Facebook and the Metaverse, page-21

Hi @petertanaka,

I am traditionally a medium-term investor and love to play time to my advantage, however, one of the most important attributes of successful investing is to never fall in love with a stock.

The investment note from Macquarie was particularly bearish and revealed some additional revelations that now, on the balance of probabilities, have started to break my previous investment thesis.

Most notably, that Macquarie has been speaking to industry participants and notes that there is an emerging trend that has seen some big tech companies look to bypass Appen and directly crowdsource for data annotation services. It is likely that this is Facebook/Microsoft/Amazon, which are Appen's 3 largest customers.

One of my learnings from this whole experience, which I will elaborate on at some point in the future, is to stick within one's circle of competence. I have had great success in the nano, micro and small-cap markets across the last 5-10 years and shifting up into the mid-cap space picking out Appen was part of my mistake.

I love to find informational edges and advantages in stocks by undertaking extremely deep research and speaking with customers, management teams and other investors. In the nano and micro-cap market, I can do that and rank in the top 1% of investors who understand the company.

However, in the mid-cap space, brokers have greater access to influential stakeholders, compared to myself. While I feel well informed, I'm not as well informed as some of the bigger players. This has been a key lesson. Going forward, I will shift my focus back to where I think I can generate stronger risk-weighted returns: the micro-cap space.

I'm not certain that Appen is "down and out". I'd just prefer to be on the sidelines right now and put my capital to work in better opportunities. It is not worth fighting against the tide and sentiment right now and I have the optionality of returning if I think the situation is changing. In my eyes, that is prudent investing. I also can use Appen for tax purposes to offset some major gains I have had recently, but that is a side benefit, not the primary reason for my exit.

Cheers,