Link Up Reminder
Date: Sat 6th August
Time: 13:00 - 16:00
Venue: Loading Bar, Peckham [ 120 Peckham Hill St, London SE15 5JT ]
In the meantime hit us up on discord 👾
Through Our Lenses
Everything we observe and experience as participants in the economy and financial system from both a micro and macro perspective is governed by a cycle. As such, we are humble to the high level similarities each revolution of a cycle has from inception to its end to resumption as well as the stark nuances. In non-philosophical words, we understand that the predictability of human nature gives rise to economic cycles that when zoomed out far enough share the same characteristics. Debates are never ending about where we are in any given cycle and the path to the next phase. Policymakers are almost always wrong and actually thrive off the ambiguity.
One thing is near certain though, time will pass and despite not knowing the exact route, it is nearly undeniable that unless capitalism implodes to the extent that the incentive structure yields a different system or climate disaster wipes us out, the current cycle will hit a trough and begin its ascension thereafter. This phenomenon by no means gives rise to equal and fair results, if anything it will continue to make inequality significantly worse. For instance, the consumer economy is seen as robust due to spending levels but the fact people are spending more due to weakening purchasing power not by choice is not part of the debate. In other words, ‘suck it up’ for longer.
Nevertheless, we are not the first to navigate these waters nor will we be the last so we keep these items at the forefront:
Focus on the big picture (zoom out)
Manage risks according to our tax bracket (playbooks don’t lie)
With this in mind, let’s take a dive into some of the topical areas on people’s mind right now.
Personal Finance [1/9]
The long term plan has not changed in the slightest which in some ways makes it easy to remain focussed despite all the madness happening in the world right now. The aim is still to increase income bags and aggressively accumulate assets. The resurgence of inflation over the last 18 months negatively impacts the income bag side of the equation particularly cash but creates some noise in other aspects. Similarly, the accumulate assets side of the equation is impacted heavily by noise too. Said noise i.e. lower valuations is not necessarily a bad thing as it is synonymous with opportunity. Usually when things are at ATHs, static, in trend mode or similar, it’s harder to create new angles to increase income bags or accumulate assets if you aren’t already a beneficiary of the status quo. For example, earning new income with the same purchasing power as a year ago may be tough but receiving asset equivalents at lower valuations instead may prove to be a Liverpool in Istanbul type of moment.
In terms of textbook standard things to do during a recession, not too much should change from reviewing a lot more regularly to make sure the net of costs vs income allow you to stay solvent and attack the big picture.
Scaling down the cost basis could involve:
substituting expensive expenses with cheaper alternatives (very doable if pride is swallowed)
gearing down lifestyle i.e. big ticket items (easy if you have a good friendship group)
going into the office/workspace more during winter months (painful but essential subsidy, some obviously don’t have a choice)
split costs across partners/group rather than as an individual (pride will prevent this for most)
Some things are out of our control like energy prices (if not hedged using commodity & energy sector plays), unfortunate job cuts and living arrangements. Also, if things get really tough liquidating assets is a last last tactic which is painful due to loss realisation, tax implications and accumulation costs but as long as you keep your mind right you can regroup and go again! In spite of the worst happening, the broad focus will still remain the same albeit in a more expedited manner hence why we remain aggressive even when times are ‘good’.
On the income side if fortunate to maintain a positive excess:
maintain saving rate (remember our definition is passive index fund not bank account)
hunt for discounts or distressed situations where there are forced sellers of assets
optimise the cost basis on a forward basis - not the biggest fan of unoptimised emergency funds, happy to debate this
sometimes switching into a higher income lane is the best option entirely (very tough decision and big respect to anyone who executes successfully)
Crypto Ecosystem [2/9]
Bankruptcies
When consensus valuations shift aggressively from x to y as we are seeing due to the rise of interest rates globally, leverage becomes more expensive and assets are repriced to reflect a larger discounting of future cashflows. Depending on the structure of an individual or financial institution this could mark a very quick death as seen with a number of crypto exchanges, lending platforms and crypto specific funds.
Not your keys not your coins is the main thing to repeat here, again, given the vast amount of people that currently have their tokens trapped in busted centralised institutions. Lots of people got caught out here, even the professionals and the conclusion could be dragged out and painful.
Overall, the hunt for yield which once drove excurberence and a disregard for fundamentals has becomes a dash for safety and survival. Within the carnage, well capitalised market leaders will probably consolidate the market and emerge on the other side an even bigger beast.
Death of Hype
Cults, rugs and the hypebeast machine were rife at market highs because capital was abundant, real yield was scarce and greed was turned all the way up. People and institutions were yolo-ing beyond speculative amounts and because of this, dangerous products and platforms were able to become entrenched, see Luna. More often that not, as long as the story of a project sounded nice and a few credible people backed it, hype and fomo was enough to do the rest. Fast forward to today, given the scale of realised and unrealised losses across the board, the hype train has a much less muted effect. For example, skepticism is a lot more prevalent which is needed to help weed out flawed infrastructure and bad actors.
Buildr Mindset
Leverage will continue to wash out of the system and there will likely be more pain ahead but the fact remains - many smart builders and investors continue to drive the development of the crypto ecosystem and as alluded to in the ebook until this changes we remain involved. One of the best things about huge drawdowns in asset prices is that
Underlying businesses and activities which yield such assets either change hands or disappear or evolve - all of which creates new angles for builders, dealmakers and anyone else switched on to infiltrate and come out of the other side swinging!
The general negative sentiment is great for building in peace, less people will disturb you with unsustainable questions like dude which coin is gonna 100x next?
Overall, attempting to build something of value right now regardless of whether it’s crypto-related is a huge focus. Remote productivity culture and internet anonymity is facilitating this massively. Crypto will continue to be a minefield but the key is in the skill of navigation. Institutions and regulators are involved which means over time it will entrench more deeply as just another asset class and at the same time more difficult to carve out an edge through participation.
Angel Investing [3/9]
There are two main streams of angel investing from our viewpoint.
[ identify personal expertise —> deploy capital —> add value —> realise value ]
[ support friend/family —> deploy capital —> realise value ]
The first is essentially based on finding deals then exchanging capital and expertise in return for equity. For example, you may have sector experience, operating skills and other valuable tools that a founder may be able to leverage. The second is less objective and more qualitative in nature. Of course there are streams completely different to these and some may simply be a combination of the two. Return profiles could differ or be similar there’s just so many variables to consider - zero return is always a possibility. Personally I ensured to max out 2) before pressing on with 1) because I highly rate my friends and family so the easiest accessible leverage. Do note that support can be very time impacting.
Venture Capital [4/9]
Realistically participating in VC as an individual is essentially piggy-backing as no scope to impact decisions. Rather, the focus should be on the big picture for each given individual and deployments a case of portfolio construction/risk management decisions in general. Education could also drive participation as sometimes skin in the game is the best teacher because it yields the most relevant questions. Nevertheless, access to deals is perhaps the biggest determinant in this category and usually this requires accreditation, networks and a downturn so that the barriers to participate are reduced. The latter is indiscriminate but the former two are inequitable by nature.
Happy to make some introductions to peer funds/syndicates spanning angel and VC activity.
Stocks [5/9]
Not in the business of picking individuals stocks at scale because institutional capital has superior access to information and flows that dictate prices. Therefore, passive pots such as index funds in Nutmeg are the way to go which is a function of monthly saving rates and age. Nothing fancy about this playbook.
Business of X [6/9]
For this segment there are numerous avenues to explore but the sovereign individual as a brand is the most interesting observation. In sports and entertainment this has been the norm in the US where there is a much greater emphasis on talent being the cash generator then a business or investment vehicle is built around that. Add to that the nature of the influencer industry and it is clear to see the pattern of businesses being formulated around audiences and attention generated by individuals.
In the UK, talent-as-a-brand is becoming much more of a reality post-covid as a survival mechanism i.e. in absence of external activity the onus shifted to the individual to cash in on their talent by themselves. Artist Central Cee thrived under these conditions and has not looked back since. Nevertheless, the finance-entertainment, finance-sport and finance-talent combinations more broadly are still in their infancy in the UK compared to the US i.e. Nas-Coinbase vs what in the UK? There is activity in the UK for sure, but it’s far from an entrenched playbook so that means there is opportunity to build out that infrastructure.
The components to cement talent-as-a-brand exists:
finance professionals stemming from the culture
investment professionals stemming from the culture
talent individuals contributing to culture
limited capital centric barriers
But there are still impeding factors:
lack of cross-sectional education
lack of networking beyond immediate bubbles
misinformation
skepticism and fear
Building a Startup [7/9]
I’ll re-route you to a few people crushing it in their own lanes of business having built, raised and/or sold for multiple millions.
Hofy Co-founders: Sami & Michael
Fanbytes Co-founder: Tim
Fixed Income [8/9]
Not rich or retired so currently zero interest in this topic. Core focus is developing and leveraging expertise in order to increase income bags and accumulate assets. Fixed income will become relevant when the non-levered asset base is large enough to yield my lifestyle cost basis yearly in perpetuity without having to liquidate.
Quant Finance [9/9]
Quite career / academia focussed so I’ll skip for now - happy to bump heads at the meet up.