Even with interest rates up, valuations haven’t returned to historical norms. Many people argue this is a bubble. But what if higher valuations reflect a structural shift in how investors participate in the market?
Continue reading →Many people I know invest in the industry in which they work. I think this is a mistake. You should be diversifying your career risk through your investment portfolio.
Continue reading →Most people expect the Fed to lower interest rates soon. But if they don’t, startup valuations will shrink more than you expect: probably lower by 50%+ from where they were just 2 years ago.
Continue reading →It's because the VC's investors control the money—and they want it to be hard
Hearing about how hard it is to raise from VCs right now? It’s because the VC’s investors control the money–and they want it to be hard.
A recent article in the Financial Times reported that VC’s have a record amount of “dry powder”–more than $300bn. Dry powder is money that VCs have raised from their investors, limited partners (LPs), but have not yet deployed into startups.
But in 2023, despite the record, deployment fell to a 5 year low. Why?
Continue reading →The S&P 500 is near all-time highs but startups are still down 50-70%
As of today, the S&P 500 is back within 4% of its all-time high. Even NASDAQ is now only down 11% from peak. So the party must be back on for high-flying startups too? Nope - don’t bring out the punch bowl yet. Startups are still trading down 50-70%.
First, it’s worth emphasizing how well the overall US stock market has performed recently. The S&P 500, an index that represents the stock market performance of the 500 largest US companies, fell almost 20% in 2022 but is now up almost 20% this year. As mentioned, it’s 4% off its high.
Continue reading →The SVB collapse highlighted the importance of diversifying where you keep your money
It fortunately looks like Silicon Valley Bank depositors are going to be made whole. But, if nothing else, the SVB collapse has highlighted the importance of diversifying where you keep your personal money.
I’ve written several posts about investment diversification. All of them have been about diversifying in what you invest. But I think it’s also important to diversify where you invest. In short, even though it’s pretty paranoid, I think you should invest across two–and potentially more–brokerages.
Continue reading →Most people over-invest in US stocks and miss the free lunch of geographic diversification
Most people I know accept the benefits of stock market diversification. But they fail to apply this logic geographically and over-invest in US stocks. This is called “home bias” and it’s a mistake.
As the saying goes, diversification is the only free lunch in investing. Why is that? Because buying a diversified basket of similar investments allows you to get the same expected return as a non-diversified basket but with much lower risk. And I think most people understand this.
Continue reading →There's an even better, more tax-efficient way to save for the future
You’re hopefully saving for retirement through an IRA or 401K. That’s great. But there’s an even better, more tax-efficient way to save for the future: 529 accounts.
First, let me be clear: if you’re able to save for retirement through an IRA / 401K, I would save as much as possible through these vehicles up to the maximum legal limits.
But once you max out, people I know usually start investing in taxable brokerage accounts. If you’re doing this because you’re saving up to buy a home or some other medium-term financial need, that’s fine. But if you’re saving for longer-term investment goals, you’re potentially missing out on an additional tax-advantaged account: 529s.
Continue reading →Being a good investor matters far more than earning a high income for long-term wealth
In the first half of your career, is it more important to earn a high income or to be a good investor? The answer is a good investor–and it’s not even close.
I’ll be a bit more specific. I wanted to analyze how important early career earning vs. investing is for your long-term wealth. The benefit of earning a lot is obvious: you have a lot more to invest. The benefit of investing well is your investments compound at a higher rate. How do these two effects interact?
Continue reading →A calm stock market is bad for most investors in the long run
I love stock market volatility and you should too. A calm stock market is bad for most investors in the long run. Here’s why:
Most people are upset when the stock market tanks, especially when it’s over a fairly long period of time. In 2022, the S&P 500 dropped almost 20%. In the moment, losing money admittedly doesn’t feel great. But when you think about it, these periods are necessary for the stock market to have any excess returns. Why?
Continue reading →You only need to buy one thing to be maximally diversified in public stocks
They tell you when investing in stocks it’s smart to diversify.
And that’s true … which is why you only need to buy 1. It’s VT, the king of stocks!
OK, to be fair VT, or Vanguard Total World Stock ETF, is not an individual stock–it’s an index-fund-esque ETF (which you buy like a stock) which tracks the FTSE Global All Cap Index. I just liked the headline.
And I must caveat you with the obligatory comment that this one is really not investing advice.
Continue reading →You should hedge your career risk, not double down on it with your portfolio
They say invest in what you know.
I think you should do the opposite.
I often talk to entrepreneurs or others who work in startups who invest their hard-earned money in individual stocks in the same field they work in. For example, e-commerce founders investing in Shopify or B2B SaaS founders investing in Salesforce.
What’s the reason? I think it’s partly because they are most familiar with those companies, having worked in the field, and partly because they feel (correctly) they have more information about working with those companies as a customer or partner.
Continue reading →