Offered Only

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years” – Warren Buffett

Market crashes are a very emotional and physical experience. When things start unraveling, they happen quickly and often without warning. As the masses rush for the exits, it’s a frantic scramble to try and get out of your risk (or if you are savvier and have a view, add to your shorts) right alongside everyone else. The pain that you feel when you see a stock that you hold, base jumping off a cliff actually manifests itself physically — you feel nauseous and sick to your stomach, as you calculate the losses in your mind and think about how hard it took to earn that money and even worse…how long it will take to make it back.

When stocks gap down or begin to free fall, there are usually no buyers on the screen. It’s a sea of red and the trading screen looks strangely out of balance as you’ll see a ton of offers stacked up on the right-hand side with no bids on the left.  When a stock gets to this point it’s called being “offered only” and if you are long in this situation, and trying to get out, you are pretty much screwed. Liquidity is always an issue in these situations and unfortunately, the smaller players, with less access to pools of liquidity, usually get left holding the bag.

Just for the record, no…we aren’t there yet in the markets. I know I’ve been talking a lot about frothy valuations recently and I know you might be tired of hearing me repeat it. “Blah, blah, blah yeah Jay we all know that the markets are expensive, but what are we supposed to do about it?”  The problem with being “that guy” who always nags about risk management is that when the correction finally does come, there is no real vindication. If everyone is losing their shirts in the markets you can’t exactly strut around saying “I told you so…” without looking like a complete dick. It turns out nice guys end last even when it comes to risk management…sigh…

So as opposed to preaching, let’s take a different approach and discuss more constructively about how to diversify your assets to make sure that you aren’t the one caught holding the bag in the next crash.  Asset allocation is something we’ve also spoken about in the past and to be honest, there is no blanket solution when it comes to this. Each person is different and based on their history and experience, each person has a different degree of comfort with the various asset classes out there.

I’m a pretty conservative person and I hate losing money or being in debt much more than I regret missing out on the upside of opportunities (FOMO). So my personal portfolio tends to be very conservative with the bulk of my assets in boring, steady yielding assets such as real estate and bonds.

A small portion of my portfolio, no more than 10-15%, I like to allocate to more risky/illiquid investments such as private equity and venture capital.  This is my playground where I get to quench my thirst and curiosity to learn about innovation and new technologies that might change the world in the future. VC investing is difficult…very difficult.  The chances of you investing in a company that will see an exit are slim to none (unless you are a Silicon Valley insider).  But if just one of them in your portfolio “hits” then the returns are outsized enough to pay for your entire portfolio. It’s not for everyone (they could all go to zero) but if you are willing to put in just a little bit of work or align yourself with the right people who know what they are doing (like investing into a good VC fund) then PE/VC investing can be very lucrative and play a key part of your overall asset allocation strategy.

I love early-stage investing. I started looking at it seriously after the financial crisis back in 2008, initially out of boredom of the public markets.  As I dug deeper and deeper, I got more and more addicted to the world of startups. I was enamored by the purity of the pursuit of startup founders who actually wanted to make an impact on the world as opposed to simply following greed and chasing money (like I had, on Wall Street).  Most of all, I loved the fact that the traditional investment process could in a way be “hacked” by who you knew, and which deals you were able to source through your network.  It matters much less how “smart” you are, or how big your ego is…rather it’s much more about who you know. And to know a lot of people with the right type of deal flow, you basically need to be a good person.

I go into all of my early stage investments with an asymmetrical frame of mind. I only invest as much as I am willing to lose and because there’s no liquidity in venture capital it actually forces me to really look hard and deep into a company and entrepreneur before I back them as opposed to day trading in and out of companies listed on a stock exchange. Next week, my company Explorer Equity Group is hosting the Hong Kong regional final for Asia’s largest pitch competition, the StartCon Pitch for $1 Million event. In addition to seeing the best pitches, I’ll meet with some of the most reputable investors & entrepreneurs in Hong Kong. It’s all part of the process of expanding my network and trying to find that quality deal flow to hack the investment process.

If you’d like to come along and start looking at some of the deal flow that I see on a regular basis just use this link to sign up. I’ve got free tickets for startup founders who want to pitch or for investors who want to attend.