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Tuesday, January 22, 2008

A User's Guide to the Macropocalypse

A deluge of email asking: what should I do/where should I invest?

It's an interesting question, and I have a fairly unorthodox answer.

Cash is a bad idea - the Bernanke Put means your dollars are going to be devalued, fast. Debt? lulz. Complex instruments, like derivatives? You must be kidding. Commodites, gold, oil? Maybe - if you have an appetite for near-total volatility and pain.

That leaves us with equity.

Here's a radical proposal.

I think there's a very simple way to profit deeply from the crisis.

Help fix the broken machine, and invest in companies that you believe create real, durable, sustainable value. Be a real shareholder (for a change). Don't just chase near-term profits, especially in cheesy, evil companies. Don't treat investing in a firm like a trip to the mall to buy disposable, generic, toxic "product".

Look, I'm not saying anything revolutionary. It's exactly what Warren Buffett has been saying like clockwork every year for half a decade.

People trivialize it by calling it "value" investing. Don't make the same mistake and fail to see the point. There's no other kind of investing, in the long run. The point of being a shareholder is to own the right to share in value creation.

In this crisis, there's a deeper logic at work to putting your money where your mouth is. Those players that survive will be the ones with better DNA.

So getting through the recession isn't about money - it's about being part of a larger economic system where the DNA isn't rotten. Of course, you have to play your part.

If you can't stomach a quarter of bad earnings, or all you're interested in is tomorrow's share price - you're the problem. I think the people that profit from this crisis will be part of the solution.

We'll talk about this in much greater depth over the coming weeks and months.

For now, leave your thoughts in the comments and let's discuss.

-- umair // 4:12 PM //


my investing rules for the current climate:

1. as far away from anything that is dependent on the US economy as you can get.

2. euros, british pound, swiss francs.

3. gold, silver.

4. internet companies that create value -- IMO real opportunity is finding the ones outside the US.

this is the end of the US as a world superpower, which is really going to shake things up, and create a whole new set of intermediaries/funds that are better positioned to allocate investment dollars on a global basis.
// Anonymous kid mercury // 10:11 PM

It may be a bit evil, but in times of finacial crisis drugs and arms make good investments.

@kid mercury: investing in european currency isn't really that smart concidering USA is the biggest trading partner for the EU.

My guess is that emerging economies will benefit a lot from the american recession, that's where markets will still be growing.

Invest in telcos building nets in Africa, Asia and Latin America. Like Ericsson and Huawei. They are actually creating value, building economies for hundreds of millions of ppl giving them access to banking, markets, information and communication etc.
// Anonymous Anonymous // 11:57 PM

@anon: i misspoke. i wouldnt invest in currencies but i strongly recommend active trading of currencies, for those who are into active trading. european currencies vs us dollar is in my opinion the best market for active traders at the moment, due largely to the coming US collapse. i think that will be the case through the end of 08, possibly longer. for the buy and hold type of investing i think gold and silver are great options.
// Anonymous kid mercury // 2:38 AM

You are so right....for me I decided a couple of years ago that enough was enough in terms of the public markets. I just didn't see the real value creation, or the companies with real value creation were being bid up to levels that didn't make any sense. I looked around and I finally realized that I had made my first real money in building a private company in the broadband infrastructure space in Europe in the period 1996-2001. I was able to exit this venture in 2001 through a transaction with a large public player. While I was in it I had my hands on real growth and could see value creation every day. There is no replacement for real value creation.

Since then I have focused my efforts on another private early stage company where I am backing talented friends in the biotech space and playing a meaningful role in both funding and guiding the company - I am currently Acting President and CEO. The opportunities in biotech are enormous today in the right venture. We just doubled our valuation in the past six months on a second angel round and are looking ahead to further increases based on real results in the laboratory. Knock on wood, the private early stage venture is working for me again. If you get the chance to participate, real value creation can happen - jump on and take a ride for the long haul...you won't be sorry!
// Anonymous weg3 // 1:44 PM

Ya, it's too bad there's not "Kiva for small companies", I feel like there's so much more excitement there than companies that get to the IPO level...

I say, invest in GOOG and all the technologies that will get us to the singularity:



// Blogger Ethan B // 11:32 PM

Here is a really good article right in line with your POV on decay and a system running wild....without creating value...http://www.bloomberg.com/apps/news?pid=20601039&sid=akcLU5Y7iJN0&refer=home
// Anonymous weg3 // 5:21 PM
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