The Bewildering community of Reddit
The Bewildering community of Reddit
Reddit is one of the most rapidly growing social media platform that is partially owned by Tencent. Similar as to how Tiktok caught the world by storm, reddit <sub-forums and up-vote/down-vote mechanism> has one of the largest communities, most divisive sub-forums, and one of the most dominant social media platforms in the world that is not listed on the stock exchange. I noted an interesting trend whereby the network effects of being the largest social media forum has the potential to displace social media platforms like Facebook Groups and EDMW/HardwareZone. The dearth of frequency and quality of user posts in forums such as valuebuddies / Money Mind suggest a user migration to the larger platforms like r/singaporeFI, as the younger generation detest the idea of sharing the same peer-engagement platforms as their parents / grandparents. (Tiktok and snapchat support this trend)
Drawing parallels to Hardwarezone in Singapore, Reddit and seedly has a larger geographic concentration of younger investors whom is just starting out their investment journey, while Hardwarezone/Facebook forum is dominated by financial advisers/trainers and boomers bashing each other up, minimal security analysis, and more about personal finance ideologies. However, they share similar paths in their development. There is a noticeable quantity of professionals from the finance / investment background whom flock there after work. Although there are Meme stock threads like WallStreetBets (Pump and dump shilling, entertaining memes, posting of loss porn, crude jokes involving apes and lambos) , some of the other subreddits have superior depth of quantitative and qualitative analysis and insight compared to more mainstream answers / CNBC shilling that can be googled off the top. Although I will never blindly take investment / financial advice from random strangers posting their opinion on the Internet, I am keenly aware of the trend whereby information asymmetry between institutional investors and retail investors are almost negligible, as social media / search engines closed out the residual information gap in closely watched US markets.
Although the concept of Net Promoter score is not novel (pioneered by Facebook likes and shares, free advertising of the platform from passionate evangelists and word of mouth to achieve lower Customer acquisition cost(CAC)), there is a need to differentiate between product promoters and stock/crypto promoters. The infamous community from WSB in recent times has shown to exhibit the ability to spontaneously create coordinated retail trading actions to move markets, from the <mother of all short squeeze> on Gamestop against hedge funds, resurrection of AMC and Tesla which managed to raise capital via equity dilution in order to funds its operations, and invoked an unusual appetite for its members to take huge risks via options trading, while reducing the emotional downside of huge losses with celebratory pictures of <Loss Porn> and mantras of <Apes Together Strong>. This is in direct conflict with the institutional view that retail trading feeds are market neutral in general, investors are risk netural, and rationally take risks instead of piling into meme/momentum stocks. QE distorted the risk appetite of retail and institutional investors (There Is No Alternative) to adopt extreme risk taking to capitalize on the opportunity of the lifetime.
Quality bashing of Alibaba Believers (The Pain is real)Let a person don the mask of obscurity, and they will show their true self. As the US reddit community is dominated by US and European users, the bashing of China's actions and distrust of the country is in full display of one side of the spectrum, while another minority set of users are commenting China's direct interventionist methods as government policy that might actually be effective. As the US and European governments consist of revolving-door politicians, there is mismatch between political cycle and policy duration. There is little political will to stick and commit to long term policies when the unpopular policy may not survive beyond the next re-elections. There is a certain irony whereby the China bears are jeering on the potential company default of Evergrande, whom postponed their USD Debt repayments, while the anti-establishment bears of US are jeering on the potential country default, whom postponed their debt ceiling debate until early December.
Investment decisions for the month of October
I started an initiating tranche on Paypal on 7 OCT 2021 at the price of USD 264.0. In my biased opinion, Paypal/Venmo super-app platform is a superior business compared to the vanilla payment processors like Visa and MasterCard. By controlling the client relationship and having access to client data, the platform can analyse and up-sell clients personalized products and services and earn commissions, gain revenue streams from transaction processing, retail POS systems for (Order now collect later), potential advertising and marketing revenue, merchant fees, and access to float from the balances in the wallet. This is a higher optionality bet compared to Visa/Mastercard, and a lot of venture capital investors are willing to pay higher premiums / valuations as seen in SEA/Grab/Square/Meituan.
As there are a lot of fierce competition in the front end payment processing space, this significantly increased the client acquisition cost of on-boarding new users and I favor a dominant platform that already has entrenched users, track record of execution and strong free cash generation ability. Venmo user behaviour focused on payments between friends / family, Paypal process payments for business needs, Square markets to the under-banked (which raises the questions of why would one provide financial services to someone whom is unlikely to pay up). I did not invest in Visa/MasterCard as I believe they are more commodity-like
and there is no special reason why merchants will want to use their
platforms over the others, and there has been continual reports of push-back on fees and regulators clamping down on their acquisitions based growth. Considering the stunted growth prospect and its heightened valuation, there is no margin of safety at the moment.
I averaged down a large conviction tranche on Tencent at the price of HKD449 on 06 Oct. I am bullish on the future prospect of the IOT and Industrial Internet business, the strategic Wechat platform (analysis of trends and optionality derived from its entrenched users) , the cloud business, the stickiness of the international gaming business with its overseas expansion plans (Pokemon Unite, Valorent, League Of Legends), and the investment portfolio of Tencent (Which contain high quality business like Universal Music Group, Tesla, Reddit, Kuaishou, Meituan). It is currently my highest conviction position bought with a huge margin of safety and I will periodically monitor this for updates.
Conclusion
This post has been continually delayed as I intensified my efforts to focus on the last stretch of my CFA Level 2 Preparations. My jaded view is that the CFA focuses on theoretical complexity, archaic formulas to maintain an illusion of quantitative superiority, and memory cramping instead of streamlining its discrete concepts. This made it more of a stress test to weed out the weak, rather than nurture its candidates to be multidisciplinary proficient to draw linkages between the discrete topics. The CFA defensive and opaque stance to defend the sharp decrease in pass rates, also did not inspire much confidence in me. Nonetheless, I will continue to persevere on this last stretch so I can go into the exams with no regrets.
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