🐻 Be Fearful When Others Are Greedy?

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What’s on the Menu 🍴

Growing your dough often means doing the opposite of what’s popular.

Sometimes this means being greedy when others are scared… or the exact opposite.

It also means staying away from cult-like investments that implode, similar to Ponzi schemes.

So today we’re diving into ways to buck the trend, be a contrarian, and build wealth by forging your own path!

Let’s roll:

• Market Beating Stocks in 2023 📈

• Anatomy of a Ponzi Scheme 💩

• Fearful When Others Are Greedy 🐻

• 5 Step Daily Wealth Building Routine 🔑

Today’s newsletter is a 5 minute read.

Market Beating Stocks in 2023 📈

All year, we’ve heard that the “magnificent 7” has been holding up the S&P 500 index, which has rallied almost 20% year-to-date.

The “magnificent 7” have been coined your traditional technology stocks like Apple, Meta, Amazon, Google (Alphabet), Microsoft, Tesla and Nvidia.

You know… the usual market darlings!

But guess what?

When you actually look at the top 10 performing S&P 500 stocks, the list is full of companies that aren’t big tech at all.

Homebuilders and cruise lines have actually snuck their way into the list of best performing stocks with market beating returns!

All of the major cruise line companies (Carnival, Royal Caribbean and Norwegian) are top 10 S&P 500 performers!

On the list is also Pulte Group (homebuilder), and even Align Technology which helps people straighten their teeth.

So, is all of the hype around only big tech holding up the S&P 500 over-done?

The sheer size of big tech stocks definitely keep them in control of the S&P 500, but, in terms of what stocks have actually had the best returns, it has been surprising to say the least.

With 25% of the S&P 500 companies touting returns over 20% YTD, it’s tough to argue now that big tech alone is to thank.

Anatomy of a Ponzi Scheme 💩

In the wild west of investing, there's a creature that thrives on the naivety of the unsuspecting - the Ponzi scheme.

Today, we're going to dissect this beast, using the infamous Hex crypto token as our scalpel.

Hex, a token on the Ethereum network, was marketed as a place to earn 40% per year with "certificates of deposit."

However, it's been accused of being a brilliant scam, utilizing Ponzi scheme tactics without generating any real revenue.

The token was created by Richard Heart, a figure with a history of questionable business practices.

Despite the token's continuous drop in value, it has managed to rope in a significant amount of capital, thanks to a high interest rate 'hook' and aggressive marketing.

Here’s how it works:

• The Hex token operates on a time-lock system, incentivizing investors to lock up their tokens for a period of time.

• The longer the lock-up period, the higher the purported interest rate.

• This system reduces the circulating supply of the token, creating an artificial scarcity that can drive up the price.

• But this also means that the token's value is heavily dependent on new investors buying in, a classic characteristic of a Ponzi scheme.

But why do people fall for such schemes?

The answer lies in the promise of high returns and the power of marketing.

Common Traits of Ponzi Schemes

• Ponzi schemes often promise high returns with little or no risk.

• Aggressive marketing can create a sense of legitimacy and hype around a product, even if it's fundamentally flawed.

• The organizers of Ponzi schemes often possess charismatic personalities, akin to cult leaders, which can blind investors to the reality of the situation.

SEC Lawsuit Drops

This week, the U.S. Securities and Exchange Commission (SEC) has sued Richard Heart and his projects Hex, PulseChain, and PulseX.

They allege that Heart raised over $1 billion across three different unregistered securities offerings beginning in 2019.

He's also accused of using investor funds for personal goods, a clear violation of trust and a red flag in any investment scenario.

So, what can we learn from the anatomy of this alleged Ponzi scheme?

1. The Allure of High Returns: If something sounds too good to be true, it probably is. Always do your due diligence before investing.

2. The Power of Marketing and Charisma: Be wary of investment opportunities that rely heavily on aggressive marketing and charismatic leaders.

3. The Danger of Complex and Restrictive Investment Schemes: Beware of investment opportunities that require you to lock up your funds for extended periods, especially if they're complex and hard to understand.

Remember, investing requires patience, research, and a healthy dose of skepticism.

We’ll have popcorn ready as the truth comes out in court.

Remember, investing requires patience, research, and a healthy dose of skepticism.

As the situation with Hex unfolds, it's a sobering reminder that not all that glitters in the crypto world is gold.

Fearful When Others Are Greedy 🐻 

We cautioned members of our Wealth Building Community this week to be prepared for a pullback in stocks in the next several months.

Why?

For starters, the Nasdaq is up 43% year-to-date, a very high figure historically.

But in recent weeks we’ve also seen signs of excessive risk taking that remind us of frothy stock market environments such as early 2021 and late 1999.

Companies caught up in the AI hype, former SPACs with questionable business models, and even heavily leveraged companies have seen their stocks soar in the past two months.

The investor fear & greed index confirms our suspicions:

While greed alone isn’t always a catalyst for a pullback in stocks, there is something ominous that could be a headwind for the market: a rise in long-term Treasury yields.

With the Fed still on the hiking path and determined to stay at “higher for longer” with interest rates, longer maturity Treasury bonds have been moving lower (and yields higher).

In some past episodes where long-term yields rose quickly, stocks got spooked.

This provided downside catalysts in fall 2022 and spring 2023 for instance:

It’s possible the market is looking past this and predicting a Fed that will cave by lowering rates in the coming months.

But it’s still a risk worth planning for in the context of the overall environment, especially since longer dated yields are not that far off their multiyear highs.

Higher rates on the “long end of the curve” would translate into higher borrowing costs for companies & consumers as well as lower valuations on financial assets generally.

We still believe interest rates & yields will ultimately head lower by mid/late 2024 given:

• recent progress on inflation

• ballooning government interest payments

• AI as a deflationary force

• demographic headwinds

However, that doesn’t mean there won’t be a countertrend rally in yields in the near term driven by:

• a hawkish Fed

• resilient economic data

• a brief pause in CPI declines

• momentum trading in bond markets

So think about your risk management assuming we do get a major correction in stocks in the coming months.

If it comes to pass you’ll be more prepared and ultimately it may even prove to be a nice “buy the dip” opportunity!

5 Step Daily Wealth Building Routine 🔑

No matter if the markets are booming or boring, wise investors know that success relies on this one key:

A daily routine to keep you engaged with the markets.

For the past 10 years, I’ve followed the same daily routine for trading and investing in the crypto markets.

Here’s the meat and potatoes of what I do to stay ready to pounce on opportunity:

1. Wake Up & Smell the Profits: No day starts without a good ol’ eyeballing of the gainers and losers list. We use sites like Messari, CoinGecko or CoinMarketCap to see what’s moving. I scan my watchlists, gainers/losers lists, price alerts, and an email that’s set up for crypto project announcements.

2. Reflect on my active positions. Ask yourself, "Is it time to make a move, or should I sit tight?" I only buy or sell if the rules for a trade are met.

3. Stay in the Know: Don't let information overload leave you overwhelmed. Tools like Feedly can turn a deluge of news into an easy-to-digest snapshot. Your aim? Stay on top, not get swallowed whole.

4. Alert Butler: Who needs Jeeves when you've got price alerts? Set them up and relax. It's like a tap on the shoulder whenever the market starts to tango. I set price alerts on TradingView and wait for the market to give me a high probability trade setup.

5. Dare to Explore: Don't get stuck in the Bitcoin and Ethereum echo chamber. The crypto world is a vast, uncharted territory, with new potential goldmines popping up all the time. I’m always hunting for startups, new projects, and under-appreciated trends that could deliver huge profits.

So, there you have it - your 5-step guide to staying zoned in to the market opportunities without letting it suck up your whole day.

Remember, this isn't a speedboat race, it's a long, rewarding voyage.

You don’t need to be “motivated” to watch the markets…

You just need the discipline to follow a simple 10 minute daily routine that could change your life!

Delicious Bites 😋

• U.S. SEC Sues Richard Heart, Hex, PulseChain on Fraud Allegations

• Reasons why 401(k)’s don’t suck

• I-Bonds aren’t hot anymore as inflation slows

• Wealth inequality by country

Food For Thought 🧠

"The first sign of a Ponzi scheme is that you don't understand it.”
- Warren Buffett

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.