Chris’ note: With stock and crypto markets tumbling, it’s easy to let fear take over. But here at the Cut, we’re not joining the panicking crowd. Instead, I’m continuing my mission to bring you the best investment ideas from Teeka Tiwari, Dave Forest, and the rest of the Legacy Research team.
That’s why, this week, I’ve handed the reins to Jeff Brown. He’s a Silicon Valley insider and early-stage tech investor. And he’s been pounding the table on a type of private investment that’s been rising despite other assets’ hits to our brokerage accounts.
He revealed all in an online summit last night. If you missed it, you can catch the free replay here. Then read on for a Q&A I had with Jeff. He explains more about private investments – what he calls the “calm during the storm” – and why they can be so lucrative.
Chris: Last night, you shared your top investment strategy for 2022. It combines two explosive areas of the market – cryptos and private investments.
We’ll get into that in a moment. First, I’d like to get your thoughts on the sell-off in tech stocks that seems to be accelerating. Yesterday, the Nasdaq-100 plunged 5%. That was the biggest drop for the tech-laden index since March 2020.
Jeff: The recent drop in tech stocks has been gut-wrenching. I know a lot of readers feel the pain. The fear and panic can be overwhelming.
This is what happens when the Fed employs bad monetary policy. It left interest rates too low for too long. And since it started talking about raising rates last November, stocks have been falling. Those losses have worsened since it jacked up rates half a point [0.5%] at the start of the month.
But here’s the thing… There’s a second type of stock market. And it behaves differently from these publicly traded stocks that wild volatility is pummeling.
This other market is in privately traded stocks. These stocks aren’t vulnerable to day-to-day volatility.
Chris: You’ve been an investor in private markets for over two decades. What’s happened to the private shares you own through the current bout of volatility?
Jeff: About half my personal portfolio is in private shares. And many of them have increased in value.
These shares don’t trade back and forth on an exchange. Instead, they change value with every new funding round. If a company is growing, its valuations tend to rise.
That’s why I call private shares the calm during the storm. They can deliver extraordinary returns, and they give you peace of mind when public markets are a mess.
Also, the valuations in early-stage companies are much more attractive than what’s on offer in publicly traded tech stocks.
Chris: A lot of investors get caught up in the hype around tech stocks. They forget about the importance of valuations. Why do valuations matter? And why are early-stage companies a good place to find bargains?
Jeff: It’s simple math. The less you pay to own great investments, the higher your profits will be when you sell. When you invest in the earliest stages, you’re entering at the lowest possible valuations.
Getting in early – when these projects are in their formative stages – is the best way to create generational wealth.
Chris: For a long time, investing in early-stage tech companies was something only venture capitalists (VCs) and other Wall Street elites could do. Now regular investors can take part. What changed?
Jeff: Ultra-high-net-worth individuals – folks worth more than $30 million each – allocate more than 50% of their portfolios to private investments.
Most regular investors have no allocation to private shares. These deals have been the wealthy’s well-kept secret. And government regulations helped keep it that way.
But in 2020, the SEC (Securities and Exchange Commission) passed new regulations that expanded the scope of Regulation CF. The CF stands for crowdfunding. This regulation is an exemption from securities laws that allows private firms to raise capital from the general public.
Reg CF used to limit companies to raising $1.07 million a year. Now, they can raise $5 million a year.
An early-stage company can burn through $1 million in six to nine months. So it wasn’t worth it for companies to go down the Reg CF route when the funding limit was $1 million. Now, there’s five times more funding available. So this route is attractive to founders and CEOs of exciting private companies.
These offerings are also more liquid now. So I can bring opportunities in them to my subscribers.
Chris: Last night, you spotlighted a type of private investment you call a “crypto placement.” Why the focus on crypto and not another of the tech megatrends you follow?
Jeff: In VC investing, you typically see spikes in the number of companies fundraising in certain niches. These spikes are closely linked with technological developments.
Over the last two years, blockchain and crypto startups have been proliferating as so much innovation happens around blockchain tech.
As I’ve been showing my readers, one of the most exciting crypto trends is what I call Web 3.0. It’s the next generation of the internet. And it’ll run on blockchain networks.
Chris: How will Web 3.0 differ from the internet we use today?
Jeff: The internet was created to be free, open, uncensored, and outside of centralized control. But we have monolithic gatekeepers in Silicon Valley that can – and have – banned and censored what we can see online.
Web 3.0 is an effort to decentralize the internet and make it free again.
NFTs (non-fungible tokens) will play a big role in Web 3.0. NFTs are in their infancy right now. But these digital representations of assets are already disrupting art and collectibles markets. And soon we’ll use them to tokenize and trade all sorts of assets – including real estate, stocks, and bonds.
In fact, as I’ve been showing my readers, NFTs will make almost anything on Earth tradeable.
Imagine investing a few hundred dollars for fractional ownership of a vintage Ferrari… or a slice of a new commercial office building… or a stake in the winning horse at the Kentucky Derby.
It’s hard for us to wrap our heads around an idea this new and transformative. But tokenization will soon let everyday investors buy stakes in assets that have historically been off limits to them.
We’re going through a dip in the crypto market now. We’re also going through a dip in the tech market. A lot of folks are running scared.
I get that…
But I’m not focused on short-term fear in the markets. I’m focused on getting my readers into the most explosive tech growth trends at the lowest possible valuations. That means scooping up shares in the world’s most promising early-stage crypto and blockchain firms.
We talk about asymmetric bets at Legacy all the time. These are investments where the potential upside far outweighs the downside risk. And crypto placements are among the best asymmetric bets on my radar now.
To learn more about what they are and how you can profit, you can watch the free replay of my presentation here.
Chris: Thanks, Jeff.
Jeff: Of course.