DON’T look at your investment portfolio during times of volatility. Here’s why… [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Hi!
How are you? We hope you’re having a great week so far.
We’re excited to share another investing tip. Our goal for today’s article is to help you implement the right investing strategies and disciplines so you can grow your investment portfolio and achieve financial freedom in the long run.
Ready to know more about today’s topic?
Keep reading below to know the difference between private equities and public equities.
Miles Everson
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute
The Independent Investor
News about inflation and poor market performance have investors concerned about their wealth. Many of them think they might not be able to meet their long-term financial goals.
Here’s the thing: It’s not surprising that most markets are reeling nowadays. Even so, lots of investors are still worried as they watch the volatility take its toll on their portfolios.
… but did you know there’s a category of investments that seems to do just fine?
That category is…
Private investments!
—an alternative investment class in which an investor invests in or acquires private companies not listed on the public stock exchange.
A Bloomberg article published in October 2022 states investors with access to private investments have performed much better during the year. This type of investment includes hedge funds, private equities, and physical assets like real estate and infrastructure.
One of the reasons why these assets are called “private investments” is because they’re exclusive to accredited investors. Simply said, everyday folks don’t have access to them.
This is why as an investor, you should be careful to NOT easily believe everything the mainstream financial media reports. Just because a well-known media outlet publishes an article about private investments doing better than their public counterparts, that doesn’t mean it’s completely true.
It could just look that way because private investments aren’t easily accessible and that’s why there’s not much to know about them.
In fact, private investments aren’t magically better than public ones, and they’re just as susceptible to the market’s cyclical ups and downs. The reason public investments look so bad is you can follow their price changes every day. Your brokerage account shows your daily gains and losses.
[Brokerage Account: An investment account that allows you to buy and sell a variety of investments such as stocks, bonds, mutual funds, and exchange traded funds (ETFs).]
Meanwhile, private investments lack that volatility because they aren’t priced daily. Pricing requirements are looser for these types of assets, and they usually take years to pay off.
This doesn’t mean private markets aren’t cyclical like public ones. It’s just that the general public is not aware of these assets’ every move. Compare that with the ever-changing public portfolios and you’ll understand why private equities seem more stable at first glance.
Besides, private equities’ moves can actually be BIGGER because such firms take on a lot more debt. That translates into more risky investments. Unfortunately, these risks aren’t disclosed to the public.
For instance:
In April 2022, private equity firm Thoma Bravo bought software company Anaplan. If Anaplan was still public, its stock would likely be hurting like the rest of the market. However, since Thoma Bravo is a private company, it doesn’t need to mark down Anaplan’s value every day.
See? This lack of movement in private investments disguises the problem. Few private equity investors are buying or selling at the moment because they don’t want their investments to get marked down.
The bottom line?
At the end of the day, there’s just ONE key difference between private and public equities: You don’t see the value of private equities falling like you would if you looked at your brokerage account.
This leads to a simple solution: Don’t check your brokerage account frequently.
Sure, it’s tempting to look at how your portfolio is doing every time the markets are up or down. However, the less you look, the easier it will be for you to avoid panic selling.
According to the loss aversion concept, it hurts more to lose than it feels good to win. So, in the investing world, it’s best to spend less time looking at the numbers during bad days.
This doesn’t mean denying reality. It’s just good practice to not stress out about things you have no control over so you can make wise decisions as an investor.
Keep these tips and insights in mind as you plan and make decisions for your investments!
There’s no need for you to touch money in your brokerage account for 10+ years. You’re in it for the long haul. So, while it might be tough at first, remind yourself that the market’s falling in the short term should be of little concern to you.
Happy mid-week, everyone!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
LITERALLY.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
Our goal?
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
Cheers,
Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
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