♟️ Choose Your Competitive Arena Wisely

What’s on the Menu 🍴

Are you ready for battle?

Well, this week we’ve got another packed calendar!

Also, we’ve got some lessons around the competitive arena of investing…

And should include your house in your net worth?

Let’s get it!

• Choose Your Competitive Arena Wisely ♟️

•  What to Watch This Week 👀

• Your Net Worth: Should You Consider Your Primary Residence? 🏡

Today’s newsletter is a 5 minute read.

Choose Your Competitive Arena Wisely ♟️

Choose Your Competitive Arena Wisely

Investing in financial markets is a competition…

And over time, a large percentage of people lose to a small group of consistently profitable people.

The first step in getting in the small group of winners is making sure you’re competing in the right arena…

Because if you step into the Lion’s den with a toothbrush, you’ll get eaten alive.

Over the past 15 years as a full-time trader and investor, I’ve seen it all…

From Forex day traders to dollar cost averaging bitcoin HODLers, there are infinite ways to try to build wealth in the markets.

As technology changes over time, so do the strategies that can make money.

For example, around the 2008 global financial crisis, day traders were able to make a killing because the stock market was extremely volatile…

But over the next few years, high speed algorithms and PHD mathematicians changed the game - they competed away short term profits, killing the day trading industry.

Here are the ways I’ve personally seen people build life changing wealth in the 2020’s:

• Bitcoin dollar cost averaging & HODL - The most simple way to have built wealth is buying and holding bitcoin, the world’s best performing asset over the past decade.

• Bitcoin swing & cycle trades - For those looking for extra alpha (returns over regular market gains), buying in bear markets and taking profit in bull markets has been extremely profitable.

• Trading altcoins - Some altcoins are even more volatile than bitcoin and have virtually zero professional traders, making it like shooting fish in a barrel for the skilled trader.

• Startup investing - While angel investing is more competitive, picking the right startup has given me outsized returns over traditional investments.

• Stock index dollar cost averaging & HODL - Even buying the good old S&P 500 has yielded great returns over the past several decades.

• Stock value investing - Want to invest like Warren Buffett? Finding value plays is another way to find outsized returns.

• Stock swing trading - With all the recent volatility from covid and stimulus, swing trading individual stocks with momentum can help ride larger trends.

On the other side of the coin, there are some arenas where I’ve only seen people lose money:

• Day trading - Back in the 90’s and early 00’s, day trading was a profession with trading floors on Wall Street. But as I mentioned earlier, high speed algorithms have competed out short term moves in most financial markets.

• Penny stocks - These small publicly traded companies are highly manipulated, have extremely small trading volume. The only people I see making money in penny stocks are those manipulating the prices themselves.

• Forex trading - Around 2010, forex trading robots were all the rage. But with so many variables influencing price, I’ve never met a long-term consistently profitable Forex trader.

• Other scam markets - Markets like binary options, sports betting, or other “negative sum game” (where almost everyone loses) have strong sales pitches… But again, I’ve NEVER met a successful binary options trader.

So, if you want to be a profitable trader or investor, choose your competitive arena wisely!

 What to Watch This Week 👀

Just as Nvidia stock flirted with the $1,000 per share level and Bitcoin briefly topped $70,000 last week, investors pulled back slightly on risk taking.

Momentum stocks sold off quickly on Friday, so we’ll be keeping a close eye on that shift this week.

Large cap tech also underperformed last week, with stocks such as Tesla and Apple showing sustained weakness:

That didn’t stop sectors such as mining, energy, and utilities from posting nice gains however.

Small caps also outperformed large caps, but still trail year-to-date and on a one-year basis.

Unemployment in the US remained low at 3.9% according to the February jobs report, but it wasn’t a strong enough report to derail the recent move lower in government bond yields.

This week the US CPI and PPI inflation reports will be released, which will be key to understanding the Fed’s interest rate path moving forward.

Q4 earnings reporting season has mostly finished, though we do get a few late reporters such as Oracle, Adobe, Dick’s, Lennar, Ulta, and the dollar store chains this week.

Silicon Valley Bank’s failure occurred exactly one year ago…

Coincidentally, troubled regional bank NYCB completed a critical capital raise last week which helped to stabilize the regional banking sector for now.

We’ll keep an eye on the financial sector as well as the following areas of the market:

📈 Rising Recently:

• Crypto (BTC / ETH / WGMI)

• Gold & Miners (GLD / GDX / GDXJ)

• Semiconductors (SOXX / NVDA / SMCI)

• Energy (XOP / XLE)

• Utilities (XLU)

• Regional Banks (KRE)

• Small Caps (IWM)

📉 Falling Recently:

• Large Cap Tech (QQQ / TSLA / AAPL)

• Software & Internet (IGV / FDN)

• Momentum (MTUM)

• Cannabis (MSOS)

Your Net Worth: Should You Consider Your Primary Residence? 🏡

Your primary residence: it’s where memories are made and where you feel safe … but is it how you build wealth? Should it even be considered in your net worth?

Turns out, this is quite the debate.

Many people are deciding NOT to include their primary residences on their balance sheet (your balance sheet is the important document that tracks your assets minus your liabilities to give you your net worth).

So, is this the right approach?

Let’s start with what NOT to do. Your home is likely not only an asset OR a liability. If you have a mortgage, it’s both and asset and a liability.

If you don’t have a mortgage, congrats, you have just an asset that will help increase your net worth.

Many people think because you have costs of up-keeping a home, this makes it purely a liability to you.

That’s not true. These are simply costs of your “investment”. These costs happen no matter if your home is a primary residence or an investment property (yet, many of these people will include investment properties on their balance sheets but not their primary residence? 🤔).

Costs are not a “liability”, they’re subtracted from any gains/profit you have in your home and will help lead you to your true return rate on your primary residence.

Costs get accounted for on an income statement, not a balance sheet (yes, you should have a personal income statement, too!).

Now, should you be including your primary residence on your balance sheet?

Yes. You really should be including the fair market value of your home as an asset, and the mortgage left on the home as a liability.

Most Americans actually hold most of their net worth in their homes to begin with.

So, not including it on a balance sheet is a very conservative way to reflect someone’s net worth.

If you’re in a bind, and have to sell your home, you want to know what kind of equity you could expect to get in a situation like that.

Don’t conflate equity with RETURNS on that equity. These are two very different things.

While I do think including your home in your net worth should be done, this doesn’t mean I don’t support people focusing on “liquid net worth”.

I do this myself. I include a personal residence in my balance sheet for calculating my net worth- but, I also like to think about stacking liquid net worth.

I even take it further than that: What percentage of my net worth is “highly liquid”?

So, there’s nothing wrong with focusing on your liquid net worth- but, that doesn’t mean you have to ignore your primary residence on your balance sheet.

Of course, it can be more motivating to work harder without seeing that home equity on there (especially if you have a lot of home equity to begin with).

In the end, you have to frame everything with your finances in a way that works for YOU mentally, of course.

But, you’re not doing anything wrong by including your personal residence properly on your balance sheet either!

Food For Thought 🧠

“The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”
- Satoshi Nakamoto

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.