Business and investing behavior follow a simple pattern of excitement and worry. Like partygoers, when the party is in full swing (bull market) we are carefree and even emboldened to push the fun to new heights. But the hangover (bear market) is not so fun. Everyone swears off parties…until enough time passes…and we see others having a good time – and it all proves irresistible, once again. When we see others making easy money we just can’t seem to help ourselves.
It’s all very predictable. The only difficult part is the timing.
The bull market - for most assets – since the financial crisis has been a doozy. And true to form for most financial parties, we’ve seen an acceleration in exceptional excitement over the last 18 months: venture capital; real estate; stocks; crypto…not to mention the extraordinary flows into bonds in recent years…and round and round we go.
We employ a different approach at Bluestone: it’s called get rich slowly. Patient. Methodical. Long-term. Building enterprise brick-by-brick. Investing with rigor and care. Ignoring the crowd. Independent thinking.
No question we are a contrarian minority. Contrast our approach with where our financial culture stands today:
“But some people take this very seriously. They make some money in crypto or Tesla, they fancy themselves Market Wizards, and they start hatching plans to quit their jobs and trade full time. I have been hearing stories of painters and plumbers, and carpenters who have made much more money trading than they have in real life, and they’re quitting to trade full time.”1
Perhaps the poster child for get rich fast in the last 2 years was the ARK Innovation ETF (ARKK), a collection of about 40 “change the world” businesses. ARKK price increased 4x from the pandemic lows of March 2020 to February 2021. That is getting rich fast! But since February 2021 the ETF has fallen in price by more than 50%. That is getting poor fast.
Not to pick on ARKK – the ETF is but one of many similar examples. And we hope that many of the businesses owned by ARKK do create lasting positive change in the lives of many people. Unfortunately many investors saw a big party that looked really fun and couldn’t help themselves.
Something similar has been happening in the entrepreneur/startup world too, where it seems that not scaling your business to unicorn status in the first year constitutes failure. Sure, a few entrepreneurs have been able to do something like that in recent years. Well, maybe not quite a year, but close – look at Sam Bankman-Fried, who founded cryptocurrency derivatives exchange FTX in April 2019; at the end of 2021 FTX was reportedly worth $25B per the most recent capital raise. Of course the reality is that most startups still fail.2
But there are many ways to build a business and many ways to build wealth. The model most popularized in financial media (a lot of venture capital cash and move as fast as possible) is appropriate in some cases but not all.
The goals of the entrepreneur should be shaped by both the nature of the industry and by personal objectives. Those two things need to be aligned. They become the basis for philosophy, principles, and planning. In business and investing.
Scaling slowly. Building customers slowly. Adding to your team slowly.
Investing thoughtfully. Based on carefully selected principles. With a margin of safety.
And yes, getting rich slowly. We may not be the life of the party but we’re OK with that.
per U.S. Small Business Administration as reported by Investorpedia https://www.investopedia.com/articles/personal-finance/040915/how-many-startups-fail-and-why.asp