PUBLIC EQUITY
Reflection On My 2020 Investments — Bitcoin, Baidu, Cross-Harbour Holdings, and Cinemark
This is a recap of my largest concentrated positions in my personal portfolio, and how they have performed
I like having a concentrated portfolio. My biggest holdings through 2020 were Bitcoin, Baidu, Cross-Harbour Holdings, and Cinemark.
Bitcoin
By far my biggest position. I have been accumulating since 2017, buying at prices between $6K–10K. Today, one bitcoin is $50K. I still think it has a long way to run given that BTC’s market cap is 1 trillion while gold is at $10T+. I think $250k/BTC is fair in the next 2–3 years, and $1M / BTC in the next five years (2026). Two years ago, I wrote a piece valuing it at $75,000 / BTC. I do see a scenario where that is the final outcome. But among the probabilistic outcomes, I believe the former is more likely. There is simply no currency as decentralized as Bitcoin. As I’ve learned time and time again, it is often the obvious bets that end up being the best long term performers.
Baidu
In March 2020, I initiated a position in Baidu. The thesis was that their operating business throws off 15B yuan per year. I did a back-of-the-envelope valuation, assuming a 10% discount rate and 2% terminal growth. This is like saying that Baidu won’t grow much going forward, which is very conservative given that half of China’s population is yet to be on the internet. With that unrealistically conservative assumption, Baidu’s search business alone was worth $30B USD, which was Baidu’s market cap at the time when it was trading at $88 / share.
But Baidu also had net cash balance of $10B USD, and long term investments worth $10B USD. At a salvage value calculation, Baidu was still worth at least $50B. But Baidu is one of the top technology companies in China. Today, 12 months later, Baidu is $300 / share, almost 4x from the initial price.
My day job takes up most of my time, so I did not have the time to diligence enough to be comfortable holding my position long term. What if there is something in China I am not understanding, such as Xi Jinping doesn’t like Baidu and will attack it? So I sold most of my position at 2x, even though I suspected it had more room to go. If I was analyzing stocks full-time, perhaps I could have diligenced further to gain more comfort. Unrelatedly — my current boss, venture capitalist Tim Draper, is a seed investor in Baidu and owned something like a fourth of the company at its IPO. I can only wish to find one opportunity like that at the seed stage in my life. Perhaps then I will not be writing on my blog, but sipping coconut juice in Hawaii. Still blogging probably.
Cross-Harbour Holdings
A heavily undervalued sum-of-the-parts play I wrote about here (Going Activist on the Cheapest Infrastructure Company in the World). Since that post 1.5 years ago, the activist play worked out…somewhat.
I had been speaking with Lanyon’s portfolio manager during this saga. The billionaire chairman and owner of Cross-Harbour managed to fight off Lanyon Asset Management. The chairman then issued a tender offer to acquire all shares at a 50% premium to the trading price of $9. Not the success we were looking for, but better than nothing. The chairman understands how undervalued the company is. I suspect he may issue a one-time special dividend after acquiring all the shares he can. The dividend might be something like $10 per share for a share that is currently at $13–14. He has done this before with a different company. This would unlock much of the value in the company.
I tendered a quarter of my shares just to get the cash and invest in other higher growth opportunities, but recognize that the tender offer is a gross undervaluation of what the company is worth. Shares are worth at least high twenties now, given the growth in the value of Cross-Harbour’s investments.
Cinemark
I felt that movie theaters were bound to recover once Covid ended. It was a stable, oligopoly-like business. AMC was debt-heavy, but Cinemark had manageable debt levels. Cinemark was a very stable company trading between $30–$40 per share for the last seven years, but was impacted by coronavirus. I initiated my first position at $16 / share in mid 2020. The stock subsequently fell by half in the next few months. I calculated that they had 1.5 years of runway left, and that if things returned to normal, Cinemark should return to around $25, but not its original $35-$40 because newly issued debt during coronavirus had given more of the company’s value to the debt holders. Today, in February 2021, Cinemark is back at $24 and I have exited my position.
2021
At the end of 2020 and early 2021, I have been seeing a lot of opportunity in altcoins (smaller crypto coins) and liquidity mining + staking. Perhaps I can write a reflection on the results at the end of this year.
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