Wall Street’s Missing Ingredient 

TruePoint Capital

What is an exit strategy?

When it comes to business and investing, the exit strategy is the endgame – the ultimate goal of an investment or venture. Whether liquidating a real asset to extract appreciation or cashing out of a business venture through a business merger, acquisition, or IPO, it’s how an investor plans and projects to receive a return on their investment.

To achieve the desired exit, a strategy must be put into place, and resources, plans, personnel, and operations must be mobilized and implemented to achieve the projected financial result.

  • On Wall Street, does anyone have an exit strategy?
  • What is the exit strategy of a stock?
  • Can you as the investor project with confidence the desired result from a stock investment into the future?
  • Can you control the trajectory of that stock?

If you’re like most stock investors, you don’t have an exit strategy. Many day traders don’t have an investment timeline beyond a week or even a day for that matter.

On Wall Street, you buy and sell on a hunch. You buy low with the hope of the stock going up to sell high. If you short a stock, you sell borrowed stock high with the expectation that the stock will go down and cover that short with low priced stock to profit.

  • What if the stock doesn’t go in the direction that you had hoped?
  • What if the company files for bankruptcy?
  • What if a Reddit community (subreddit) colludes to drive a stock up or down?

You’re powerless to predict the trajectory of your investment because you’re a slave to forces out of your control – social media, the financial press, economic indicators, herd mentality – that affect your portfolio often with no rationale. Don’t feel bad if you feel powerless in the face of Wall Street forces. Even professionals fail to time the market. The system is against you.

With stocks, it’s impossible to have an exit strategy – to define a goal and to achieve it. That’s why many elite investors avoid Wall Street. They favor investments with defined exit strategies. Why?

Investments – whether in real assets or businesses – with defined exit strategies typically have a defined business strategy. With a real asset, to achieve a certain return 5 to 7 years in the future, an investor outlines everything they’ll need to do to achieve their desired result.

  • Operations will need to be streamlined.
  • Expenses will need to be reduced.
  • Rents will need to be increased through improved occupancy through such and such measures.

Those are some of the measures investors can implement to achieve their financial goals. There may be bumps along the road and downturns, but with long-term investments, investors know that things iron out over time. With stocks, investors jump ship at the first sign of trouble – sinking portfolios before they even have a chance to take off.

With a defined exit strategy and a defined business plan, investors are leveraging time. They are leveraging time to force appreciation of an asset through improvements, operational efficiencies, and increased sales.

Only with a defined exit strategy that gives investors the time to execute their vision is this possible. This is the missing ingredient of Wall Street investments.

Alternative investments in the private markets shield investors from the uncertainties and irrational forces of Wall Street that prevent defining an exit strategy and the planning and projections that go along with that. With lockup periods of 5 to 7 years or more, uncertainty and irrational exuberance are removed from the equation.

Your investment and the promoters of that investment will be afforded the time needed to realize their investment objectives and financial goals. Having a real exit strategy means you’re invested for the long-term.

Investing for the long-term means no more anxiety over timing. Is a stock going up or down? Is the market overvalued? Making money in stocks is based purely on speculation. Like gambling, whether you make money is often more a function of making the right bet than on any economic fundamentals.

Making money from private investments with defined exit strategies are more a function of economic fundamentals than speculation. With time and a strategy, management will have defined goals for acquisitions, business operations, and disposition – all essential for generating cash flow and appreciation.

Locking up your investment gives management time to execute their strategy and business plan so they can pay you back with significant profits. Management will often plan for setbacks but with a long-term investment window, these downturns are often ironed out. On the other hand, if they have investors coming and going as they please, they’ll never have the stability to carry out their strategies and achieve their goals.

Elite investors are fine with locking up their capital for years if it means their investments can be sheltered from investor irrationality and economic and financial forces are allowed to play out to ensure the highest probability of success.

Investments with defined exit strategies that are illiquid until that exit strategy can be achieved can generate the double benefit of cash flow and appreciation that Wall Street can’t offer. Liquid assets like stocks that rely on speculation for-profits can’t offer this certainty.

Institutional and ultra-wealthy investors understand that liquid investment that relies on speculation to make money are like rolling the dice on your portfolio.

Elite investors want their investment capital to be put to productive use that can generate income and grow.

They understand that time is essential for nurturing and growing a real asset or business venture. That’s why they seek out investments with defined exit strategies and that’s what Wall Street is missing.

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