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10 Bagger Club Half-Year 2022 Report

July 28, 2022

The first half of 2022 made a record as the worst half-year performance for global equities since 1970. That's in percentage fall terms. In actual loss of capital terms, we just witnessed and - indeed are still witnessing - the largest recorded capital destruction period ever seen in the markets. Over US$25 trillion dollars has been wiped off the value of equities in the last six months and far more than that if we include the bond, metals and devastated crypto markets this year.

But worse still, is that most junior ASX stocks have essentially been falling for longer, since their highs in September 2021 - that's almost nine months of continual price falls across the board. It’s been one of, if not the worst, pull-backs or bear market periods in the junior ASX stocks your committee has _ever_ seen.

  The reports is available as a PDF (11.1MB) click here for access.

Cover of 10 Bagger Club Report 2021

Plus the way it has happened has been via a soul-destroying, gradual, sandpapering to death of investors as liquidity and any sense of bullishness has slowly evaporated from the system.

Our Performance

The average performance for the19 active equity 10 bagger calls at the close of the half-year end was only -3.8% on a mark-to-market measure and +66% on a highest-gain measure.

However, those figures are a bit flattering as they only include our still-active calls at Half year end. If we count all 19 of our 10 bagger calls, including the cryptos, that we either held at the start of the year or called during the half year – then our total average performance is -12.64% on a mark-to-market basis and +62% on a highest gain basis.

Even in this tough bear market however, either by a mark-to-market or highest gain measure, our equity 10 bagger calls still well outperformed the main ASX and the S&P equity indexes. This shows that despite what you often hear from more conservative market commentators, about how junior stocks are more “risky” than more established blue chips and mid-caps. But as we have often mentioned - that is not the case if you do the effort to pick promising developmental stocks intelligently based on reasonable fundamentals and expectations like we believe we do for our 10 bagger calls.

So not only did our (so-called “risky”) junior stock calls clearly massively outperformed the two main indexes during the bull market. But - even in the throes of this harsh bear market now,- our 10 bagger equity calls have fallen less and are still outperforming the (so-called “much safer”) blue-chip and mid-caps stocks that make up those indexes.

That said, our overall mark-to-market performance of all our 10 bagger calls in the half year was slightly lower worse than the ASX index, but as you can see from the performance chart below – our biggest losses came from our crypto Section calls (-48% average fall) which was due to the extreme and harsh bear market in cryptos.

EquityCP $SP $EP $EG %HP $HG %
DYL.ax | Deep Yellow Limited0.1900.8600.595-30.811.22041.86
FRB | Firebird Metals0.2000.3900.255-34.620.4207.69
ERW+O | Errawarra Resources Ltd0.2500.1960.196-0.080.25027.58
AEE | Aura Energy0.0260.2700.180-33.330.36535.19
Aura | Aura Energy0.0390.1350.15514.810.19040.74
EL8 | Elevate Uranium0.1750.4650.365-21.510.82577.42
92E | 92 Energy0.2600.6800.450-33.820.93537.50
KTG | K-Tig0.4500.3100.250-19.350.45546.77
IND | Industrial Minerals0.2000.2150.31044.190.450109.30
AEEO | Aura Energy Option0.0130.2100.130-38.100.29038.10
RAGOC | Ragnar Metals (Option)0.0160.0170.01911.760.02864.71
CLA | Celcius0.0220.0220.012-45.450.03663.64
FRE | Firebrick0.2000.2000.26532.500.750275.00
LIN | Lindian Resources Limited0.0580.0580.120106.900.130124.14
OKR | Okapi Resources Limited0.1900.1900.185-2.630.2057.89
Total-3.3066.50
Crypto
ETH | Ethereum720.0003682.6333281.643-10.893876.7855.27
LUNA1-USD/LUNA2 | Terra (LUNA)4.60085.47310.714-87.46119.18539.44
CCC | Cross Chain Capital (x10000)0.0600.0550.025-54.800.115108.80
IS3 | I Synergy0.0800.0800.050-37.500.125.00
Total-47.6644.63
Grand Total-12.6461.90
Compared to the markets
ASX S&P 2007444.6006568.100-11.777624.8002.42
S&P 5004766.1803785.380-20.584818.6201.10

Key

  • CP Call Price
  • SP Start Price - closing prices on 31 December 2021 or call price
  • EP End Price - closing price 30 June 2022 or when exited
  • EG End Gain %
  • HP Highest Price in first half year/ whilst active
  • HG Highest Gain % in first half year

Our biggest loss (90%) came from the unheralded collapse of the Terra Luna network which happened in a few days in May when we were mainly travelling. Many members got badly wrecked in Luna's sharp fall. But conversely, we know several members who exited Luna before the collapse, with profits over 1,000%+ from our original Luna call price of US$4.60 in 2021. This discrepancy highlights the issue we have in trying to accurately portray our overall performance as we are not a fund, we are just a bunch of independent individuals trading our own portfolios as we see fit.

This is why we have now decided from now on its fairest to measure our 10 bagger portfolio performance using two measurement methods:

  1. The Highest Gain Measure

We originally started using the highest gain measure - measuring an investment from the call price to the highest price during the said period. We did so as we feel this best indicates the possible range of profitability available to members who trade in or out of calls as they choose. But this method is very flattering - and some members have complained. So more realistically we shall now also use:

  1. The Mark-to-Market Measure

This measures from the call price to the price at the end of the period - or until when it was uncalled. This indicates what a holder would have got if they had bought when it was called and just held it.

The committee believes that if one takes roughly the mid-way point between these two measures, it should serve as a fairer performance indicator for members to judge their own portfolio performance against.

Dark Clouds Have A Silver Lining

After the huge retracements down from their highs last year that we experienced in most of our calls over the last nine months, the committee now believes all our calls again reflect good value and our portfolio looks fundamentally very promising to buy into.

The June 21, 2022, chart (below) from stock and fund tracking company Morningstar shows that after drastic price falls in most ASX stocks the number of undervalued stocks compared to overvalued ones is almost back to the level we were at when we first started this club in early 2020. And starting then we were able to call and book in 13 ten baggers in the next two years. We believe the same could happen again from here. We fundamentally like all our current calls and feel this is a case of exercising our much-touted mantra “Buy them when you hate them, sell them when you love them.”

Graph of undervalued companies listed on the ASX

How Long May This Bear Market Last?

At the request of some newer members, we are about to write a report for members giving our views on this current bear market, what to expect, and how to deal with it - therefore we shall not go into further details here in this public half year report which will also be posted on our website.

Overview of Our 10 Bagger Portfolio

K-Tig | KTG.AX

The company holds a global patent over a revolutionary keyhole welding technology that saves almost 98% of the time and 96% of the cost of human welders. There is also a growing global shortage of human welders. So all companies are automating where possible. KTG is run by smart managers with a proven track record of building companies from little to huge. KTG is growing fast and just needs time now to further develop its global sales servicing and resupply infrastructure. We also expect them to hopefully capture one or more of the multi-billion dollar fabrication contracts in the defence and nuclear-decommissioning industries they are currently in negotiations with.

Firebrick | FRE.AX

Owns the patent over an anti-viral iodine nasal spray designed to kill the cold, flu and covid viruses - billions of people per year still get colds, flu and covid. Iodine is a time-tested, well-recognised, antiviral substance with almost no side effects. Firebrick also has top management from the industry with a proven track record of building small companies into large ones. We feel confident Firebrick also just needs time to get through the several government certifications processes before it can start its global sales.

Industrial Minerals | IND.AX

Owns the rights to excavate and sell vast tracts of high purity silica sand (for glass-making) on private farmlands in Southwest Australia. Currently there is a serious and growing demand due to a big shortage of such silica sands for glass-making both in China and globally.

Firebird Resources | FRB.ax

Owns one of the only two big new manganese resources found recently in Australia. With much of the world's manganese coming from dodgy countries and already controlled by China, we expect strong demand for their manganese. Manganese is the world's fourth largest traded commodity and is required in steel manufacturing and more importantly now - in EV batteries.

Celsius Resources | CLA.ax

Owns a huge copper-gold resource in the Philippines. Copper demand keeps growing as the world electrifies and few new big copper mines have been found recently or will be brought online in the near future. CLA management also has a track record of developing to production today another large and profitable copper-gold resource in the country.

Lindian Resources | LIN.ax

Has just acquired one of the world's best resources of rare earths, which are in critical short supply for a myriad of modern technologies. More importantly, their resource is also one of very few in the world not controlled by China. We expect the project to be funded (probably at the project level) due to the high competition from Eastern and Western countries to secure critical supply.

Our Uranium Developers: Deep Yellow | DYL.ax; Aura Energy | AEE.ax; Elevate Uranium | EL8.ax; 92 Energy |92E.ax and Okapi Resources | OKR.ax

If you believe in the coming global uranium shortage thesis, as we do, then you should own some uranium stocks. We have studied and analysed most of the world's 65 or so listed uranium stocks and know how different types of stocks have performed during the last two uranium bull runs. We picked out these five ASX listed uranium stocks as some of the most promising on the ASX, and indeed, in the world in terms of current valuations compared to their peers.

All, except 92E, already own substantial inferred resources of uranium but are not yet into development. 92E however is a well-situated exploration play in Canada’s Athabasca basin, already with some significant intercepts. 92E however, despite its big upside potential, still carries significant exploration risk.

It is notable now that after the steep retracements over the last eight months in all uranium stocks and funds, they are now even more undervalued compared to the uranium price than they were even at the start of this uranium bull market in November 2020. Now is the time to buy them with the world moving to greener power and already consuming much more uranium than it produces annually, and the uranium spot price sitting far below the cost of production for most miners. We remain fully committed to our uranium bull market thesis longer-term, despite the current nasty and illogical retracements in uranium equity prices recently.

Errawarra Resources (ERW.AX)

Is a pure nickel exploration speculation story. But it's far from a complete wild card play. On the tenement abutting theirs in Western Australia, the ASX listed Azure Minerals (AZS.ax) have been hitting nickel in every anomaly they have drilled into so far. The line of anomalies extends straight into ERW’s adjoining tenement. ERW should start their drill program by late August and if they get any decent hits, as we expect, it could send this small, A$12m market cap stock much, much higher. But of course, the risk is if its drill holes are dusters then the share price risks sinking substantially lower. This is a risk-on exploration play.

Multibaggers

Around half our committee and our members' multibagger calls such as members' favourite Invictus (IVZ.ax), as well as Group 6 Metals (G6M.ax), Melbana Energy (MAY.ax), Superior Resources (SPQ.ax) and Esprit (0330.HK), have all performed well so far in 2022. The rest have also suffered during the recent risk-off retracement this half year. However, amongst those that have fallen, most offer great value at these current lower levels and look cheap now and we see good longer-term potential in all of them.

Crytpos

Cryptos and crypto-related equities had their teeth seriously kicked-in with the average of all crypto and crypto-equity benchmarks down by around 60-70% in the half year, and more than taking them from their highs around October last year.

The crypto crash brought down our overall average portfolio performance. The meme below pretty well sums up the relationship between the equity and crypto markets so far in 2022. As our own portfolio reflected.

Crypto loss meme

Terra Luna (Luna), as explained above, was the worst hit of all our 10 bagger calls in 2022 and was the main reason for our overall average portfolio's poor performance this half year.

Cross Chain Capital (CCC), our tiny and highly speculative game coin call as well as I Synergy (IS3.ax) , a blockchain developer, related stock equity, both fell by 40–50% before being uncalled as 10 bagger. I Synergy, (IS3.ax) however with a market cap of just A$12m, is beginning to look like a good buy again at these lower levels as L1X, the blockchain it is associated with developing, continues to gather a following of developers and users.

Fortunately, however, we uncalled Bitcoin (BTC) and Ethereum (ETH) early before the worst of their recent falls.

Bitcoin (BTC) is now down 72% from its highs and hovering around the sub US$20,000 levels is also beginning to look like a good longer-term buy again. While it could still go lower given that the huge Mt. Gox holding from 2014 (the third biggest BTC wallet in the world) should soon start to be liquidated into the market. In addition, the recent bankruptcies of coin lending platforms Voyager and particularly Celsius, another huge BTC holder, means their holdings may also have to be liquidated into the market to repay their creditors. Could these big catalysts herald a crypto cycle bottom? So now could be a good time to start dollar cost averaging into Bitcoin - bit by bit - if it falls any further - as long as you take a two-year view or more.

Ethereum (ETH) We do believe crypto and blockchain technology is here to stay and is not just a failed experiment as some are again intoning (as they do in all the crypto bottoms). So far in its short life, crypto has moved in radical four-year cycles- based on the halving cycle of BTC. We believe the next up cycle could see BTC going through US$100k in value and ETH also hitting new highs. And any BTC and ETH rally will pull lesser altcoin values up with them.

The millennials want crypto to work, and they are impatient, hence we think a turnaround could come sooner than many think. But this time around BTC's and ETH’s ability to break out into new highs will depend on the regulators in the US who need to better define the economic and financial status of the different forms of crypto: BTC, stablecoins and altcoins, plus to allow the first bitcoin or bigger altcoin ETFs to go on sale.

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