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Hey everyone đđŒ
Ever think about buying a billboard? Nope, neither have I.
But surprisingly theyâre cashflow-consistent, and perhaps less surprising, theyâre not top of mind for most investors.
Anyway, the reason I bring this up is in the context of this weekâs topic - alternative assets. That mysterious beast, eh?
Donât be discouraged by the mystique â like everything in finance, itâs not as intimidating once you know a little more about it.
With that said, letâs jump in.
In todayâs newsletter:
Quick 30-second explanation đš
Alternative asset terminology
Common myths đ«Ł
Alternative asset opportunities
My âalternative asset journeyâ đ
(Quickly) ExplainedâŠ
An alternative asset is anything you can invest money into that appreciates (increases in value) or produces real positive cash flow.
It does not include stocks, bonds or cash i.e. traditional assets.
They're called "alternative" because they offer different ways to the traditional assets to invest your money and potentially earn a return.
The world of alternatives is vast to say the least.
It can include things like real estate, commodities (like gold or oil), private equity (investing in private companies), venture capital (supporting startup companies), hedge funds (investment funds managed by professionals), art, collectibles, wine, crypto and tons of others (more on that below).
đ Alternative Asset Terminology
The world of alternative assets is riddled in nonsense terminology that bewilders things unnecessarily. Some common terms youâre likely to encounter:
Asset class: in simple terms, an asset class refers to a group or category of investments that share similar characteristics e.g. stocks, bonds, art, hedge funds, private equity.
𧩠Diversification: diversification is the strategy of spreading investments across different asset classes and types to reduce risk.
â Low correlation with traditional investments - youâll hear this one a lot, and all it means is that what happens in traditional investment markets doesnât correlate to what might happen in alternative assets.
đž Liquidity: liquidity refers to the ease with which an asset can be bought or sold without significantly impacting its price. If tomorrow you wanted to sell your asset, could you and for what price. More detail on this topic below.
Risk-Return Profile: the risk-return profile describes the trade-off between the potential returns an investment may generate and the level of risk involved. Different alternative assets exhibit varying risk-return characteristics.
đ©đ»âđŒ Accredited Investor: an accredited investor is an individual or entity that meets certain criteria, such as having a high net worth or sufficient income, as defined by securities regulators. Many alternative investments are limited to accredited investors due to regulatory requirements e.g. hedge funds and private equity
Common Myths đ
1: Alternatives are only available to ultra-high-net-worth investors
Whilst itâs true that some types of funds may restrict investment to qualified purchasers or accredited investors (as per above), thereâs a plethora of investment opportunities for retail investors i.e. those that donât need accreditation.
2: Alternatives add investment risk to your portfolio
In reality, it really depends. There are a lot of variables depending on the asset class that forms the overall risk profile. Donât forget, there are so many different asset types.
3. Alternative investments are illiquid
Mainly true.
You always know, almost precisely, what your listed shares are worth, if you have any. Thatâs because every single day during market trading hours, thereâs someone offering to buy them from you at a specific price. Your shares are liquid.
Your house, on the other hand, is illiquid. Nobody pops to your door every morning with cash in hand, offering to buy it from you. You might have a rough idea of what itâs worth, from looking at a neighbourâs recent sale, or even from an estate agent valuation.
But you canât know for sure until the deal is actually locked down.
This is the case with a lot of alternative assets.
Alternative assets - what can you invest in?
Outside of hedge funds, private equity, private credit and crypto there are a myriad of other opportunities, hereâs a sprinkling of some examples:
đŒïž Art & collectibles: a super interesting space where fractional ownership platforms are on the rise. Owning a piece of a Warhol would be cool.
đ Farmland: long considered one of the most secure forms of investment and often held in the same regard as gold and diamonds.
đșđ»Musicals: my personal fave. Imagine having fractional ownership in your favourite musical.
đ Parking lots - just think of your friendâs reactions if you told them youâd invested in a parking lot. Whoâd care though, if it was profitable and perhaps rising in value.
đŹ Billboards: an under-the-radar investment for sure and can often be consistent with cashflow.
đĄ Real Estate - commercial, buy-to-let, ADUs and more.
đïž Newsletters and email lists: having access to a ready made audience can be a lucrative game.
đ„ïž Websites and digital properties: many folks have made their fortunes buying domains and websites.
đŁ Social media accounts - building a digital presence is hard work, so itâs perhaps unsurprising that they can be an attractive asset.
đ· Wine: just like art, thereâs been a surge in popularity in investing in fine wines.
đïž Classic cars - great for car lovers and some incredible gains have been seen - vintage cars have risen 185% in value over the past decade.
đŠ E-commerce and dropshipping - so many folks I speak to say theyâd like an eComm side biz. Now thereâs an ability to buy one thatâs already up and running.
đïž Towns - I know, investing in buying an actual town is possible đ
đ« Vending machines - think about it, theyâre everywhere and theyâre a very interesting proposition
đŽ Islands - there are some for under $700k (!). Obviously not pocket change, but equally not the $20 million starting price Iâd envisaged.
And the list goes on and onâŠwhiskey, music collections, patents, racehorses, equity crowdfunds etc.
My âalternative assets journeyâ âđŒ
Iâve been fascinated by the world of alternatives and Iâve begun an âinvestigativeâ journey, so to speak, on different alternative asset classes, so I donât miss out on exciting and emerging opportunities in this space.
And with that, Iâve decided to document my journey through a series of alternative asset guides.
Every two weeks, if youâre a paid subscriber, youâll receive a deep dive analysis (saving you days, or potentially weeks, of doing your own research) into a specific alternative asset and I share everything Iâve learned, including:
The overall context to the asset
Where to source
Opportunity overview
Data - returns analysis, sales volumes, market size, projections etc
Risks and challenges
Winner and loser storiesÂ
And from time-to-time I also have 1:1 interviews with experts in the alternative asset field e.g. speaking to expert investors in the fine wine space
Whatâs the end goal?
If you decide to come on this journey with me, my goal is that both you and I are âin the knowâ on the plethora of alternative asset opportunities that are out there and can make more informed decisions.
My first guide is going to be about the world of Art đŒïž Investing.
More to come on that soon! And if you have any questions, please just shoot me an email.
And thank you so much as always for reading đ
Jason
DISCLAIMER:Â None of this is financial advice. Concepts of Finance newsletter is strictly for educational purposes.