Extremely Alternative Investments

Extremely Alternative Investments

Stock prices continue to set records. Bond returns are the lowest they’ve been in decades. Real estate has been upended by the pandemic. Where can an investor find decent returns anymore?  You could branch out into established alternatives such as commodities, gold, or collectibles if you believe they’ll provide better returns than stocks & bonds. But with all the stimulus money permeating the economy, not to mention the myriad high-tech multi-millionaires with stock option rewards burning holes in their pockets, it’s inevitable that new investment schemes – or variations on old ones – will crop up to absorb all that cash on the sidelines. Think of these as extremely alternative investments.

First there’s Bitcoin, the twenty-first century high-tech version of currency/precious metal investing that the media has hyped at length. Who is not at least cursorily familiar with it? Less well known are the several thousand other cryptocurrencies that are also available for purchase or use. Many have almost no trading volume, but some are almost as popular with investors as Bitcoin is.

The collectibles market has also undergone a significant democratization thanks to the growth of online auction sites as pioneered by ebay. These days small investors as well as wealthy ones can compete at auction online for artwork, that first-edition Beany Baby, or even a new Steph Curry-designed sneaker. But the undeniable star of tech-driven collectible investing has to be the Non-Fungible Token or NFT. It is proof of authenticity and ownership of a digital asset such as an image, video, song, or virtually (pun intended) anything in digital format. For example, whoever owns the NFT for the digital image “Everydays — The First 5000 Days” created by the artist Beeple can assert that his copy of that digital artwork – although identical to all the other copies that are floating around on the internet – is actually the original. Think NFTs are worth investing in? Somebody actually plunked down over $69 million for that particular one. And of interest to Bitcoin aficionados, blockchain technology is what is being used to validate NFTs.

It’s not only technology that drives investment innovation, though. Merger & acquisition investing through special purpose acquisition companies (SPACs) exploded in 2020. SPACs are publicly-traded companies whose sole purpose is to use investor money to acquire (technically to merge with) a privately-held business, effectively replacing investment bank underwriters and the traditional initial public offering (IPO) process. Since few investors have the opportunity to participate in IPOs, SPACs are an alternative way for them to invest in late-stage startups ready to go public. These vehicles have been around since the 1990s but it’s not until recently that SPACs have managed to raise serious investor money. According to Wikipedia, in 2019 there were 59 SPACs collectively investing $13 billion in IPOs. Last year that figure soared to 248 SPACs with a total IPO investment valuation of over $83 billion.

I have not personally invested in any of these alternatives nor am I promoting any of them as viable investment opportunities. In future I may delve more deeply into those I believe have promise. Or conversely ones that I think make no sense whatsoever. For the present, be aware that the level of due diligence you should apply before putting your money into any newfangled esoteric investment far exceeds what’s needed for more traditional investments such as stocks & bonds. Be very careful out there.

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