Invest Against The Grain
Elite investors zig when everyone else zags. Right now, while everyone else is rushing into the two burning buildings that are the stock market and Bitcoin, wise investors are staying away.
Why do smart investors ignore the noise? Because investments driven by market noise are not driven by a strong foundation.
What constitutes a strong foundation?
Investments with strong foundations obey basic market forces of supply and demand – where the price of a good or service is a function of good old fashioned supply and demand and not market speculation.
Wise investors like the “quiet” investments – investments that don’t attract the attention of social media or that are “influenced” by instant analysis, self-promotion, or talking heads. These “noisy” investments are driven by hype, irrational mobs, and the media – more than by reason and sound fundamentals.
So what are the mobs throwing their money at these days? The stock market and Bitcoin.
How do we know these markets are one match away from a dumpster fire? Both markets are being fueled right now by irrational investor exuberance and cheap money from stimulus checks.
The markets have never seen this level of newbie investors like what we saw in 2020 – fueled by the first round of stimulus checks – and now in early 2021 with a fresh round of stimulus checks. And there’s more stimulus to come so the stock market and Bitcoin booms are not done.
The stock market is overvalued – with the Dow currently trading at a price/earnings (PE) ratio of more than 30. The historical average is 16. Before the dotcom bubble burst, it was trading at 32.
Bitcoin exuberance is more baffling to me. Bitcoin serves little value as a currency or as a secured medium of transaction.
Every year, billions in bitcoins are stolen and it still isn’t a widely accepted form of payment. Yet, in less than a year its price has jumped more than 860%. The problem with Bitcoin is its volatility. Over the past five years, there hasn’t been a year where Bitcoin hasn’t been up to or down less than 72%.
Do you know what’s the craziest thing I’ve read recently? That Bitcoin is attracting investors as a hedge against inflation? Really? Who has ever hedged against inflation with an asset that can lose 72% of its value within a year? And Bitcoin has no tangible value. At least gold is tangible and shiny.
The wise investors know better. They avoid investments that are vulnerable to the madness of the mobs and right now the mobs are running wild through the stock market and Bitcoin exchanges.
Smart investors invest in assets where financial analysis matters – where fundamental rules of economics and finance are still relevant where X+Y still equals Z, where the noise and madness of the crowds can be ignored and drowned out.
Smart investors are drawn to alternative investments where research, analysis, due diligence, economic indicators, metrics, demographics, market research, and the quality of the leadership team impact the financial outcomes and not what the latest flavor of the month is for the masses.
While Main Street money chases shiny objects, opportunities are opening up for smart investors from private firms competing for their capital. This means exposure to investments with better terms, higher-quality investments, and top-notch management competing for your scarce private capital.
To find those off-Wall Street opportunities offering above-market returns insulated from market volatility, it takes going against the grain. Look beyond Wall Street.
Follow the smart money. Where are elite investors staking their financial futures?
Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.