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Better than stocks - 31.08.2019

In 1939, US President Franklin Roosevelt uttered a phrase that became famous: “He may be a son of a bitch, but he's our son of a bitch.” That is how the US president described his colleague and ally in Central America, Nicaraguan President Anastasio Somoza Garcia.

After 80 years, in the summer of 2019, Roosevelt's words are repeated by many investors who invest in financial markets. But now this phrase is addressed not to a person, but to a class of assets, specifically to stocks. On the one hand, it was in the summer of 2019 that the Dow Jones index updated its historical maximum, on the other hand, it is now becoming clear that the growth period can end at any time.

As you know, financial markets are controlled by greed and fear. And the greater the greed, the greater the fear.

Now greed has driven stock prices in the US to unprecedented heights; therefore, the fear of loss is higher than ever, too.

Once fear only prevails for a short period, the consequences for the US stock market could be disastrous.

Such disasters have already happened in the history of financial markets. The most famous is stock market panic in the fall of 1929 in the United States that led to recession in US economy known as the Great Depression. Restoring the Dow Jones Index to pre-crisis levels took nearly 25 years.

The second disaster occurred in Japan about 30 years ago. Its consequences are still impact the Japanese economy. The Japanese stock index in 2019 is about 50% of the index in 1989. The Japanese themselves call the time elapsed since 1989, "lost decades."

On the other hand, investors still keep their money inn US stocks due to huge capacity of this market, as well as due to the well-known opinion that investing in stocks is the most profitable for long periods of time. And although no one wants to be an exception for whom the rule will not work and who will lose a lot, if not everything, no one leaves the market yet - what if the growth lasts for some more time, especially after Federal Reserve again began to lower interest rates?

It is appropriate to recall that the previous wave of reduction in interest rates in the United States began in September 2007, when the mortgage crisis was already raging. And it started from the level of 5.25%, that is twice as high as now. In other words, the US authorities have little opportunity to withstand the impending storm in the financial markets, and if so, it should erupt with all the might of a long-held element, and in the very near future.

Thus, common sense forces us to look for solutions that will be as good in terms of profitability in the long run as stocks, but will be protected from possible fluctuations in supply and demand.

In the search we will be helped by an analysis of the psychology of securities market participants. You may have noticed that the analystsэ speculations about which paper will bring the maximum income are very reminiscent of the search for the philosopher’s stone, which turns everything it touches into gold.

The actions of many market participants are subordinated to the same goals: they buy and sell shares in the hope of a miracle - that some paper suddenly grows so powerful that it enriches them at one moment.

The stock-market game is also called stock-market gambling because on the stock market, like in a casino, the money of the losing players is divided between the winning players and the organizers of the game. Unfortunately, no new money is being created on the exchange, and the lion's share of the income of those who manage to win is the money of the losers.

Dividends of companies make up only a small part of the profits of exchange speculators.

And although a significant group of investors acquires shares precisely for dividends, it is reasonable to assume that during periods of crisis dividends should be lower than when economy is booming.

From the foregoing, it is clear that if a solution to the problem exists, then it is located outside the stock market.

It is intuitively clear that the yield should be sought among the shares of private companies that are not traded in the markets. But how to choose exactly what you need from a huge number of companies?

Here, professional venture investors who specialize in growing projects quickly for subsequent resale are of great benefit.

However, it is known that the risks of investing in startups are so great that, by acquiring a stake in any one project, the investor will almost certainly lose all his money.

Success to the venture capitalist can be guaranteed only by careful selection of projects for investments, painstaking work to establish a new business and a little luck.

We took the trouble to select the best managers, and the search led us to Israel. It turns out that this country is a home for venture capitalists who earned their first money during the dot-com boom, that is, 20 or more years ago. These people have accumulated tremendous experience, which replaces intuition and allows them to clearly see the prospects of the project and the optimal way to unlock the potential of particular technological startup.

The widespread use of technology with new projects, from traditional agriculture to the latest branches of medicine, is also striking.

Promising projects create value through products that make life more comfortable, work - more productive, and, ultimately, lead to a new quality of people’s lives.

Sophisticated mechanism for controlling the plants’ need for water, an ultra-thin surgical needle, new technologies for the production of edible proteins - all these enterprises today create what mankind will actively use tomorrow and the day after tomorrow.

Consequently, such enterprises are valuable in themselves, regardless of the ebbs and flows of the financial markets. This means that their value will also grow as the tasks facing the projects are solved.

We do not believe in miracles, but we know that the right system, hard work and faith in ultimate success allow us to achieve results that others consider a miracle.

Ultimately, we discovered a venture capital fund that met all our requirements. It was created by the best Israeli specialists and carefully selects projects in which it invests: we were amazed to learn that the competition for participation in the fund was 250 projects per place; that is, the investment committee must analyse the data of 12,500 startups in order to select the top 50 that will receive funding.

It is clear that such work cannot be done in a short time, therefore, direct allocation of investments will take place in the first 2-3 years of the fund’s work, after which the fruit collection period will begin: some of the projects will be ready for sale, and they can already be offered to strategic investors. Therefore, a partial return on investment will take place throughout the second half of the fund, that is, after 5 years.

Officially, the period of formation of the fund ends December 31, 2019, but we are sure that in fact the fund will be formed earlier. Various large investment institutions, including the sovereign investment fund of the Government of Singapore, show great interest in it.

The minimum investment in this fund is $ 250,000, and the maximum is $ 50 million.

The only drawback of investing in venture capital funds is that they receive the main income after 10 years, when the fund ceases to exist, sells its assets and distributes the proceeds among investors.

However, if events in the stock markets begin to develop according to a catastrophic scenario, then the prospect of good earnings, even after some time, will be much more attractive than the chaos into which traded stocks can plunge.

Therefore, our experts confidently state that, given the current risks of the traditional stock market, investing in a venture fund managed by experienced professionals is better than stocks.

Contact us for details of investing in a venture fund - invest with the Government of Singapore!

Thank you and see you soon!