When it comes to investing, investors think of Wall Street. It’s all they’ve ever known and it permeates every aspect of their lives – from the financial press to social media to their pensions and 401(k)s.
Wall Street dominates the investor space because it has the media, politicians, and corporate elites all in its pocket.
Do you get the feeling that Main Street is always being looked down upon?
It’s because Wall Street doesn’t want you to know about Main Street investments. It doesn’t want you to believe that you can make good, honest money from non-Wall Street investments.
Over the past year as I’ve surveyed the national landscape and assessed the damage – both economic and social – that COVID-19 has inflicted on America and I’ve been saddened by the widespread suffering, but I have also been encouraged by the Main Street spirit – the spirit of communities rallying to lift each other and to support local businesses.
On Main Street, it’s been the story of “us – us – us” while on Wall Street, it’s been a story of “me – me – me” with greed and money-grabbing on full display.
The following shows Main Street values vs. Wall Street’s lack of principles is what sets investing locally apart from investing in the stock market:
Just like with LIVING on Main Street, when INVESTING in Main Street, fundamentals still matter. Demographics and economic metrics and indicators don’t lie. When investing locally – whether directly or indirectly in real assets like income-producing businesses or cash flowing real estate – fundamentals are essential for valuing an asset and for making financial projections.
Supply, demand, income, and macroeconomic factors like employment, household income, and other economic indicators all still matter when evaluating a potential investment’s economic performance.
On Wall Street, an asset’s worth has nothing to do with any economic principles. There are no underlying economic metrics right now to justify the stock market’s valuation.
The price to earnings (P/E) ratio has historically been a good gauge of the overvaluation of the market. The average P/E ratio since the 1870s has been about 16.8.
In 1999, a few months before the top of the dot-com bubble, the P/E ratio was 34. The current P/E ratio is around 30 – dangerous territory. Experts nationwide are screaming bubble. What’s even more alarming is that today’s underlying economy is much worse than the one in 1999 with stagnant GDP growth and high unemployment. In other words, the fundamentals are even worse today.
When investing in Wall Street, you’re investing in nameless, faceless executives. Unless you’re investing in Tesla or Amazon, chances are you won’t even know the name of the CEO of the company you’re investing in – let alone have a conversation with them or meet them face to face.
When executives of public companies talk about the bottom line, they’re not thinking about investors. They’re thinking about their jobs and their bonuses.
When investing in a private local business, management goes out of their way to meet potential investors and to make themselves available to answer questions. They know that your investment decision will be mostly driven by your impression of management and management’s track record and experience.
When hedge funds short sell companies and drive their share prices down to pocket billions, who holds them accountable for ruining the retail investor’s portfolio?
Reddit has been in the news lately when members of one of its popular subreddits wallstreetbets tried to hold hedge funds accountable for their predatory short selling activities by banding together and buying up Gamestop stock to drive up the share price to make hedge funds lose money.
It worked to the tune of more than $13 billion in hedge fund losses but there was collateral damage. However, after peaking at a record $430 a share last week – up from $17 a share at the beginning of the month – Gamestop has since shed 81% and is now hovering around $100.
Who’s gonna hold wallstreetbets accountable for losses incurred by bandwagon investors who bought at $430 only to see their holdings lose 81%?
Wall Street holds nobody accountable. The managers of Main Street investments make themselves transparent to hold themselves accountable.
On Wall Street, everyone gets paid no matter what – except the investor. Executives and directors of public companies, hedge fund managers, financial advisers, and so on make sure they all get paid first whether investors get paid or not.
Most passive income local investments are structured to pay the bulk of management compensation only if the company is profitable. They don’t get paid unless the investors get paid. This concept is foreign to Wall Street.
Honest Pay for Honest Work.
With stock prices constantly manipulated by the many players on Wall Street, it seems honesty is in short supply. The line between what’s legal and what’s ethical is constantly blurred and everyone is looking for the quick buck. They just want to get back to their social media and their video games.
On Main Street, hard work pays off. Local business and real estate investments offer those who are willing to put in a little work to grow their investments (aka add value).
A real estate investor willing to clean up the exterior of an apartment building or a business investor willing to improve the efficiency of a machine can all see improved returns from their efforts.
Taking Care of Your Neighbors.
By investing locally, you’re contributing to your communities and taking care of your neighbors. On Wall Street, your investments could be going offshore to support foreign principals for all you know.
Investing locally may not be sexy or draw national attention but it’s the engine of our communities and our country.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.