Gemfinder Q2 2019 – Are Public markets shrinking?

Ahh, another quarter is almost gone now and we’re due for the next Gemfinder article. As a reminder, Gemfinder is where you can find all those resources that picked my interest. These can be books, articles, podcasts.

The main thing about Gemfinder is that the content is evergreen, so you can go back and read any past Gemfinder article without feeling the news is stale. There is no news here, just solid wisdom 🙂

So what has piqued my interest the past few months? An inherent interest in private equity and crowdfunding. I mean, I’ve always followed the big crowdfunding investments in Crowdcube and Seedrs. But I’m mostly worried that now index investing may be capturing less of the market returns. Let me explain.

In the past, when companies wanted to raise capital they went public. This was a great way to fund their growth and subsequently return the capital (in multiples) back to investors. Nowadays, this model still exists but at a limited scale. We see more unprofitable unicorns companies staying private for years such as Uber, Lyft and Pinterest. Entering the stock market looks to me like a way for the owners to cash out after having squeezed all the growth rather than raise capital for future growth.

Big VCs, like SoftBank, have made millions on that trend. The fact that such large institutions exist limits the upside of our public investments. Private companies can raise a lot of capital from private investments and are therefore in no rush to enter the stock market.

Even Facebook, that has returned more than 300% to its shareholders to date, entered the stock market in 2013 with a Bang! ($104 Billion market cap). What’s the solution for us, investors? Stockpicking in Crowdcube? Seedrs EIS100 fund? Small-cap funds? Investing in Property?

Unless the inequitable lack of access to private markets is addressed, retirement savers will continue to be deprived of the ability to participate in high-growth business models and further promote the sense that markets are being operated for the benefit of well-connected insiders.

The president/CEO of the CFA institute, Source CNBC

So I’ve put my question in for Lars Kroijer and waiting for an answer. Will this affect our future market returns? And what would you suggest passive investors do to avoid being left out?

Investing

The majority of the population that invest are amateurs playing the game of professionals. But we don’t want to admit it. We don’t like getting the market average return. As with anything in life, who wants average? Would you accept an average surgeon to take your appendix out?

But investing is different. Average is actually one of the best deals we can get for the risk that we take. Therefore, seeking brilliance is not the answer, but more likely avoiding stupidity.
Avoiding stupidity is easier than seeking brilliance – Farnham Street (4 mins)

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. 

Charlie Munger

If you found yourself not investing because you don’t want to risk money, or you don’t like gambling, or you know you should but you haven’t got around to it, then you should definitely read this article.
Why investing beginners should consider stock markets – FvL (4 min)

Many times you hear me say investing is for the long-term. But why does the long-term work, really? What makes me confident that in the long-term you will make money? This article explains that.
Why Time Horizon Works – Collaborative fund (2 min)

I’ve previously advocated of the 4% rule. That you can withdraw 4% of your invested assets every year without risking ruining your portfolio. But this rule is just a rule of thumb, not a compass. Monevator has written two pieces on Safe Withdrawal Rates (SWR) that are fun to read:
What is a sustainable withdrawal rate for a world portfolio? – Monevator (8 min)
How to improve your sustainable withdrawal rate – Monevator (8 min)

Although the world is getting better by any measure (% of extreme poverty going down, countries living in a democracy, vaccinated kids, % of educated people) people are at all-time low happiness. Internet hours have gone up and in-person social interaction, sleep and happiness have gone down.
Why we’ll never all be happy again – A wealth of common sense (5 min)

I’m still sceptical of p2p lending. I keep telling people that these internet companies are new and don’t have a long history of running the business. However, consumer credit does have a long history and I respect it as an asset class. But contrary to the article claims, how confident are we that p2p lending companies do their due diligence better than banks?

We still have nothing but one company (Zopa review) making it through a financial recession. Yet a new p2p lending company is founded every month or so. I do want direct exposure to consumer credit and I like being the ‘credit card’ company. Should I buy Amex shares or is investing via p2p lending a good way of doing this? The article is a bit biased. Doesn’t include dividends when demonstrating equity returns, uses DIJA, doesn’t practice dollar-cost averaging, etc But is a good one anyway. Thank you, David, for recommending it.
Peer-to-peer lending as consumer credit asset class – LendingMemo (7 mins)

Vanguard 10 year forecast, honest and valuation based! Their 2008-2010 one was quite accurate. While most firms focus on predicting yearly movements and recessions, Vanguard takes a long term view which is actually what every investor in stocks should be doing.
Market and economic perspectives – Vanguard (5 mins)
TL;DR, all nominal returns:

  • US equities 4-6%,
  • International equities 7.5-9.5%,
  • US Bonds 2.5-4.5%
  • International bonds 2-4%

How capital markets always find a way to survive world wars, scandals, hyperinflation, debt crises you name it. Great parallel with the earth’s mass extinctions that happened in the past.
The Will to Survive – ofDollarsAndData (5 mins)

where millionaires migrate to
Here’s where millionaires migrate from/to. Source: VisualCapitalist.com

Here’s where millionaires migrate with pictures. Very interesting to know that although China has the biggest outflow it creates more millionaires than the number of outflows.
Mapping the Global Migration of Millionaires – Zero Hedge (1 min)

This is why it’s important to trust the big names when it comes to choosing a fund provider. Vanguard found a way to save taxes on its mutual funds by attaching an ETF and leveraging heartbeat trades – under the hood.
Vanguard Patented a Way to Avoid Taxes on Mutual Funds – Bloomberg (3 mins)

Capitalism is the worst system, except for all the rest.
Capitalism vs Socialism – Pragcap (1 min)

China

They say that people spend all weekend researching which laundry machine to buy but only 15 mins to select their investments for their life savings. This article is 10 pages long but it’s full of images so it reads very quickly. Bridgewater explains how your investments would perform in different countries VS an equal-weighted portfolio. That is if you split your money equally across all countries.

The article reminds me of the reasoning behind my China investments. China, in particular, is growing its share of global output since 2000, to almost 30% of World’s exports now. Yet, investors own less than 5% in their portfolio. As China opens up its markets to the world in the past 3 years, I see owning China having a big upside and a small downside. The other reason I own china (via KBA A shares and CNYA) is that its correlation with the US stock market is low, unlike the rest of the developed world. The trade war surely raises my concerns but at the same time makes China even cheaper.
[PDF] Geographical distribution can be a lifesaver in investing – Bridgewater (10 mins)

A dry read on the China-US relations. Goes to show that China has a big enough margin to sustain the tariff increases. On one hand, more money is flowing into the economy thanks to China opening its equity and bond markets. On the second hand, China can devalue its currency (Yuan) but at the cost of affecting the rest of the world.
What a Difference a Week (or a Weekend) Makes – CFR (8 mins)

Stratechery’s thoughts on the US-China trade war. China lags behind when it comes to technology. I don’t particularly like China’s protectionism. Why are Chinese companies in the US treated like the US ones (up until recently…) when foreign companies in China are treated with censorship and special controls? China also holds about $1.1 trillion of US T-bonds but that’s only 2 days worth of volume. China won’t / can’t crash the US bond market. But at the same time, the US can’t really affect China without hurting itself by introducing tariffs. Tariffs are just regressive taxes on the US population!
China, Leverage and Values – Stratechery (9 mins)

Health

Health is the best investment we can make. Given that self-reporting health is also at the top of the reasons affecting people’s life satisfaction, here are two articles I found interesting.

No 3: Watching TV in bed helps you relax. I like this part:
And as for Game of Thrones, it’s hard to argue the Red Wedding was relaxing. 🙂
Sleep myths damaging your health – BBC (4 mins)

Eat your broccoli!
The definite superfood ranking – Pocket (10 mins)

Business – Entrepreneurship

If you’re building a business, have a blog, podcast or compete really in any industry, this article is eye-opening. The first Everest climbers got all the fame and a great story. Nowadays, hordes of people climb Everest and take a selfie. Competition comes after the successful whether that’s in business or at Everest. The only way to succeed is to be good enough to have a “moat” – competitive advantage that will persist through time.
Crowds – The Reformed Broker (3 mins)

Wework always do what you love

Evan Davis starts a business discussion around the new trend in business: co-working space. WeWork is valued around $47bn (that’s Billions)! Given I work at one, I still don’t get the huge valuation since the real estate behind it is quite small. Apparently, it’s all about the “value” that they provide to the members and the community. Yes, there is some, but most of it is hype IMHO.
[Podcast] Co-working – Evan Davis, The Bottom Line

Mr Money Moustache who also started a co-working space in Colorado talks about financial independence and community building. I really like the work ChooseFI are doing for the financial independence community, and of course, it’s always a joy to listen to MMM talk about life 🙂
[Podcast] Community building with MMM and Mr 1500 – ChooseFI

Roulette is an unbeatable game. Usually, the price is 5.6% loss for Americans and 2.7% for Europeans. But this professor had a system that used to become very rich beating the casinos. It doesn’t take only math skills but also dedication to build a system, implement it, take a loan and go all in!
The professor who beat roulette – The Hustle (8 mins)

And speaking of casinos, I’m now reading the Man for All Markets by Ed Thorp. I first heard of Thorp when I was studying blackjack and card counting 3 years ago. Seriously, I read 3 books – it was supposed to be a side hustle but I never did it properly! Thorp is the father of card counting and has made millions playing cat & mouse in casinos. It’s interesting to hear his thoughts on investing after having started a hedge fund.

As always, if you find something worth reading please send it my way.

Share this article:

Share on facebook
Share on twitter
Share on pinterest
Share on whatsapp

Liked this article?

Every 2 weeks, I send a handwritten email with honest, valuable content.
If you want to receive it please subscribe below! No spam, ever.

Hi! I’m Michael and I love writing about different ways to earn, save and invest our money. Coffee addict :)

Liked this article?

Every 2 weeks, I send a handwritten email with honest, valuable content.
If you want to receive it please subscribe below! No spam, ever.

Recent Posts