Nothing Good Happens After Midnight
You know exactly what that expression means. The markets version of this is: Don’t obsess about investing beyond the point of diminishing returns.
Capital Thinking • Issue #1154 • View online
This was a brutal week in the investing world. The fraud at FTX was one of the largest overnight destructions of wealth in financial history. It impacts holders of crypto assets, the employees building projects in decentralized finance, equities, and traditional VC firms (Sequoia allegedly wrote down a $200mm investment to zero).
Party At the MoonTower #170
Excerpting from kyla scanlon:
And with FTX and SBF, it’s worse than other times in crypto. It’s so much worse. They posed themselves as these people that were trying to make the world better. There’s a difference between crypto going down because no one believes in it and crypto going down because it’s systematically being rugged…Many innocent people got wrapped into this because they saw Tom Brady or they saw Sam’s face on a telephone pole – and it was supposed to be safe.
In a calibrating industry, it’s easy to find holes to exploit, which is what FTX did perfectly. They saw opportunity, the VCs saw that they saw an opportunity, and people that wanted to be in crypto believed all of them. And of course, it’s like – well why *wouldn’t* you believe them. And that’s the hardest part.
While I agree with everything she says in the post, I want to address what’s unsaid.
There’s way too much obsession with investments as a way to get rich in the first place. It’s misallocated attention. It’s misplaced energy. I feel like the collective benefit of saying this is so diffuse that nobody has the incentive to tell you the truth.
Just like Big Food or Big Ag will never commission a study on “intermittent fasting”. No single entity profits from the absence of eating 3 American-sized meals a day.
Same with investing. Who gains from telling people that much of the brain cycles we spend on investing are a waste of time?
Maybe advisors with white-glove fees and Vanguard. Vanguard is a quasi-mutual company (investors are owners of the asset manager in a sense). Bogle undercut an industry to tell you what others wouldn’t. There are worse people to be aligned with.
We need a bit of real talk.
I’m sorry if you feel like I should have told you sooner (although, I did). At first glance, this talk might sound discouraging. But take a second glance. This should liberate you.
This will give you back countless hours of your time that you can use to row towards your goal with strength. Without distraction. And with less reliance on fate.
[This is an edited version of an off-the-cuff thread I wrote when I was too lazy to get out of bed yesterday]
Unless you are already rich, the proposition of earning 6% per year (insert your favorite ERP) with a 20% standard deviation and a fat left tail is not going to lead to the durable wealth you want. At least not on the timeline you want.
This is discouraging and fairly obvious if you look at the proposition for what it is (some people might think you earn 10% per year in equities or harbor some other delusions about the proposition.
It’s 2022, you’re entitled to “use Your own illusions” — sorry it’s the 30-year anniversary).
But we’re Americans. We are all entitled to do better than average, right?
So we snuggle up to crypto, privates, self-storage, or whatever makes you feel special. Unfortunately, investing done well, shouldn’t feel comfortable.
Truly fat risk premiums feel like caffeine before bed. They make you anxious and insomniac. You should be afraid of feeling warm and righteous. This is the fundamental nature of beating point spreads.
Don’t you think that adjusted for risk (even simply by a street-smart “this sounds too good to be true” instincts) that the propositions of these shiny investments are similar to what you are presented in public markets?
That’s actually your best-case scenario, where you avoid stepping on landmines.
Think about it.
*Featured post photo by Nick Fewings on Unsplash