Afterpay shares one of this week's worst performers


As the world becomes more familiar with blockchain and cryptocurrencies, the opportunities that this new age technology presents keeps expanding at a rapid pace. In March, Twitter founder Jack Dorsey sold the very first tweet as a non-fungible token (NFT) for $2.9 million. To put it in simple terms, an NFT is a unit of data stored on a digital ledger (known as blockchain), which certifies that digital asset as unique.

Excuse my ignorance, but I am not sure why anyone would want to buy a tweet as an investment, let alone pay nearly $3 million for it. I guess we will all find out in due course if the investment was worth it.

Blockchain works by creating an open record of transactions that is nearly impossible to alter. Rather than storing data in a database, the data fills up 'blocks' which are then linked to previous blocks that are all chained together. In other words, as new data becomes available, it is entered into a fresh block and once that block is filled, it is chained to the previous block in chronological order. Each block is valued equally and essentially an original one-off digital record that is authenticated using blockchain technology.

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NFTs are purchased using cryptocurrencies and, so far, NFTs collectibles (as they are known) range from digital paintings to artwork, music, games, films and even sports memorabilia. While collectibles can be a good investment, regardless of whether they are owned in their physical capacity or digitally, only one person can own an NFT of the original item.

It is possible that we will see an explosion in the sale of digital collectibles via blockchain in the coming years, as we all become more familiar with this technology. That said, I would recommend those who own collectibles and who may be thinking of using this technology to do their research to fully understand what they are buying and its true value.

Best and worst performing sectors this week

Materials is the best performer up more than 2% followed by the Financial and Energy sector, as both are up more than 1%. The worst performing sectors include Information Technology down more than 8% followed by Consumer Discretionary down more than 1% and Industrials down just under 1%.

The best performers in the ASX/S&P top 100 stocks include QBE Insurance up more than 9% following good news of increased premiums followed by Reliance Worldwide Corporation up more than 5% and Insurance Australia Group up more than 4%.

The worst-performing stocks include Appen, which has fallen more than 25% this week on news of a downturn in advertising. This stock is now down more than 70% since August of last year resulting in many retail investors suffering heavy losses. Afterpay is also down more than 15% while Altium is down more than 12%.

What's next for the Australian share market?

In the 58 weeks since the COVID-19 low in March of last year, the Australian stock market has spent approximately 70% of the time trading sideways combined with brief periods of very bullish upward movements. After breaking up again strongly in early April, the market has moved sideways over the past three weeks to be slightly down on where it closed four weeks ago.

Normally, it would be reasonable to expect the bull run to continue and, as I have mentioned previously, my expectation was that the market would rise to around 7600 point over the coming weeks into mid to late May. However, given the large decline in technology stocks this week, I think the only thing we can be certain of right now is that the market is uncertain and we need to be prepared for anything to occur.

I still expect the All-Ordinaries Index to be mostly bullish throughout 2021 and while we may see it move down in the short term, I don't expect this to be severe in either time or price. What is unfolding right now is a timely reminder that the market does what it does and we can only control when we get in or out. This is why it is very important to have an exit strategy to protect your capital given what we have seen this week with Appen, Afterpay and Altium.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.