The process of bridging the gap to make a leap of faith
Finding questions and information that point towards an inevitability
The best outcome I’ve ever had was from a rather unconventional place. It was ether (like the crypto token). Around the summer of 2016, I heard of something called the DAO hack. It occurred due to a faulty implementation of their code that let anyone withdraw anyone else’s deposits after thousands of people had put some ludicrous amount of money into it.
In a similar fashion to a lot of people, through the noise of prior bubbles I became aware of these things, albeit I’m pretty sure my first exposure to bitcoin was seeing Destiny place 3rd in some SC2 tournament 12 or 13 years ago.
But where was the trade? What were the questions that pointed to an inevitable outcome? It was in the flows and the activity surrounding these things.
For a period of maybe 6 years as I went from being 12 to 18, this theme of cryptocurrency just kept reappearing in the news and in social media— largely driven by evangelism and bubbles (which was largely driven by the incentives and the occasional crazy person that is actually terrified of fiat currency). What I realized after the DAO hack was two-fold.
People were trying to find a way to utilize ether in a way that made it a useful “consumable,” eating into what was actually trading.
The net inflows into these things were growing at a phenomenal rate and it was almost entirely concentrated to a basket of like 4 separate assets (Bitcoin, Ether, Litecoin, & Ripple— Tether hadn’t taken off yet).
At the time I think the market capitalizations amounted to something like 5-10B USD on paper in total. But like the cannabis billionaires, these were obviously not real numbers (just like I’d expect you to believe that there’s not really 2.6T USD of liquid assets within crypto today as is marked by CMC).
The 2016/2017 bubble up coincided with:
Tens of thousands of people publicly declaring you should be hoarding these things like gold. I.e., “HODL.”
People trying to build and fund hundreds of insane individual projects like the DAO, which alone represented 14% of the paper valuation of ether.
New exchanges were going up rapidly across the entire world, and despite the innumerable listings, this was pumping liquidity into a select few assets.
So, with a small amount of money in hand that was quite a lot to me at the time, I went all in and bought ether between $8 and $12 USD and sat on it as I waited for flows to increase to hopefully sell into. Not exactly a positive sum thing for society, but the idea was relatively straightforward and as it turned out, correct.
There was no one I was communicating to about this, and I was alone. But the directional outcome appeared completely and totally inevitable after measuring anything you could possibly think of. Online search and web traffic, the number of wallets with deposits, the number of exchanges, transaction volumes, amount of trading volume, active projects, public commentary, even these stupid ATM’s that charge massive fees— all of it was exploding higher in spite of “crypto having no value” relative to a REIT or something that can pay a yield from NOI/FFO.
Over the proceeding 12 months I made something like 25-30x my money and then I sold it all one day, much to my detriment as ether ran up from a bottom of like $6.50 USD (I had to go through a 40% or so drawdown) to $1,200 USD over the next ~18 or so months. I got out in the low hundreds.
This may not seem applicable to you, but I think it probably is, because the same process can be generalized to any non-specific circumstances within the stock market, you just have to find a product to form questions around that point to what will appear to be an inevitability.
There’s a ton of (rightful) emphasis on entry valuations being causal to forward returns. I don’t disagree with this (no one will), but the drivers of returns are basically always about the activity that’s happening underneath the security and your valuation is simply an expression of some multiple paid for this activity.
So, what I’m really doing with my time is forming questions from discovered information that can form the basis of what appears to be an inevitable outcome from a simple, self-contained driver— usually single product in nature (which lends itself to smaller securities).
The context of a driver in this scenario is usually understandable in 1-3 sentences, it’s usually not something that’s provable, and you want the range of plausible outcomes to not be getting expressed by the current price of the security— which creates a psychic tension as your belief of the value of the security will be at odds with the value of the security for nearly your entire holding period.
For example (and to bring us up to present day), I’m of the belief that MOB-015 is cause for a tremendous upsurge in the value of the onychomycosis market because of two separate things.
There’s about a billion people with nail fungus, and almost none of them take oral terbinafine because it’s far more acutely painful than just living with having nail fungus and it’s a hassle to do the blood monitoring tests.
Topicals are in this place where nothing’s even remotely comparable to oral terbinafine with the exception of MOB-015, and the treatment lengths in general take so long that you have an exceptionally poor adherence rate compounded by topicals lower efficacy profile.
I’ve lived with this idea stuck into my head for close to 18 months now. I’ve tortured myself over these observations during 2024. The only period over which I’ve ever had any additional solid evidence of this occurring was released just two weeks ago, but I only got this evidence after the stock traded up to 450% higher from my initial entry.
“One and a half months after starting consumer marketing, Terclara® has reached a market leading position, both in value and units, with a 36% market share in value and 31% market share in units in April. Additionally, the introduction of Terclara® has led to a 52% growth in the total market compared to the same period last year.”
It’s nice to not have to do this, and over a period of maybe 12 months, I didn’t. I just owned Cipher as the apparent margin of safety was *massive* and it was apparent in early 2023 that nothing about $CPH.TO stock reflected MOB-015 going well at all. In early 2023 Moberg also looked like it needed funding, so I didn’t participate despite thinking very highly of their product.
For Cipher, all you had to do was look at their current expenses, the NOL’s (reducing taxes for years to come), their enterprise value, their FCF, and find that Epuris was growing/represented a very durable business. Buyers were purchasing equity that was yielding 30-40%+ on the enterprise while buybacks were active. It was basically impossible to lose money on Cipher when shares were at $2-5 CAD. This whole nail fungus thing was just a free and compelling call option to drive shares into the 20’s and 30’s if it *met* management’s expectations of replacing Jublia with *ZERO* multiple expansion or market growth.
So far that trades going pretty well, and as it turned out, Moberg did end up raising money (very poorly at that— prior investors were diluted by around 80% if all of the warrants end up exercising). Following the combination of the price after the raise, their apparent funding needs going forward, and my personal thoughts surrounding the product, everything lined up together to make it look like a really great long around 7 SEK even without knowing where the warrants exercise price was going to be.
Yet in spite of Terclara growing the end market in Sweden by 52% during April (which is admittedly a low bar and I’d like to see the entire market for onychomycosis grow >10x during Q4) and the massive outperformance of shares over the duration of my holding them, I’m still living with this very extreme tension of what seems to be a highly apparent outcome that’s not being valued appropriately.
Presuming there are no resellers going into Moberg’s OTC markets and taking the product into countries where it’s not approved for sale (which is just a grossly naive position to take— I’ve observed this happening already to a limited extent in Q1/Q2 and actual crime is going to take a bit longer to appear), there’s around a hundred million patients within all of their primary markets (excluding China as they have no current working plan to enter the territory).
To reach and successfully treat 20M of these patients would require something on the order of 100M packages of MOB-015 to be sold, which would amount to around the current sales figures of the global onychomycosis market assuming an ASP of $33.60 USD/box (which will be too low after including Canada, the US & Japan). To double the global market by treating just a fraction of outstanding patients in their market—many of whom are actively coveting a workable solution that’s not oral terbinafine, to my perspective, puts the stock in a really good spot.
I cannot tell you how many messages and calls I’ve received from people with nail fungus inquiring about how to get Terclara. Before the year is over it will probably cross 100 unique people. This is all anecdata, but it’s simply a consequence of following the product. Could this all go terribly wrong? Sure, but basically everything I’m observing leads to the same conclusion. Which is what makes it a good example of the same process of what I described earlier with ether but fit into the context of watching a product rollout for onychomycosis.
I hope you enjoyed reading, I’ve a flight to catch in about 5 hours. Be safe out there.
Nothing in this post is financial advice, it’s merely an opinion. Please seek the advice of a financial advisor before making any financial decisions as it relates to investing. I try to maintain factual accuracy to my best ability but cannot guarantee the accuracy of information on this blog. I may or may not have a beneficial position in securities mentioned on this blog.