Private Market Investments, Choppy Markets and Going Digital
By: Kevin Dombrowski
Past performance is not an indication, predication or guarantee of future results.
Choppy Markets, Korean Leaders make a Nuclear Pledge and Amazon Dazzles
Markets were choppy this week. There were some optimistic signals as earnings continue to beat many analyst estimates. This week, Amazon shocked analysts as its earnings more than doubled forecasts. This good news coincided with some less exciting news for consumers as Amazon announced a Prime membership will increase to $119 a year. On the geopolitical end, Kim Jong-un’s historical visit to South Korea ended positively as the North and South agreed to pursue a peace treaty and to take steps to denuclearize the peninsula. 

Earlier in the week, the 10 Year Treasury yield crossed a 3% level for the first time since 2013, sending stocks lower. The concern is that bonds are becoming attractive relative to stocks, even considering the risk of inflation.

Private Market Investments – Should You Invest Beyond Bonds and Equities?
With a nine-year bull market, rising rates, trade fears, and various geopolitical threats, investors find themselves asking how to best diversify their investments to minimize risk and to broaden exposure. It all begins with proper asset allocation; selecting different types of investments that behave different from one another, in turn improving the overall portfolio’s expected return for a given unit of risk. In fact, studies show that asset allocation defines roughly 90% of a portfolio’s return. However, are you TRULY diversified? 

In the past twenty years, we have seen a large consolidation in the public equity space and fewer companies are trying to go public. According to CMG Wealth, in 1996 there were 7,322 public companies. As of 2016, that number was cut roughly in half at 3,671.  
Additionally, we see that companies are spending less and less on research and development. Why? As startup companies become easier and cheaper to start with the advancement of technology, firms have opted to use this cash to acquire outside companies instead of spending it on traditional research and development, by and large.

There are fewer companies to invest in and these companies overall are spending less and less on research and development in favor of acquiring small private companies. What does this mean for investors?

If you are truly interested in investing your portfolio to get broad diversification, perhaps you should consider investing in private markets. A Private Market can mean a lot of things but at its core it’s a company that is not listed publicly on an exchange. Although public heavyweights Google, Amazon, and Apple dominate the headlines, most companies in America are private.
Source: The roughly 3,700 publicly listed U.S. companies represent just under 2% of the largest 200,000 companies in the U.S., the vast majority of which generate between $10 million and $1 billion in annual revenue. Source: Credit Suisse, “The Incredible Shrinking Universe of Stocks: The Causes and Consequences of Fewer U.S. Equities” by Michael Mauboussin, Dan Callahan, CFA, and Darius Majd (March 22, 2017)
What do private markets offer an investor? If selected appropriately, they may provide true diversification from the current elements of the market tend to behave differently from the equity and bond markets). Also, they may provide high levels of growth, albeit paired with higher levels of risk. 

How can you invest in private markets? There are many options out there. Some better than the others. Speak to a trusted private wealth advisor that focuses on this niche for more information. Second, many of these products have income and wealth restrictions. You will need to meet various definitions set by regulatory and governing bodies. Third, understand that these products come with additional risk, tax complexities, and less liquidity.

Important Information: Diversification does not guarantee a profit or eliminate the risk of loss, and an investment in a private placement involves a high degree of risk and is not suitable for all investors.

Going Digital? Not So Fast
In an age where all the hype is digital, perhaps it’s time to reevaluate your strategy. According to a recent study, 85% of consumers said they are more likely to shop with a small business that has professionally printed materials, over all soft/viral copies. Consumers believe that this reflects positively on the business and is often a differentiator when making decisions on vendors. 

What’s more shocking is that millennials further support these findings. In fact, more than 70% have printed at least the same amount of professional materials as last year, if not more. 

Although everything today is now digital, seems as though the old fashioned way may still be best. 
610-896-2058
kdombrowski@mainlineco.com
MainLine Private Wealth 308 E Lancaster Avenue Suite 300 Wynnewood PA 19096