What caught my eye this week.
Blogger 3652 Days has a great post up about why they’re shifting more of their money into private market investments, writing [1]:
As a passive investor, I’m supposed to do nothing. Ideally forever. Also: I dislike thinking too much.
But public markets keep shrinking – fewer IPOs, more delistings, and an ever-increasing proportion of capitalism conducted behind NDAs and closed doors.
So, in a lapse of principle, I’ve been buying shares in listed private equity vehicles and management outfits – Oakley Capital Investments (OCI), Brookfield Corp (BN), and Blackstone (BX), to name a few.
This is the private equity exposure accessible without the $5 million minimum investment, a Cayman lawyer, and a relationship manager who calls you by first name and means it.
It is, admittedly, a semi-active decision. But then, so is breathing.
I’ve long identified the same trends [2] in markets. For good or ill, as an active investor [3] it’s a lot easier for me to shuffle some money into different pockets of the private space, whether it be through crowdfunded investments, or via some of the vehicles that 3652 Days discusses in their article.
But purely passive investors face a quandary with private markets. Investing widely in private companies is a very different proposition to buying into a basket of public companies via an index tracker.
Not only in the many technical ways that 3652 Days outlines. But also because by definition when you buy a private asset you cannot lean so much on the wisdom of the crowd (the public market) to assume you’re (usually) paying something like the appropriate price.
It’s a big existential divergence. It also potentially brings company analysis and fund manager skill back into the picture, which inevitably means higher fees.
No wonder the financial services industry likes private and alternative assets…
Fee-ver pitch
As I wrote recently for Moguls [4]:
The fees on private funds are much higher than for cheap index funds. And as I explained above, private assets are always more opaque and illiquid.
Yet if we run the trend to stay/go private to its logical conclusion – and public markets continue to shrink – then we could all end up paying more in annual fees to hold much the same equity mix we once got cheaply via a tracker. And we’ll have far less idea about what we own and what it’s worth for the privilege.
Maybe this is what ultimately defeats the rise of indexing and passive investing?
The zero-sum maths [5] of active investing in public stocks is irrefutable. So perhaps financial services simply changes the game instead.
A world where a huge proportion of our money goes into private market investments – and into the pockets of private managers – would be a step backwards for everyday investors.
Run to the logical conclusion, it’d mean we’d pay more for less transparent and likely less comprehensive diversification than we already get today from trackers. And yet with all that private money pooled into big pots, you’d not even have the fun of pursuing a 100-bagger [6].
We’re not there yet. We can still diversify widely via index funds. And it’s too soon to be sure that listed small caps are underperforming simply because the best start-ups are remaining private.
However the push to private (both in equity and debt) is for now the clear direction of travel. So take some time to read the roadmap at 3652 Days [1].
Have a great weekend!
From Monevator
Asset allocation rules of thumb – Monevator [7]
Regular savings accounts for fun and profit – Monevator [8]
From the archive-ator: They don’t tax free time – Monevator [9]
News
Steeper productivity cut of £20bn makes tax rises more likely – Guardian [10]
Reeves plans Budget council tax raid on expensive homes… [Paywall] – FT [11]
…and is urged to cut pension tax-free lump sums to £100K – Telegraph via MSN [12]
Nationwide: UK house prices ‘resilient’ – This Is Money [13]
Santander boss urges intervention on car finance compensation – Guardian [14]
Sky claims to have obtained Treasury’s definition of ‘working people’ – Sky [15]
How deprived is your area? [Interactive tool] – Guardian [16]
Amazon laying off 14,000 corporate workers as it invests in AI… – CNBC [17]
…but is that what is really driving the job cuts? – BBC [18]
[19]
Olive oil: not so much – This Is Money [20]
Products and services
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Barclays lowers mortgage costs as further rate cuts loom – This Is Money [21]
Be wary of whiskey cask ‘investments’ – Which [22]
Crypto funds price war erupts in UK [Paywall] – FT [23]
Get up to £200 cashback when you open or switch to an Interactive Investor [24] SIPP. Terms and fees apply, affiliate link. – Interactive Investor [24]
Is a fixer-upper the best way to a dream home? – Guardian [25]
Home insurance premiums are falling – This Is Money [26]
Can you get the Chase Bank £100 switch offer? – Be Clever With Your Cash [27]
Get up to £100 as a welcome bonus when you open a new account with InvestEngine via our link [28]. (Minimum deposit of £100, T&Cs apply, affiliate link. Capital at risk) – InvestEngine [28]
Klarna launches new debit card and membership scheme – Which [29]
Supermarket Christmas savings schemes – Be Clever With Your Cash [30]
Does your motor and home insurance cover rodent damage? – Which [31]
Stylish bungalows for sale, in pictures – Guardian [32]
Comment and opinion
Beating the market is harder than you think – My Money Blog [33]
The case for a good enough portfolio – Morningstar [34]
Maybe it’s not a bubble… – FT [35]
…but if it is a bubble, so what? – Brooklyn Investor [36]
Trying to time the market is like playing The Traitors – Behavioural Investment [37]
Jesse Livermore and the magnet of dancing stock prices – A.W.O.C.S. [38]
If your job didn’t exist, would anybody miss it? – Klement on Investing [39]
What true wealth looks like – The Atlantic [40]
Regrets in ‘unretirement’ – Next Avenue [41]
How to benefit from good advice – Contessa Capital [42]
What’s going on with gold? – Of Dollars and Data [43]
Art Laffer on UK’s economic woes [Podcast] – Merryn Talks Money via Spotify [44]
The impacts of romantic relationships with the boss [Research] – via SSRN [45]
Naughty corner: Active antics
Will attending an investment conference make you sad? – The Falling Knife [46]
Size matters in factor investing – Alpha Architect [47]
How consultants drove an asset allocation shift at pension funds – Verdad [48]
Cryptocurrency as an asset class – Quantpedia [49]
How does inflation impact trading? – Alpha Architect [50]
A reading list for would-be traders (as opposed to investors) – Moontower [51]
Kindle book bargains
Poor Charlie’s Almanack by Charlie Munger – £0.99 on Kindle [52]
The Man Who Solved the Market by Gregory Zuckerman – £0.99 on Kindle [53]
Chip War by Chris Miller – £0.99 on Kindle [54]
Meltdown: The Collapse of Credit Suisse by Duncan Mavin – £0.99 on Kindle [55]
Or pick up one of the all-time great investing classics – Monevator shop [56]
Environmental factors
Insurers call for ancient trees to be felled as quick fix for subsidence – Guardian [57]
Inventor up for award for tackling microplastics – BBC [58]
Richest 0.1% in US emit 4,000x the carbon of world’s 10% poorest – Guardian [59]
Coffee-driven deforestation is making it harder to grow coffee – NPR [60]
Two crucial coral species left ‘functionally extinct’ by latest heatwave – Guardian [61]
In memory of the Christmas Island shrew – Mongabay [62]
Robot overlord roundup
Surviving the AI capex boom – Sparkline Capital [63]
When your favourite bands new song is an AI fake – NPR [64]
How Hudson River Trading actually uses AI [Podcast] – OddLots via Spotify [65]
AI models may be developing a survival drive, researchers say – Guardian [66]
When AI breaks bad [Paywall] – Wired [67]
Current AI has no intelligence – The Register [68]
Not at the dinner table
The cosmopolitan conservative [Paywall] – FT [69]
Our hypocrisy blind spot – Behavioural Scientist [70] [h/t Abnormal Returns [71]]
Dating across the political divide in America – Cosmopolitan [72]
After Trump, the deluge – Noahpinion [73]
The US is a casino economy now. You’ll probably lose – New York Times [74]
How Trump’s ballroom will dominate the White House – W.P. via MSN [75]
Off our beat
Why we doubt ourselves – More To That [76]
“I dressed up as a superhero for Halloween, then saved a life” – Guardian [77]
Grokipedia is racist, transphobic, and loves Elon Musk – The Verge [78]
Why you feel the cold more as you age – Independent [79]
The decline of deviance – Experimental History [80]
Could the Internet ever go offline? – Guardian [81]
The country making orphanages obsolete – Reasons to be Cheerful [82]
900,000 vs 9 – Seth Godin [83]
And finally…
“Happiness is found in doing, not merely possessing.”
– Napoleon Hill, Think and Grow Rich [84]
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