0:33

continuously getting more

0:36

valuable , more

0:38

attractive , easier to access

0:40

, better . I think the quality

0:42

is getting better . Well

0:44

, think about this .

0:45

The other way . Originally , back

0:47

in the day , you had to go down to an actual

0:49

bank deposit funds or

0:52

, like I was listening to the acquired

0:54

podcast and they had the history of Visa and

0:56

they were talking about back in the day . You'd write a check , someone

0:58

hand deliver it cross-country , maybe

1:01

like an 8% fee to cash the check

1:03

. So , like the process

1:05

to like invest has gotten easier and , like index

1:07

funds have kind of commoditized the public

1:09

markets , how it's like

1:12

investors are looking for that

1:14

new place to get return and you're

1:16

starting to see you know crypto is part of this

1:18

. A lot of companies are dabbling with the ETF which

1:20

we've talked about . You have a lot of these

1:23

platforms like . Fundrise

1:25

is another one I mentioned a couple of times in the past

1:27

. That's trying to democratize alternatives

1:30

. We talked about a franchise , fractional

1:33

franchise investing company the

1:35

old stream , the other good one . Anyways

1:37

, welcome back everyone to Kraft Advice we're going to talk today

1:39

. We're kind of riffing on it before we started

1:42

. But what are alternative

1:44

investments ? We've talked about this in the past

1:47

and if you go way back in the archives

1:49

you'll hear the $5 billion RIA or

1:51

Roth IRA conversation

1:53

about big venture capitalists turned

1:56

is Roth IRA and it's probably

1:58

what $10 billion today . I

2:00

would imagine it's quite a bit bigger , but

2:03

most people are not doing that

2:05

by , you know , getting lucky and buying a penny stock

2:08

or you know , doing a self directed IRA

2:10

and getting crypto at the right time it's

2:13

buying into , you know , equity

2:15

and private businesses and stuff like that . So we

2:17

wanted to kind of showcase , at least

2:20

outline , what are private

2:22

markets , what are alternatives , what

2:24

are the types , how do you get access to

2:26

them . So we kind of just want to do like an overview episode

2:29

on you know an untouched part

2:31

of the market for most investors .

2:32

So where do you want ?

2:33

to start , stan , I mean , this is your , this

2:36

is your baby . Outside of crypto , everyone

2:38

knows that you're a real baby .

2:39

Well , that's my real baby , that's

2:41

my main squeeze , this is my side

2:44

lady . No

2:46

, but uh , yeah , I mean I think

2:48

private market investing is something that doesn't get talked

2:50

about enough . It has become a lot more popular

2:52

recently . Um , in kind

2:54

of to your point about those

2:57

different platforms , a lot of it has to do with technology

2:59

. So there's a lot of advancements in technology

3:01

that make it easier for these companies to exist

3:04

, to offer these platforms , to offer

3:06

these investment opportunities to

3:08

individuals , Because , frankly , in the past

3:10

they were a lot more small markets

3:12

. They were very much centered around

3:15

large metropolitan areas . You

3:17

know , bank consortiums , Um

3:20

, it was just , it was a lot more smaller pools

3:22

, very much institutionally driven

3:24

historically , Um , and

3:26

now it's sprinkled out outside of

3:28

the pure institutions into

3:30

the family offices , and then again it's trickled

3:32

down from the family offices onward now

3:35

to the high net worth investor and now into

3:37

um . You know kind of some kind

3:39

of newer categories , right ? So there's not a

3:41

technical SEC category for

3:43

um , some of

3:46

to get access to some of these investments .

3:48

Yeah , Pause what

3:50

you got ? Charlie Munger died , oh

3:52

man yeah 99

3:55

. He made it , it's almost the original

3:57

venture capitalist , the original VC , the old Munger

3:59

, the Munger he

4:02

hated , he hates Bitcoin .

4:04

Oh yeah , Don't talk about it . Oh not my dog

4:06

Mungi . Yeah , His birthday was January 1st . He almost

4:08

made it to a hundred . That's crazy .

4:18

That sucks , dude .

4:20

I was rooting for you pal .

4:21

Yeah , he's awesome .

4:22

He's the dude and

4:26

people don't know , he's Warren Buffett's right-hand man . Yeah , I know

4:28

who you know he is listening to

4:30

John .

4:30

This , this is a podcast , you remember ?

4:32

Oh , I thought we were pausing this . I got confused .

4:34

Oh no , this is live , we're recording . No

4:38

, I know we're recording Jack , anyways

4:41

yeah , anyways , long and short , get

4:43

back to alternative .

4:43

Sorry For those who are out there . Charlie

4:46

Munger died , and that's really terrible

4:48

. He's Warren Buffett's right-hand man and

4:50

they've been together , I believe , since day one .

4:53

Yeah .

4:54

They've been together since . I mean , he's worth

4:56

three billion himself , but yeah , it's pretty

4:59

wild . Died at 99 . Man

5:02

. It's just a month

5:04

or so away from his 100th birthday .

5:07

Yeah , wow . Anyways , the original

5:09

venture capital firm , I

5:11

mean literally Berkshire Hathaway , was the first one going in

5:13

acquiring companies , taking

5:16

ownership , streamlining them . So

5:19

fitting with today , but anyways keep going

5:21

with the types and I was sorry . We kind of got off track .

5:23

Yeah , no worries , I was just saying

5:25

that everybody's very familiar with stocks , bonds , investing

5:27

in stocks through mutual funds or ETFs and

5:30

a lot of those things we've talked about in previous episodes

5:32

and a lot of things people got on their own that are

5:34

just traditional investment options . So

5:37

private market investing is

5:40

, if you had to boil it down into kind of four

5:42

main categories or kind of silos

5:44

if you will , you could

5:46

do that into , say , hedge

5:49

funds . Right , hedge funds would be one category

5:51

. You'd say real estate is

5:53

probably another one of those prime categories

5:55

. Then you've

5:57

got private equity , which

6:01

again is just kind of the , just the private market version

6:03

of public equity . And then you've got private

6:05

credit . So private credit

6:07

again , is that , again

6:09

that's that private market version of bonds

6:12

. Slightly different , right , there's different characteristics

6:14

and again

6:16

, not all private credit is exactly the same , just

6:18

like not all traditional fixed income

6:20

is the same . But

6:23

I would say those are the four main categories and

6:27

then , in terms of breaking

6:29

it down from there , there's a lot of different subcategories

6:31

below , if you look at

6:34

within the hedge

6:36

fund side , for example , I mean you've got all

6:38

different types

6:40

of credit or

6:43

long short strategies . You can look at

6:45

derivative strategies , quant

6:48

strategies . I mean there's a lot of different ways

6:50

to go about it . Through the hedge fund

6:52

direction , real estate same thing

6:54

you can look at things that are

6:56

more opportunistic Right , there

6:58

could be more aggressive real estate investments

7:00

, maybe something from the

7:03

ground up that was going to get built on

7:05

core real estate , which

7:07

is just a little bit more . It's already

7:09

stabilized , it's kind of there . It's

7:11

not really that , it's not that

7:13

risky , other than , you

7:15

know , some kind of massive , massive economic malaise

7:18

. But

7:20

again , there's there's different ways to access it

7:22

within even one all of those different

7:24

categories , for example , you know real estate's the easiest

7:26

one to comprehend , I would say , because

7:29

, just like buying a single family

7:31

home as an investment property , you

7:33

know you can be a private investor

7:35

into an individual property , whether

7:38

that property is a single family home

7:40

or a . You know a hundred million

7:42

dollar skyscraper , right

7:45

, condom , you know new condo and downtown , awesome

7:47

, right , and you're just a

7:49

one , one thousandth investor

7:51

in that particular property . So

7:54

there's a lot of different ways . Or , again , or you can be a

7:57

an investor in a large , large , you

7:59

know multi asset re . So

8:01

for those that aren't familiar with re , it's

8:04

an acronym stands for real estate investment

8:06

trust Investment

8:08

type vehicle that allows

8:10

you to get access to a , generally

8:13

speaking , a large , diversified portfolio of

8:15

real estate .

8:16

Yeah , well , I think this is Sticking

8:19

on real estate . That's an easy one for people to get yeah . Yeah

8:22

, everybody wants to be this like HGTV

8:24

. I can flip a house and

8:26

most people don't know shit about how to actually

8:28

do that . When you get in there You're like I need to rerun plumbing

8:31

. You know how do you actually

8:33

get that stuff done ? And so people want to invest

8:35

in real estate , sometimes investing

8:37

in public real estate . So if you just go buy

8:39

one of like the real estate ETFs , you

8:41

know , vanguard fund or something like that

8:43

, you're kind of just tracking the

8:46

public markets to some

8:48

extent . And so To Sean's

8:50

point , alternative investments a

8:53

lot of times just not buying public stocks

8:55

, bonds or real estate , you're gonna buy

8:58

one of these funds and you know the

9:00

nice thing there , it's not like your house gets

9:02

appraised every single day or every

9:04

minute throughout . You know

9:06

the market hours from 930 to 4 . So

9:09

, yeah , it's a nice way to add a stabilizer

9:12

. So some people , I think , are looking just for ways to

9:14

get into the real estate investing and

9:16

sometimes a REITs , just the easiest way to go dollar

9:18

cost average in compound kind of your wealth

9:20

over time .

9:21

Yeah .

9:22

I don't have them , just track the volatile stock

9:24

market . Yep yeah , do

9:26

you think the blockchain is gonna get after that space

9:28

? I'm surprised I haven't seen anything on that . There's

9:31

good Real estate , yet

9:33

like fractional ownership through crypto

9:35

.

9:36

Oh yeah , no , that's definitely gonna be a big , very big

9:38

space for it . There's um , there's

9:40

projects that are already happening in that

9:42

and I think that's gonna continue . It's

9:45

gonna put it's going to displace a

9:47

lot of traditional jobs in the real estate

9:49

market , like tight title insurance .

9:51

Waste of time . Why isn't that ? On the blockchain

9:53

, you just , yeah , transfer your data .

9:55

Marifiable . There's no , you know

9:57

it's again , completely

9:59

eliminates title insurance doesn't exist . But

10:04

yeah , no , I think there's gonna be a lot of those and that's

10:07

how some of these pop up , just like any kind of traditional

10:09

investment . You

10:11

know , I get it's a lot of . These are unique

10:13

Investment ideas that are

10:15

looking to solve a problem . But

10:18

, again , part of what you were just mentioning I

10:21

don't think we we've stressed enough

10:23

yet but it's the lack of liquidity that these have

10:25

that can oftentimes Reduce

10:28

the volatility . Right , because

10:30

if you look at , you know I think we were looking

10:32

at a statistic that

10:34

was provided to us by

10:36

BlackRock , I'm sorry

10:39

, by Blackstone , blackstone

10:41

so Often confused with BlackRock

10:43

, but now Blackstone , largest alternative

10:45

investment manager out there . But they came

10:47

out with a study and they tracked it and , going

10:50

back to 1986 , back From

10:52

1986 to present , if

10:55

you take private equity versus public

10:57

equity , the volatility

10:59

is somewhere around a two-thirds

11:02

of what public volatility

11:04

would be public equity volatility

11:06

, and a lot of times the explanation

11:09

for that is simply because You're not able

11:11

to access it . And because you can't access

11:13

it , you know there's there's certain

11:15

protections that are there that can make

11:17

the investment cumbersome , but also

11:20

are there to shield and kind of protect the investor

11:22

, because

11:24

if you are able to sell during a time

11:27

of distress whether it's personal distress or

11:29

you know if something's going on in the economy

11:32

, you're reading , you're seeing something , and there's , you

11:34

know , a January 6th event and everybody's

11:36

freaking out like what's going on and and

11:39

everybody starts selling . Or there's a COVID event

11:41

and everybody starts selling . You're

11:44

gonna start selling .

11:45

This prevents that from

11:47

happening , so it prevents these assets from being fired

11:50

, sold and sold at lower prices in

11:52

their actual economic value , as which

11:54

is kind of a Good thing , because a lot of these investments , even

11:57

on the real estate side yeah , like if you're gonna invest

11:59

in a plot of land that then has to get prepared

12:02

to build , then built , then

12:04

Potentially furnished , if it's like some of

12:06

this built to rent stuff , mm-hmm

12:08

, then you have to go out and sell

12:10

or lease these properties . I mean

12:12

it could take a three-year period to take a profit

12:14

a property from like an idea to

12:17

an investment . And On the

12:19

equity side , you know a lot of people

12:21

, you know they know every company

12:23

in the public markets . I mean it's great , great

12:26

reddit thread that went nuts , wall street bets

12:28

with all these kids just finding penny stocks and trying to

12:30

flip them . But there's a ton of these private

12:32

companies out there that no one's trading

12:35

because they're private . So you know if

12:37

your friend or family owns business , the stock

12:39

of that company is not trading

12:41

all the time . So it's kind of good having

12:44

these , these lockup constraints , because some

12:46

of these businesses might take three , five

12:48

Years to actually

12:50

become something . Funny enough

12:52

, we were watching you ever seen super

12:54

pumped ? It's like the Showtime

12:57

shows on Netflix now , but it was basically about like

12:59

the story of uber Quentin .

13:01

Tarantino yeah , I haven't seen

13:03

the whole thing .

13:03

Yeah , I've seen parts , so so worth

13:05

watching because you know , going back there

13:07

, it's uber is a private company and all they're trying to do is

13:09

get from funding round to funding round and they're doing

13:11

so much shenanigans and then they're

13:13

. They're talking about how uber is like a six billion dollar company

13:16

, and then it's a nine billion dollar Company

13:18

and then it goes up to a sixty billion dollar company

13:20

. Any idea , sean , we're ubers at today

13:22

, mark cap .

13:24

What was the last one you said ?

13:26

60 , 250

13:31

, 115

13:33

billion . Yeah , well , it's

13:35

crazy to think about . That is like so from

13:38

from an investment standpoint , it

13:40

didn't go public until it was a hundred billion , kind

13:43

of like Rivian , like it dumped that on the market

13:45

so late . So yeah , a lot of times

13:47

if you're able to get into the

13:49

private equity side and you get into some of

13:51

these deals , as they're at a billion

13:53

couple hundred million and they're working their

13:55

way up , you know that's where you find

13:57

these and so you kind of need the lockup to

14:00

hold people from panic selling when you

14:02

know the company's down 75% . But

14:04

hey , they might go up 4,000%

14:07

, yeah , once they get an app

14:09

to market or a new territory open . There's

14:11

something like that .

14:12

Yeah , yeah , no , that's a good point . Companies

14:15

are staying private much longer and

14:17

they're they're keeping a lot of that value . So by

14:19

the time you get invested in the public

14:22

markets , you know again

14:24

, they could potentially continue that value

14:26

creation and that growth . But

14:28

Oftentimes , more often

14:30

than not , a lot of it's been baked in . And

14:33

the huge home run numbers now

14:35

you again , you could still have nice growth , but

14:37

those massive home run numbers have

14:40

already , you know , they've already been realized , whereas

14:42

, you know , a lot of times people think of , you

14:45

know , the apples of the world , where you could have bought

14:47

back in 1999 and held it and

14:49

it , you know , did what it did . Or you know Microsoft

14:51

, right , buy it in the 80s for nothing and

14:54

then it exploded and split a million different times

14:56

. Those kinds

14:58

of stories are much , far fewer

15:00

between , simply because those

15:03

particular types of companies , the apples

15:05

of the world , the Microsoft's of the world

15:07

, it's a whole

15:09

different ballgame . Those types of companies can stay

15:11

private much longer and it's much better for

15:13

them too , generally speaking , because

15:15

they can have more control over

15:18

their company , right

15:20

, they can typically get bet more flexible

15:22

type of terms , whereas if

15:25

they go public , then they've got a board , they've got

15:27

shareholders , they've got a lot of different

15:29

requirements . If they're not meeting quarterly , you

15:31

know , they , those individual

15:33

, especially Companies that are run by founders

15:35

, right , I mean they could easily get squeezed out because

15:37

they're not meeting the expectations of the board

15:40

, just like what happened with Steve Jobs , yeah

15:43

. So I think a lot of those types of those

15:46

companies are trying to fight that . I

15:49

mean , eventually they all go that route , but they try

15:51

to fight it as long as they can .

15:53

Yeah , well , and that's Once

15:56

you're beholden to shareholders and the board of

15:58

directors and kind of do whatever the hell you want in the private

16:00

market . Yeah , and I mean that's kind

16:03

of a wild idea , for you know venture

16:05

capitalists and private equity firms . You know they're

16:07

making these investments and they're hoping that

16:09

the people in charge of

16:11

these companies don't squander it , but everyone's

16:13

seeing we work and that company's basically

16:16

on its way out . Yeah then

16:18

, how many companies ? You

16:20

know FTX was the most recent one the crypto space

16:22

that got so much funding and

16:24

you know If that was your only investment

16:26

in the crypto and the venture capital space , you

16:29

got killed . You know if you diversified out , you

16:31

probably are gonna be okay in the crypto space

16:33

. Yep , but this is also

16:35

, I think , a good area to talk about the difference

16:37

between Traditional private

16:39

equity and venture capital . Venture

16:41

capital almost no one will have access to unless

16:44

you're . You really have a lot of high

16:46

net worth . But this is kind

16:48

of where , or maybe , you should .

16:50

Um , what we could do is maybe kind of break down

16:52

the categories of when people would have Access

16:54

to the study stuff . Yeah , let's

16:56

do that and we'll get into venture

16:58

capital and so talk

17:00

through those different qualified purchasers and

17:03

yeah , yes , so well , it

17:05

kind of ties into venture capital , because so typically

17:07

a venture capital fund because

17:09

it is so risky it's typically

17:11

not recommended or allowed to be recommended

17:13

to anybody below

17:16

a certain net worth threshold

17:18

, and so the sec establishes

17:21

these guidelines and Essentially

17:24

, certain funds require what's

17:26

called a QP or a qualified

17:28

purchaser status . So

17:30

you have to have five million dollars of liquid

17:32

assets or above

17:34

and

17:36

again that's to typically invest in

17:39

some more aggressive , more

17:41

risky things that the government

17:43

essentially thinks that you need to have . A lot

17:45

more means a lot more liquidity , and

17:48

you have a typically have a lot more knowledge

17:50

because you have more resources , so you're able

17:52

to underwrite and Make

17:55

sure it's a good investment or not a good investment

17:57

. So a little bit more of the responsibilities

17:59

on your part and then

18:01

below that you just have your you

18:03

know , your accredited investor million dollars

18:05

, right , liquid net worth , and

18:08

that's the biggest

18:10

growing alternative market right now

18:12

. I would say that million dollar plus and then

18:15

even below that . So

18:17

this is something that a lot of funds are rolling

18:19

out with . It's kind of a hybrid Space

18:23

, if you will . There they want people to have some liquid

18:26

net worth , kind of that 250 space

18:29

and above . There's no real category

18:32

named for it , but this is just kind of these self-imposed

18:34

Requirements a lot of these alternative

18:36

fund companies are coming out with and

18:39

it's because they want to offer these Hybrid

18:43

, what they call interval funds . For those

18:45

out there that are not familiar , and interval fund

18:47

is basically a mutual fund , just

18:51

like a stock mutual fund or a bond

18:53

mutual fund that you know of mutual fund you

18:55

might own in your 401k . It's

18:57

a mutual fund , but it has , instead

19:00

of you being able to buy and sell on its daily

19:03

basis . They typically have a time

19:05

window , a predetermined , pre-agreed

19:07

upon time . What time window ? It might

19:09

be monthly , quarterly , by

19:12

annual , annual , but

19:14

it typically there's some type of window like that

19:16

where you have access to Withdrawal

19:19

or or add money . Yeah

19:21

, but because they're they're providing these kind

19:23

of hybrid , semi liquid vehicles as

19:26

well , they're starting to . Again , a

19:28

lot of this has to do with technology advancements

19:30

, right , they're , they're being able to offer it to

19:32

more people in the marketplace

19:34

, which , again , I think , at the end of the day , is a great thing because

19:36

For everybody to have all of

19:38

their money tied up in a very

19:41

volatile asset class like stocks

19:43

Even though stocks go up over time they can be very

19:45

volatile , I think

19:47

is , you know , especially as more and more

19:49

folks get into retirement , they're gonna need income . I

19:52

think this , this gives them of another

19:55

very strong alternative to

19:57

add to their portfolio .

20:00

Yeah , this is where , again , we talked

20:02

about the earlier you

20:04

are in the life cycle of a private

20:06

investment . Venture capital is people . It's

20:10

kind of a wild industry . You basically are finding

20:12

people with an idea and you're funding the idea

20:14

and so there's small checks . They're making 2550

20:17

, a hundred thousand , couple hundred thousand and

20:20

it's trying to get a founder from an idea

20:22

to a minimum viable product . And

20:24

Then you start to get into more

20:26

of the venture capital rounds where more of these funds

20:28

come through and take Ownership

20:31

and established businesses . So

20:33

that's where kind of the risk comes in . There's a lot of these

20:35

venture capital funds that are out there

20:37

just trying to find the next Mark Zuckerberg

20:39

and his college dorm Dreaming

20:42

up this elaborate idea , and

20:44

so most people are gonna probably

20:46

approach Alternative investments

20:49

. I wouldn't be shocked if you start

20:51

to see all of the big custodians . So

20:53

the Fidelities , the Schwab's , the vanguards

20:55

start offering their own like in-house

20:57

version of this Because they

20:59

don't want to lose assets to another platform

21:02

and they'd rather control that experience

21:04

absolutely . So

21:06

you'll probably start to see that on the private equity side

21:08

where people can start to get exposure to some of these companies . So

21:11

think about Every crypto

21:13

company that basically came out that was popular

21:15

. If you think about companies like SpaceX

21:17

, still private that's another

21:19

one that we've probably get questions regularly

21:22

from clients like , hey , can I invest in SpaceX ? I

21:24

want to back this . You know mission

21:26

to Mars thing ? Yes , there's . No , there's

21:28

a couple of mutual funds that have some equity

21:31

Zen . Equity Zen

21:33

, where you're basically buying shares from employees

21:36

.

21:36

Yeah , let's say again that's

21:38

another great example of an

21:41

it's you getting access to

21:43

essentially private equity , right

21:46

, but you're buying that private equity differently

21:49

, right ? So typically historically

21:51

you would buy into , say , a private equity fund and

21:53

that fund would be run by a manager and

21:55

that manager might say this fund is going

21:57

to be an eight-year fund or

21:59

a ten-year fund and we're gonna go

22:01

out and we're gonna find 20 companies

22:04

that operate in this space and

22:06

this kind of size and they give you general characteristics

22:09

and they'll typically have maybe one

22:11

or two or three Ideas

22:13

already laid out and then the rest

22:15

is kind of somewhere in various stages

22:17

of a pipeline of approval , right

22:20

of them underwriting before they make that investment

22:22

and they see

22:25

that money over years and they

22:27

help these companies all individually execute

22:29

their plans in some form or fashion could

22:31

sometimes just be monetarily , sometimes it's

22:33

monetarily in some kind of a

22:35

consulting . Either way , they

22:37

work with them , invest and these companies

22:41

grow and get recapitalized

22:43

and find refinance , and then again

22:45

they pull their investments out plus

22:47

, you know , extra right

22:49

, the growth . Ideally . That's

22:52

it again . That's a long to eight

22:54

ten-year process before you

22:56

actually get to see your money back . So

22:58

it's not for all investors . Right

23:00

, there's a lot of risk . They can go on between that . That's

23:03

a really long time period . A lot can happen

23:05

, right ? Just think of what's happened over

23:07

the last eight to ten years , right , crazy

23:10

world . Yeah , this is an

23:12

interesting thing . I remember I mean

23:14

you were the first one to show it to me , but this was a

23:16

really interesting platform . Not

23:19

that we're Sponsoring them there's other

23:21

ones to do the same thing but it's just an interesting

23:23

approach to offering access to

23:25

private investments . But if you just

23:27

go to their website , I mean , what is it ?

23:29

epic games , stripe , flexport , ripple well

23:32

, this is timely today because what

23:35

just happened over like last I think it was last weekend

23:37

, but you had open AI basically had an entire

23:39

Implosion that they the board fires the

23:41

CEO and then like 48 hours hires and back

23:44

Yep , but you

23:46

know , the company's value did almost , I

23:48

think , 85 billion , and

23:50

so there's always employees that have a ton

23:52

of cash tied up in the company . There's investors

23:54

that want to get into the company , so

23:57

they're doing another funding round solely

23:59

for employees to take liquidity off the table

24:01

, which is kind of a cool way to go . Normally , it's

24:03

the CEO or the initial investors

24:05

getting their money out . Yeah , you know , it's the venture

24:07

guys getting out so the private equity guys

24:10

can get in , yep , but yeah

24:12

, it's . It's definitely something where platforms

24:15

in my mind , like Equities

24:17

and I know fun has had something . There's a lot of these

24:19

companies that are trying to help the end

24:21

Employees of these companies get

24:23

their shares sold . Yep , you

24:25

know there's a lot of hoops

24:27

to get out , but

24:30

it's it's again back to the , the concept

24:32

for today's episodes . We're trying to explain

24:35

that . You know you don't have to just go to your Schwab

24:37

, your fidelity , your vanguard account , your Robinhood account

24:39

, search for companies . Yep , that's

24:41

all you can buy . There are becoming new

24:43

avenues of where you

24:45

can see growth , whether in real estate

24:48

, lending , equity

24:50

there's all sorts of stuff coming through .

24:52

Now , the other caveat that we would add to

24:54

this is that this the

24:56

further you get away from traditional investing

24:58

, the more complex things

25:01

can become . So this is really where you wanna

25:03

do your research . Tread

25:06

slowly , and

25:10

we obviously encourage you to work with a professional if

25:13

there's any hesitation there , but generally

25:15

work with a professional anyways , but this is

25:17

something where you definitely would like to . I

25:20

would encourage everybody to get some type of

25:22

professional guidance on this , because it can

25:24

be a very nuanced

25:27

and a cumbersome

25:30

, you know , depending on what you're looking at , it can be

25:32

again something that you wanna make sure you're

25:34

getting an extra set of eyes on . Yeah , Professional

25:37

set of eyes on .

25:38

I think to add a layer to that is most of

25:40

these funds have one or two investments

25:42

that return the entire return of the fund

25:45

there's . The majority of them are

25:47

a break even and

25:49

the other tail is a bunch of things that

25:51

go bust . It's just extremes

25:54

of the tail . Ends of the distribution do

25:56

so well that

25:59

it returns the whole fund . So this is one of the areas where

26:01

you can't just go out and say , oh , I'm gonna buy SpaceX

26:03

stock and make a bunch of money . It's possible SpaceX

26:06

stock is overvalued right now , but

26:08

if you could get it , the cost to get it wasn't

26:10

that bad . At the same time , you

26:13

still saw growth out of it . It might

26:15

work , but at the same time it could crash all

26:17

the way back to Earth . No

26:20

pun intended , yeah , I

26:22

mean like a way goes to return .

26:24

I mean , what is ? It Is bite dance , that they're the company

26:26

that owns TikTok . Yeah

26:28

, I mean , what if TikTok gets completely

26:30

? I mean they keep wrestling with it back and forth

26:32

, back and forth . Right , you go out and buy bite dance stock

26:34

because it is available on these platforms

26:37

, or at least you can put it out there

26:39

, your offer to purchase on these platforms . And

26:41

so if you go out there and you're able to buy some

26:44

, and you buy it at X value

26:46

, but then Congress

26:48

comes out and new administration , there's a change

26:50

in Washington , and they basically say , nope , you're

26:52

persona non grata , you cannot operate here in

26:54

America anymore . Well , I mean , it doesn't

26:56

completely send the company out

26:58

of business necessarily right away , but it's

27:01

very bad news for it . I

27:03

mean , that's their flagship , that's their flagship

27:06

program or a platform , and

27:09

if they were to somehow basically

27:11

eliminate that from American marketplace , that

27:14

would obviously not be very good for

27:16

the stock price . Yep , yep .

27:20

Awesome . Do you want to touch on

27:22

private credit ? Explain yeah yeah

27:24

, yeah .

27:24

So private credit again , this is just

27:26

the private version of

27:29

bonds , typically

27:32

private credit 10,

27:34

. Again , there's different ways to do it , but

27:36

the most common way that is done

27:38

across the industry tends to be shorter

27:40

term growth oriented

27:43

or bridge loans , where

27:46

there's generally and

27:49

again , this all varies depending on the managers

27:51

managers have different approaches , so I don't

27:53

say this to be a uniform

27:55

approach , but a lot of managers

27:58

approach it this way and

28:00

there typically is a lot more collateral involved

28:02

with these loans . There's

28:05

typically floating

28:08

rate components to it , so

28:10

interest rates go up . These tend to be variable

28:12

loans , right ? So if you get a growing

28:15

company that wants to launch a new

28:17

product in a new region and

28:19

they want to borrow money instead of diluting

28:23

their equity , they don't want to add any more

28:25

investors , they just want to borrow the money

28:27

. Rates are where they're comfortable with and they just

28:29

want to borrow it , right ? So they go to a

28:31

lender . Lender provides

28:33

them terms . Those terms they're

28:36

gonna be over , say , a three , five , maybe

28:38

a seven year period . There's gonna be some variable

28:40

component to it , so if interest rates go up , they're

28:42

gonna have to pay more . But because

28:44

you're the investor , that's a good

28:46

thing for you right . So , but

28:50

at the same time yeah

28:52

, I mean in terms of volatility , much

28:55

lower volatility . Again

28:58

, these tend to be companies that are already

29:02

healthy and growing , so there tends to

29:04

be a lot of cash before any kind

29:06

of financial distress would be there . And

29:09

a lot of these companies are becoming more . Or a lot of

29:11

these platforms for private credit are

29:13

becoming more popular because , instead

29:15

of like a traditional

29:18

loan from a bank where it's just a checkbook

29:20

, a lot of these funds

29:23

will typically have some type

29:25

of consulting involved

29:27

with the lending . So

29:29

there's some type of teamwork involved , maybe

29:32

some type of consulting . Or if they have other companies

29:34

within their portfolios that they can

29:36

link together , kind of

29:38

a network , so to speak . If they're looking

29:40

to expand and they want they need to

29:42

add better C-suite

29:46

level management , or they need somebody who

29:48

could execute on launching a new product

29:50

in a particular kind of demographic

29:53

. Right , they know somebody that also

29:55

works with this particular company

29:57

that's in their portfolio . They might be able

29:59

to connect the two so that becomes

30:01

a more attractive partner , right

30:04

? So if a company's looking to do that , they might

30:07

even be willing to pay more on the interest rate side

30:09

to get that type of partnership

30:11

and support . So

30:14

that kind of stuff is , and that's really

30:16

what is growing significantly

30:18

in that private credit space and

30:21

with these higher for longer rates , it looks to continue

30:23

to be so .

30:24

Well , the

30:26

private credit market again , this is

30:28

just basically bonds with

30:31

companies that aren't public . For the most part . There

30:34

might be some public companies that leverage

30:36

private lenders , but the majority

30:38

of them are gonna be private investors . But if

30:41

you think about what's happened

30:43

with the mortgage rates , most

30:45

banks loaded up on selling everybody

30:47

a mortgage at one , two , three

30:49

, four percent . Then rates

30:51

go skyrocket and

30:54

their lending book is completely

30:56

underwater . It's kind of like if you bought a bunch of bonds

30:58

at one or 2% , now rates are five

31:00

or 6% , that one

31:03

or 2% bond has to be at a discount . So

31:05

private credit has been an area that

31:07

has seen a huge influx

31:10

and interest for the fact that

31:12

all these banks have underwater books

31:14

. So I think it was Bank of America

31:16

had like $100 billion and

31:18

technically like notional losses

31:21

on their loan book

31:23

because they lent so much money at

31:25

sub 3% and rates

31:27

are closer to seven . So

31:29

this has kind of been that I don't wanna say the

31:31

lender of last resorts , but you saw a

31:33

lot of banks blow up in California . They were

31:35

a lot of public banks that

31:38

had direct lending to a very

31:40

isolated technology sector

31:42

. You saw interest

31:44

rates move against them . They

31:47

now have less capital to work

31:49

with across their entire book . And lo

31:51

and behold , jp Morgan or whatever other bank came

31:53

in and bought them out . So these private

31:55

lending vehicles are popping up

31:57

with a lot of major providers as

32:00

ways for investors to put that cash to

32:02

work to get the returns . A

32:04

lot of it is typically floating rates so

32:06

it's a little less sensitive to the changes in rates

32:09

. But it's another interesting

32:11

new asset class or

32:13

newer asset class that's been getting a lot of momentum

32:16

.

32:20

Yeah , but yeah , I mean , those are the four categories . You

32:22

could break it down even further from there

32:24

. Again , like within

32:26

the private equity space right

32:30

, we were starting to talk about the different

32:32

sub sectors within that , but same

32:34

thing private equity , real estate , hedge

32:36

funds , private credit each

32:39

one of those is a very good

32:41

category in and of itself

32:43

and then within each category there are sub categories

32:46

, but again , there are real

32:49

assets , which is real estate right . Private

32:51

equity is the same thing as the private version

32:53

of public equity , private

32:55

credit , or I guess hedge funds would also

32:58

categorize as just the private version

33:00

of that right , stock trading funds that

33:04

are just done differently in a private way . Less liquid

33:06

Private credit

33:08

is getting just that private bond market

33:11

. But all of these are just different avenues

33:14

that somebody can take and the biggest

33:16

thing is that you're giving up liquidity and

33:19

typically the other thing that we would add is

33:21

they typically have higher internal expenses . But

33:24

again , from my experience , done

33:27

properly , sourced properly , that typically does

33:30

not become as big of an issue . The

33:32

biggest issue tends to be liquidity . They

33:35

tend to outperform that because they're incentivized

33:37

. But again , it is a good

33:39

place for people to start learning . I mean , invest

33:41

in Pedia , just Google it . I mean you can read about

33:44

this stuff and add Nauseum in different ways

33:46

. You can go directly to different fund

33:48

companies and read about it , but I would encourage

33:50

you to just kind of stick to the third party sources . But

33:53

yeah , there's a lot of videos out there , there's a lot of information out

33:55

there to look up on your own

33:57

. But also reach out to professional

33:59

like ourselves , get some

34:02

advice on where to start and how this may

34:04

or may not fit into your investment

34:07

objectives .

34:08

Yeah , just I think the last thing I'd leave everyone on

34:10

is be open-minded about

34:13

different types of investments , because they change

34:15

over time . The mutual fund didn't

34:18

exist really until the 70s . The

34:20

ETF , it's a newer version

34:22

of that , and so I

34:24

think Wall Street is pretty good about

34:26

trying to find new ways to bring new

34:28

investments to consumers Kind

34:32

of the direction that

34:34

the industry is going . Alternatives are

34:36

gonna become more available

34:38

. They're gonna become more commonplace

34:41

. It's just a matter of having investors

34:43

kind of understand them . As minimums

34:45

have come down , as fees have come down

34:47

, as liquidity

34:50

has come up , you've seen these become more

34:52

and more viable options for investors . So

34:55

definitely something good to think

34:57

about .

34:58

Any final thoughts , Sean , for everybody , yeah , I think

35:00

that's it , cool Stuff

35:02

to us today , and RIP Munger

35:04

.

35:05

Yeah , seriously , that's a sad

35:08

one . We lost a great , so anyways

35:10

, well , thanks everybody for questions . Craftadvicepodcom

35:14

, but if not , Sean Cheers

35:16

, Thanks .