Good Morning! Hope y'all had a fine summer weekend! Tech companies are firing employees even before they start working... Coinbase is extending its hiring freeze and has rescinded some job offers, and Tesla and Gemini are both planning a 10% headcount reduction. Friday's CPI report is set to paint a better picture of what inflation looks like. On the positive side of things, maybe inflation hasn't hit movie theaters too hard yet, with Top Gun: Maverick killing it again at the box office this weekend (grossing $86 million in North America, following a record-breaking $156 million debut last weekend). Also killing it was Rafael Nadal, who won his 14th French Open and 22nd Grand Slam.
With stocks and crypto markets getting clapped, check out today's sponsor, Cadre, that allows you to invest in commercial real estate.
So far in 2022, 19 SPAC mergers have been canceled. What was once the hot new kid on campus, is now old news. Major companies like Forbes and SeatGeek canceled their SPAC plans last week, which makes up nearly $18 billion of eliminated deal value.
When SPACs rose to fame, everyone thought they were great alternatives to IPOs because they moved faster, and had more price certainty. In reality though, SPAC mergers rely on investors that bought into the SPAC more so than the investors that come in via PIPE financing. Those early investors are often times hedge funds that are quick to redeem when markets take a turn like they have this year.
There are still over 120 SPAC mergers waiting to close, so the instrument isn't extinct, but more damaged rather. The smaller transactions are more likely to be completed, whereas larger ones like Forbes and SeatGeek could see more cancelations.
Short Squeez Takeaway: It's not just SPACs that are in a dry spell. The IPO market has been stagnant as of late as well. Hopes of a June rush have been dashed, as people want to wait out tough market conditions. One thing's for sure, while shiny new products (like SPACs) constantly come and go, the tried and true IPO will be around for a while.
Equities finished lower this week, but crypto was able to pick up some steam over the weekend after a choppy week prior.
Movers & Shakers
With stocks and crypto markets getting clapped, investing in alternative markets(1) is an excellent way to diversify your portfolio.(2)
Commercial real estate is a steady option with tangible assets you can touch and feel.
In the wake of the fintech boom, Cadre has married groundbreaking technology with expertly curated commercial real estate investment opportunities. Through their online investing platform, Cadre opens participation in a historically opaque and illiquid asset class.
The committee’s investment professionals hail from a variety of top-tier institutions during their careers, such as Blackstone, Vornado Realty Trust, Goldman Sachs, Prudential Real Estate, Four Seasons and GEM Realty Capital.
With low correlation to the stock market, commercial real estate is a vital part of a long term portfolio to grow wealth.
Cadre is the way to make it happen.
From the author of the Wall Street Journal bestseller Barking Up the Wrong Tree comes a cure-all for our increasing emotional distance and loneliness—a smart, surprising, and thoroughly entertaining guide to help build better friendships, reignite love, and get closer to others, whether you’re an extrovert or introvert, socially adept or socially anxious.
Can you judge a book by its cover?
Is a friend in need truly a friend indeed?
Does love conquer all?
In Plays Well With Others, Eric Barker dives into these questions, drawing on science to reveal the truth beyond the conventional wisdom about human relationships. Combining his compelling storytelling and humor, Barker explains what hostage negotiation techniques and marital arguments have in common, how an expert con-man lied his way into a twenty-year professional soccer career, and why those holding views diametrically opposed to our own actually have the potential to become our closest, most trusted friends.
Leveraging the best evidence available—free of platitudes or magical thinking—Barker analyzes multiple sides of an issue before rendering his verdict. What he’s uncovered is surprising, counterintuitive, and timely—and will change the way you interact in the world and with those around you just when you need it most.
“From our highest highs to our lowest lows, our relationships to other people determine our happiness and well-being.”
US gasoline futures prices from June 1, 2012, to June 2, 2022
The world is complex. Consider the various reasons floating around explaining the market’s fall in the last two months – war, inflation, interest rates, China, supply chain disruptions, weak GDP, and over valuations. This is not a complete list, but enough to suggest that the world is complex. And so are financial markets.
How do you deal with such complexity in your wealth creation journey without losing your sanity?
Have an investment process that is elegant in its simplicity.
Of course, this goes against common belief that your investment process must be complex to be profitable. This is because, like the Dutch computing science pioneer Edsger W. Dijkstra said, “Complexity sells better.” Against that, “simplicity requires hard work to achieve it and education to appreciate it.” And not many investors would want to walk on that road less travelled.
Also, a research paper titled The Confounding Bias for Investment Complexity argued that “a preference for complexity is almost hardwired into investors, their agents, and asset managers because the intuition is that a complicated investment landscape requires a complex solution; a complex strategy also supports a higher fee from both agents and managers.”
This is even when “simplicity leads to better investor outcomes not because simplicity in and of itself produces better investment returns, but because a simple strategy encourages investors to own their decisions and to less frequently overreact to short-term noise.”
So, what’s a simple investment strategy that also works?
Let me keep it simple and share with you the ten-parts strategy outlined by John Bogle in his book The Clash of the Cultures.
It’s simple and it works.
1. Remember reversion to the mean: Markets are like a pendulum. And like Ben Graham quoted Horace said at the start of his book Security Analysis, “Many shall be restored that are now fallen and many shall fall that are now in honor.” People forget that markets are mean reverting when returns get way ahead of the fundamentals, and everyone’s getting rich. But, like with Cinderella at the ball, the clock does strike 12, and everything turns into pumpkins and mice.
2. Time is your friend, impulse is your enemy: Time is your greatest ally in the compounding journey. Take advantage of it. Against this, impulsive actions like timing the market, buying what’s hot, selling what’s plunging, etc. are your enemies. Avoid such impulsiveness.
3. Buy right and hold tight: ‘Buy and hold’ does not mean ‘buy and forget.’ If you have done your work well, and the business continues to do well, hold on to it tight. Thinking like an owner should help here.
4. Have realistic expectations: There are two sources of stock market return – one, investment return and two, speculative return. The former depends on the underlying business you own – its growth, profitability, return on capital, balance sheet strength. The latter depends on the speculative tendencies of the market participants. We get into trouble when we base our expectations on speculative return, for that is largely based on the opinion of others. Focusing on what the business is doing and basing our return expectations on that is the way to go.
5. Forget the needle, buy the haystack: The haystack Bogle refers to here is the “market” and he’s advising to buy index funds that track the broader market instead of trying to find individual stocks (needles). If you are a “know-nothing” investor, or someone looking to diversify outside general equity funds, a broad-based, low-cost index fund or ETF is a good idea.
6. Minimize the croupier’s take: Bogle writes in his book, “After the heavy costs of financial intermediation (commissions, spreads, management fees, taxes, etc.) are deducted, beating the stock market is inevitably a loser’s game for investors as a group…[like] after the croupiers’ wide rakes descend, beating the casino is inevitably a loser’s game for gamblers as a group.”
When you focus on the potential returns on an investment, also consider the cost you would incur over its lifetime. Reduce the costs from the potential returns, for that is the rate at which your money would compound. Keep it simple. Find a good, well-diversified equity fund with much lower costs, and invest there.
7. There’s no escaping risk: However smart and experienced an investor you are, there is no escaping risk while investing in the stock market. Bogle writes, “When you decide to put your money to work to build long-term wealth, you are not deciding whether or not to take risk, for risk is everywhere. What you must decide is what kind of risk you wish to take.”
8. Beware of fighting the last war: We suffer from recency bias, and often decide to invest looking at how things have been in the recent past (like looking at recent stock price movements). Past is a great teacher and an indicator of what may come, but you should not expect the recent past to continue into the future. That happens only in excel sheets, not in real life.
9. The hedgehog bests the fox: Bogle writes, “The Greek poet Archilochus tells us that the fox knows many things, but the hedgehog knows one great thing. The fox – artful, sly, and astute – represents the financial institution with investment professionals who know many things (or at least sincerely believe that they do) about complex markets and sophisticated strategies.
The hedgehog – whose sharp spines give it almost impregnable armor when it curls into a ball – is the financial institution that knows only one great thing: Long-term investment success is based on simplicity.” Be the hedgehog.
10. Stay the course: Most people who start into investing with a sound process fall prey to the emotions of envy, greed, fear, and abandon their process. The ones who do well in the long run are those who stay the course, come what may. Of course, a process must evolve with time, but sticking to what you think is best for you and what works in the long run is what matters.
Oliver Wendell Holmes, the American physician, poet, and humorist, said –
I wouldn’t give a fig for the simplicity on this side of complexity, but would give my life for the simplicity on the other side of complexity.
Simple can be harder than complex.
You have to work hard to get your thinking clean to make it simple. But then, as Steve Jobs said in an interview in 1988, “…it’s worth it in the end because once you get there, you can move mountains.”
That’s also true in investing for wealth creation. In practicing simplicity, and staying the course, over time you can also move mountains.
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1) Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.
2) Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
3) Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
Private placements are high risk and illiquid investments. As with other investments, you can lose some or all of your investment. Nothing here should be interpreted to state or imply that past results are an indication of future performance nor should it be interpreted that FINRA, the SEC or any other securities regulator approves of any of these securities. Additionally, there are no warranties expressed or implied as to accuracy, completeness, or results obtained from any information provided here. Investing in private securities transactions bears risk, in part due to the following factors: there is no secondary market for the securities; there is credit risk; where there is collateral as security for the investment, its value may be impaired if it is sold. Please see the Private Placement Memorandum (PPM) for a more detailed explanation of expenses and risks.
Interests are being offered only to persons who qualify as Accredited Investors under the Securities Act, and a Qualified Purchaser as defined in Section 2(a)(51)(A) under the Company Act or an eligible employee of the management company. This presentation does not constitute an offer to sell or a solicitation of an offer to buy Interests in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. There will not be any public market for the Interests.
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