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This article is all about how this generation is attempting a new way to… not look poor.
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🔊Listen to the audio version of this week’s newsletter.
You Look Poor.mp3
Today in <10 Minutes We're Going to Cover:
- A billy, or left behind: the two main changes in our generation that will make you billions or leave you in the dust
- Cover the spread: how the spread of fractionalization of alternatives is altering the landscape
- Alts alts everywhere: how fractionalizing is moving through asset classes
Anna Delvey is full of one-liners like today’s title: You Look Poor.
Today we’re discussing how maybe the new ultimate wealth signal is actually what is in your portfolio – not what label is on your shirt. How the spread of this desire will start with the sexy, sophisticated businesses in Silicon Valley land (aka now Austin & Miami) and from there, catch fire in the everyman industries.
We have two ideas for you that are taking our generation by storm and will result in billions made or left behind:
- The Spread of Fractionalized Investing – wetting beaks into alternatives
- The Great Retirement – boomers headed to Carnival cruises
This is a two-part series, Part 1 will be on fractionalized investing – the ability to invest in previously private or expensive alternative asset classes with a fraction of the money, time, and access you previously needed. No more “club deals,” where only the Ivy league gents sitting in the 19th hole get access. Part 2 will be about the Great Retirement and how to take advantage of the 303,000 baby boomers retiring a year and the 2 million businesses they need to pass on or wind down.
The Spread of Finance Fractionalization
Fractionalizing Everything.
A revolution has been happening. It’s the collision of two forces; alternatives becoming normalized, and technology democratizing investment access. Over the past three years, we have seen more access by normal humans (retail investors) to different types of investments than ever before.
Retail investors now waver between 19-25% of stock trading.
Retail investors are waking up to the world of alternatives.
Real Estate is increasingly being allocated to investors as opposed to personal use.
The ultra-high net worth, the pensions, and the sovereign wealth funds have for long had alternative allocations in their portfolio. My bet is that trend will trickle down to retail investors. This graph from KKR shows the average allocation to varying asset classes by market segment. It’s just missing one thing…
It is missing retail investors.
This makes sense actually because their average allocation is incredibly small. Individual investors have on average a 5% allocation to alternatives. Now, given the lockup periods in the asset class, I don’t think that will ever be equality between the two BUT the gap will close.
How will the spread happen?
Silicon Valley has a proximity bias and that bias will determine how it spreads.
Think of it like this, technology is a virus. It infects what is closest to it and then slowly spreads in concentric circles as those first carriers travel and make contact in farther away lands. So in my theory that the way technology spreads is due to how close the tech innovators and founders are to certain investments and problems. The closer they are to those problems, the faster those will begin to be disrupted.
Fractionalizing of investments moves through asset classes like this:
Traditional Investing
- Historical investment firms become tech-enabled.
Startup Investing
- Silicon Valley and VCs democratize through tech.
Stock Investing
- The stock market gamifies and commercializes.
Alternative Investing
- Private equity, real estate, buying companies, and art investing all come online.
Traditional Investing:
First, we had traditional investing become more “tech-enabled.” Meaning firms like Vanguard which had existed since 1975 began offering brokerage (trading) services in 1983. A swell of traditional Wall St firms did the same from Charles Schwab to Fidelity to JPM. This online trading and allowing for retail investors to have more access, information, and ability to engage with their investments online, was a new phenomenon.
Startup Investing:
Then began the advent of true Silicon Valley tech expansion during the 1990s where tech focused on web 1.0 and web 2.0. Along came the disrupters to the Vanguards of the world. Companies like Wealthfront and Betterment in 2008, took your financial advisor and put her in your pocket with all the bells and whistles done for you to create a portfolio. Then following came the 2010s when AngelList, SeedInvest said “hey Silicon Valley we’re going to disrupt you VCs just like Wealthfront did to Asset Management firms.”
Stock Investing:
The ball continued to roll from the nexus to Wall St. In 2013, Robinhood come into the scene allowing retail investors not only to trade online but to have fun doing it. They took away fees and added rewards. They took away bad data, created one-click analysis, and Webull, Public, E-trade followed suit.
Alternative Investing:
This is the new kid on the block. The furthest in proximity to IPOs, seed rounds, and the sexy of the silicon is alternative investing. This will be where we see the next round of unicorns and multi-billion dollar behemoths. Companies like Masterworks (art investing), Here.co (Airbnb investing), Microacquire.com (small biz buying), and Fundrise.com (real estate investing) all allow retail investors access to previously untouchable asset classes for most people.
Alternative Investment Fractionalization
I believe any type of investment that can be packaged and fractionalized will be fractionalized. That’s why we invested in Here.co and are looking to allocate to FranShares both directly in their deals as well as in the actual company as a startup investor through Contrarian Thinking Capital.
I’ve never been a fan of Robinhood, in fact, I passed on investing in a round that would have made me approximately $11 million. The reason? I do not think making it more fun to day-trade is good for the end investor. Play stupid games, and win stupid prizes. The beauty of these alternative platforms is that they are aligned with the end-user (not all of them of course but structurally). For instance, if you invest in here.co into an Airbnb for $1,000 that the platform buys for $500,000 by pooling a bunch of investors, you have to stay in that deal until the property is sold. You are not YOLOing your way to fast money. You are collecting a check monthly or quarterly on the execution of providing a service AND potentially achieving returns as the house appreciates.
If the global travel industry continues to grow, or if Airbnb continues to grow as a share of that market, those who have Airbnb exposure may be well-positioned.
There is very little cumulative data to show the higher return potential in Airbnb vs longer-term rentals but from my experience with owning them, the arbitrage opportunity is real.
The same story with FranShares. You invest in a franchise portfolio, you lock up your capital for 5-7 years, and you cashflow while they run the food enterprise that you invest in passively.
These alternative platforms don’t need to gamify. They need to do four things well:
- Find great deals
- Execute on the management of those deals
- Operationalize their asset management business
- Create a structured exit process for desired returns
If they can do these four things they win and so do the investors.
The Future Looks Fractionalized
The way small business works is about to do a 180. The way we invest is already mid-turn. I want to invest in the infrastructure that powers the small business ecosystem. We don’t want to just own the strip malls, laundromats, cleaning companies, and car washes of the world. We want to own the companies that take them from writing your invoice on a sticky note, to auto-billing you, to fractionalizing your ability to invest in them.
Tech + boring + 30.2 million small businesses = opportunity
The next wave of tech companies… is boring,
Codie
The Not So Boring Section
Don’t sit around: If you read so much of Contrarian Thinking that you’re finding yourself sitting TOO much, get the PSO-RITE. My husband got it for me and relief of psoas, hips, and back.
Game-changing: Our fund Contrarian Thinking Capital, raised $3m+ in just under a week, from a newsletter only. A first dare we say?
Go Bananas: A new version of a baseball team, the Savannah Bananas, emerged touting to be the “Greatest Show in Sports”. It’s an over-the-top performance-style game where many of their displays are, well, bananas.
Turn $0 into $67k Per Year, With Laundry
The market is changing. More small biz's will become available. They won't all be incredible deals like this one was but jump through this case study with me on how I bought a cashflowing $67k/year laundromat with nothing down.
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Disclaimer – This is the “Be an adult” section. Everything mentioned above isn’t advice, just a recount of what I did. That said: This article is presented for informational purposes only. The opinions stated here are not intended to recommend any investment or provide tax advice. Neither are they an offer to sell or the solicitation of an offer to purchase an interest in any current or future investment vehicle managed or sponsored by Codie Ventures, LLC or its affiliates. All material presented in this newsletter is not to be regarded as investment advice, but for general informational purposes only. Day trading and investing do involve risk, so caution must always be utilized. We cannot guarantee profits or freedom from loss. You assume the entire cost and risk. You are solely responsible for making your own investment decisions. We recommend consulting with a registered investment advisor, broker-dealer, and/or financial advisor. If you choose to invest with or without seeking advice from such an advisor or entity, then any consequences resulting from your investments are your sole responsibility. By reading/sharing this newsletter or consuming our content on our other channels, you are indicating your consent and agreement to our disclaimer.
