Picking Winners

 In Blog

Stocks are a zero-sum game. Timing is the name of the game, and for you to win, someone else has to lose. If you buy low before everyone else jumps on the bandwagon, you can turn around and make a profit when the price rises.

Everyone is looking for the next home run – that next winning stock – so they’ll do anything and everything to gain what they think is an advantage. They’ll scour the internet and social media for hints and tips from anywhere and anyone to tip the scales in their favor.

​​The problem is, everyone has access to the same information. And THAT is the reason why nobody can beat the market consistently – not even the professionals.

According to a 2020 report, over 15 years, nearly 90% of actively managed investment funds failed to beat the market. If the Ivy League-trained pros can’t beat the market, the average retail investor doesn’t stand a chance, and the data backs this up. According to J.P. Morgan Asset Management, over the past 20 years, the average retail investor has earned average annual returns of 2.5%. When factoring in inflation during this time, that’s a yearly loss of 0.5% annually.

Consistently picking winners in the stock market is a fool’s errand.

There are just too many choices and too much information to narrow your options down to the winners. Honestly, it seems the only way to pick winners in the stock market is to access information that nobody else has – insider information. Of course, you know that trading on insider information is illegal.

I’m just making the point that it’s so hard to consistently pick winners in the stock market that some people will do anything – including trading on insider information – to gain an advantage.

What if I told you that there’s a market in which you can legally use insider information to your advantage and that nobody has to fail at the expense of you winning?

​​There exists such a market, and you won’t find it on Wall Street. This market is the private market where investors can invest in private companies without worrying about timing or what the rest of the buying public will do. In addition, with private investments, you can quickly gain access to insider information to pick investment winners confidently.

Private investments in private equity (ownership in private businesses) and real estate are illiquid assets. Minimum tie-up periods of your capital range from 3-5 years. Ownership interests are illiquid and typically non-transferable except in very particular circumstances. This illiquidity eliminates the timing variable.

Unlike stocks, private investments are NOT a zero-sum game. That’s because timing is not the name of the game. Gains are not dependent on timing and buying low and selling high. Gains from private equity and real estate consist of income from operations and profits from appreciation.

Because of the illiquidity of private investments, timing and what everyone else is willing to pay for the investment have no bearing. In other words, picking a winner does not depend on timing and gaining an advantage over everyone else.

So how do you pick a winner in the private markets, and can you consistently do so?  YES! You can consistently pick winners in the private markets.  How?

The #1 factor that determines the success of an investment is the experience and expertise of the company’s management.

The advantage of private investments is the transparency of those running the show, with management readily accessible to potential investors to field questions and provide access to data and financials vital to your investment decision. It’s like having access to legal insider information.

Unlike with the public markets, where the countless investment options can result in sensory overload, the private market options are much narrower, and you, the investor, can narrow options even further by industry, asset class, and geographic location.

​​With fewer options on the table, you free up time to truly analyze and weigh your options. This is why successful investors can find winners in the private markets consistently.

Finding winners in the public markets may be a fruitless endeavor, but that’s not the case with the private markets, where narrower options and transparency make finding and committing capital to winners a reality.  

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