Investing secrets of the ultra-wealthy

If you’re reading this, my clickbait headline worked. 

Read on, and I’ll let you in on a huge secret. 

In Low Risk Rules, I wrote about “peer learning groups” that bring together “ultra high net worth” investors to share investment insight, knowledge, and opportunities. It sounds like an amazing idea, and these organizations attract tons of well-heeled clients and ambitious advisors anxious to serve them. 

By bringing together people who know how to make money and accessing their brainpower, these organizations marshall investment insight that is otherwise unavailable to the common man. 

And so, courtesy of CNBC, let’s take a look at how the “ultra wealthy” positioned their portfolios heading into 2022. Prepare to have your mind blown!

The article calls out inflation as the top concern of the ultra-wealthy last December, and boy were they right about that! Year-over-year inflation peaked at over 9% in June 2022, far higher than anyone predicted at the outset of the year.

The first suggestion to protect against inflation:

Real estate, like industrial properties and apartment buildings

The article suggested we access these assets through publicly traded real estate investment trusts. How are we doing? 

The MSCI US REIT index was down 24.5% in 2022. 

Oh well, can’t win ‘em all. I agree that high quality real estate can be a core holding that should deliver long-term returns in an environment of rising inflation, despite having had a difficult 2022 due to rising interest rates and capitalization rates. So let’s take a mulligan on that one and move on to the next recommendation. 

Public equities, or stock, in platform companies with pricing power (platform companies are those like Amazon, Apple and Airbnb), consumer staples and streaming services.

Great idea! Platform companies! Who doesn’t love a good platform? And pricing power! We all want that! 

How did we do? 

Amazon - down 50%

Apple - down 27%

Airbnb - down 49%

Oops. 

Consumer staples would have generally done OK. Streaming services? Netflix was down 51%. That’s something. 

Okay, what next? 

As an alternative to investing in gold to combat inflation, TIGER members have doubled their investment in cryptocurrencies.

Do I really need to go here? Ugh, okay. 

Bitcoin - down 65%

Ethereum - down 68%

Solana - down over 90%

Dogecoin (!) - down only 60%. The joke “currency” was a relative safe haven!

And finally, TIGER21 recommends

Increasing investments in alternative energy

The specific investments recommended in the article:

Global X Autonomous & Electric Vehicles ETF - down 35%

iShares Self-Driving EV and Tech ETF - down 38%.

Alternative energy is a growth industry, for sure. But the companies in the space have high valuations to match. These types of companies did not do well in the rising interest rate environment of 2022.

Every single one of the investments recommended in the article ended up down more than the broad market. In each and every case you would have been better off buying an index fund. Or even better off than that by building a value-oriented portfolio of quality businesses. 

Now you might be surprised to learn that there’s a point to all of this besides making fun of some horrible predictions. There really are a couple of investing secrets buried in this essay.

First and most obviously, ignore any predictions about what’s going to happen in the coming year. They are all clickbait nonsense.

Second, realize that the “ultra-wealthy” have no special insight into investing. Family offices, in general, perform just as well or as poorly as the rest of the investing public. It all comes down to having a sensible and disciplined investment approach. There’s no magic to any of it. And anyone who tells you otherwise is just trying to sell you something. 

Let me tell you about the very rich. They are the same as you and me. As prone to greed, fear, and confusion when it comes to their finances. And no matter your financial resources or net worth, the principles to protect wealth are the same. You can read more about them here, of course, but I also intend to go into more detail in this blog. I hope you’ll subscribe and come along for the ride.