The #1 private venture investment resource“But the beauty of Hybrid Portfolio Theory lies in its adaptability as each investor will define their own universe of positive asymmetrical outcome (PAO) investments according to their own beliefs, biases, professional skills and access to product sets and deal flow…as long as those investments are truly characterized by an empirical and quantifiable positively-skewed risk/reward ratio.”
“Positive assymetric outcomes are defined by the investment’s ability to generate high double-digit or multiples of return on investment, as can be achieved by successful investments in venture capital, private equity or direct (angel) private investment in start-ups, small business, private manufacturing business, private real-estate, private debt, franchises, operating cash-flow businesses, as well as, publicly-traded emerging growth companies and leveraged option strategies or highly-specialized investment strategies such as managed futures.”
“…venture implies risk-taking… they are nearly synonymous. A venture investor is knowingly acknowledging and accepting an implicit and quantifiable serving of risk that is decidedly less than a range of positive (asymmetric return) outcomes. Perhaps investors would have been better served if their notion of the risk that they were assuming in their efficient frontiers was not muted (and implied to be mitigated) by the marketing machinations of MPT.”
Venture Populist was created for investors and their advisors that seek to enhance their portfolio’s investment returns through allocations to private investments. Our tenets include;
“Modern Portfolio Theory, traditional asset-allocation models, the equity risk premium and buy-and-hold investing have been materially discredited over the past 80 years.”
“Safety, liquidity, income and the probability of positive asymmetric outcomes are the most important criteria in building better investment portfolios.”
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I have noticed that VCs tend to talk to the public and with their peers more about their home runs than their strike outs. Angel investors, on the other hand, prefer to relentlessly revisit their pain—often comparing their battle scars like veteran samurai. Probably because angels put up their own capital. Because they truly do eat their own cooking it’s harder for angels to forget their fallen soufflés. VCs achieve their highs from the opium of OPM…so even a bad trip is still a free... more
Contrary to conventional cliché, there is very little that is binary about venture investing outcomes. It is not just feast or famine. Rather, outcomes are diverse and asymmetric. You can lose your entire investment, just lose a portion, break even, receive periodic distributions producing double-digit IRRs or achieve exits at 5X, 10X, 20X multiples or greater on your initial investment. What does appear to be binary is the manner in which prospective investors in private ventures perceive the... more
One of the few commonalities among the thousands of VCs and angel investors is the consensus that the process of identifying an attractive private venture investment is “part art, part science”. The art part speaks to the inherent absence of certainty with respect to any venture’s viability. There are no absolute truths…no bankable checklist to follow that ensures a successful outcome for a private venture investor. The science part? That’s simply hindsight, which of course is an exact... more
As my career has been largely devoted to the intersection of money management and venture finance, I am no stranger to the independent RIA universe. I have worked with dozens of wealth managers and family offices that regularly evaluate and allocate to private venture investments. Although they represent a fraction of the RIA universe, they are invariably among the most successful of their peers. These progressive wealth managers represent the primary audience of this blog. I... more
Private investments in venture and early-stage companies are characterized by their potential for positive asymmetrical outcomes (PAO). The risk of losing the entire investment is offset against the potential for high-multiple ROIs. But asymmetric outcomes refers to more than the non-linear relationship between risk and return…it also refers to the appeal of investments where multiple liquidity and exit outcomes are possible. This is often referred to as optionality…current knowledge of the... more
Our recent proclamations that “MPT failed” have elicited a distinctively binary response from wealth managers and investment advisors. I have both the commendatory and the castigating emails and comment board posts that prove it. While many IAs responded enthusiastically, a seemingly larger pool of advisors continue to cling desperately to their discredited diversification dogmas hoping that investors may not have noticed the failure of their advisor’s mantras and models even as last... more
In my last post I introduced an alternative asset-allocation approach for investors that no longer subscribe to the discredited models of traditional (strategic) asset allocation, Modern Portfolio Theory (MPT), Efficient Market Hypothesis and what pedestrians refer to as “buy-and-hold” investing. This new portfolio construction approach, Hybrid Portfolio Theory, is a unique and timely portfolio construction methodology that is distinctly disparate from MPT in that it employs two distinct... more
This feature presentation introducing Hybrid Portfolio Theory was introduced in a 6.17.09 webinar hosted by Investment Advisor magazine and sponsored by Ameritrade that was attended exclusively by investment professionals. If you would like to listen to the archived webinar (which includes the audio and some Q&A) you can do so at this link. Album: Feature Presentation, Kutt Calhoun, 2008 AKPC_IDS += "833,";Popularity: 34% [?] Read More →
There is a better way to build investment portfolios than the methods presently employed by most investors and advisors. Perhaps that is hard to imagine seeing as how well we have been served by Modern Portfolio Fallacies and the Efficient Market Hypocrisies, but if you have an open mind, there is a strong chance that these portfolio construction principles will resonate with you…particularly on the heels of what we have learned from the half dozen market meltdowns experienced since ‘87. I... more
The Black Swan by Nicholas Nassim Taleb holds its own among the most important investment books ever written. In it, Taleb argues persuasively that any sensible long-term strategy in a world dominated by extreme and unpredictable (black swan) events has to accept, and even embrace, that very unpredictability. It is poignant and timely advice for any investor and a must-read for investment professionals. I met Taleb for lunch at Bice in NYC one afternoon about three years ago while I was heading... more
Broker Model Needs Repair (Financial Post) “By charging you 1% annually to manage your money, a large portion of your wealth ends up in his or her pocket.” Financial Advisers Face a Crisis of Confidence (Investment News) “About 80% of affluent investors — that is, those with more than $500,000 in investible assets — are disgusted with their adviser because their adviser is spooked” Album: Read All About It, The Newsboys, 1988 AKPC_IDS... more
In prior posts I have taken swipes at traditional asset allocation, buy-and-hold investing, the Efficient Frontier, the Efficient Market Hypothesis and Modern Portfolio Theory (MPT). Sure, I am trying to be provocative, poke a little at advisor complacency and provoke polemic on the comment boards…but I am also sincere. MPT relies entirely on investment history for investment analysis and conclusions. These tired and discredited methods are rubbish…and have cost investors trillions. It... more
The May issue of Atlantic Monthly features the cover story, “Why I Fired My Broker“, which mulls the misgivings of middle and upper income Americans contemplating the consequence of their investment advisor relationships. Like so much of the new populist propaganda…it isn’t pretty for advisors. In a video interview about the column, Jeff Goldberg, the article’s author, describes garden-variety vendors of investment advice as, “…these Jiffy Lube kind of places.... more
An opinion poll that is currently posted on Investment News asks advisors, “Do you think the market downturn has created a lost generation of investors?” It is a thought-provoking question as investors of all ages (and ironically, of all risk tolerances) have seen portfolios reduced by as much as one half of their peak value. Have these investors lost a generation of opportunity that they can never recover? The answers tallied thus far are as provocative as the question and may suggest... more
Do you wish you had a yuan for every time you heard the inaccurate reference that the Chinese symbol for “crisis” is the same as for “opportunity”? How often will we have to hear this nonsense from pontificating pundits, investment advisors and portfolio managers out ballyhooing the pending stock buying opportunity of a lifetime? The equation above is only applicable when something is actually learned from the chaos and behavior is changed. The common definition of insanity–the... more
Leave the Capital Gains Tax Rate at 15% (Seeking Alpha) Entrepreneurship and private sector investment should be encouraged in order to accelerate our economic recovery. Ten Principles for a Black Swan-Proof World (Taleb, FT) I am a big fan of Talebs, and principle #1…“What is fragile should break early while it is still small.” Album: Huey Lewis and the News, 1980 AKPC_IDS += "391,";Popularity: 30% [?] Read More →
The Future of Investing: Evolution or Revolution? (Pension & Investments, Bill Gross) A must read. Gross ponders the impact of global de-leveraging, deregulation and the reverse of globalization on long-term equity returns… Treasury-Bubble Trouble? (Forbes) In a recent letter to shareholders Warren Buffet cautioned that “the U.S. Treasury bond bubble … may be regarded as almost equally extraordinary” as other recent bubbles. Album: Read All About... more
A March 6th Bloomberg story, “Bonds Beat Stocks in ‘Earth-Shattering’ Reversal“, danced on the freshly dug grave of my prior post that rhetorically questioned the Death of Equities. In fact, as the chart illustrates, the patient passed away back in October of 2007 which was the peak for global stocks. So, the strategy of buying and holding stock for the long term simply has not delivered the goods. This must present a stupefying challenge to the principles and practices... more
That’s the prediction from Bill Gross. Recently, from his perch atop $700 billion in bonds at PIMCO, in addition to advising the U.S. on its $500 billion fund to buy mortgage-backed securities and $250 billion commercial paper program, Gross sounded the death knell for common stock. Yes, according to venture capitalist Peter Cohen of Peter S. Cohen & Associates, who cornered the bond king for the exclusive interview, “the current economic contraction is killing the animal spirits... more
Venture Populist is the online resource for investors and investment professional to explore portfolio allocations to investments characterized by their probability of positve asymmetrical outcomes; positively-skewed risk/reward ratios that can be achieved via investments such as venture capital, private equity, direct (angel) private investment in start-ups and emerging private and operating cash-flow businesses, private real estate, private debt, franchises, as well as, publicly-traded... more
Jeff Joseph, venture populist, financier, entrepreneur and libertarian-leaning managing partner of Prescient Advisors & Prescient Capital Partners.
