Only Wall Street Wins From Wall Street Volatility.
Wall Street likes to talk out of both sides of its mouth. It’s good for business. The more uncertainty and chaos it can stoke, the more active investors will be and the more money it can line its pockets with.
Take, for example, the following headlines:
On the one hand…
“Billionaire investor Carl Icahn warns the US economy has tough days ahead.” –businessinsider.com.
“‘Big Short’ investor Michael Burry warned the biggest market bubble in history would end with the ‘mother of all crashes.’ He just hinted the collapse is now underway.” –businessinsider.com.
“Stock market continues long tumble as economic outlook sours.” –washingtonpost.com.
On the other…
“2022’s Stock Market Crash: The Finale Before a 50%-Plus Boom.” –nasdaq.com.
“Now Is the Time to Start Taking Advantage of the Next Bull Market (Whenever It Happens).” –time.com.
“The ‘Pain Trade’ Says Higher Stock Prices Are Coming.” –dailywealth.com.
No one understands the human psyche like Wall Street mavens. They know investors trade on emotions, and they prey on these emotions to make themselves rich. On the one hand, they peddle doom and gloom to send investors to the exits while also touting the next rally around the corner. This volatility stokes trading volume, which lines Wall Street’s pockets with fees and commissions.
So, why are investors at the mercy of Wall Street propaganda? It’s because built-in behavioral biases that drive most investment decisions.
Many investors who get sucked into the Wall Street roller coaster are simply along for the thrill ride. These investors like to gamble, and Wall Street volatility is the perfect playground for speculation – just like Vegas. Many of these same investors suffer from FOMO (the fear of missing out). They feel like they always have to be in the center of the action.
These investors buy into all the internet and social media hype, meme stocks, talking heads, and anything and everything, attracting hype and generating buzz. Fundamentals are damned. It’s whatever is popular, shiny, and new attracts these investors, but they will invariably fail as most investors fail to beat the market.
FOMO is closely related to herd behavior. Herd behavior dictates investing behavior based on what everyone else is doing. Herd behavior is what creates bubbles and dashes dreams.
The Long Road To Recovering From Losses
Investors who buy into Wall Street volatility often dig a hole that’s hard to dig out of. What they don’t realize is that the road to recovering from losses is a long one. For example, if a $100,000 portfolio suffers a 50% loss, that would leave the portfolio with a value of $50,000. The portfolio would now have to make a 100% gain just to get back to where it started.
The stock market doesn’t just lose 50% and then make a 100% rebound. During the Financial Crisis, the stock market lost 50% of its value from its high and took seven years to recover fully.
Smart Investors Avoid Volatility
Savvy investors avoid volatility by avoiding Wall Street and its mind games. That’s why they gravitate towards the private markets, where market drivers like internet hype and buzz, social media, memes, cable news, and talking heads, have no sway on an asset’s performance.
Smart investors don’t play the speculation game everyone else is playing in the stock market. They have different investment goals, and it’s the private markets where these investors can find assets that align with these goals.
What are these goals?
Stability.
Smart investors avoid volatility and prefer stability, reliability, and consistency. Illiquid assets found in the private markets, insulated from Wall Smart, are shielded from public volatility – allowing investors to project and predict returns and earnings adequately. It’s easier to plan and grow wealth around predictability vs. unpredictability.
Time vs. Timing.
While stock investors play the timing game, smart investors leverage time. Illiquid assets with long lock-up periods allow an asset to mature, appreciate organically, and leverage time to compound cash flow through reinvestment.
Tangible Assets.
Tangible assets like real estate and cash-flowing businesses are ideal for sheltering portfolios against volatility and inflation. That’s because tangible assets like commercial real estate and income-generating businesses have intrinsic value – value not determined by Wall Street and the public. Assets with intrinsic value generate value from rents and profits not dependent on investor mood.
Insulated Cash Flow.
Tangible assets – especially essential assets needed in good times and bad – give their investors peace of mind from passive income that can compensate for job loss or reduction. When passive income can independently cover all your expenses and needs, you are officially financially independent and no longer rely on your job to pay your bills.
Tax Benefits.
Tax benefits from private investments allow investors to keep more of what they make. For smart investors, saving a dollar is equally valuable as boosting revenues by a dollar. Private investments structured as partnerships offer various tax benefits that stocks don’t offer, including depreciation, deductions, tax deferral, and avoidance of self-employment taxes.
Avoid Wall Street uncertainty and volatility for your sanity and portfolio stability.
For reliable, predictable returns through the rest of 2022 and 2023, consider private investments offering investment benefits not available on Wall Street.
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.
