⚖️ Weighing The Spectrum Of “High-Risk” Investing

What’s on the Menu 🍴

Big numbers.

That’s the theme of the week.

From trillion dollar companies reporting earnings, to bitcoin making a big run, to “high risk” investing…

Let’s jump into the world of thinking bigger:

• Google & Microsoft Earnings Recap 🤖

• Bitcoin's Yearlong Surge Reality Check ₿

• Weighing The Spectrum Of “High-Risk” Investing ⚖️

Today’s newsletter is a 5 minute read.

Google & Microsoft Earnings Recap 🤖 

Google & Microsoft are the first two from the trillion dollar market cap club to report Q4 2023 earnings this week.

So how did the numbers and the stock reactions pan out?

Google delivered the following for Q4 versus the prior year:

• Revenue growth of 13%

• Operating Income growth of 30%

• Earnings Per Share growth of 56%

For the full year Google grew revenues by 10% and EPS by 27%, with growth in all major segments including Search, YouTube, and Google Cloud.

Despite the strong results Google stock was trading down about 5% in after hours trading on Tuesday.

Why?

Expectations were high going into the report, with GOOG stock up 52% in the past year.

Google also laid out plans for a significant increase in CapEx spend in 2024 to fund many of their AI initiatives.

So 2024 could bring modest margin headwinds and slower earnings growth, though GOOG’s current valuation is middle of the road versus the past decade:

Nothing in Google’s Q4 report looked terribly concerning, but there wasn’t anything to get investors incrementally more excited about either.

For Google in 2024, it will be a question of how well the company executes on AI opportunities, repels AI threats, and sustains earnings growth.

Turning to Microsoft…

Microsoft delivered the following for Q4 versus the prior year:

• Revenue growth of 18%

• Operating Income growth of 33%

• Earnings Per Share growth of 33%

Growth was impressive across nearly all of Microsoft’s segments:

Microsoft also expects next quarter’s revenue growth to be at least 14%.

Despite the impressive financial performance, MSFT stock was flat in after hours trading on Tuesday.

Once again hefty expectations and the 66% gain in the past year are likely the drivers of the stock taking a pause (for now).

Though it’s delivering fantastic business results, MSFT stock currently trades at its highest valuation multiples of the past decade:

The stock market is a funny place that tends to overly reward companies in good times and overly punish companies during their tougher times.

Thankfully for Microsoft and Google it doesn’t seem like good times are about to end, even if their stocks take a breather.

We’ll get 3 of the other trillion+ market cap club members (Apple, Amazon, and Meta) reporting their results on Thursday.

Stay tuned for more earnings season coverage from the Daily Dough!

Bitcoin's Yearlong Surge Reality Check ₿

In December, 2021 bitcoin entered a bear market and sold off from $69k down to around $15k…

And a year ago this month, bitcoin broke out of its depressing bear market into a strong bull market.

This isn’t our “opinion”, it’s based on simple, proven technical analysis.

Here are the two factors to determine if we’re in a bull or bear market:

1. Is price above the 3 major moving averages? (50, 100, and 200 on the daily chart)

2. Is price structure moving higher (higher highs and higher lows) or moving lower (lower lows and lower highs)?

• Bear market = When price moves BELOW all 3 moving averages and makes lower lows and lower highs.

• Bull market = When price moves ABOVE all 3 moving averages and makes higher highs and higher lows.

But it’s only been recently that the mainstream media started to cover bitcoin again.

Your average investor (who doesn’t read Daily Dough) probably wasn’t aware that bitcoin was up over 150% in 2023…

But now that the volatility is slowing down after the spot bitcoin ETF approvals, investors are asking: “What comes next?”

All Eyes on $50k

After the ETFs were approved, we saw billions of dollars moving away from the high-fee GBTC product and into other lower-fee ETFs.

This initial selling pressure caused bitcoin to sell off to retest the 100 period moving average.

And now that the Grayscale selling pressure has slowed down, bulls have stepped in to attempt another run through $48k resistance.

When you zoom out on a monthly chart, we can see there’s “open air” above $50k resistance area…

This means if bulls are able to drive price through $50k resistance, we’re likely to see a fast move to retest all-time highs around $70k.

And with the halving coming up in less than 90 days, bulls are licking their chops at the prospects of six-figure bitcoin prices!

But we’re currently on the 5th green monthly candle in a row, which historically means there’s a higher probability of a pullback before we move higher.

So, we’re patiently watching the battle zone between $40k and $50k!

Weighing The Spectrum Of
“High-Risk” Investing ⚖️

No risk, no reward.

We hear it time after time.

It’s very true in the investing world. You can’t save your way to major wealth.

The wealthiest people take on some of the biggest risks.

1. They take a chance on a new business.

   Starting a business is riskier than people think with high rates of failure. Roughly 50% of businesses will fail by the 5th year according to BLS data.

   

2. They put large amounts of capital at risk on certain securities trades or other risky asset like Bitcoin (typically very concentrated positions).

The spectrum of high-risk is wider than people think though.

There is such a thing as “low high-risk”.

Some people who are considered “risk-takers” would happily have a 100% equities portfolio of an S&P 500 index fund. Most people consider this high risk.

It begs the questions: can we really call investing in 500 of the best U.S. companies (which have performed the best over many years) super high risk?

Should we shame these types of investors and feed more diversification down their throats?

Of course, that depends, but many would consider this a “concentrated portfolio”.

Truly, it’s more of a “low-high-risk” investing approach.

A TRUE concentrated portfolio would be having a large percentage of your wealth in ONE single stock or high-risk asset.

For example, 50% of your portfolio in Google stock or 75% of your portfolio in Bitcoin. This is much higher risk.

When looking at the spectrum of “high-risk investing”, you can see where these themes land:

I think with what we know about equities and how the world has moved towards technology, the school of thought on risk-taking could use a re-think.

A lot of people are opting away from bonds, and into more equities or even Bitcoin. They’re more interested in risk because they want higher returns.

This can be done in a smart way that can balance the kind of risk you want to take on with your goals.

As you grow your wealth, you may move into “higher” high-risk activities like startup investing or even investing in limited partnerships.

But, you wouldn’t necessarily want to move into those investments until your “low” high-risk assets like your diversified equity index funds are properly working for you.

High-risk investors require a special kind of strategizing.

Breaking down high-risk and failure rates really helps put things into perspective so you don’t “overshoot” what you are truly willing to risk with your capital.

Food For Thought 🧠

"Do not anticipate trouble, or worry about what may never happen.
Keep in the sunlight.”
- Benjamin Franklin

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.