#9 – Trends to Be Aware Of
Investing in hard asset is way better than investing in a highly volatile market such as crypto. It would be best to consider where you’ll allocate your hard-earned money.
Hard asset investing, such as real estate, provide security, especially in times of uncertainty and market instability.
Important sites to review:
What is Cyclical vs Secular?
Cyclical refers to short-term fluctuations, typically lasting up to a few years, whereas secular refers to longer-term, fundamental changes in the economic and business environment that could last for decades.
For example in 2023, we are experiencing cyclical turmoil in the regional banking sector in the USA (SVB Bank). This was due to poorly managed banks with unsustainable business models that got caught up in a rapid rise in the federal funds rate during increasing interest rates. However, the overall U.S. banking system was strong enough to weather these challenges.
That said, this cyclical turmoil could lead to a longer-term decline in credit and equity availability for small and medium-sized businesses, potentially becoming a secular transformation over the next decade. If this comes to pass, it may result in a significant shift in the capital markets.
What are Blackswans?
Black swans, in the context of investing, refer to unforeseen and unexpected events that have a significant impact on the economy, financial markets, and investments. These events are often rare, have a low probability of occurrence, and are difficult to predict. While they are always present, they may go unnoticed until they suddenly manifest and disrupt the status quo.
It’s important to approach black swan events with a level-headed perspective. Many times, these events are blown out of proportion or exaggerated by the media, creating unnecessary fear and uncertainty. While some of these scenarios may play out, it’s crucial to recognize them for what they are: potential distractions that may never come to pass.
When a black swan event does occur, such as the COVID-19 pandemic, it’s essential to understand that it is not indicative of any inherent weakness in the system, economy, or investment strategies. Black swans are unforeseen occurrences that can impact even the most robust systems.
Investors should be discerning and critically analyze narratives surrounding potential black swans. It’s crucial to separate the sensationalism from the facts and maintain a rational approach – remember the media’s job is to get our attention and pull on our emotions to get us to watch and therefore get them advertisement revenue. By doing so, investors can identify opportunities amidst fear and uncertainty.
Currently, some narratives that are being discussed include the escalating Russia-Ukraine conflict, potential issues with real estate bridge loans, concerns about the banking system, and the volatility of cryptocurrencies. However, it’s important to carefully evaluate these narratives and consider their likelihood and potential impact. A great example of this is how I mention it in the last part of our quarterly Kimono reports for live investors.
Among these narratives, one potential black swan that holds more significance is interest rates. While attempts to control and moderate economic growth are necessary, excessive measures can have adverse effects. Striking the right balance between stimulating and controlling the economy is crucial to avoid unintended consequences.
As an investor, it’s important to stay informed and be aware of potential black swans. However, it’s equally important not to let fear and speculation drive investment decisions. Black swans are unexpected and rare events that have a significant impact on the economy and financial markets. While they are always present, it’s essential to approach them with a discerning mindset, separating fact from fiction.
Taking a Step Back from Macroeconomic Noise....
In the e-course, we understand that we may have overwhelmed you with information, but we believe in taking a step back and approaching investing with a grain of salt. In the next section, we discuss investing in major trends and understanding the fundamental principles of supply and demand. Specifically, we focus on workforce housing investments as an example.
However, it’s important to acknowledge that there are other factors at play, such as cyclical and secular macroeconomic trends and unforeseen events known as “black swans.” The media often amplifies these events to capture our attention and increase their advertising revenue, which can lead to information overload for investors.
As real estate investors, we take a different approach. We don’t base our decisions on the latest macroeconomic trends of the month or year. Instead, we focus on the fundamental principles of supply and demand. This long-term perspective allows for sustainable investing and aligns with the principles of value investing.
By investing based on the fundamentals and taking a long-term approach, we believe that investing becomes more sustainable and less influenced by short-term market fluctuations. It enables us to stay focused on the underlying value and potential of the investment.
If you have any further questions or need clarification on any specific topics, please let us know. We’re here to help.