The Capitalist Investor - Episode 101

Mark “The Iceman” Tepper is joined this week by both Derek “Diamond Hands D” Gabrielsen and Luke “Cool Hands Luke” Lloyd for episode #101. During this episode, the guys discuss everything from Zillow stopping their house flipping segment of their business to Elon Musk selling billions of dollars worth of stock. How do you diversify your portfolio with other alternative assets like fine art and fine wine? What is the real reason Elon Musk is selling billions of dollars worth of stock? Is it to cover his tax liability, appease the voters on his Twitter poll or did he just want to sell his stock? What are the takeaways from Zillow shutting down their house flipping business and what does it mean for the future of the housing market? We answer of all of these questions and more on episode #101 of “The Capitalist Investor.”

Outline of this Episode

  • [4:28] Elon Musk is always thinking ahead
  • [13:55] Zillow does a 180 straight out of the house-flipping business
  • [19:00] Alternative investments and diversifying your portfolio
  • [21:18] How fine, collectable investment categories can work to your advantage
  • [30:20] An update on NFTs and their growing potential

Elon Musk dangled the possibility of selling 10 percent of Tesla stock and broke the Twitterverse –– what were his intentions?

We’re all enthralled by Elon Musk’s Twitter spectacles –– but just how much do his tweets affect the company? Last month, the Tesla CEO replied to a challenge from David Beasley, the director for the UN’s World Food Programme, that he would sell Tesla stock immediately if the WFP could explain how $6 billion would solve the world hunger crisis. A few days later, Elon posted a Twitter poll asking users if they support him selling 10 percent of his Tesla stock. Millions voted and the majority were in favor of him selling the shares. Almost immediately, Tesla stock slid over 10 percent and Elon lost about $50 billion since last week’s Twitter events.

We’ve known for a while now that Elon is willing to take a short term beat down. He’s done this before and it’s always worked out for him. But what were his intentions this time? Did Elon actually want to sell 10 percent of his shares or was he dodging a possible tax burden?

Democratic Congress members are currently rushing to enact a significant billionaire’s wealth tax after the capacity of unrealized capital gains have rattled liberal Democrats. Did Elon sell his stock before he would be forced to and is just trying to appease everyone he’s got all fired up? That could be true. But what if this is Elon’s way of showing Congress members what happens to their own Tesla stock if they try to tax him? We know that liberals too, have skin in the game for Tesla stock; while owning only 17 percent of shares, Elon is not the only Tesla stakeholder that takes a hit whenever the market slides. We’ve learned here that there’s always a pragmatic method to Elon’s madness–– whatever he touches always turns to gold.

What went wrong in Zillow’s house flipping venture?

Over the course of this past year, reduced mortgage-interest rates have given the housing market a robust run of demand. Zillow Group –– a real estate information giant –– used this period of favoured stakes to enter the house flipping business. They bought up over 9,000 homes across the country with plans to renovate and sell them quickly, hoping to profit off transaction fees and the increasing value of homes. Abandoning its asset-light business model, the house flipping adventure became the company’s largest source of revenue, burdening the group with heavier assets and riskier chances of profit. And just as we predicted, the major bull run within the housing market is screeching to a halt, now Zillow is finding itself depreciated by a massive hit because of a venture it may not have been suited for.

We know here that the housing market is a risky game to play. There’s imminent crashes following promising booms –– it was too unpredictable of a game for Zillow to put it’s chips into but why wouldn’t they? Zillow is known for its trademarked algorithmic model they use to predict the price of houses: the Zestimate. But there’s too many variables, the dynamic is always changing. Zillow learned that it cannot accurately predict the cost of a home and use it to profit outright on newly owned fixed assets. We’re relieved to see that they cleansed themselves of this asset-heavy burden –– it takes more than just one period of market demand in the housing game to actually create a profitable operation.

Is it time to leave behind the 60/40 ratio?

The days for a 60/40 investment portfolio are long behind us. The market has reached so many possibilities that anyone still focusing on a traditional balanced portfolio may be behind in the game.

It’s time to diversify your portfolio –– opportunities exist and investing has been democratized for everyone to participate in. An efficient method to expand your assets can entail taking a chance on collectables and alternative investments that may have felt inaccessible to you before. We’ve observed that there’s good returns for diversification in your portfolio –– it may be time to implement a new asset class.

What are the best types of alternative investments for you?

Fine art and fine wine are two categories of collectable investments that may not entice everyone but have the potential to. Over the past 15 years, fine wine investments have had an annualized 13.6 percent return; art has returned an average of about 7.5 percent.

So the question is: are they for you? Someone who has a million plus dollars to invest should allocate at least 10 percent to a few different alternative strategies; maybe do a third towards fine wine or fine art. Though, investing in these alternative ventures is available to everyone –– a diverse collection of assets is a strong collection. But of course, the deeper your pockets, the higher the returns.

Collectable categories like fine wine or fine art may seem intimidating to a traditional investor, but there’s more resources available now more than ever, to assist with finer purchases and prospects. A diverse investor does not need to be a wine or art connoisseur these days –– but the harder the player you are, the more exclusive access you’ll get. A fine wine doesn’t age in a day and neither will your assets. This is a long game but it’s available to you, for you.

NFTs are still surging, be brave and explore the options

NFT’s are one of a kind assets and there’s a reason we’re staying up to date with their progress. Non-fungible tokens are ownership certificates of digital assets and as abstract as they are, some investors are realizing millions.

Since we last discussed the NFT topics, the future’s looking bright. This year, the sales of these digital assets are up by $4 billion in the first half of 2021 and they have the potential to keep growing. There’s a lot of aptitude in taking brave investments of NFTs, but they can be challenging. If it’s too unfamiliar for you, the crypto space is much more feasible and easier to participate in.

But no matter what, you have to diversify your portfolio. Whatever that looks like, be bold and step outside of traditional stocks. Times are changing, money is getting smarter and so is investing.

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Keep Listening to The Capitalist Investor:
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Episode 21:
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Episode 38:
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Episode 54:
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Episode 70:
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Episode 86:
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Episode 102:
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Episode 7:
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