AWM Insights Financial and Investment News

Everyday, thousands of investors tune into their favorite business news channels and hear pundits discuss trends in the markets. They see flashy tickers at the bottom of their screen and listen to famous people in finance give their outlook on what the future holds. 

While dramatic and entertaining, most of what they listen to is erroneous. Our favorite business news channels are in business to make a profit, and the more eyeball’s they can get on the screen, the more they profit. 

In this episode, Erik, Justin, and Brandon highlight why all-time highs are not as important as we think they are. They discuss how having an actual strategy is a much better predictor of investment success, and how trying to predict the future is a fool’s game. 

EPISODE HIGHLIGHTS:

• (00:16) The news you should know: Markets are at an all-time high, the S&P 500 which is an index that captures the 500 largest companies in the U.S. is up over 100% from the low 15 months ago. 
• (00:52) Airbnb’s revenue is up substantially compared to where it was during the peak of the pandemic, but its stock hasn’t performed as its revenue says it should. Yet another example of the unpredictability of a stock’s performance, and why fortune-telling is a bad strategy. 
• (01:29) Is it a good time to invest when the market is at all-time highs? 
• (02:38) Stop listening to your favorite business news channels. They make money by getting eyeballs on the screen; not by being advisors. In reality, market highs are a common event. 
• (04:26) Just because the market is at an all-time high, doesn’t necessarily mean that stocks are too expensive to buy. If investors believe that the market will perform better in the future than performance today, then a higher price is justified, especially if companies continue to earn and profit.
• (07:03) Again, our favorite business news channels are businesses themselves. They don’t have an intimate understanding of your unique situation. 
• (08:26) Those with a plan catered to their individual priorities win. Trying to time the market is a fool’s game. 
• (12:21) Focus on what you can control: managing taxes, mapping your spending, having a diverse lineup of investments, and most importantly, having a strong understanding of your priorities. 
• (13:33) Markets are risky. They can move up and down swiftly and dramatically. This is the price you pay to participate. 
• (16:13) Let’s call a spade a spade - individual stock picking is gambling. 
• (17:38) You have two elevators, one is attached by one cable and the other is attached by five cables. Which one do you want to be on in the event of an earthquake? Obviously, the one with five cables. In the same way, you should have a wide range of U.S. and International stocks. 

Resource: Should Do It Yourselfers Invest At All-Time Highs?

You see it all over the news and social media: wealthy people talking about how they generate monthly income without ever having to work. Purchase a home or rental property, then open your mailbox every month and collect a check. Rinse and repeat.

Do you really need to become a real estate tycoon to build wealth? Is it really that easy? Of course not. 

In this episode, Erik, Justin, and Brandon highlight how to view passive income, and its role in building wealth. They discuss viewing it as a means to an end - the end being financial freedom. At the end of the day, wealth is what you take home after taxes/expenses, so it's important to have passive income conform to your priorities, and not the other way around.

EPISODE HIGHLIGHTS

• (0:38) The news you should know: Good July jobs report, but it's more important to look at the trend; 
• (1:37) Rihanna is now a Billionaire. How celebrities and are taking agency over their earnings;
• (3:21) Pepsi gets rid of Tropicana, and rebalances their portfolio of drinks. They objectively evaluate their drink lineup, which provides a good model for how people should evaluate their investment lineup.
• (4:46) Being financially free is the end goal. Being able to live life on your terms is what's important. Passive income shouldn’t be an end in itself.
• (6:52) Passive income v. Capital Appreciation. Judging a winner depends on net of cost return.
• (9:41) There's no bank teller in your home or rental property that can deposit cash on demand.
• (10:35) What you pay for an investment matters. Costs erode returns.
• (12:18) Risk and return are related. Does my return justify the risk?
• (14:29) Generational wealth is never built on a one-size-fits-all approach. Your priorities should inform your passive income allocation, not the other way around.
• (16:11) Rockefeller family case study. How they have built wealth through seven generations. Hint: It wasn't because they put all their money in rental properties.

In your investment portfolio, you have the choice of making the amateur move – listening to the mainstream financial pundits who want you to feel FOMO over the latest stock picking craze – or the pro move of looking at how the best in the world do what they do, which is also backed by decades of research.

We started this series a few weeks ago by focusing on overall financial structure and followed up last week with how to think about portfolio construction, and the result of that is the topic for this week – your asset allocation.

Erik, Justin and Brandon define what asset allocation is, the complexity of asset classes, and how to avoid making the amateur investment moves.

EPISODE HIGHLIGHTS

• (00:30) The news you should know: US stock market doubles, Robinhood goes public, paid vaccinations, drop in poverty, how much are Olympic medals worth?
• (3:57) What is asset allocation? Model portfolios?
• (6:35) Adding human capital into the mix
• (9:23) The complexity of assets
• (11:30) Amateurs vs Pros
• (12:40) “It's really unfortunate, because you do have the Robinhood's of the world, the big brokerage houses that we all know, and they're so focused on marketing and generating this activity, and playing on emotions, it's really unfortunate. Because the education out there, the buy, the sell, the Jim Cramer's, they're all trying to get you to focus on the tool, and the tool's not what's going to make you successful, the tactic. It's more about stepping back and looking at the whole.” – Brandon Averill
• (14:56) “That's the whole goal here, is to make sure your assets, your overall net worth, your total net worth, is structured in a way, is built in a way to support your priorities.” – Justin Dyer
• (16:01) “Am I allowing [mainstream voices] to get my emotions riled up, to use my FOMO against me, to extract dollars out of my pocket as an amateur? Or, do I want to take a step back, and do I want to look at the best in the world at what they do? Because that's who you are as an audience. You're a professional athlete, you're a founder, you're a business owner, you're a wealthy individual, who has gotten that way by being a pro.” – Erik Averill
• (17:24) How are you measuring investment performance?

One of the most important aspects of reaching your financial priorities over the long term is portfolio construction. 

Just as important as putting the right players in the right positions on the field is the importance of understanding and utilizing the full toolbox for building your customized portfolio that takes into account all the complexities of your specific situation. 

In this week’s episode, Erik and Justin discuss the basic building blocks of portfolios, avoiding amateur mistakes, and why your portfolio should be customized to you and your priorities – not some cookie-cutter model.

EPISODE HIGHLIGHTS

• (00:44) The news you should know: Delta variant, Olympics kick off, Taleb thinks Bitcoin is worthless
• (2:44) The building blocks of portfolios
• (7:48) A customized approach
• (8:21) Constructing the right lineup and avoiding amateur mistakes
• (11:27) What we’ve learned from endowment models
• (14:36) Is there a CFA constructing my portfolio?
• (15:03) Are you getting comprehensive advice?

We believe that the greatest driver of your net worth is your human capital.

But what about when you reach the phase in your life when you’ve converted all or the majority of your human capital into resources? What are some of the considerations you should be making in relation to your overall financial structure?

This week, Brandon and Justin discuss what to do when you’ve realized all of your human capital including the moves you should be making, tax implications to consider, setting up your priorities for life, and why in the long run financial structure matters more than individual investments.

EPISODE HIGHLIGHTS

• (00:41) The News You Should Know: Delta variant, no spectators at the Olympics, Robinhood valuation, index funds are 50, earnings seasons is here again
• (2:12) When your human capital has been converted to resources, what are some of the things you should be considering?
• (5:27) Minimizing taxes, charitable giving, and setting your priorities
• (7:21) A better strategy than using a Monte Carlo simulation
• (8:17) Matching assets with priorities
• (11:11) This is a process not an event
• (13:56) Your financial structure matters more than the individual investments that you choose
• (15:21) Financial structure should be customized to you and your priorities

With the all-time market highs that we’re seeing despite fears of inflation, we’re also continuing to see the popularity of real estate investing and venture capital private equity. But whether you just dip your toe in or dive in headfirst to these kinds of investments – are you getting the returns you deserve? 

When investing in these spaces, they require more patient capital that can’t be pulled out very quickly. This is known as illiquid assets and can sometimes get a negative rap. However, we think illiquidity can be a great thing as long as you’re being compensated for it. 

This concept – known as an illiquidity premium – is the focus of Erik and Brandon’s discussion today where they discuss what it is, why it can be a good thing for investors, and the opportunity costs to consider of having your assets tied up in illiquidity.

EPISODE HIGHLIGHTS

• (00:24) The news you should know: MLB All-Star Game, All-time market highs
• (2:14) What is the illiquidity premium and what does it apply to?
• (3:12) Illiquidity premiums in real estate and venture capital
• (4:46) How should investors look at illiquidity?
• (5:48) What are the opportunity costs of illiquidity?
• (8:29) What are interval funds?
• (10:19) Elevator analogy
• (11:16) What does risk mean to you?

In the past year, we’ve seen a boom in entrepreneurship – with more businesses being created in 2020 than any other year in history, companies going public, and as of July 1st, the Mets paid Bobby Bonilla another $1M and we saw that now NCAA athletes are able to make money off their name, image, and likeness.

What do all of these have in common? They all tie back to the greatest driver of your wealth: Human Capital.

In this week’s episode, Erik and Justin discuss how to invest in yourself, control what you can control, and leverage the 3 pillars of Human Capital over the course of your career with the aim of attaining your financial goals and increasing your overall net worth.

EPISODE HIGHLIGHTS

• (00:46) The News You Should Know: Bobby Bonilla Day, ByteDance platforms to reach 4M users, LegalZoom IPO, and NCAA NIL.
• (4:06) What is Human Capital?
• (5:03) The return on your Human Capital
• (8:23) The 3 pillars of Human Capital
• (11:09) Should you try to find the next Tesla?
• (14:23) The “Aha Moment” professional athletes have
• (17:07) “What makes me valuable?”

With markets continuing their unpredictable ebbs and flows, one important piece of news emerged in a ProPublica article that reported Paypal founder Peter Thiel turned $2,000 in his Roth IRA in 1999 to now more than $5 billion.

Its stories like this that highlight the fundamental importance of financial structure. 

We mention financial structure ad nauseum here at AWM, but what exactly do we mean when we say that?

In this week’s episode, two of AWM’s co-founders, Erik and Brandon, discuss this topic and the framework of growing your wealth through sound financial architecture.

EPISODE HIGHLIGHTS

• (00:32) The importance of financial structure - returns are only a part of your structure
• (00:58) All the market news you need to know 
• Back to all time market high – so hard to predict which way market will go in short term
• Biden’s bipartisan infrastructure bill
• Peter Thiel’s Roth IRA going from $2000 to $5 billion
• (2:43) What do we mean when we say financial structure?
• (3:13) “What the wealthy understand is that your financial structure is really what matters.” -Brandon Averill
• (3:44) Even the smartest only succeed about 15% of the time
• (4:16) Financial Structure: Taking advantage to all the opportunities that are available to you and don’t increase your risk
• (4:50) Identify the outcomes you’d like
• (6:33) How financial structure is like building a home
• “When you’re building a custom home, you actually never start with, ‘What pieces of furniture are we going to put in the house?’” – Erik Averill
• (7:49) The actual definition of investing success
• (8:22) It starts with the architecture
• “The first thing you do is you hire an architect and say, ‘All right, what is the master plan of the home that we want to build?’” – Erik Averill
• (9:30) What are your advisor’s motivations?
• (10:54) Would you gamble in Vegas with a 15% success chance?
• (11:30) What the world’s biggest Wall Street firms can’t tell you
• (12:34) Nassim Taleb’s book “Skin in the Game”
  (13:56) The real purpose of money
• (14:26) Don’t put your earnings at risk
• (15:24) “Winning the Loser’s Game” by Charles Ellis and “Goals Based Wealth Management” by Jean Brunel.

This week we’re tackling the topic of the Federal Reserve, Inflation, and why these are important to you as an investor. It seems like this topic has come up out of nowhere in the last couple months, and we’re actually now seeing the markets react.

After the Federal Reserve signaled that the central bank could start to raise interest rates to try and tame inflation earlier than they had originally projected, we saw the global stock market consolidate and have its worst week since October.

As a result, voices in mainstream financial media have suggested many different moves to make in your portfolios. 

But, should you listen?

Further, as an investor, should you care about potential rising inflation or interest rates? And how might the Fed’s moves impact you? Brandon, Erik and Justin discuss these questions and more in this week’s episode.

EPISODE HIGHLIGHTS

• (1:00) The market news you need to know: The Fed signaling, Timber rates drop, crypto warnings
• (2:56) What exactly is the Fed?
• “We go to banks to get loans, whether that be a commercial loan or a private loan or a mortgage to buy a house. Well, where did the banks go?” – Justin Dyer
• (3:42) Why the Fed was created
• (4:45) Why does the Fed fluctuate interest rates? How does that impact inflation?
• (6:44) The balancing act of the Fed’s dual mandate
• (8:13) With potential rising interest rates, how should I react as an investor?
• “The worst thing that you could do is panic, take your money, throw it, dig a hole in the backyard and put it in the ground or leave it even in cash right now, where cash is yielding next to nothing for your long-term priorities.” – Brandon Averill
• (11:30) Structuring around uncertainty
• (13:36) Are there certain types of investments that do better in an inflationary period? Should we start to predict that and move our portfolios there?
• “We're harping on what the fed might do. The fed hasn't done anything yet. And so we're really going to make decisions based upon something that we think might happen? I think that's where you just really get yourself into trouble.” – Brandon Averill
• (16:14) Matching the cost of your priorities with the timeframe that you want to achieve them.
• (17:21) The bottom line

The most recent Consumer Price Index (CPI) report shows a continued rise in inflation – the fastest pace of higher prices since 2008. So, while it’s safe to say we’re seeing some inflation as the economy continues to recover from the impacts of COVID, the big question to ask is if inflation is here to stay?

In this week’s episode, AWM’s managing partner, Brandon Averill, and CIO, Justin Dyer discuss the signs of transitory inflation and some of the best ways to build your portfolio to protect against periods of rapidly rising inflation.

EPISODE HIGHLIGHTS

• The market news you need to know (00:48)
• Is inflation here to stay? (2:30)
• What is transitory inflation? (3:21)
• Why it’s impossible to buy a bicycle right now (4:26)
• What Brandon would say if he was a conspiracy theorist (8:29)
• Some of the best ways to prepare for inflation (10:10)
• In-N-Out burgers and the importance of participating in the ownership of the market (11:07)
• Why deflation can be disastrous for the health of the economy (13:04)
• Portfolio building that helps to hedge against rising inflation (15:07)
• How to cut through the noise of the financial media (16:38)