Protect Yourself. Live Outside The Bubble

This is a Guest Blog post by Marty LeClerc, an experienced investor, portfolio manager, and investment adviser.

There is a mania hovering over the investment landscape. Bonds. Digital currencies. A large part of the stock market. Certain real estate sectors. All driven to bullish extremes. Priced for perfection. Priced for disappointment.

Someone tweeted. The only thing to fear in the financial markets is the lack of fear itself.

Bullishness seems the only option. Investors, prudent and otherwise, regret past cautiousness. A woulda, coulda, shoulda feeling…

In hindsight the past is obvious.

Regret can lead to fear-of-missing-out. Said fear leads to costly investment errors. Think Warren Buffett. What the wise do in the beginning, fools do in the end.

Big challenge for investors right now? Protect yourself. Avoid regret-induced foolishness. Avoid lasting errors.

Repeat a mantra. It is not how much money you make during a bull market, but how much money you keep once the tide turns. Make this your mantra.

Remember. No one regretted prudence going into last March. No fear-of-missing-out when liquidity dried-up and prices crashed. There was only fear itself.

That was last Spring. A time to be greedy. Today, warning signs abound. It is a time to be cautious.

Nearly everything indicates stock indices are overvalued. More so than even in 1999, the previous gold-standard for overvaluation. Only in relation to bonds is this not true. Interest rates were a lot higher then.

Speculation is rife. Take SPACs. Special purpose acquisition companies. These are blind pools of cash. Designed to take a company from private hands to a stock market listing. Call it an alternative to the traditional IPO, but with less investor protection.

SPACs ebb and flow with stock market sentiment. At tops they are enormously popular. During bear markets, no one wants them. Now they are the rage. Issuance uncontained. Setting all records. Everyone is involved. A-Rod. Colin Kaepernick. Billy Beane. Shaquille O’Neal. Some 300 companies. Raising over $100 billion. In real terms, on a par with both 1929 and 2007.

Maybe worse. One example. Churchill Capital Corp IV (NYSE: CCIV).  It has cash worth a bit less than $10 a share. Only other asset some sexy plans from management. Nothing else. Currently costs $30 to own that $10. You would think paying $3 for $1 is self-evidently wacky. Not in this stock market.

Old thinking. Interest rates can only go to zero. Speculative bubbles do not happen during severe recessions. Prosperity equals a rising stock market.

New thinking. Everything is upside down.

Sobering thought-experiment by Horizon Kinetics. Assume the roaring ‘20s awaits us. Assume good times continue to roll through the ‘30s. Assume the economy expands 4% a year for 20 years.

Simple math. People will be twice as rich in 2040 as today.

Use the so-called Buffett Indicator. Assume the ratio contracts from today’s lofty levels. Down to a bit below its historic mean. By 2040.

Simple math. The S&P 500 Index experiences zero appreciation for 2-decades. Lesson. Prosperity might not translate into profits for passive investors after all.

Research Affiliates and GMO provide a public service. Excellent research for free. They follow the data. Do not trying to sell you anything. Both have arrived at the same conclusion for the S&P 500. Negative returns over the next 7 year period.

Bitcoin is not an investment. Does not generate income. Claims to be a store-of-value. Like the dollar. Except it relies on tokens. Professor Roubini says, “the Flintstones had a more sophisticated monetary system based on a benchmark: the cartoon cavemen used shells.”

No intrinsic value in a bitcoin. Only a promise of limited supply. One price-anchor. The cost of mining a coin. Runs into the several thousands of dollars. Depending on electricity rates.

Bitcoin is a haven for criminals. Tough luck if fraudsters steal it. Tough luck if you lose your key. Ledger erased. Bitcoin gone forever.

Bitcoin is bad for the environment. A rapacious energy user. BBC says mining it uses roughly the same amount of energy as Argentina, Norway or Switzerland.

Promoters say digital currencies are a medium-of-exchange.

Everyone wishes they bought bitcoin when. Up 9-fold in less than a year. Up 100-fold in just over 3 ½ years. Up 1,000-fold in 8 years.

Bitcoin is off-the-charts volatile. More than doubled since December 2017. To get that return, you needed patience. Bitcoin crashed 80%. Rallied. Crashed 50%. Rallied. Crashed 25%. Last month. Rallied. Now up 50% in 2-weeks.

The bible says there is nothing new under the sun. In 1630s Holland people were concerned with currency debasement. They sought alternative stores-of-value. They discovered tulip bulbs. The rest is history.

Tulip bulbs differ from bitcoin. A tulip bulb is edible. It has intrinsic value.

The fuel for speculation is liquidity. Money supply expanded by 25% last year. A Fed-induced liquidity-run.

Some fear an out-of-control printing press. Claim it will generate consumer price inflation. Only discernable inflation is asset price inflation. So far.

Liquidity-runs defy logic. Until they do not. Past runs ended badly. Think 1974, 1987 and 1999.

Repeat the mantra. It is not how much money you make during a bull market, but how much money you keep once the tide turns.

Bonds have never been more expensive. The cost of money never cheaper. Not for four millennia. Everyone had to pay higher interest rates. Babylonians. Egyptians. Athenians. Romans. Byzantines. Everyone paid higher rates during long deflationary periods. Think 19^th Century. When money was backed by gold.

Are bonds in a bubble? Economics professors might say no. Capital is no longer scarce. Traditional premium for owning “risk-less” bonds is evaporated. Rejoice at the euthanasia of the rentier.

Common sense says otherwise. Something like $17 trillion in government guaranteed bonds are assured to lose money, if held to maturity. Investment grade corporate bonds provide nominal income. Will lose money in real terms. Junk bonds yield less than many blue-chip stocks. Will get crushed in the next downturn.

Everything is compared to what is on offer in the bond market. Interest rates determine what people pay for real estate and businesses. Works like a lever. Rates fall, everything is worth more. Rates rise, everything is worth less.

Fed says rates will be low for a long time. Too much debt. There is no other option. Wall Street assumes rates will be zero forever. Too much debt. Rising interest rates is too painful to contemplate.

Big faith in Central Banks. They walk on water. They have all the power. Masters of debasement. Servants of markets. Call it a maestro bubble. Everyone is following the yellow brick road. Wizards of Finance becoming the Wizards of Oz is too painful to contemplate. No one is ready.

Take a reality check. Repeat the mantra. It is not how much money you make during a bull market, but how much money you keep once the tide turns.

Live outside the bubble.

There is no income in fixed income. Ditch longer-term bonds. Stay within 5 years. Not a random number. Ditch junk bonds. Credit standards are beyond lax. Ditch bond funds.

Stay clear of digital currencies. Traditional stores-of-value, like gold, are better. Unlevered precious metals royalty trusts are best. They produce income.

Understand real estate’s true problem. Not COVID-19. Not Amazon AMZN +0.5%. Not eCommerce. It is the Capital Cycle. It will take years to absorb inventory.

Live outside the bubble.

Avoid compelling stories. Pay attention to cash yields. Adopt a curator’s mindset. Pick and choose securities that can prosper outside the bubble. Be idiosyncratic. Do not be a mindless price-taker!

Everyone is focused on how the world will change in the next decade. Very sexy. Very bubbly. Bezos says this is stupid. Focus instead on what will remain the same.

Outside the bubble, the playing field is surprisingly large. Quality companies on offer at reasonable prices. Companies that will be around. Priced to deliver adequate returns. Growing dividends of 3 – 4%. Probable earnings growth of 3 – 7%. No sexy narratives. No bubble required for a happy ending.

Non-stretch predictions for 2030. America and China will be adversaries. Humans will eat food. Get sick. Consume financial services. Keep a clean body. Use energy. Invest in these areas.

Defense stocks are exempt from the business cycle. They are reasonably valued in real terms. Dirt cheap in relative terms. Less than 15X earnings. Growing dividends. Own Lockheed Martin LMT -0.4%. Own General Dynamics GD +0.8%. Own Huntington Ingalls HII +3.3%. China is not our bosom buddy. Never will be.

Shares in venerable consumer brands are outside the bubble. Big powerful companies. Can weather harsh storms. Coca-Cola. Kellogg K +0.7%. Kimberly-Clark KMB 0.0%. PepsiCo. If interest rates remain low, their well-covered dividends are too juicy to ignore. If interest rates rise, they will fall less.

Keep high cash reserves. Current risks in the system are ungaugeable. Be patient. The bubble will end. Some day.

The author owns shares in Coca-Cola, General Dynamics, Huntington Ingalls, Kimberly Clark, Lockheed Martin, and PepsiCo Marty Leclerc manages the Barrack Yard Global Core Portfolio. Identifying businesses of lasting value that will benefit from major long-term trends, but that are resilient enough to navigate an uncertain future, is my goal.I choose companies from the world’s stock markets; attempting to mitigate risk by relying on a robust investment process, by focusing on valuations, and by anchoring decision-making in “predictive factors.” I am a graduate of the College of William and Mary in Virginia and an Investment Advisory Representative of Barrack Yard Advisors llc., a Registered Investment Advisor in Washington, DC.

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Get Your Business Funded in 2021: A Look at Super Angels

This is a Guest blog post frim Ines LeBow, a CONNECTpreneur strategic partner and Coach. She has prepped dozens of successful presenting companies who have successfully raised capital.

The year (2020) that will be forever defined as the year of the Covid pandemic brought about significant upheaval and change in many areas of private and professional life across the globe. It also sparked tremendous shifts in the start-up investment world. One class of investors emerging is what we call “Super Angels”.

What Are Super Angels?

Super Angels in the business investment world are best described as a hybrid between traditional angel investors and venture capitalists. They tend to invest early in the seed round of funding at startups at levels that are above what gets raised in the friends-and-family round but less than a typical venture round of funding. However, when it comes to how they raise funds, they approach the process much like a typical VC would.

Super Angels are not just serial start-up investors; they invest in businesses as their full-time gig and tend to have a large and growing portfolio in which they take an active interest. They don’t tend to be interested in long-term investments or board roles, thus they like to look for business investments in which the principals are experienced entrepreneurs.

Why Should I Consider Super Angels?

As a result of financial, economic, and market trends, institutional venture capital activity is still on the rebound. Some rode the wave of growth and allowed for a bloated infrastructure and high fees that are now preventing them from being nimble in the market. Others have their portfolio tied up in businesses that are still recovering from the pandemic, and they’re not yet willing to exit those investments.

These changes with traditional VCs open up opportunities with angel investors and super angels, especially as the investment model is changing to one of funding more startups but with less cash invested in each business. One added advantage of this investment approach is that super angels have a broad reach to the kind of talent, investment contacts, and potential M&A opportunities that can go beyond the access a traditional investor can provide.

How to Get Super Angels to Invest

Many of the top super angels don’t just take an appointment from anyone off the street. They require a referral from someone they trust, so cultivating a good network in the start-up world is going to be important. But don’t give up hope if you aren’t well networked. This isn’t just about who you know, although it helps. These are smart, experienced investors looking for good people and great ideas behind which to put their money. If you employ a sound strategy and disciplined approach, you can be successful in getting funded by a super angel. Here are a few articles you can review to ensure you’re prepared to engage with a super angel investor:

• “How to Open Doors to Start-Up and Next-Stage Growth Funding”
• “Is Your Fundraising Story Epic?…”
• “5 Keys to Convince Investors Your Product Can Make Money”
• “How Far Will You Go to Get Your Business Funded?”

If you are an entrepreneur looking for funding, are interested in presenting at CONNECTpreneur.org, or would like to learn more about how to stand out with an epic fundraising story, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro. You can find me on LinkedIn Profile at www.linkedin.com/in/ineslebow or my ETS website at www.transformationsolutions.pro.

Do you Want to Sell Your Business for Maximum Value?

This is a Guest blog post from Guillermo Birmingham, CPA, Partner at B2B CFO.

Want to Sell Your Business? Begin with the End in Mind!

At a Glance:
◆ 73 million Baby Boomers will retire in the next several years. 1
◆ Baby Boomers own more than 4 million privately-held businesses.
◆ They employ between 60-70% of all U.S. employees.
◆ 49% of surveyed business owners lack knowledge of the market value of
their business.

Selling a business for top dollar is a dream for many business owners. Building and growing a business takes tremendous sacrifice so that one day the Owner can enjoy the fruit of their labor and live a life of comfort and prosperity.

Have you put much thought into what your business would look like the day you retire? Thinking of selling your company someday? Do you plan to leave your legacy to a family member? It all starts with a well-planned and executed exit strategy.

Your objective when selling is to get maximum value. This requires time, preparation
and a team of professionals. If selling your business is on the horizon, B2B CFO® suggests
you begin with the end in mind and follow these key steps:

Define goals and prepare your exit strategy

When considering the sale of a businessa business owner has a wide variety of transaction options to sell the business. (e.g,.
ESOPs, Financial Buyer, Strategic Buyer, or Family Member). A formal business exit
plan puts the goals, priorities and strategies in place and in writing, for a successful
transition. Without a clearly defined and communicated plan, business owners are
leaving their personal and financial future to chance. A strategized exit plan can help
you to maximize the value you get and successfully market your business to potential
buyers or investors.

Time the sale of your business

The value of your business is correlated to the market within which it operates – therefore, you should look to sell when market conditions are healthy. Selling in a down-turned economy is not always advisable. If you anticipate growth in the future, wait until the economy rebounds. Also, consider if you are emotionally prepared to sell. Do you arrive at work each day excited to tackle new challenges, or are you feeling irritable and burned out by the business?

Create maximum value pre-sale

The number one reason deals get delayed or don’t happen is due to declining financial performance. The value of your business before and during the transition process is key to obtaining the profit you desire. It could take 12-24 months of preparation before putting your business on the market. To help improve the value of your business consider strategies to build a diverse customer base create recurring revenue streams, ensure consistent and healthy cash flow, demonstrate scalability and show a strong competitive advantage. Analyze your processes and look for ways to increase operational efficiency , reduce expenses and control inventory without affecting your operations. The goal is to ensure your business is attractive to a large pool of potential buyers.

Determine what your business is worth

To find the value of your business, subtract liabilities from the assets. A business is generally worth a multiple of its profit. However, don’t just base your assessment of the business’s value on number crunching. Consider the value of your business based on its geographical location, customer-base and your industry . Business valuation requires a solid grasp of both how value has been created prior to the valuation date, and how it will continue in the future. An expert in business valuations will help you gauge an accurate assessment. Prepare your financials: If you’re considering selling your business, it’s important to remember that prospective buyers are looking for clear facts and financial records on your business to prove whether it is a profitable investment for them. Some records to be sure to have on hand include: two years of profit and loss statements, current balance sheet, cash flow statement, business tax returns, copy of the current lease, insurance policies, and employee agreements to name a few.

Compile due diligence information

When potential buyers evaluate a company , they expect the records and facts to be properly organized and documented. The location of due diligence documents is commonly known as the data room. There are many aspects of selling a business to consider such as, legal, accounting, financial, operations, human resources and much more. Providing business information in a logical, organized format for all buyers not only helps build trust during the sale process but can reduce the time it takes a potential buyer to complete their due diligence analysis. Ensure you have all the critical documents and records needed in a framework that is easy to understand and reference for buyers.

Assemble a qualified “team”

Don’t go it alone. If you’ve determined that your business is ready for sale, save yourself time, money, and frustration by building a trusted team of advisors. These experts can help you strategize, overcome the challenges ahead, and secure the highest possible value—so you can focus on running your business in the interim. Research their qualifications, track record and experience. In order to get the highest value for your business and to negotiate the selling process effectively and efficiently, it is imperative that you enlist qualified professionals that you can trust with confidential information. Experts that can help during the transition include an accountant, CFO, tax expert; lawyer; business broker; business appraiser/valuation expert; and banker or other financier, if third party funding is needed.

Guillermo can be reached at gbirmingham@b2bcfo.com. B2B CFO^® provides Management Advisory Services to owners of privately held companies. We focus on increasing cash and company value. Our services include improvements in finance, accounting and operations, company growth, as well as helping owners to transfer or sell their companies. Our professionals work directly with business owners, on-site. Each of our 200+ professionals is an equity owner and brings 25 plus years of senior-level experience. With a nationwide presence, B2B CFO^® is the largest company of its kind in the United States. Founded in 1987 and headquartered in Mesa, Arizona, B2B CFO^® has ranked in the Inc. 5000 and was recognized in 2018 as one of Forbes Magazine’s “Small Giants.” For more information please visit www.B2BCFO.com.