Investing Models Have Changed
The Era of Experience and Patience
We all want this new year to be a great one. We all want to reach our goals and our aspirations. I want that for you and myself.
But life has a way of not always giving us what we want.
That doesn't mean we can't aspire or shouldn't dream or have a vision. It just means that sometimes, we need to reduce our expectations of certain ideals.
We've become an instant gratification society due to our advancements in technology. Technology increases our ease of access to materials, entertainment and education. We now have smartphones with instantaneous connection to information.
We can order something from a phone in our pocket and have it delivered to us almost anywhere we are. We can even get transportation (Uber rides, plane tickets, cruises, etc.) to go anywhere we want. It's an amazing world today and we are used to getting everything easily and quickly.
Investing Used To Be Easy
The same is true in terms of our wealth-building and investments. In the past decade, wealth has been created, seemingly, very quickly. Investors (unless ignorant, naïve, and not well-disciplined) were able to get good returns easily.
We saw all assets rise in value since the last market cycle correction of 2008. That was further propelled by the Federal Reserve's monetary policies which have kept interest rates at virtually zero percent until the last 18 months.
18 months ago was the first time in 40 years that inflation started to spike seriously. There are many reasons why that's happened (I wrote a book on it if you’re interested) but that is not the topic of today’s blog.
The Federal Reserve had to acknowledge they didn't have a handle on inflation anymore. So they increased interest rates which began many systemic changes in markets and the economy, but not to the extent that people expected.
Why a Recession Hasn’t Come Yet
Many people, including myself, thought we’d have a recession by now. I was wrong and I know why.
If you have yet to go through a full market cycle as a veteran business owner or investor then you only have this recent cycle as your model which is NOT the norm. This market cycle is an outlier to all other market cycles in history due to the irresponsibility of our politicians and the Federal Reserve who are trying to control a narrative by deliberately increasing debt.
You don't have to be an economist to understand that no person or business can have sustainable growth potential when it's built solely on debt. The government does not make a profit, it takes money from taxpayers and spends more than what they take. The money they use is not real. It is fake.
If someone gave you an open line of credit and said “You don't have to pay anything back. Don’t worry about the debt,” then you could do whatever you want and live a great life. But that is not what happens in reality. It’s a fantasy. Yet, the U.S. thinks it can do exactly that.
We've held the reserve currency since 1944, about 80 years ago at the Bretton Woods Agreement in New Hampshire. We are losing that position as a country because of the irresponsibility and outright arrogance of the people running the show today. It’s happening on both sides so this is not political.
The reason why we haven’t had a recession yet is the same reason why it has been so easy to invest and create wealth in the past decade. I don’t want to take away from any success you’ve had, especially if you’ve worked hard for it, but most of the wealth that was created was on the back of the monetary fiscal policy (government spending).
Most success was due to rampant deficit spending. Government spending has now grown to $2 trillion a year. Close to $200 billion of it is deficit spending, spending more than what comes in.
How is that going to bode when we do hit the recession? Because a recession will come. Whether it’s delayed further with deficit spending or not, a recession will hit. History shows it.
The Dollar is in Danger
We are amassing an exponentially, cavernous debt and the government acts like it can continue printing money. There will come a day when this cannot continue.
Other nations will not hold the U.S. Dollar as a reserve currency forever. This is a dynamic that can be found in history for hundreds of years before the U.S. dollar became the reserve currency.
The Assignat (French paper currency) was the reserve currency between 1720 to 1815. The Pound Sterling (British currency) was the reserve currency from 1820 to 1920. Both the French and British tried to manipulate monetary policy and devalued their currency until they went bust.
History shows it does not end well and we have not been good stewards of the dollar. We used to be a creditor nation. Now we are the biggest debtor nation.
Be More Like Warren Buffet
So what can we do about it?
Like I said at the beginning. Reduce your expectations on the high and quick return opportunities that many have grown used to. Business and investing expectations need to be adapted to more of a Warren Buffet-style long game.
Many think Warren Buffet is too old to understand tech like cryptocurrencies, but Warren Buffet understands more than you think.
Buffet in his 90s has decades of experience and wisdom and still studies and learns like nobody else. I'm not saying you have to invest exactly like Warren Buffet and invest in what he invests in.
I don't invest where Warren Buffet invests, but I do invest for the long game like he does. Buffet does not play the stock market. He does not trade, invest in cryptocurrencies, or buy paper, index funds, ETFs, etc. He is a long-game investor in tangible assets like myself.
Warren Buffet owns an actual majority interest in certain companies. I, instead, own real estate or shares in real estate with people I trust (people I’ve vetted and curated for specific criteria).
I want my money to be in tangible assets that I know can provide cash flow throughout market cycles. Paper assets will get crushed in the next downturn/correction. Tangible assets, if they are speculative and highly leveraged, will also get crushed. This is why I emphasize higher ground (safer investments like debt lending) and profitability of an asset (cash flow) during times like these. This has happened over and over again with every market cycle.
Before you jump into investing in 2024 thinking you missed the train and before you put your money into XYZ syndication or investment, stop yourself. Take a pause. Everyone may be screaming at you to jump in, but it is necessary to take a moment to analyze if the investment has merit in this economic environment.
Beware of Being Too Confident
“It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.” – Mark Twain
None of us know everything. I certainly don't. Even with my years of experience, I keep myself well-educated and invested with other experienced people that I can trust.
I borrow from their experiences because I can't study everything. I can't know everything and neither can you. So finding a group of people and advisors (formal or informal) where your incentives are aligned is paramount.
Look For Aligned Incentives
Aligned incentives are important because everybody today wants to sell you something. There is nothing wrong with selling. In a capitalistic society, if someone sells me some service or product and I think it is of good value, I'll exchange my hard-earned money for it.
But there are many today who sell things that don't align with your interests. I see it over and over again with syndicators and investment operators, particularly in real estate.
Syndicators are riding on your money, pushing all the risk on you, the investor or investors. They're riding risk-free on your money, making multiples.
It’s fine as long as everything works. Nobody cares. I certainly don't care if someone makes a lot of money while helping me make good money, especially if I don't have to be involved much in the nuts and bolts of it all.
But when the environment changes like it has, “…you learn who has been swimming naked.”
“Only when the tide goes out do you learn who has been swimming naked.” – Warren Buffet
The tide is going out very rapidly. Many of the deals that were good last year are going to get torn apart. Yet, I still see people saying, “Well, I need to get my money in syndications this year. Where do I go looking?”
The advice commonly given is horrible, but you don't know what you don't know. That's the dangerous part.
So how can you understand what to do?
The Quickest and Safest Way to Learn Investing
You can study on your own as I did for decades, obtaining experience until the time I was able to access higher-level groups of people that were of high caliber. People who would promote thinking and curiosity, and challenge me to be more diligent with my underwriting and curation of both people and investments.
Or you can find groups that contain that wisdom as soon as possible and learn from those who have done it before. It doesn’t take decades this way and with guardrails provided, it minimizes mistakes and errors along the way. That’s what we do in Freedom Founders.
Beware of The Casino Game
I caution all investors today from playing what I call the “Casino Game”. The Casino Game has sucked many people into both the financial markets and real estate markets with the lure of quick, big, and easy returns. In actuality, this kind of gambling sets them back years, especially when the environment is changing like it is.
The playbook is changing right now in front of our eyes. What’s worked before will not work going forward. If you don't understand what’s going on then slow it down. Start learning what the new investment and business models will look like.
The last 15 years are behind us. Welcome to the new era of investing.
Best of the new year to you.
To your freedom!
P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :
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