💰 Why (And How) The Rich Get Richer

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What’s on the Menu 🍴

Does it make sense to follow the ideas of wealthy investors like Buffett and Ackman?

Well, today we’re taking a look a Bill Ackman’s next major bet…

And exploring why the rich just keep getting richer.

Hope you’ve got an appetite, because we’ve got a full plate for you today:

• Ackman Versus Buffett?🥊

• Betting on the Future with Crypto Markets 🎰

• The Unsung Hero of Tokenomics 🦸

• Why The Rich Get Richer 💰

Today’s newsletter is a 5 minute read.

Ackman Versus Buffett?🥊

Bill Ackman is a high-profile hedge fund manager who became famous for deeply researched, concentrated stock positions.

In 2009 he made more than 20X his initial investment betting on the survival of distressed mall retailer General Growth Properties.

He’s also been on the losing side of widely publicized trades, such as his position in Valeant Pharmaceuticals and his short-selling battle against Herbalife/Carl Icahn.

In recent years, Ackman has branched out into making big macroeconomic bets. He scored a massive win betting against corporate bonds just before Covid.

Who wouldn’t turn into a “macrotourist” after a monster trade like that?!

Yesterday Ackman publicly unveiled his latest macro bet: he’s short 30-year Treasury bonds.

His thesis basically boils down to the following:

1. Long term inflation will be structurally higher at 3%+ going forward

2. Bond supply will grow, driven by fat government deficits + de-globalization

3. 30-year bond yields will rise above 5.5% to account for these inflation & supply dynamics

The timing of Ackman’s bet is curious, given the rapid rise of the 30-year Treasury yield since mid July as well as the Fitch downgrade of US government credit on Tuesday.

We voiced our concern about rising long-term yields on Monday and the potential negative impact it might have on the stock market.

Do we agree with Ackman that betting against long-term government bonds (and thus assuming yields will keep rising) is a good trade idea however?

We’re not so sure about that one!

We hated government bonds in 2020/2021 when yields were well below 2%. Betting on higher yields seemed like a good risk/reward back then.

But now the 30-year yield is 4.3% and one has to be confident that inflation will remain elevated for many years to make this bet attractive.

Imagine trying to confidently forecast the net effects of these areas over long timeframes:

• AI

• Demographics

• Reshoring

• Energy production

• Technological breakthroughs

• Political changes

• Inflation dynamics

That feels basically impossible!

We’re much more comfortable focusing on short dated (< 2 year) Treasury bills, and right now those look more like an attractive long than a short given 5%+ yields.

Warren Buffett agrees and continues to buy short term Treasury bills.

The media is now framing this as a battle between Buffett and Ackman, but in reality these are two TOTALLY different bets.

Betting on the US government to pay fat interest rates in the next 1-2 years is a near certainty.

Betting on US government credit and inflation outcomes decades out seems harder than predicting if room temperature superconductors are real!

Betting on the Future with Crypto Markets 🎰

The world has been eagerly awaiting the results of scientists around the globe who are trying to validate if room temperature superconductors are real.

But did you know you could actually profit by correctly anticipating the result?

That’s where crypto prediction markets come into play…

Prediction markets are platforms where folks place bets on the outcome of future events.

Think of it as a racetrack where instead of betting on horses, you're betting on real-world events.

These could range from election results, stock market movements, to even the likelihood of a white Christmas.

The beauty of prediction markets is that they harness the wisdom of the crowd, providing a snapshot of what the public thinks will happen in the future.

The Big Players in the Game

In the crypto world, prediction markets have taken a decentralized turn.

Top dogs in this space include Polymarket and Augur.

Polymarket, based on the Polygon blockchain, lets you trade on outcomes of future events across politics, culture, entertainment, and financial assets.

Augur, on the other hand, is an Ethereum-based prediction market that uses its native Reputation token (REP) for placing bets.

The Nuts and Bolts of Crypto Prediction Markets

Here's where it gets interesting. Crypto prediction markets operate on smart contracts, self-executing contracts with the terms of the agreement directly written into code. Participants buy shares of the bets they make.

There are two types of bets: for the outcome (the "yes" bet) or against the outcome (the "no" bet). The price of these shares fluctuates based on the market's perception of the event's likelihood.

Placing Your Bets

Let's say you're betting on whether Bitcoin's price will hit $100,000 by the end of the year.

If you believe it will, you buy "yes" shares. If you think it's unlikely, you buy "no" shares.

As the market sentiment changes, the price of these shares will adjust accordingly. If more people start believing that Bitcoin will hit the target, the price of "yes" shares will go up.

Conversely, if the sentiment is bearish, the "no" shares will become pricier.

In a nutshell, crypto prediction markets are a fascinating blend of finance, betting, and crowd wisdom.

They offer a unique way to speculate on future events while potentially earning some dough.

But remember, the future is as uncertain as it is exciting.

The Unsung Hero of Tokenomics 🦸

Tokenomics is the lifeblood of a token's ecosystem, dictating its supply, distribution, and usage rules…

And it matters because it can influence a token's value and long-term viability.

But here's the twist: tokenomics only matter when there's demand.

Crypto assets can be like a fancy car with no gas. They're only valuable if people are buying the token and see value in the project.

Let's take a stroll down Litecoin Lane.

This crypto oldie just had a block rewards halving on August 2nd, 2023.

Now, in the crypto world, this is usually a red carpet event, often kick-starting a bull market about six months prior.

But this time? Crickets.

No bull market before, no bull market after.

Over the past few years, Litecoin has been like that kid picked last in gym class.

It's under-performed the crypto markets, down a whopping 88% compared to BTC since 2017.

Sure, it's up 24% YTD in 2023, but when you consider the non-BTC crypto market cap is up 28%, it's like winning a race against a tortoise.

And here's the kicker:

Litecoin failed to break to a new all-time high in 2021 above its 2017 all-time high, while Bitcoin was busy smashing its own record by over 250%.

So, what's the takeaway from Litecoin?

It's simple: focus on trading and investing in tokens that show potential to grow faster than old, tired projects that aren't gaining momentum.

Remember, in the crypto world, it's not just about good tokenomics.

It's about demand.

Without it, you're just holding a shiny token in a ghost town.

Why The Rich Get Richer 💰

As investors & entrepreneurs, we’ve run through the gamut of emotions and outcomes when it comes to pursuing financial success.

A lot of people assume the rich get richer because money begets more money.

This is true - it takes money to make money.

But there is a whole different reason why the rich get richer.

They’re addicted to the feeling of success & winning.

Put simply, they LOVE “the game” of building wealth.

You’d think after reaching a certain level of wealth, many millionaires & billionaires would simply sit back, relax and enjoy their money.

But, all of the millionaires we know, including the ones who write for this newsletter, don’t do that.

Winning at business, or picking an amazing investment gives us a hit of dopamine, and we simply want to keep going and challenge ourselves.

Here’s 4 reasons rich people get richer:

1. They view success not as a destination but as an ongoing journey. It’s a lifestyle more than anything. Each achievement becomes a stepping stone to something even greater, pushing them to strive harder and smarter.

2. Their addiction to success fosters a strong work ethic. The strong desire to succeed naturally leads to a stronger work ethic. These two are a powerful combination. The compounding effect of their effort, dedication, and investments are the reward to keep them going strong.

3. They’re resilient in the face of failure. Addiction to success enables them to perceive setbacks as temporary roadblocks rather than permanent defeats. They learn from their mistakes, adapt their strategies, and persevere until they achieve their desired outcomes while many others give up too easily.

4. Successful individuals surround themselves with like-minded individuals. Their social circles consist of influential and ambitious peers who provide valuable insights and opportunities. By networking with such individuals, they gain access to a wider array of resources, partnerships, and connections, further fueling their wealth accumulation.

There is nothing inherently wrong with being addicted to success.

There are much worse addictions that ruin your life, while the addiction to success can make life better in the long run.

Want to surround yourself with like-minded investors and entrepreneurs? Join our Wealth Building Community.

This Week’s We Talk Money Episode 🎙️

This week was dominated by the whole world speculating if the recent LK-99 is the biggest discovery of the century…

Or a big disappointment.

And in this week’s episode, we’re looking at how investors and entrepreneurs could profit from this potentially world-changing innovation.

You’ll also learn:

• Why US long-term rates are climbing (and what it means for the economy)

• Which stocks could benefit from room temperature superconductors

• How to avoid ponzi schemes (and similar scams)

• And we answer a bunch of your questions!

Delicious Bites 😋

• Hong Kong officially opens crypto trading to retail investors

• 10 free business & finance courses from ivy league universities

Food For Thought 🧠

"The rich get richer. Not only because they have surpluses with which to invest, but because of the overriding emotional release they experience from having wealth.”
- Stuart Wilde

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.