Show Description:
Jason kicks off the show with giving an overview of when to look towards the topic to today’s discussion, alternatives. Alternative Investments become a viable option for investing when the public markets start to look too high, and questions arise as to how long this market run up can continue.
Alex joins the discussion with stating the reality for most, alternatives are difficult and can continue to stump even the most astute investors. So, Alex opens the discussion with a question for Jason; Who should look to alternatives as an investment vehicle and who should not? Jason responds with clarifying first, what alternative investments are. It is an investment that is not available in the traditional marketplace with traditional liquidity. Traditional meaning publicly traded stocks, bonds, cash, and CDs. Alex reminds listeners that our core investment philosophy at Intelligence Driven Advisers is based on investing in efficient markets, stocks, and bonds. So, Alex reiterates to Jason when do we dabble in alternatives and how do we do that with conviction? Alex confirms with Jason that alternatives are inefficient markets. Inefficient markets are defined as an investment opportunity where you are potentially able to capitalize on the inefficiencies of an investment. Jason adds, finding value where others do not and reminds listeners that with traditional investing, we at IDA believe that the markets are basically efficient, meaning that the price you pay for stock in a publicly traded company is fairly priced.
After the break, Jason begins to answer Alex’s question as to why and when to use alternatives in a portfolio by describing non-correlated investments that have desirable return characteristics and how they add diversification to a correlated portfolio. Shifting the efficient frontier. When to invest in alternatives tends to be hinged on government regulations. Alternative investments have investor qualification requirements based on the nature of the investment. For some alternative investments there is an accredited investor requirement and for “most” alternative investments there is a qualified investor requirement. To be a qualified investor, one must have 5 million dollars of investable assets not including your primary home. Many alternative investments are illiquid for an extended period where you cannot gain access to your initial investment. The regulations are in place to protect the public.
Alex circles the call back to crypto currency and asks if this is a poor man’s version of alternative investing. Jason responds as yes basically and reflects on the E*TRADE commercials where the baby is buying everything with the simple click of a button and ends up losing his investments. Point being, you need to do your due diligence on any investment, especially non-publicly traded investments.
Jason spends some additional minutes on crypto currency and on the due diligence he has personally done. Gives his perspective on where the future may be for an alternative currency.
Private equity has been a market in the alternatives space that Jason shares insight on. Stating that companies that in the past may have gone public quickly are staying as a private entity for longer than they ever had previously creating demand for private equity investors. Companies are changing ownership two even three times before going public, creating huge private equity capital gains events.
Jason and Alex close this week’s show with reiterating the illiquidity of most alternatives and how important it is to be smart with
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