What is Tax Loss Selling?

May and June are usually soft months in the small cap markets which can be frustrating for short term investors that don’t like seeing paper losses, but it's just another part of the investment lifecycle for long term holders like us.

We have been around for many cycles and this time of the year is usually soft for a number of reasons.

Sell in May? Many investors observe the “sell in May and go away” mantra that has baked itself into investment folklore and becomes a self fulfilling prophecy every year as initial sellers put downward pressure on small cap share prices which spooks other investors to jump on the sell in May bandwagon.

Tax loss selling? Following closely after comes June tax loss selling when investors who are sitting on paper losses decide to crystallise those losses by selling before June 30th so they can offset tax on capital gains elsewhere - another self fulfilling phenomenon that adds downward pressure to prices already beaten up by the May sellers.

We think the tax loss selling has been exacerbated this year as there were many new entrants into small cap investing in the early part of 2021, many who invested into stocks as they were approaching all time highs and may now be sitting on a paper loss after the May/June weakness and are tempted to sell, especially if they see other companies share prices increasing and want to quickly jump on to those while cutting their losses.

We are long term holders - As long term holders seeking 1,000% gains over time, our strategy is to hold for at least the 12 months capital discount which is much more valuable to us if one of our investments hits our 1,000% increase target.

We held all of our positions during the March 2020 COVID crash, which we admit was terrifying to watch the paper value of our portfolio decimated... but we believed in each of our positions and as we all saw the bounce back from the March 2020 lows was extreme.

As far as our long term portfolio construction goes - We think demand for Electric Battery metals is just beginning and, we believe a broader commodities super cycle is upon us as as the world emerges from COVID and countries try to secure material supply chains and the broader technology thematics in health and cybersecurity remain very strong.

So what happens next? We are expecting a bounce back in July once tax loss selling is done, and hope that things will start lifting a few days before the end of June as investors try to get ahead of the end of tax loss selling.

12 days to go till July...

✅ Investment Milestones:

Over the past few weeks we have been rolling out our “investment milestones and company investment strategies” for each of our portfolio companies, currently we have shared ASX:ONE, ASX:BPM, ASX:EMN, ASX:PRL, ASX:VUL, ASX: VN8 and ASX: EXR, ASX: 88E, ASX: CPH and ASX: TMZ. We aim to have the rest of the portfolio done in the coming weeks.

🌎 Relevant Mainstream Media:

We read a lot about what’s happening with the world and how that affects our portfolio companies. At the end of this email we have shared this week’s global news relating to CPH, EXR, VUL, EMN, PRL and WHK.

📰 Here’s what happened this week on Next Investors

Yesterday Oneview Healthcare (ASX:ONE) our Tech Pick of the Year for 2021 signed its second deal in a week featuring its new cloud offering (a key investment milestone for us). It was another 5 year deal, this time with Victoria’s Northern Health hospital. As we said last week, a lot of planets are aligning for ONE and we are very excited about our investment in the company. Read our commentary here.

Creso Pharma Ltd. (ASX: CPH | OTC: COPHF) announced a planned merger with Red Light Holland Corp (CSE:TRIP | OTC:TRUFF), in order to create the HighBrid Lab, a global Psychedelics and Cannabis Company. As part of the merger, the new entity will have a number of ex Canopy Growth Execs in the team, including a new Chairman Bruce Linton, founder of Canopy. Here was our first reaction to the proposed merger.

Later that day, management ran through the Hybrid Lab investor presentation, which you can view here.

Euro Manganese (ASX:EMN | OTC: EUMNF) plans to restart its pilot plant to produce high-purity manganese samples. The restart of the pilot plant is an important development because it will provide potential end-users with products to trial, laying the foundation for possible offtake agreements. EMN is also now trading on the OTC under the ticker EUMNF. This is expected to enhance the visibility and accessibility of the company to US investors. Read our commentary here.

After our note EMN announced a CEO succession plan to find a leader to take the company through its next stage of development, with founder and current CEO Marco Romero continuing on with the company - this is typical in a company's lifecycle as it moves from exploration and feasibility to development of the project.

Vulcan Energy (ASX:VUL) was this week admitted to the Global Battery Alliance - joining BMW Group, BASF, BP, Google, Renault Group, LG Chem, Umicore, Volkswagen Group and Volvo Group and SQM and Wesfarmers as members from the lithium sector. All members share the goal of “creating a sustainable battery value chain globally”. Read our commentary here.

🗣️ Quick Takes - Our Other Investments:

Advanced Human Imaging Ltd (ASX:AHI) yesterday announced it has adopted an Environmental, Social and Governance (ESG) framework with 21 core metrics and disclosures created by the World Economic Forum (WEF). AHI has engaged impact monitoring technology platform Socialsuite to streamline the outcomes measurement and ongoing ESG reporting process. AHI’s goal is to demonstrate commitment and progress on its ESG scorecard, but more broadly, requires progress on a range of ESG benchmarks as set out by the WEF’s ESG White Paper.

Province Resources Ltd (ASX:PRL) presented its HyEnergy ZERO CARBON HYDROGENTM Project at a community event held in Carnarvon last week. The event was organised by the Carnarvon Chamber of Commerce, and a broad range of stakeholders from the region were in attendance. This was an opportunity for PRL to gain stakeholder and community support at an early stage, and it came in the form of Letters of Support from the Gascoyne Development Commission and the Shire of Carnarvon.

🦉In our other portfolios 🏹

Wise-Owl covered Province Resources (ASX: PRL) as the company held a stakeholder and community engagement meeting in Carnarvon where PRL is aims to develop Australia’s first truly Zero Carbon Green Hydrogen project with Total Eren. Community engagement is critical at the early stage of a project like this. Green Hydrogen is a clean energy source, widely tipped to play a massive role in the world’s energy mix over the coming century. PRL is one of the earliest movers on the ASX in this sector.

🦉Read our update here: PRL the Early Mover in Green Hydrogen

Wise-Owl finished the week off on Wise-Owl with an update on BDA and FYI.

🦉Read our update here: FYI and BDA in the news

Over at Catalyst Hunter, Mandrake Resources (ASX: MAN) started its drilling campaign with targets just 30km from Chalice Mining’s multi-billion dollar world class Julimar nickel-copper-PGE discovery. Expect a significant amount of newsflow over the coming weeks from MAN as drilling takes place, and probably a binary outcome on drill results.

🏹Read it here: MAN is Drilling Now - 30km from Chalice Mining

As for TechGen Metals Ltd (ASX:TG1), it received assay results from its maiden gold drilling program at Ida Valley. We are one of the largest TG1 holders and are closely following its many upcoming exploration catalysts. TG1 confirmed there were multiple mineralised zones intersected and multiple geochemical targets remain to be tested. TG1 has also completed its soil program, which steps out north and south of previously identified surface gold anomalism.

Having analysed this data, TG1 is now well placed to follow-up with reverse circulation and diamond drilling.

🌎 What happened this week on mainstream media

Hydrogen (ASX:PRL)

Renew Economy - Rio Tinto to investigate use of renewable hydrogen in alumina processing

National Tribune - Australia and Germany partner on hydrogen initiatives

Thanks Chris for sending us this article above. If you have any other articles that you would like shared in the weekly wrap up about our investment portfolio please send them to [email protected]

Battery Metals (VUL, EMN)

Reuters - Volkswagen seeks partners for battery materials race

Bloomberg - Canada, EU in Raw Materials Pact to Cut China Reliance

Silicon Canals - VW-backed Northvolt raises €2.27B to build the world’s greenest battery; here’s how

ESG

Bloomberg - Siemens Energy Swarmed by Nations After Wind-Turbine Plants
Ads of Brands - Grey Launches a Global Campaign for Volvo Cars on The Biggest Safety Challenge We've Ever Faced

Inside FMCG - Aldi hits 100 per cent renewable six months early

Cannabis and Psychedelics (ASX:CPH)

Lexology - U.S. House of Representatives Reintroduces the MORE Act: Will 2021 be the Year Federal Cannabis Prohibition Finally Ends?

Leafly - Yes, Amazon will sell weed, stop worrying and start acting

Reuters - German psychedelic startup Atai targets valuation of $2.3 bln in U.S. IPO

Natural Gas (ASX:EXR)

The Australian - Gold rush at the small end of town

Cybersecurity (ASX:WHK)

itNews - Govt to mandate Essential Eight cyber security controls

Have a great weekend,

Next Investors