Alt Blend

In Part 1, we talked about TWRR (time-weighted rate of return) and MWRR (money-weighted rate of return), which are essentially used to answer the questions, “what is my return if I ignore cashflows,” or “what is my return, including the impact of cashflows,” respectively. The other return measures we’ll cover today exist to shed light on “return” from other perspectives, so that’s how I’ll break it down. This topic can get pretty complex, so we’re still going to keep this at a relatively high level. And we’ll throw in a little bit of gardening and Magnum P.I., just for fun.

Today also marks the final regular audio/podcast version of Alt Blend (tear). Thank you to all who have listened, but we will be producing only the written version for the foreseeable future. Here we go!

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Doing something for the mere joy of it – for one’s self or others – is quite possibly one of the best returns on an investment of time that a person can receive.” – Laurie Buchanan, Ph.D. (author)

Perhaps someday, we’ll be able to explicitly measure the joy associated with how we spend our time – and maybe that will even have implications for how we approach financial planning. After all, it would be cool if we could estimate the likelihood of joy based on the path a person pursues and incorporate that with the financial side of the picture. But I digress. For now, we have a variety of return measurements to help assess investment managers, advisors, portfolios, and – of course – Alts. A basic understanding of “what’s what” across that return-measurement spectrum can have a lot of utility.

After laying a lot of groundwork for the edition of Alt Blend entitled Incoming: Part 4 –– we discussed the significant difference between taxable gain/loss and total return. Unsurprisingly, investors often assume the associated gain or loss shown on their account-holdings screen or statement is the same as the performance. It required four blog posts to differentiate between tax basis and total return properly, but I think we can be more efficient in exploring various return measures – and that’s the journey we embark on together today. Here we go.

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If you haven’t already read or listened to Part 1 of this series, I suggest you do so before getting into the below, as some of the references could otherwise be confusing. In that edition, we talked Boston (the band, not the city), their hit Don’t Look Back, Cadillacs, fund blowups, and why it’s important not to let negative past investment experiences cloud our judgment when it comes to sound financial planning. There is an appropriate level of risk to be taken in each situation, and not taking enough risk can be detrimental to a long-term plan. Picking up where we left off, let’s look at the opposite side of the situation. Here we go! 

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“Don’t Look Back. Ooh, a new day is breakin’. It’s been too long since I felt this way.” -Boston (from the song, Don’t Look Back).

Before we get into this topic, I want to thank our client, Roger P., for the inspiration, as he reminded me of this song and its background as part of an email conversation back in January. I’ve been keeping it on the back burner ever since.

What has 7.0 liters, four doors, and an 8-track player? My dad’s silver 1977 Cadillac De Ville, for one. At least it did when I was a teenager, and it was one of three massive older Cadillac “boats” that he accumulated during the 90s (there were also white and blue ones, and – yes – I looked super cool driving all of them). More importantly, the 8-track player in the silver Caddy was the only working 8-track player I’ve ever had access to (there was also an 8-track player in my parents’ console record player, but that one never worked). And one of the few 8-track tapes that lived in the car was Boston’s 1978 album, Don’t Look Back.

For the record (yep, that’s a pun), I have personally always been a bigger fan of Boston’s self-titled album, but beggars can’t be choosers when it comes to 8-tracks and Cadillacs, so Don’t Look Back became a staple soundtrack of trips in the silver Caddy. I’m sure Boston’s naming of the album wasn’t intended to be infallible life advice (and it wasn’t even the title they originally wanted!), so we should probably take it with a grain of salt. At the same time, it’s a good motif for some investment perspective and for staying in good spirits as we say goodbye to summertime.

No, we aren’t still in the Crypto Dip-Toe series, and today’s topic is perhaps a good one for easing back out of the crypto world and onto other topics. In that series, we covered many facets of crypto and blockchain and why caution is warranted when interacting with those technologies and related investment opportunities. Still, I couldn’t agree more with Ms. Johnson’s general assessment. For years, I’ve been thinking about how cool it would be to have illiquid investments – commercial buildings, for example – sliced up into small pieces and owned by “the common folk.” In the blockchain world, that process is called “tokenization,” and maybe it will be a game changer.

But that future crypto “on-chain” solution is not what we’re talking about today. Because what I’ve learned lately is that the future is already here, and that future is…wait for it…securitization. And securitization is definitely off-the-chain! In the context of a classic Spaceballs scene, this realization gave me the feeling that THEN has become NOW, now.

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“Mortal as I am, I know that I am born for a day.” -Claudius Ptolemy

For those who have forgotten some of the things we learned in school, Ptolemy was a Greek “mathematician, astronomer, astrologer, geographer, and music theorist” who lived about 1900 years ago. While he covered a lot of disciplines, the common thread seems to be that he dedicated his life to pushing knowledge forward and always asking, “what comes next?” With that in mind, today we’ll wrap up this initial crypto adventure contemplating what may be on the horizon for crypto and blockchain (though, as we’ve covered many times already, and I’ll be sure to remind you again, humans are terrible at predicting the future).

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Since today’s update is just continuing a conversation from Part 7 (as I couldn’t fit it all into one edition), this may be the first time we’re not starting with a unique quote as a starting point. And, since I’m sure you have no shortage of more important things to keep in mind than my past ramblings, here’s a refresher: last time, we covered the recent/ongoing crypto crash and its similarity to tech; and then we learned about stablecoins, including those backed by fiat currencies, commodities, cryptocurrencies, and finally algorithms. I voiced my immediate concern regarding algorithmic stablecoins, and that’s where we’re picking up today. Here we go!

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Volatility is often cited as a significant challenge for cryptocurrencies – and rightly so! If crypto eventually plays a role as day-to-day money in the future (as one potential use case), it will need to be stable. Some would call the recent events in the crypto space a drawdown, and others may deem it a full-blown bloodbath. I’ll let you decide, but first, we need to understand some more crypto basics before making sense of what happened. As foreshadowed last time, today we’ll learn more about Stablecoins and how those fit into the ongoing crypto conversation. And – to Coach Wooden’s point – perhaps flexibility is a necessary means to that stability. Bend, don’t break. Here we go!

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Ether Ain’t What It Used To Be

Ethereum and its cryptocurrency, Ether (ETH – or “eeth” for short), may seem like just another “crypto thing” we hear about in the news. But, if you aren’t already aware, you’ll soon learn why these could become an integral part of our digital future.  Perhaps unsurprisingly, part of the use case is in digital payments/banking and money transfers – topics often surround Bitcoin. More importantly, however, Ethereum is a platform on which to develop new solutions, aka “the world’s first programmable blockchain.”

As we now know from Parts 1-5 of this series, “blockchain” is simply this new-ish protocol that can provide us with a secure, decentralized way to verify, trust, and track interactions, transactions, and other information. We’ve also learned that Bitcoin is one cryptocurrency constructed on one specific blockchain. Ethereum, in contrast, is a blockchain on which many digital currencies and other solutions can be created, and now we’re going to study it in more detail. Here we go!

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In the last edition of Alt Blend, we broadly examined the landscape of digital currencies, and the plan for this current update was to start learning about how some prominent cryptocurrencies function. Coincidentally, there have recently been some substantial challenges within crypto markets over the past couple of weeks (at the time of writing), and I think we’re only one or two editions from really being able to grasp what’s going on. Thus, if you haven’t followed the news or it’s just too confusing, stay tuned, and we’ll get to all of it by early summer.

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