and utilization.

To further illustrate the state of space assets among different countries, we can create a matrix showing which countries have satellites in space, how many satellites they have, and whether each country has the ability to do orbital launches domestically.”

Like, wow. Pretty impressive article with information and that matrix is impressive.

With space, autonomous driving, AI and maybe even fusion going mainstream in the next few months and years, it could be an amazing time to be an innovation investor once again.

The Revolutions are dead. Long Live the Revolutions!