“Consumer Confidence Falls In Early May Amid Inflation Fears”
–U.S. News, May 14, 2021.
Do you know what else has fallen along with consumer confidence? The stock market and Bitcoin. Between May 7 and May 12, the Dow shed nearly 1,200 points. In just ten days, starting on May 9, Bitcoin plunged more than 40%.
While consumer confidence, stocks, and Bitcoin plunged amid fears of inflation, on investment sector held steady: Private Investments – equity and debt investments in private companies.
One of the main reasons private investments withstand bad news better than stocks and crypto is because they’re illiquid. The other reason is private investors are seasoned investors – not amateurs.
Stocks and crypto can be bought and sold by anyone and in an instant. Anyone with a bank account can download the free trading platform Robinhood and be trading stocks and crypto within minutes with the mere click of their phones. And with liberal margin policies, 18 year-olds can buy stocks in multiples many times their cash balances.
Unfortunately, this ease of investing and easy money has fueled extreme volatility. As easy as investors can pick up stocks and crypto, they can dump them just as fast. That is how bitcoin can plunge 40% in just ten days.
- Private investments are illiquid.
- It’s not as easy to invest in private investments as it is to invest in stocks.
- Private investments aren’t widely advertised.
- When an investor does come across a private investment opportunity; there’s the whole other matter of qualifying to invest. That’s right. Not just anyone can invest in private investments.
More than 90% of private investments require the investor to be accredited – that they meet certain income ($200K per year for the past two years) or net worth ($1M not including residence) requirements.
Then once the investor overcomes the qualification hurdle, there’s the capital hurdle. Unlike stocks and crypto, where you can buy shares for as little as literal pennies, minimum capital commitments for private investments usually start at $50,000.
Besides the qualification and capital requirements that deter the kiddies, private investments also have long lockup periods, typically at least five years or more. But, again, this is something the ADD generation can’t fathom.
Private investors are a different breed than the newbie, impressionable investors dominating the stock and crypto markets.
- They’re more sophisticated and more experienced.
- They don’t care what anyone has to say on cable news, the internet, or social media about how they should invest their money.
- They know how to invest their money.
While stock investors could care less about the underlying economics of an asset, it’s the only thing that matters to private investors. By locking up their capital long-term in assets that offer inflation and recession-resistant cash flow and appreciation – and they exist – private investors don’t fret broader market movements.
Just like with the Great Recession, markets iron themselves out over time. With this perspective, private investors can resist the madness of the crowds that pervades Wall Street and the crypto markets.
Private investments are a different breed of assets held by a different breed of investors.
The combination of these two factors shields private investments from the market swings sparked by rumors, buzz, socioeconomic disruptions, economic indicators, inflation, and interest rates.
