“You are neither right nor wrong because the crowd (agrees or) disagrees with you. You are right because your data and reasoning are right.” -Benjamin Graham
The ultra-rich have never been known to follow the crowds. That’s why they’re ultra-rich.
While the crowds are chasing the stock market and Bitcoin, the ultra-rich are gravitating even more towards certainty – and their choice of assets right now?
Private Debt
In uncertain times, private debt offers additional levels of certainty the elite investors crave. Why do elite investors invest in certainty?
They want to account for all variables, unknowns, and circumstances to make accurate projections because they want predictability. They’re not willing to leave their financial futures to chance, and assets like public equities and Bitcoin are driven by too many unknown variables for their comfort.
That’s not to say that the ultra-rich aren’t willing to take risks. They want to assess the risk and explore all potential risk-mitigating measures to ensure the highest probability of success.
Why would the ultra-rich zig when the crowd zags? It’s because the crowd operates too much on emotion – constantly making snap judgments without truly examining underlying facts, data and numbers.
The ultra-rich treat their investments as if their lives depended on them because the lives they want to live – ones free of worry or a time clock – require careful planning and deliberate asset choices for achieving their goal of financial independence. They invest in certainty because public assets are far too often driven by emotions and factors that have nothing to do with data, math, or underlying economic fundamentals.
Why should you insist on data and math when making investment decisions? For predictability. Predictability allows for financial modeling and planning.
For investing certainty, it should come as no surprise why elite investors are drawn to private debt right now – especially debt backed by hard assets. Secured assets like private debt offer two levels of certainty:
- A fixed return.
- Backing by a hard asset ensures the investor will not lose their entire investment.
Investors may be giving up upside, but the security from a fixed income asset lends value in a time of extreme volatility and turbulence.
According to a recent article in Bloomberg, the rich are drawn to debt secured by real estate. Those lending privately often focus on real estate because they get the security of an asset-backed loan that provides consistent cash flow from interest payments. And with private debt backed by real estate, risks typically iron out over time.
This is ideal for ultra-rich investors because they typically invest with a long-term horizon compared to the retail investor with very short-term windows – sometimes only hours instead of years.
Assets exhibiting certainty lend themselves to evaluation and calculation. Factors such as underlying economic fundamentals, demographics, supply, demand, income, and macroeconomic factors like employment, household income, and other economic indicators matter with these types of assets and not what the herd is buzzing about or what’s hot on social media.
The crowd may be driven by emotion and may be turned off by math and data-driven decisions, but wise investors insist on certainty.
They avoid the crowds and turn to certainty because it allows them to plan and make projections – actions vital to arriving at their financial independence destination.
In a year of uncertainty (post-COVID, new administration, and stock market volatility), investors I speak to want CERTAINTY.