Altan Insights 100 as of 11/30/21: 1.070.46
November Performance: -6.3%
QTD Performance: -7.1%
YTD Performance: +7.5%
If October was a month of uncertainty, with fractional markets waffling between marching higher and sliding lower on a weekly basis, November was a month of definitive choice to slide lower. The exuberance of the summer and early fall has truly met its end, but widespread carnage has not been left in its wake. While there was pain this month, there were also a number of winners, which could not be said of the tumultuous spring months which saw widespread and indiscriminate drawdowns of size.
Twenty three index assets were up this month, on average gaining 16.8%, though driven largely by the 102.5% gain of the Macintosh Plus computer on Rally. On the flip side, thirty one assets closed lower in November, with an average return of -15.7%. We'll see later that some large assets were among the losers, which of course drives results in a market cap-weighted index. As has been the case, many assets - mainly on Rally - were flat for the month. This trend won't persist much longer given the arrival of the platform's daily trading. This may also mean more volatility in the months ahead.
The top performer on a percentage basis this month was the Jobs-signed Macintosh Plus Computer on Rally, gaining 103% - our first sign of the volatility that can arise from daily trading. Next was Kevin Durant's photomatched high school jersey, up 45%. Babe Ruth's 1933 Goudey card gained 40%, while Curry's National Treasures RPA and the Honus gained 29% and 27% respectively. The 1952 Willie Mays Topps card on Collectable fell 55% to claim the unwanted title of biggest loser of the month. Mike Tyson's Punch-Out!! on Otis fell 43%, though the recent population report release may ease that skid. Luka Doncic's White Sparkle Prizm card on Collectable continued its plunge, falling 42% and appearing in the bottom five for the second straight month. The Bird/Magic Dual Logoman and Nintendo World Championships cartridge lost 31% and 30% respectively.
In dollar terms, the gainers are largely the same assets, led by Honus with a $420k gain. There is one exception: the Pele card on Rally gained almost $95k in the first day of daily trading, but it remains well shy of the declined buyout offer level. The dollar losers are a very different cast, and this highlights the negative performance drivers for the month. The Babe Ruth Baltimore News card lost $1.66mm despite being down just 16%. As mentioned last month, we planned to monitor the impact of the Ruth card given the large and, frankly, unprecedented level of retained equity and the correspondingly minimal amount of liquidity relative to the asset's market cap. The result is a policy change which we will cover momentarily in the discussion of reconstitution. The second biggest loser was the second largest asset trading fractionally, the Chamberlain Rookie uniform . It was one of the top five performers in dollar terms last month, and this month, it surrendered $510k. Punch-Out on Otis lost $287k, the '52 Topps Willie Mays card dropped $263k, and the '52 Mantle lost $211k. Even excluding Ruth, the magnitude of loss is clear relative to the top gainers.
On to the reconstitution.
Before getting into it, it's time to officially introduce "the Ruth Rule". Our rationale with retained equity is as follows: in most cases, once an asset is trading, retained owners are theoretically able to sell shares as anyone else would. At that point, marketplaces do not report how much of an asset the retained owner continues to hold; they don't report the "free float" of shares. That being the case, we feel it is most consistent to include assets based on their full market cap. However, a situation in which 99% of an asset is retained at IPO means that very large swings in the market cap of an asset can be driven by trading of just 1% of the ownership. Even if that retained owner were to liquidate exposure, liquidity in fractional markets today isn't such where they would be able unwind a significant portion in a timely manner. So, our choice is to restrict the inclusion of assets where retained equity is both high and unlikely to be lowered to a level where the movement of market cap would not be influenced by a minority of available shares. Therefore, any asset that launches at IPO with 75% or greater retained equity will no longer be eligible for index inclusion. At present, this means the disqualification going forward of the Baltimore News Ruth card and the baseball signed by the 11 original Hall of Fame inductees. Ideally, in a future state, free float would be reported on a periodic basis. At which point, the index would be constructed on a free-float adjusted market cap basis (S&P, for example, reviews its weighting factors annually).
Following the implementation of "the Ruth Rule" and the reconstitution, ten assets have been removed from the index, lower turnover than last month, which saw 13 assets removed. A few performed their way out. Notably, Fernando Tatis's Blue Refractor dropped 19% and the 03-04 Upper Deck Exquisite Box dropped 16% to exclude themselves from inclusion. The others were removed mainly on the basis of other, larger assets beginning to trade. Two assets found their way back into the index via performance. The Great Gatsby gained 19% in its November session. On a sadder note, following the passing of Virgil Abloh, DOB and Arrows: Patchwork and Skulls gained 159%.
The removal of the Baltimore News card via the new rule means that the Wilt Chamberlain uniform returns to the top spot and Honus returns to #2. The Mahomes Laundry Tag card joins the list at #3. Numbers four through six are unchanged from last month, while the 2003 Exquisite LeBron James RPA debuts at #7. The remaining three assets were pushed down a spot, while the Tiger Woods Putter overtook the LeBron Carmelo Dual Logoman. Kobe's White #24 debut jersey fell from the top 10 this month.
Another ramification of "the Ruth Rule" is that the card no longer has such a strong affect on the sector weights. Sports cards drop from 53% of the index to a still large 44%. Sports memorabilia rises from 21% to 25%. Cars now account for 12%, versus 10% a month ago. Historical Memorabilia ticks up 1% to 4%. Also gaining one percent were Art, Trading Cards, Books, and NFTs. Video Games surrendered a percent, likely due in large part to Punch-Out!! nearly halving.
The choppiness that we expected for the third quarter has certainly persisted in November. While the index was down during the month, we saw significant dispersion in returns both amongst asset classes and within them. In our view, this is demonstrative of more healthy functioning in markets, greater discernment in decision-making amongst the investing public, and growing (but still limited) efficiency. While irrationality persists, the opportunities to capitalize on it are becoming shorter lived. Over time, that may contribute to greater focus on the long term, while market inefficiency has, to-date, created outsized short-term orientation. Still, an expectation for further volatility remains reasonable, particularly given the introduction of Rally's daily trading, which will surely create opportunities in the near term. Investors should not expect that assets will move in near lockstep as they have in the past.
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