Hola friends, hope you are great.

Investors love to pontificate on the near term market set up and how they are playing it.

“There’s no good news out there. You gotta be long USD. Valuations are excessive. The bond market is telling us something. AI Boom is greatly underappreciated.”

Blah blah blah.

If you really want to get the goods on someone’s TRUE thinking, ask them to show you their asset allocation.

Lol. They won’t.

But I will. In Section 1 I show you how I’m heading into 2025.

Personal Finance

My portfolio:

• Cash/money market: 31%

• Private Real Estate/Equity: 29%

• S&P500: 20%

• Bitcoin: 20%

Why so much cash? This is mostly a function of selling our Townhouse last year. We are now renting, which sacrifices control, but it’s far cheaper than owning in today’s world (at least where I live). Plus, being cashed up with no debt feels great. We have options, and options have value (see The most important money concept you can learn).

Not saying we won’t own again—we will—but it’ll be for the security of having a roof over our head, not as an investment (at least in my mind). Because homes generally go up with inflation, and you can’t exactly 'spend your house’ anyway. Sure, you can borrow against it, but you need sufficient equity in the home to do so, and excessive borrowing is risky.

I will say, however, that homes can be a great investment for people that need a forced saving plan that would otherwise spend the cash savings from renting.

Also, for estate purposes, it’s a nice way to build equity that you can pass on to your kids, tax free in Canada. Indeed, there are a lot of “equity millionaires” around here, without much of a liquid/spendable investment portfolio - they are on strict budgets, that’s ok - diligent savers and mortgage payers have done well for their kin.

Of course, lot’s of folks have made serious money playing the housing market over the last couple decades. Good for them. But, timing is everything, and transaction costs and interest calculations are large. Most people quote their Return on Equity without including the interest costs - this is a big mistake. I will expound on this in another issue.

Moving on.

Private Real Estate (& some Private Equity) is a large portion at 29%, and this will increase shortly after completing the latest Narland Deal. Why? Because it’s my day job, and I’m comfortable with the investment theses for each position, expecting to earn an above average return on my money, even though these are illiquid investments. That’s ok, given the large cash balance. Presumably, too, I will continue earning income that will replenish the cash side.

S&P500 is 20% and I will continue dollar cost averaging into the deepest, most liquid, innovative, and capitalist economic engine the world has ever seen. Regardless of the scary-ass headlines out there, I don’t want to time the market, but rather, focus on maximizing our dollars’ ‘time IN the market’. Compounding requires time, you know that. Also, I don’t pick stocks here. Just an ETF, easy-peasy. To quote Buffet: "In my view, for most people, the best thing to do is own the S&P 500 index fund”.

Finally, Bitcoin. You’ve heard me discuss Bitcoin in the past (see Bitcoin hits All Time High) and I’m comfortable with the 20% position. If it draws down 50%, which is normal, it’ll sting, but that would temporarily reduce our overall portfolio by 10% (50% x 20% = 10%). Even if it goes to 0 (I don’t think it will), we won’t die. But if it works out as expected and goes to $1 million/USD in 10-20 years, something else in the financial system is probably not doing well. I’m comfortable with that set up.

Having said all that, please do not replicate this portfolio. What I’d like you to do is sit down and have a long consideration of your financial situation, your risk tolerance, and ability to take risk. Then set up your portfolio such that it adequately reflects your situation.

Stock Markets

We are sure off to a rocky start in 2025: S&P500 is down 0.13%.

$10,000 invested is now $9,987, down $13 bucks.

Look, the purpose of this Journal is to bring back some calm and remind everyone investing is a long term game.

So for all the doomsday peeps out there yelling about politics and how concentrated the S&P500 is, try and ignore them.

Sure, the top 10 companies make up 37% of the index, a historically high figure.

Back in 1980 people yelled the same thing when the top 10 companies made up 30% of the index, also a historically high figure.

But did you know that if you bought the S&P500 at the peak in 1980 with $10,000, that it would be worth $1,500,000 today?

You might also notice that not one of those top 10 from 1980 are in the top 10 today. That’s why index investing is so wonderful: it is a self correcting Darwinian machine—survival of the fittest.

And so, despite that concentration, 7 US presidents, and all the ensuing calamities—1980s Inflation, Black Monday, Asian Currency Crisis, Collapse of Long Term Capital Management, Dot Com Crash, Great Recession, COVID 19, etc—you were best off to set-it-and-forget-it.

Today is no different.

Unless you have a very short term time horizon or are living on a fixed income, most of the readers are in and around my age group (average 25-45) and therefore time is on our side to weather the ups and downs.

And so you should.

To finish, I will leave you with an excellent Memo from Howard Marks: On Bubble Watch

Spoiler…it’s not a bubble.

Real Estate

A friend reviewing our Industrial deal asked a question around acquisition fees.

Abbreviated: “Given the GP invests 10% of the equity, but receives an acquisition fee on closing, does the acquisition fee reduce the net investment for you guys?”

Good question.

Acquisition fees are a standard part of the syndication business model and are used to cover/reimburse ongoing time and expenses spent (including company salaries to admin/accounting team) to find, underwrite, negotiate, complete due diligence & site visits, and close on a transaction.

Additionally, these fees account for the substantial resources dedicated to deals that do not ultimately close.

As part of this structure, a portion of the acquisition fee is paid to the General Partners, including myself, to recognize the work and expertise involved in managing these responsibilities.

Furthermore, we are buying 10% the Limited Partnership Units, pure and simple. This means at-risk, illiquid long term capital invested. This demonstrates meaningful "skin in the game" to align our interests with those of the Limited Partners.

Therefore, the acquisition fee should not be treated as to ‘net-reduction’ our collective investment. They are separate considerations.

1 Quote

A Question

How’s your 2025 going so far?

Mine is busy, but good busy. That’s the way I like it.

_____________

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Thank you

Eddie Gudewill, CFA

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