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Category: Financial Opinions

Revisiting Equity Funds Vs Money Market Funds

I posted update # 1 on this a few months ago where I claimed that over a very long period, equity funds tend to outperform money market funds. While I plan to run this experiment for 20 years before publishing the final report, today seems like a good day to publish update # 2 on this.

The total investment is now up by 90%. Equities now represent 59% of the total portfolio. The equity fund is up 124% since my buy, while the money market fund is up only 56%, dragging down the overall performance.

Risk

For the past few months, I’ve been trying to reflect on the dynamic nature of risk appetite, and how personally my tolerance for risk has varied at different points in my life.

When I had nothing, taking risks felt natural—necessary, even. Risk was survival, not strategy.

As my wealth grew, I hit a number that felt secure, dependable—a safety net against the unforeseen. Suddenly, I was playing defense, not offense. I couldn’t risk what I needed to have what I merely wanted.

So, I plateaued. I stayed close to that number, guarded it, settled into its comfort. This feeling of fear probably stagnated me for a couple of years. This is rather strange in hindsight: a paradoxical feeling of comfort and fear. An accomplishment and a limitation.

Once I crossed that threshold, stepping past the line that had kept me cautious, I found room to experiment again—a new inclination for risk began to emerge, fueled by what felt like “surplus.” Here, risk took on a different meaning, moving away from survival and toward exploration.

Maybe this is how it goes: risk is a dynamic game. At different stages, it holds a different shape, pulling us between need and want, pushing us from survival to strategy. It’s not just about the money; it’s about where you are with it. It’s about your personal circumstances and where you are in life.

Equity Funds Vs Money Market Funds

A few years ago I invested 5000 PKR each into an equity fund (MIF) and an interest-bearing money market fund (MIIF) by Al Meezan. The goal was simple; to publish data here to see (and show) how they do over the mid-term and long-term.

The investment is now live for about 40 months or a little over 3 years.

As can be seen, MIF (equity fund) has generated about the same returns as MIIF (interest-bearing money market fund) even during the (very) high interest-rate environment. Over a very long period (10-20 years), I suspect that the equity fund would significantly outperform the interest-bearing money market fund. The total investment is up over 42% – whether you had chosen an equity fund or a money market fund.

The point is simple really; if you dislike buying interest-bearing instruments, there are still plenty of things you can (and should) do to protect your purchasing power.

Picks & Shovels of the Metaverse

I ventured into financial markets in the most millennial way possible. In Pakistan, there’s no culture of investing in equity markets and since interest is frowned upon, not many investors dabble with money markets, saving accounts, or term deposits either. Hence, with lack of knowledge on equity markets, my first investment happened to be in Bitcoin.

In the next few years I started investing in many other cryptoassets and lost a lot of money. I learnt some expensive and painful lessons. My number one lesson being; the first and foremost goal of any investment is preservation of capital. The secondary goal is the return on investment.

After learning that lesson, I started analyzing most investments from the “picks and shovels” point of view, especially in up and coming technologies and disruptive innovations.

Instead of buying Cardano, or Stellar Luman, or Dogecoin, I realized I could be investing in $BNB, or most recently $COIN. This way I wouldn’t have to worry about which asset would do well as all trading activity on all cryptoassets generates a fee for Binance & Coinbase. Sure my return could be lower, but so is my risk. $BNB ended up generating a 60x return for me despite being a “safe bet” which is an order of magnitude larger than most unsafe bets in the cryptospace.

Most recently, NFTs have shook the world by the storm. But they are extremely difficult to value. They are also quite illiquid as they are non-fungible in nature. Part of illiquidity is solved by fractionalized art platforms like Fractional.Art as you can now buy small fungible pieces of a non-fungible art. The most recent example being Feisty Doge NFT (NFD) which is fractionalized ownership of photo of a Shiba dog and is trading at $51 million dollars at the time of writing, thanks to fractionalization and liquidity.

NFT space, for now, has fewer bluechip pick-and-shovel style opportunities. The largest NFT marketplace OpenSea doesn’t have a governance token, hence it’s not possible to get exposure to it. It’s also not a public company yet so you can not get exposure via equity market either. Smaller NFT platforms have governance tokens, but are priced way higher than the market share that they have e.g $RARE or $RARI.

There are also play-to-earn games in the NFT space. Since P2E games require players to buy NFTs in order to play the game, there’s a barrier to entry especially for those who can’t afford to buy at all. To solve this, guilds have been formed which lend their NFTs to scholar gamers who then play the games to earn, and share revenues with the guild. In this case, by betting on the guilds, you can also bet on the entire P2E gaming industry pick-and-shovel style. The largest guild right now is $YGG, but that also seems to be over-valued to me on current FDV relative to the number of scholars they have at the moment.

NFTs have also already spread across sports. With $CHZ powering sports fan tokens and collectibles for clubs like Paris Saint-Germain ($PSG) or Barcelona ($BAR), it can also serve as a pick-and-shovel bet on the sports NFT space.

For now, I’m merely observing the pick-and-shovels of this space as I’m confident there will be multi-bagger winners in the NFT space.

Disclaimer: The information provided is for informational purposes only. It should not be considered legal or financial advice. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

My Mother Made Me Financially Educated Before I Became A Teen

I was reading this wonderful article by MMM and it reminded me how almost everything I know today was taught to me sublimely way before I was a teen.

Like many other kids, I received a small amount of money every month from my parents. It started with 100 Rs a month and grew to 500 Rs a month over the years. I stopped receiving this amount completely when I turned 18.

My mother encouraged me every month that I don’t spend all the money that she was giving me. She further encouraged me that if I am able to save 1000 Rs, I can give the money to her and she will give me an additional 10 Rs a month or roughly 12% gains per year.

Before I became a teenager, I was able to save up to 5000 Rs from the pocket money, Eidi and other cash gifts I received from my relatives. For handing this over to my mother, she gave me an additional 50 Rs every month in pocket money.

In hindsight, if you think about it, I wouldn’t have saved more than $100-$200 through-out my childhood. In addition, I wouldn’t have generated more than $100-$200 in compounded interest. Despite making no significant amount of money, I learnt the number 1 way of getting wealthy. I learnt how the money can do the work for you. That each dollar is an employee that works non-stop 24/7 to get you more employees every day. It’s even better than a pyramid scheme.

This, I think, is the single biggest differentiator between people who are able to get wealthy and those who do not. How much wealth you’ll accumulate over your life is never determined by how much income you make. I’ve known enough broke people in my life who make over $10,000 each month and still struggle to do well financially.

They do every thing in their power to make contributions in the form of “sweat equity” but make no progress whatsoever to make contributions in the form of “financial equity”. Sweat equity can get you a lot of income, but it’s often the financial equity that buys you the financial freedom.

I was lucky to be taught this way early in my life. It breaks my heart to meet people who make it to the top percentile as far as income is concerned, yet fail to buy themselves financial freedom. I hope I’m able to pass the same learnings to the readers of this blog as well as to my child.

Chasing The Perfection Hype

When investing in any kind of asset (blog, e-commerce store, real-estate, stock etc), do not chase the perfect asset. When you chase the perfection hype, you pay top dollar for acquiring the asset. In the days to come, you realize nothing is perfect and so isn’t the asset that you just purchased.

Then you incur costs for repairs, maintenance, improvements etc for the asset to live up to its perfection hype. This makes your purchase very expensive as not only you paid a higher multiple for purchasing perfection, but also spent more money later on once it didn’t live up to it’s hype.

Instead, you could simply go for assets with visible imperfections. Any asset you buy with visible imperfections will have those priced in too which would get you the asset for a more affordable multiple.

As an example, if there is a niche Amazon FBA store with all relevant products it will sell for a higher multiple than a general Amazon FBA store. I understand why niche stores are better positioned in some cases, but in reality both niche and general stores have imperfections.

Niche stores are less diversified and hence positioned badly to weather a storm like COVID-19 when some categories get hit more than the others. General stores in comparison have visible imperfections such as that many products in the store belong to different categories. Although it may seem as an imperfection to some, it’s also a feature; the store is better diversified to weather a storm.

When buying an asset like a general store, the visible imperfection of having products spread across various categories is priced in. It is why it sells for a cheaper multiple. One could take advantage of this when buying assets and get this general store with visible imperfections. Not only the niche store has imperfections as well, it’s also a lot more expensive. Only in rare cases, it would prove to be a more fruitful purchase such as you sell it later as strategic acquisition.

Assets with visible imperfections can also be improved such that they no longer have any visible imperfections. By doing so, you can quickly increase the value of the asset.

What Happens When You Leave Your Job or Business Abruptly

I started working in my early teens. I didn’t make any significant money for doing so but it’s been a while. I received my first pay-check in 2004. I am 30 years old now and I can say I’ve worked for more years than I have not.

Despite being in a career for this long, I have never had a day job. Not even for 1 day. So I don’t know how that works. To top this off, my own company is also a distributed one with a headcount of less than 5 and a couple of freelancers. So I’ve never seen the other side of the picture clearly. May be there’s something I’m missing out in a day job, I absolutely don’t know about that.

However, thinking on those lines something popped up in my head and I thought to lay it out here.

When you leave your job abruptly, what happens? If after 7 years of working, you have decided to leave your job today, you may be given some bonuses I suppose for staying around long enough. I don’t know what that number would be but I suppose it won’t be a lot or that it would depend a lot on case to case basis.

When you’re asked to leave your job unwillingly, severance may be offered? How much does that sum into? Internet suggests 2-4 weeks per year that you’ve worked. Let’s average that out to 3 weeks. Since you’ve worked for 7 years, this could be mean you’re getting 5 months of salary without working. That’s not too bad.

What happens though when you leave your business abruptly? If it’s a very very small internet business doing anything between $10K-$100K per year. You will easily flip it for 30x monthly multiple. If it’s slightly bigger than that, but still a small business doing $100k-$1MM per year, I suppose you’ll get over 40X monthly multiple. If your business is larger, solid, more consistent and has been around for 7 years, you can hope to get paid even more than that. If it’s an offline business, I suppose you will get paid a lot more than what you get paid for internet businesses today.

Assuming you have a steady job giving you 6 figures per year i-e $100,000 USD, for having a business of the same size you’re looking at an extra $300,000+ for abruptly leaving it. I don’t think any bonus or severance pays that much. Educate me if my understanding is incorrect.

As humans, we’re so focused on the short term, living in today and thinking everything in the terms of daily and monthly gains, that we forget about the value that is created outside of today. The value that is created outside of today can often be much larger than today. A reminder of that is necessary and I make every effort to constantly remind myself.

Thanks for reading.

Why Are These Exactly Opposite Money Events Happening At The Same Time

I am not an economist. I know nothing about it. Although, I like to preserve my wealth and I also like to read a lot about how to do that. So you can call me wealth preserver.

There are two money events happening right now. One of them is that the Federal reserve continues to print trillions and trillions of dollars to stimulate the economy. The other one is that Bitcoin is cutting its printing rate to half in about 7 days.

Both the events are happening at the exact same time.

When you increase supply of one thing by a lot and trade it with something of a fixed quantity, you’ll either need to pay more of the asset with an increased supply or get less of the asset with fixed quantity.

The long-term impact of the first event is that you’ll need more pieces of paper to buy assets with fixed quantities such as real estate.

The long-term impact of the second event is that you’ll need less number of Bitcoins to buy assets with fixed quantities such as real estate.

Disclaimer: This is not an investment advice and should not be taken as one. I accept no responsibility for any loss, damage, cost or expense incurred by you as a result of any error, omission or misrepresentation on this site.

The Strange Money Rule For The Wealthy

As strange as it may sound, the rich can buy the same things as others at a discount. Not just that, the rich can buy certain things at no cost at all. There are many examples to showcase this, but one example would be parking your money in a bank in a country of your choice to get citizenship. Just for placing your money in a country and financial institution of your choice, with no cost to you.

Similarly you could be flying businesses class upgrades for free or have access to business lounge access at various airports, just for having certain amount of wealth. While those who do not qualify for this threshold are asked to pay instead.

The weird thing about this is that rich are able to afford much of what they are given for free while the poor can not afford much of what they are asked to pay for. But the reason this happens is because money is a tool that is used to make more money. When you park your funds with a financial institution, they can use that to generate money for themselves and pass on a fraction of that to you in terms of certain benefits.

This is just a tiny example of what the wealthy get for their money. The real reason why I wanted to outline this today is because the wealthy generally never spend their principal. They always use money as a tool to generate more money for them which they can use for all of their expenses. They don’t use time as a tool to make money like most other people do. They use money as a tool.

Sure, you will need to trade time to make money if you’re just starting off. But if you want your end-game to look like the one outlined here, you should be making every effort to save that money to use as a tool.

What Markets Do To You, And What You’re Supposed To Do

Facebook advertising can be overwhelming because of how inconsistent it can be. Despite it’s inconsistency, it still is and will continue to be my go to place for marketing. I’ve been busy with the launch of our new store as I mentioned in my last blog yesterday. So I’ll be writing this one in a hurry, so I can head back to work.

Markets. They are a good place for everyone to passively build wealth while you actively work on your business or in a job. But in times like this, markets can get the best of you. Let me tell you a story.

The first time I bought a Bitcoin was for $1000. The first time I sold a Bitcoin was for $200. I think most people are aware that Bitcoin went all the way up to $20,000 and trades today at $6000. I was a newbie in the markets. I continue to be even today, but I wouldn’t make that same mistake again. You shouldn’t either.

If you always wanted to own a certain asset whether it’s Bitcoin or stocks or gold, now and the weeks to come could be the time to do that. 2020 is a better time to buy these assets, as they trade 30% below the price they traded in 2019. 2021 could be an even better time than 2020, but we don’t know that. What we do know is 2020 is a better time to buy than 2019.

As cliche as it may sound, buy when there’s blood in the streets and if you can’t, that’s okay. At the very least though, don’t sell when there’s blood in the streets.