The real investment opportunity that AI presents to UK investors

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Inside the lives of James and Sam

Sam:

It’s been a hectic month in the life of yours truly. Not long after we sent out our last monthly, I jetted off to Australia for a family wedding. I flew out on a Saturday and landed back in the UK ten days later.

The good thing about trips like that is the fact you don’t have time to adjust to the time zone differential: you just suck it up, drink all the free grog that is available and get on with it.

Yes, that’s right, Australian weddings are fully catered for: that means, free food, free beer, free (and very fine) wine and, in this particular example, free cocktails and whisky.

Meanwhile, if you’re at all wondering what Sydney (more specifically Bondi Beach) is like at the start of February…

I also managed to watch a definition of insanity from this vantage point at the Icebergs pub. The (empty) Icebergs’ pool in that picture was actually in the middle of being repainted white that day. The only problem was that as the surf was barrelling in, it would splash over the side of the pool and wash away the paint the poor fellas had just applied. I think they just gave up and waited for low tide.

I also got some sage advice from my brother about fermented grape juice while I was out there. As you may or may not know, I like wine. I’ve got a few top-quality ones that I had thought about keeping for investment purposes, but then also I have a bad habit of drinking them too.

Now… wine investing can work quite well. In fact, WineCap’s Q4 2022 report shows that the Liv-ex Fine Wine 100 index outperformed the FTSE 100, Nikkei 225, Dow Jones, DAX and S&P 500 from December 2021 to December 2022.

Source: WineCap Q4 2022 report

But if, like me, you have a habit of drinking fine wine, then this all turns to dust pretty quickly. My brother wisely told me to just forget about the current prices of the wines in my cellar:

“Drink them based on the price you paid for them.”

Now that is sage advice.

This all came to a point when I was at my uncle’s house whilst in Australia. A while ago (about 15 years I’d say) I was at a function with my uncle and they had a blind raffle for wine.

All the bottles were in brown paper bags, so you couldn’t tell what was what. All of them were $20 bottles of wine… except one. One was a 1995 Penfolds Grange, that most iconic of Australian labels.

I went up and bought two, for a $40 entry fee. I grabbed two of the bottles and headed back to my table with my uncle. I told him to pick one, which he did. You can see it below…

My uncle promised me that we’d drink it one day… perhaps after the birth of my first child. This was before I’d even met my wife, let alone had two kids.

I thought he’d drunk the bottle long ago. So when in Sydney I found out it was still intact, I was all over it. We had to drink it. But then he got inside his own head… and some peer group pressure from others.

They kept thinking and saying this was a £400 bottle of wine, that it needed to be drunk with others, savoured and enjoyed for all. I tried to educate them to the folly of this approach.

This was not a £400 bottle of wine, but a $20 bottle of wine, and should be drunk as such, as in right now!

I was overruled.

So, the bottle of ’95 Grange remains unopened and undrunk. I, on the other hand, am unimpressed – and just to prove a point, I may just buy a bottle myself and drink it out of principle.

What would you do? Buy and drink… or buy and invest when it comes to fine wine? I know what I’ll be doing!

James:

I detailed a major stress enveloping my life in this section last month. This month I write of a new hobby that has done more than perhaps anything else to clear the head and take the mind off worrying about any of life’s uncontrollables: learning the piano.

That’s right. My little family and I have spent most evenings over the last month immersed in an online piano learning course that is both great fun and proving an incredible way to learn an instrument that always looked – to me at least – dauntingly hard.

I mean, I had a few lessons as a kid, but never really improved much beyond the one-fingered-bandit stage. So, when a friend asked me a few weeks ago whether I’d like an electric Yamaha piano his wife was about to throw out I thought it would be a great thing for the family to learn all together.

And it has been brilliant. We were recommended a downloadable app called Simply Piano, which we play on an iPad perched above the digital piano (itself perched above an old piano that is so out of tune and missing so many keys that it’s unplayable). The app responds to the piano’s microphone and interprets our playing in real time. We’ve created profiles for all of us so we can learn at our own speeds.

The course has a strong focus on getting beginners off the ground quickly, and it’s amazing to see how we’ve all improved so much in such a short period of time. The first lessons take a sort of quiz-like form, asking you to play the notes that pop up on the stave. It’s worked wonders. I’ve already learnt to sight read both treble and bass clefs, and my left hand is now an apprehensive but increasingly willing party to proceedings – which is a stage I thought I’d never get to.

I’m still on the beginners’ “Essentials” stage, so I’m a long way to being what you might call competent, but I’m getting there. I can now play “Imagine” by John Lennon, “Careless Whisper” by George Michael and a couple of Imagine Dragon songs that my stepson is much fonder of than I am. I’m eager to get to the Elton John and Billy Joel stage.

Overall, it’s incredibly rewarding to see and hear visible signs of progress and it’s also been great to bring the family together in one shared communal activity. I always thought the idea of “family fun” was a slight misnomer (always involving at least one family member traipsing along, either literally or proverbially): however, this app has been genuinely brilliant fun for all of us, with plenty of singing along to accompany the ivory basher at work. It’s highly recommended.

Elton John in the making…

Crypto Corner

What a wild month we’ve had in the crypto markets… as per usual.

What’s fascinating about the market right now is that the waves of negative news continue to flow over the industry. However, the bad news appears to be having very little impact on prices – which have been rising.  

For instance, reports in the last few weeks have highlighted:

• Kraken Banned from offering staking services in the US

Kraken’s staking services had been legal. So the US government banned them. Unsurprisingly:

• UK Treasury looking at staking notably through the activities of Revolut

Yes, that’s right, once the US government acted, HM Treasury – on this side of the Atlantic –  decided that this might be something it’s interested in too.

This is what happens folks when people ask for “more regulation” in crypto markets – you end up getting what you wished for but worse.

Truth be told, regulation is good, so long as it regulates bad actors out of business and enables good actors to go about things the right way.

But since when has regulation ever not been overreaching, not too invasive and genuinely promoting of progress rather than stifling progress?

Yes, that’s a rhetorical question…

In short, if you’re a crypto business then you’re going to get regulated like a financial services business. And perhaps you should be. After all, when you boil things down to their bare bones, these so called crypto “exchanges” are financial services businesses: they should be treated as such in order to ensure that consumers are properly protected.

What is clear though from all the reports out of the United States and the UK on staking is that there’s a significant knowledge gap between what the authorities think they know and what they actually know about it all.

I think what we’ll end up with is a situation where dollar-denominated stablecoin staking products will be treated as financial products. That actually makes sense.

But for native stakers, people like you or me, who choose to own a crypto, self-custody that asset and then enable staking from our own wallets – that will be just fine. After all, that’s an important part of just enabling proof-of-work blockchains to continue to function as intended.

Some water is yet to pass under the bridge: however, if you were to ask me right now am I concerned the authorities are going to ban staking, I’d tell you that I’m not worried.

However, it is a problem for businesses that are offering staking as a service but who are not yet properly authorised to offer financial products.

Speaking of dollar-denominated stablecoins, the US government is also taking aim at Paxos, a stablecoin issuer. In fact, the US government says that it is aiming at Paxos, but appears to be looking to put a shot across the bow of Binance:

• Paxos ordered to stop minting BUSD and is under investigation by the New York Department of Financial Services

I think the key point that regulators are missing with this Paxos investigation is that stablecoins in US dollars are only that way because they were easy to create and to use. Now there are loads of different stablecoins elsewhere in the world, denominated in euro, Australian dollars and sterling. If the US government is overly heavy handed in its approach to US dollar stablecoins, then stablecoin users will shift their attention to another fiat-currency backed offering.

That’s the beauty of a free market working efficiently: the capital is free to move wherever it wants to and can be most productive.

As mentioned above, this is all happening in the context of the price of bitcoin shooting up to just under $25,000 and the wider crypto markets continuing an obvious trend higher.

What I’m seeing now is pretty closely following the 2019 playbook. That implies that crypto prices will move higher over the remainder of the year, but with some inevitable pullbacks.

In the event that the price of bitcoin streaks past $40,000 and looks as though it is heading towards $60,000, then watch out for the return, in a big way, of retail investors’ Fear of Missing Out – or FOMO.

In every single crypto winter, the number of people who proclaim that the market is dead and that crypto is a scam multiply. Their voices get louder, and then they eventually are proven wrong. I don’t see this cycle being any different to the previous ones.

So you can believe a doomster like Charlie Munger of US investment firm Berkshire Hathaway – who by all accounts would consider me an “idiot”. Alternatively, you can take a look at what’s staring you in the face with the crypto opportunity.

I mean, how possibly could Mr Munger possibly understand how the market works, when this is how crypto functions…

The crypto market in three pictures…

Source: Twitter

Source: CoinGecko

Source: CoinGecko

Take those images as you will. Laugh at them. Be amazed by them. But also consider that people are making lots of money from them.

What else we’ve been looking at this month

Sam:

When GOATs move the markets

Tom Brady recently retired from the NFL (again!). Lionel Messi declared he was retiring from the Argentinian national side after their World Cup win. LeBron James recently surpassed Kareem Abdul-Jabbar for the NBA all-time points scoring record.

These names all comfortably enter the equation when talking about GOATs (Greatest of All Time) in terms of their respective sports.

However, if we’re talking about the greatest GOAT of all time across all sports, I don’t think we can look past Tiger Woods (a completely subjective view here). His domination of professional golf from 1997 through the entirety of the 2000s is unrivalled.

Now, I’m sure that loads of people will disagree with me – perhaps you included. However, before you do, ask yourself this… have any other potential all-time GOATs ever moved the entire stock market too?

It’s hard to believe, but this article on Tiger’s performance at the 2008 US Open goes some way to reinforce my view that he’s the best athlete of all time and quite possibly the best there ever will be.

The rational brain

A friend sent me a link to this page during this month.

We had been discussing the spate of “UFO” news that was hitting the headlines during February and the inevitable conspiracies that followed. Add to the mix a weird laser show that seemed to be coming from the Chinese spy balloons, the earthquake in Turkey and Syria, and… well, things were getting weird.

Of course, “Project Blue Beam” is nonsense – but this particular site was good fun, especially with the description of journalist and conspiracy theorist Serge Monast’s head as “… quite thoroughly full of squirrels and confetti by this time.”

Whilst Project Blue Beam is an interesting read, it’s the Rational Wiki site that I found particularly interesting. It’s full of rational explanations for the world’s current “weirdities”– and those that have happened throughout time. It is well worth sticking in your browser bookmarks folder.

I’m on time/I’m late

Having been in transit recently, it’s hard to know if your flights are going to be on time or late – until, typically, the very last moment. That’s when you’re at the boarding gate and the board flashes up “Delayed” right as you think you’re supposed to be embarking into the plane.

The good news is that you can get ahead of this. When I travel, I always check the status of my flights using Flightradar24. It’s a site that shows every flight in the world – in real time. All you need is your flight number. From there, you can check the status of your flight and can even track the plane you’re flying on via its tail registration: that means that  you can see where it’s been and if those previous flights were on time or not.

In other words, if the previous leg your plane is flying on is delayed, then you’re going to know about it before anyone. And you can even watch it land, prior to it being allocated as your flight. I find that Flightradar24 eliminates “departure anxiety” as I know at all times where the plane is, where it has been and if it’s on time or not. I highly recommend getting familiar with the app if you’re in the skies a lot.

James:

Directing the greatest leg of darts

My identical twin brother is a TV director at Sky Sports, and I’ve always liked grilling him about exactly what that entails, especially when there’s a big live event taking place. The final of the PDC World Darts Championship last month was no exception. This was the final that comprised perhaps the greatest leg of all time: 61 seconds of remarkable sporting theatre, even for non-darts fans, as viewers watched Michael Smith nail a nine-darter after opponent Michael van Gerwen missed the opportunity to seal his own. The final was also notable for some inspired commentary that elevated the drama to another level.

But, as my brother instructed, watch again and marvel at the skills of the TV director, too. Throughout the final, the director – a friend and colleague of my brother’s – had to make extremely quick decisions and anticipate where each player would throw on the board. Apparently, after studying each player, he knew exactly how each plays and what doubles they like to leave themselves with.

But for this leg, particularly, notice how, as it develops and the tension builds, the director chooses to go from split screen to full frame action so that the viewer can get good close ups and see the full reactions of each player. What’s even more impressive is that apparently the director not only directs the footage but vision-mixes (or cuts) it all himself too – all in real-time and all under the pressure of live TV.

Apparently, there were 50-odd cuts in the 61 seconds of the leg, which is incredible when you think about it, especially as the footage itself is seamless and totally in sync with the developing drama. (By way of comparison, my brother says you can easily go 20 seconds on a live football game without seeing any camera cuts at all.)

For me it was fascinating to hear just how “on” the director has to remain during the whole match, with no let up at all. The levels of focus are insane and there’s no breather; even after that brilliant moment of sport, with the viewing crowd both at the venue and at home in a state of frenzy, for the director, it’s straight on to the next leg.

Hindenburg Research 1 – 0 Adani Group

Losing $70 billion in a few weeks has got to hurt, no matter if you’re still left with a fortune worth $50-odd billion.

But such is the present fate of Indian billionaire Gautam Adani, who started the year as the world’s third richest man but is now languishing – though that’s hardly the correct term – down in 24th place.

The starting point of the fall – and it’s likely not over yet – was a research note from US-based investment firm Hindenburg Research that accused the Adani group of decades of “brazen” stock manipulation and accounting fraud.

Bonds and shares of the various Adani entities fell. Then they fell some more.

Hindenburg specialises in “short-selling” – betting against a company’s share price in the expectation that it will fall.

The Adani Group has denied and rebutted the allegations in the report, but that hasn’t been enough to stem investor fears. Hindenburg stands by the report and says that the Adani Group has “failed to specifically answer 62 of our 88 questions”.

What’s incredible is the David and Goliath element: Hindenburg Research, named after the 1937 airship disaster, is a tiny, relatively young New York financial research firm that’s taking on the Adani Group, until recently India’s largest conglomerate – and seemingly winning.

This fight has legs and I suspect many more punches will be thrown.

Theranos drama The Dropout details an investors’ nightmare

If you’re after a new series to watch on the box then you could certainly do worse than The Dropout, the new limited series on Disney Plus about the rise and fall of Theranos and its founder Elizabeth Holmes, the Silicon Valley darling turned convicted corporate fraudster. I’m partial to a based-on-a-true-story series and, after a sluggish start, this one soon had me racing through the episodes.

Holmes, you might recall, was recently convicted for defrauding investors in her blood testing start-up that was once valued at $9 billion.

The former billionaire falsely claimed the technology could diagnose disease with just a few drops of blood. But it did not work and – facing multiple lawsuits – the company was dissolved in 2018.

The Dropout chronicles the rise and fall of the start-up and you’ll watch it supremely thankful you weren’t one of the fleeced investors or, even worse, a patient who had believed what the tech falsely said it could on the tin. Watch the trailer here.

James Allen and Sam Volkering
Editors, Frontier Tech Investor