Fundamental Index

 The most popular index funds such the S&P500 Index fund and Nasdaq 100 Index fund are market cap weighted. This increases the weighting of stocks as they increase in value and decreases their weighting as their price drops. Instead of rebalancing towards cheaper stocks, this would seem to do the opposite.

Robert Arnott has published and patented the idea of a fundamental index that weights stocks based on efficiency weighting. He believes this type of index will outperform a cap-weighted index by several hundred basis points.

The Fundamental Index: A Better Way To Invest

https://www.amazon.com/dp/047027784X/

In the eyes of a value investor, a cap-weighted index fund over weights the overvalued stocks and under weights the undervalued stocks. This flies in the face of the efficient market hypothesis that all stocks are fairly valued. It’s an intriguing idea with many interesting implications.

Coinbase IPO

 Coinbase stock was priced at $250 before the IPO, but that only seems notional since the stock started trading at $381. The stock quickly gained to over $429, but then pulled back to close at $328. It also hit a low of $310. Quite a wild ride in one day!

It will be interesting to see what happens with this stock after such a bumpy start. BTC ($62,321) and many cryptos that trade on Coinbase are near an all time high, so it seems like interest will be high for Coinbase.

Only a few months later Bitcoin has now dropped by half to around $30k and Coinbase is trading below $250.

Bitcoin and Coinbase

 Coinbase has announced they are going public April 14, 2021 at an expected valuation of $100B. See the Coinbase S-1 Prospectus here. This valuation certainly seems driven by Bitcoin and other cryptocurrencies trading at all time highs. In 2020, Coinbase generated over $1.2B in revenue and over $322M in net income.

I had never been interested in cryptocurrencies since I had never seen it as an investment. The fact that cryptos are not based on any underlying asset made it difficult for me to understand what value they had. However a company like Coinbase that is generating revenue from holding or trading assets I can understand.

I found it interesting that I could get free cryptocurrencies by creating an account on Coinbase. This requires watching a number of videos about how cryptos work. I received $5 in Bitcoin for signing up and then an additional $31 in other cryptos. I then traded the other cryptos I received for Bitcoin. This seems like a cool incentive for signing up for an account similar to how PayPal gave new users $5 back in the 90s.

Cloud Stocks - Applications and Tools

 Cloud software stocks tend to fall into two categories, applications and tools. Application stocks offer a direct customer service like banking, accounting, sales, marketing, programming, etc. Tool stocks offer a backend service that a customer uses to build a cloud service.

Application Stocks:

Bill.com, PayPal, ServiceNow, Atlassian, Salesforce, Coinbase, Workday

Tool Stocks:

MongoDB, Twilio, Okta

It would be interesting to compare the performance between these two categories.