😱 Should We Fear the Mt. Gox Dump?

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Fear sells, but it doesn’t pay.

Sometimes it’s best to just ignore the panic…

And other times it’s a bellwether for worse things to come.

Today we’re looking at it from both sides.

Let’s go!

• Brief 1 🥊 June CPI Versus The Fed 😱

• A Hangover for Beverage Stocks 😵

• Goals Vs. Cash Flow Based Financial Planning: Which Is Best? 💰

Today’s newsletter is a 5 minute read.

Should We Fear the Mt. Gox Dump? 😱

Bitcoin is having a bit of a tantrum over the Mt. Gox news.

Let's dive into why this might be an overreaction.

First, some context:

Mt. Gox, once the largest Bitcoin exchange in the early days, is set to return about 140,000 BTC to its creditors.

That's roughly $9 billion or 0.71% of Bitcoin's current supply.

Considering Bitcoin's average daily volume is around $13 billion, this amount isn't insignificant, but it's also not as catastrophic as some are making it out to be.

The market's pulling back because traders are trying to front-run the release, fearing a massive sell-off. But here's why I think this reaction is overblown:

1. Claims Have Been Traded: These BTC claims have been bought and sold for years. Many creditors have already cashed out their positions in fiat, meaning the actual amount of Bitcoin likely to hit the market is much less than 140,000.

2. Staggered Distribution: The Bitcoin isn't going to flood the market all at once. The distribution is scheduled from July to October, spreading out any potential impact.

3. Not Everyone Will Sell: Not all creditors will want to dump their BTC for fiat. Some might hold onto their Bitcoin, especially with the bullish sentiment around long-term Bitcoin value.

Historically, market panic often stems from short-sightedness. Traders react to immediate news without considering the broader context.

As always, when in doubt, zoom out. The larger trend shows Bitcoin consolidating in a strong range, and panicking over short-term news could mean missing out on long-term gains.

A Hangover for Beverage Stocks 😵

In our ongoing hunt for value in the stock market, we often scan for companies hitting new 52-week lows.

Lately we’ve noticed several stocks popping up on this list from one industry in particular: alcoholic beverages.

Many wine, beer, and spirits companies have seen their stocks plummet over the past year.

Most of these companies are profitable businesses with a history of growth, so why have their stocks been so hard hit recently?

It seems that several major factors are working against these companies right now:

1. Consumers’ consumption patterns are normalizing to lower levels post-pandemic

2. Younger consumers are consuming less alcoholic beverages than prior generations

3. Distributors & wholesalers are reducing inventories in response to slower demand

There’s also been whispers in the investing community that GLP-1 weight loss drugs could be impacting alcohol consumption in a negative way, though we don’t have much confirmation yet.

Many of these beverage companies have large brand portfolios and were previously seen as long term secular growth companies.

Brown-Forman and Diageo for example haven’t traded at this low of a P/E multiple in over a decade:

Stocks like NAPA are even trading at big valuation discounts to the sector AND overall market.

The big risk in buying these “falling knives” is being too early, especially if these consumption shifts are a longer term phenomenon.

Wall street analysts expect these companies to start growing again next year but if earnings keep declining then they might still be value traps.

We do think this is a sector worth tracking closely and eventually there could be a buyable bottom.

Human behavior in aggregate doesn’t change very rapidly, so we’re skeptical that revenue declines are permanent.

De-stocking by distributors may last a few quarters, but should stabilize at some point.

Larger players should also have opportunities to acquire distressed brands on the cheap as well.

Of course there’s always a risk that a recession makes things worse in the short run.

But we do think this sector is one to keep a close eye on over the next few quarters, especially for the bargain hunters out there!

Goals Vs. Cash Flow Based Financial Planning: Which Is Best? 💰

Financial planning is surprisingly flexible in terms of “how” you do it.

As the saying goes, “personal finance is personal”. Not everyone will achieve financial freedom the same way.

In the business, we refer to 3 main methodologies of planning:

1. Cash Flow Based Planning: This method focuses purely on cash flow. You’re focused on your income, saving and spending every month. Ideally, you want to see positive cash flow. Then, with the cash flow you can either invest the excess, spend the excess, or allocate it to key goals.

   Cash flow based planning allows you to “know what’s possible and realistic”. You’ll have a higher probability of actually seeing the plan come to life.

2. Goals Based Planning: This method is purely focusing on the goal(s). Many people don’t want to track cash flow or worry about it (many people have no idea what their cash flow even is!).

   They simply want to stay focused on the goal to keep them on track and give them a sense of accountability. The goal is like their north star that helps them avoid distractions.

   A good example of this would be someone who wants to retire at the age of 50 and needs a certain amount invested by that age. The goal would be whatever that dollar amount needed is. Cash flow is still important in any planning method, but the motivating factors are a bit different.

   The first hurdle with goals based planning is, a lot of people don’t KNOW what their goals are or should be. Even further, they don’t know how to prioritize their goals properly.

   The 2nd hurdle is by making the goal the focal point, you may be putting the cart before the horse if the goal isn’t actually realistic.

   I love this analogy made by Michael Kitces:

   

   However, this approach is becoming more popular. I get why! The saying “keep your eye on the prize” perfectly describes why people like goals based planning. It allows them to dream a little bigger.

3. A Hybrid Approach: This is my favorite way to approach financial planning.

   Cash flow is a focus in combination with prioritized goals (which could include “fun” goals that require spending).

   I love to allow for clients not to “obsess” over cash flow and strict budgeting.

   We focus less on individual spending categories, and more on the cash flow big picture.

   So, how do you stay on track? There are layers.

   You still have the goals driving your decisions and keeping you accountable. However, cash flow is that extra layer of accountability. They work together to help you find a realistic balance (we don’t want to lead to over-promising).

   If cash flow turns negative for any reason, it’s also time to address any money behaviors that could cause this.

   We want to see you have a high probability of success.

   The hybrid approach gives you a realistic expectation of what you can accomplish with your money, alongside goals in alignment with your income, net worth and personal situation.

   Emergencies are also planned for which allows you the space to work towards what matters (this should be the case with all methods).

So, if you’re a visionary, you may be more likely to shoot for a goals based approach.

Someone who is a bit more analytical may choose the cash flow approach.

But, don’t forget about a happy medium hybrid of the two that could still lead to a high probability of success and layers of motivating factors.

Food For Thought 🧠

"The stock market is never obvious.
It is designed to fool most of the people, most of the time.”
- Jesse Livermore

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.