David Alade

A place where I organise the chaos of my mind

Tag: Investing (Page 1 of 4)

On Crypto, This Time Is Different

July 19, 2022 /

When the crypto market started plummeting earlier this year, I and together with a host of others (I believe) thought that it was just one of those short-term market pullbacks. In fact, I remember vividly how the laser-eyed team of Bitcoin ran pools to ask if people still believe we will see Bitcoin at $100k. An overwhelming number of people believed in the possibility then and until 3 days ago, I might say maybe some of those still live in their bubbles. See this pool:

Of course, the same guy still says things like this:

That’s beside the point though. I am not here to talk about Twitter pools. But to highlight in some ways why this time is different for the crypto industry. It’s different from the 2018 collapse and includes every other collapse before then.

My thinking is that those who think it’s the same may have failed to engage in some thought-through to understand what might make this time different. And I am putting inflation besides the point now. Since it’s more of a global thing that is crypto-specific. When I say this time is different, I am talking about how much so notwithstanding macro realities like inflation, supply chain issues and so on. 

In the following, I highlighted 5 things that make this time different. In the previous periods, these 5 things can be overlooked and have been overlooked. However, I do not believe it will be overlooked again nor do I think it will be a good thing for them to be overlooked again.

I concluded the article by stating that crypto needs some soul search and it needs to find what I call its “accomplished” state. That’s a state where it has either lived up to its hype, lived up to some hype, or dies a natural death. 

What’s the use case?

Endlessly, we ask this question about both cryptocurrency and distributed ledger technology that powers it. “What are its use cases?”

Let me point out one clear and undeniable use case here; payments. I am from Nigeria and a good number of times, I’ve had to rely on Stablecoins for one thing and another. Beyond the shores of crypto adopters and enthusiasts, this use case is settled and undeniable. The number of special committees that have been set up by all the “who is who” in the world to examine the impact of stablecoins, potentially regulate it and even build their own is a testament to that. So we are clear, Stablecoin is a use case for crypto in the payment system. What else are we clear about?

Seriously, maybe I am not in the best position to answer this question. Considering I am more of an observer of the industry with little participation.

So I will allow one of the top participants in the industry to do justice to this. That’s SBF.

SBF made clear from the start of his Twitter thread that he would like to focus on substance and not the usual “you can buy tokens and maybe they’ll go up” type of use case which is what most people bought between 2019 to mid-2021. And in reality, those aren’t use cases at best, they are a gamble, at worst, a Ponzi scheme. 

With those out of the way, he was able to put his potential use cases under 3 categories:

a) payments

b) market structure

c) social media

d) others.

Payment we all agree on. He made an interesting case for market structure use cases, but that’s more likely to be threatened by transaction per second (TPS) limitations in the near term. The same goes for social media but even if the TPS issue is fixed, I don’t see this use going anywhere. Defi, gaming is what makes up others.

If you are thinking what I am thinking now, you would have sensed an issue. In the last period, Defi was the holy grail that will revolutionise the whole of the financial industry. How come it is now being relegated to footnotes even by some as active as SBF. Well, time will tell, but one thing that’s certain now is that it is not a veritable use case as well.

And more than 10 years later, here’s the summary of the impact of crypto given by SBF:

“But taking a step back: how many of these areas has crypto revolutionized so far? I think the answer is “not really any of them”. It’s starting to impact some, but not in a widespread way yet.”

This forms the foundation of my belief that this time is different. Despite lavishing the industry with an overwhelming amount of dollars, the technology is still in the “impact some” stage. You really can’t compare it with the internet, as some have previously done, I don’t even want to go into all the reasons why you can’t do that but, come on, you can’t. 

By the way, trading crypto pairs is not a use case. It’s just an inevitable activity in any financial market. Where people seek to take advantage of market fluctuations and information asymmetry.

Exchanges are the only ones in the sweet spot, not sustainable 

DeFi is great, asset management in crypto is great and even lending in crypto is fine. However, if this period has shown anything to me, it is how the exchanges (Binance, FTX, etc) are in the upper echelon of the hierarchy to benefit from the crypto trends.

I once famously 😉 said, “Your broker’s business model is designed such that they profit both from your intelligence and your foolishness.” Of course, they will make less money from foolishness than they would from your intelligence, but they still make money while everyone else might be losing. They seem to be the last man standing in this industry.

Well, that’s not sustainable. For an ecosystem to grow, the party adding the malt value should be getting the maximum income. Now, there’s a question around “isn’t exchanges the most value-adding industry of crypto?” Well, my submission is that if that is the case, we can as well pack up the whole crypto thing. Because I can’t imagine a universe where the New York Stock Exchange is richer than Apple. Or one where the London Stock Exchange makes more money than Barclays. 

But this takes us back to finding use cases though. 

The billion dollars rain has come to an end

I might be naive on this, but I pray I am not. I do not expect that investors would continue to rain billions of dollars into the crypto industry just as they did in the last period. For obvious reasons, 1) there’s been too much loss of capital for an industry that promised so much. 2) Investors will start to ask more critical questions that builders will most likely not have satisfactory answers to. This will mean lesser investment but wouldn’t mean the serious builders won’t continue to build. And that’s how it should be. An abundance of capital is not good for productivity, inflation will agree with me on that. 3) 

Transaction per second is still a big challenge

Although this is a technology challenge, I believe it can be expanded. However, the question that remains is that with a blockchain, there’s always a trade-off between security and latency. So which one is acceptable is a long debate. 

Why is TPS so important in crypto? A lot of the use cases that crypto will purportedly fix are high-volume activities. Take social media mentioned by SBF for instance, at a 50,000 TPS, the current highest TPS in the industry, how will a social media that combines Facebook, Instagram, Twitter and all else together perform? We will almost have to wait in queue for 7 days to post on a Blockchain-Twitter. God forbid that such a system is powered on the Ethereum network and you will have to pay an astronomically high gas price to get your post to jump the cue.

So that’s why TPS is very important in crypto. 

A brilliant argument for how decentralised social media can be built, but not on blockchain exclusively.

Humans, unregulated, are at their worst. Crypto needs regulation

Have you seen the overwhelming number of people who lost a fortune to the collapse? Some school fees, some live savings, some retirement money and the list goes on. Imagine that the distribution of loss was in the magnitude of general adoption, by now, inevitably, the government would have to bail out those they are okay with to bail out.

For crypto to gain the mass adoption that it critically needs, regulation is needed. In my opinion, the most trusted stablecoin today has to be USDC. Why is that? Because Circle has from the beginning and until now attached itself to a regulatory domain. Where’s Terra? Why does USDT almost always never escape scepticism?

As I noted in this article, any coming together of two or more individuals creates a vacuum for power. And if the power is not consciously handed over to a trusted entity (individual or group of individuals), the most power-hungry entity will grab it for themselves and use it for their benefit. Smiles at Do Kwon.

Simply put, regulation is needed. 

From here to where?

The 5 reasons above that range from use cases development to technical limitations and from the need for regulations to the end of the rain of dollars, require the crypto industry to engage in some more soul searching (it is doing so already, should intensify).

As with any technology that promises a lot, I am still hopeful about the eventual “accomplished” state of crypto. Even if it’s payment alone, that’s okay. Anything it is, it is okay. We have just heard enough of the hype, enough of bad people taking advantage of the hype and enough of cancel culture over this same technology. Now, we need real and scaled impact. If it will bank the unbanked, let it bank them, if it will become the world reserve currency, let it become, if it will be the operating system of the internet, let it be it. Because if it does not find an “accomplished” state, this time will persist. Not like that’s a bad thing, it would however just have been a huge disappointment for technology with so much hype (in my generation).

I hope that this time doesn’t persist for too long and that crypto finds its “accomplished” state.

This Is The Best Way To Invest In Volatile Assets

May 23, 2021 /

Investing is for all but investing in a volatile asset is not for all.

Markets don’t go up perpetually. If it does, everyone will be an investing genius right now.

In a market where a 100% gain is possible within a year, don’t be surprised to see a 50-70% decline as well. That’s the way it works. That’s the meaning of volatility, the price for high returns.

"In a market where a 100% gain is possible within a year, don't be surprised to see a 50-70% decline as well. That's the way it works. That’s the meaning of volatility, the price for high returns." Share on X

There is self-reinforcing psychology in the market of volatile assets. The more assured the public is that the market will keep going up, the higher the probability that a crash is imminent.

The general public here is often new adopters who came into the market of a volatile asset mainly for the gains. They are also quick to suffer most losses. They came for the euphoria, not the underline value. So when crashes happen, they have no idea what’s going on or how to deal with and run away from the market.

Again, these are self-inflicted and it’s the same story across centuries. I noted in another article that those who make the most gains, in the end, tend to be those who build on the value and not those who came for the euphoria.

Markets across the globe are down. From stock to commodities and from cryptocurrency to fiat currencies. It’s a global tsunami.

However, crypto has gotten hit the hardest. A lot of assets in that world are down up to 90% as of now and it’s like they are not done yet.

Crypto is a case in point for me at the moment because it’s the grandpa of the ongoing tsunami.

You know you have gotten to the height of a bubble when almost everything you buy goes up. Then the slogan “just buying anything, they will go up” prevails. Another sign of the height is when both the uninitiated and initiated throw asset names around here and there of what you should buy and what you shouldn’t. Twitter is taking a rest from this behaviour as of now.

The truth is that this is no new knowledge. Those who were around in 2017 warned us, same for those who were around in the 2008 financial crisis and the internet bubble of 1999.

But you see, human behaviour will not let us learn and cycles are self-reinforcing.

This is my first time experiencing this kind of event as well and I like it. Not because I am not affected but because I’m learning it early in my journey.

Yet I must say that there is a strategy to invest in volatile assets in a way that you are not materially impacted when dips as deep as this happens. And still benefit significantly when the massive gains come along.

That strategy is the reason I can write this article and I’m not calling you all to solicit financial help. Lol.

Before I talk about the strategy, let me say that it pains me that the retail investor more than those already rich are those who suffer the most from dips in a volatile asset. It’s not easy to desire and optimize for alpha. 

Alright, the strategy is about “Efficient Capital Allocation” (ECA).

There are two underlying principles to this strategy. And you can employ it for investing generally, not just for investing in volatile assets.

  1. The higher the potential return, the lower the percentage of your capital you should invest in it. Don’t worry, I’ll explain.
  2. Patient (long-term) capital alone can be invested in a volatile asset. Short-term capital should be allocated to fixed income or other less volatile assets.

I’ve unpacked the second point in a Twitter thread earlier. See below:

So let’s talk about the first; High return, lesser allocation.

The logic here is simple. Assets with potentially high returns are somewhat high risk as well. Meaning you can lose a lot of your money just as you can make a lot of it.

In such a case, covering your downside is more important than optimizing for the highest gain possible. Ensuring you don’t have more than 10% of your ‘life savings’ is important. 10% is like the maximum.

Let’s assume your life savings is N1m. N100k will be the maximum allowable to be invested in Crypto.

If that 100k goes to zero, the real loss you suffered on your net worth is just 10%. And that’s even assuming that your 900k that’s left didn’t make any money at all. In the case that it made some gains, you might even offset your loss. Also, you would have learned an invaluable lesson if you lose all the amount that you invested in the volatile asset.

However, if you happen to make your expected 100% gain from the volatile asset, your whole portfolio would have increased 10%. This kind of allocation will allow you to have great sleep at night.

Now, that’s a good simplification but there are nuances. I won’t deal with that now. One of them is how easy is it for you to make the N1 Million again if you lose it all? If it is very easy, you have more room for risks and if it’s hard, you may even not have room for up to a 10% allocation in a risky asset. These nuances have a way of informing your allocation. Well, you must have gotten the main lesson here.

Okay, I started this by saying investing is for all, but investing in a volatile asset is not for all.

To make wealth, you must invest. You must make your money work for you and earn while you sleep. No one should ever doubt that.

But investing in a volatile asset requires more effort than the majority of us can give it. And that’s why there is trepidation in the heart of a lot right now. You have bitten more than you can chew.

There’s comfort though. A lot of us still have our best years ahead of us. The whole that we lost in the crypto dip, we will probably recover once the market gets back on an uptrend or in the future it will be money that we can make within a few hours. So despair not. Be glad you are learning this early.

Most importantly, always seek education/knowledge about the assets you are investing in. Also, read my blog, I have a lot here for you.

5 Things You Shouldn’t Care About As An Investor

May 8, 2021 /

I grew up understanding the language of money and my curiosity led me to the art of investing early as well. I started investing (in the stock market) in 2017. Between then and now I’ve learned several things. Among them, I want to share with you some things that we pay attention to but doesn’t matter in the scheme of things. Like they are things that don’t count at all. And you should stop paying attention to them once you learn them from today onward.

I laugh as I write this because I know you won’t stop. I must confess I’ve not been able to stop all myself as well. But I’m working towards it.

So let’s dig in.

1. What return you would have made if you invested in a thing 5 years ago

I called a friend some weeks ago about the need for us to change how we invest (in crypto). Before I tell you what we changed it to, let me tell you what had occurred to me.

I looked at the historical price of the DOGE coin and realized what a kill of money we would have made had we invested in it 5 years ago and hold until today. Never mind that majority of those who are aware of crypto 5 years and that invested either lose their money or find it untraceable (humans don’t think about that just the part alone).

Well, for context, $1,000 invested in DOGE on January 1st would be $121k at the peak price of $0.65. 

But you know the kind of story people have to tell? Here’s one:

This is not an attempt to deny the fact that a lot more people have made money on the same asset. Rather it is to point to you that it is useless to pay much attention to “what you would have gained had you done this or that.” You are currently living in the same period and obviously, you didn’t do it. There’s no assurance that you would have done it 5 years ago as well.

And then again, there are some opportunities available to you now but you can’t see them or you are not patient enough for them to materialise. However, 5 years down the line, someone will say things like this again…

“If you bought this so and so and hold it till today, you will be a millionaire now.”

That’s very easy to say and see. Implementing it now and immediately is tougher. And that’s where your attention should be on.

So when I called my friend, I told him “enough of fantasies.” We have both fantasized a lot about what gain we would have made had we done this or that. We agreed to start working and concentrating our energy on recognizing opportunities that could give us similar returns over a similar horizon. But then again, it’s easier said than done.

Let me tell you another thing that is at play anytime we say statements like that.

Our brain is poor at conceptualising how long 3 months can be let alone a year. And definitely not to talk of 5 years. The brain can’t grasp. So whenever we say things like that, more often than not, our brain interprets it as something that could happen in a rather shorter term (like overnight) not the actual 1,825 days. 1,825 days of up and downs. Some downs as much as 50% from the earliest highs. The brain doesn’t grasp. This is a conclusion I made from observation and extrapolation on Professor Hershfield work.

Brian said it well here: you can’t teach anyone what a 20% decline feels like.

This is the research from Professor Hershfield that explains deeply how bad the brain is at grasping long term decisions that may hurt in the short term.

With all these learnings, I will say again, that your time and attention will be better spent if you spend it on finding opportunities lurking in front of you over an obsession with what could have happened.

This CNBC article is an example of things you should never read as it relates to this.

Knowing what to invest in today that will give you similar returns is infinitely more important than this retrospective knowledge. Even more important is building your mental muscles to be strong enough to hold for the period.

2. Your daily, weekly, monthly and even yearly return is not your focus

By the time I mentioned yearly, I’m pretty sure you probably raised your eyes and wondered what’s he saying. But that’s not a mistake none of those deserves your attention and time.

At the end of the day, what will count is your average return over time. A 50% gain within a month is pointless. You could wake up and the gain has been eroded. Or you could even be at a loss.

So to what end and benefit is the 50% gain of yesterday? Did it make you feel like a genius? Like someone who’s mastered the art and science of investing? Such euphoria and sense of accomplishment are soon wiped away by Mr Market who have no regards for anyone or their feelings.

Average return over time takes into account your capital and the return you have made over time. “Over time” is important here because it makes all the difference. 

Something I learnt from statistics as I do my work is the importance of not paying much emphasis on a point estimate. Rather, attention should be paid to interval estimation.

Advantages of Interval Estimation over Point Estimation |

As you can see from the image above, the point estimate is a replica of logging in to your brokerage account and seeing a 100% return and make your judgment based on that. While the interval is a replica of looking at your return over time.

One is more reliable and reflects reality. The other is just a fad. 

Your performance today or tomorrow or even this year is not what matters. It’s the sum of all performances that is your reality and that’s what you should optimize for. Your reality could off course be a year or a month or a decade. The point is that it is the end that matters, not the in-betweens.

Optimising for “the end” oftentimes may mean, accepting short term underperformance. And let me quickly cheep this in that, no one goes on and on in the market of investing without experiencing some periods of loss. There will be years of 50% gain but there will also be years of 30% loss. In the end, it’s the average that matters.

3. Stop chasing Alpha, at the end of the day, alpha won’t matter

What would matter instead is “do you have enough to cater for yourself?”

Alpha is any return above the market return. That is a return above the S&P 500 return.

Jason Zweig in this article told a story about interviewing dozens of residents in a choice neighbourhood, Boca Raton, FL. It’s one of the wealthiest retirement and communities in the US:

Amid the elegant stucco homes, the manicured lawns, the swaying palm trees, the sun and the sea breezes, I asked these folks — mostly in their seventies — if they’d beaten the market throughout their investing lifetimes. Some said yes, some said no. Then one man said, “Who cares? All I know is, my investments earned enough for me to end up in Boca.”

At the end of the day, what matters is always “earned enough” to afford your lifestyle. It doesn’t even matter if you made no returns at all or made something less the historical market return or even more. Who cares, sure you won’t. Just “enough” is all that counts at the end of the day.

While you have the time and energy, it’s okay to catch the fun and cruise of chasing alpha. My point is to redirect you and remind you of what really matters.

As Ben Carlson noted while recounting a similar story, “the whole point of investing in the first place is achieving your financial goals, not beating the market.”

4. The amount of time and effort you put into your investments is a needless statistics 

This point is equally interesting and unpleasant. Unlike other activities in life where time spent on them may determine how good you may get at it, investing is different.

In investing, the less time you spend worrying about it and “unlooking” it, the better you tend to perform. Investing rewards passive people over active people.

So it will be ill-fated, to imagine because you spend a lot of time “investing” you will do better than those who spend significantly lesser time. It doesn’t work that way.

If I were you then, I will be optimizing for spending lesser and lesser time “investing”. Going back to the example of DOGE from an earlier point, the one who bought and forgot about it will currently be outperforming the active (in and out) guy. However, note that DOGE could also have gone to zero and the same person loses all their money.

It’s this point that makes me favour index investing over, stock picking. Note that as it applies in crypto so does it in stocks. The principle is the same. The passive “HODLers” eats the fastest meat. Optimise for lesser activities. There’s no virtue in spending an enormous amount of time on “investing”. Except, of course, you are in the business of investing like Cathie Wood or Warren Buffet.

5. If you are investing for the long term, you have no business timing the market

Watch this video to understand how pointless it could be trying to time the market.

And if you give up trying to time the market, I bet it will buy you more time. And it will also help the point above of optimizing for lesser time investing.

Did you enjoy this? Ben Carlson wrote 10 things you shouldn’t care about and I got my inspiration from him.

Crypto Economy: Where It All Started From

May 1, 2021 /

There’s been a lot said about the Crypto economy lately. Especially as it has presented itself as an opportunity to make trading gains never before seen by our generation. You could by DOGE and make 300% gains in 3 days or by CAKE and make 10x in under a year.

But the story of Crypto didn’t start with money-making not did it start with DOGE. It started from the beginning of human civilization. Yes, humanity follows an arrow of progress and it has been leading us up to this point.

However, I won’t start this from the beginning of civilization. We will assume this beginning to be a different time. A time that serves as the catalyst for everything that’s have been created in the last 11 years and more that will be created.

The year was 2008, financial crisis broke out in the US that affected the whole world. The effect was devastating and it wiped out a lot of wealth. To cushion the effect and ensure a quick part to recovery, the government had to bail out many of the failing institutions.

This bailout was seen in some quarters as the government meddling in the affairs of the “invisible hand” of the market. This category of people believes companies that will die should have been allowed to die and well-capitalized companies can remain. The argument is also premised on the fact that it was government over participation that led to this situation to start with.

Government overparticipate through the federal reserve bank who has the function of price stability, and employment. And to achieve this, they maintain a level of inflation in the economy.

Inflation is the increase in the money supply of an economy. What inflation does per time is to reduce the value of the money in your hand. How?

This article explains how – deflation is the natural order of the world.

But not a lot of people understand that. And some who do believes it’s the most efficient way in which economic activity can be coordinated.

While all this was ongoing, a man (Satoshi Nakamoto) made a breakthrough in the development of a technology that will later become the Blockchain.

See the history of Blockchain here – https://academy.binance.com/en/articles/history-of-blockchain

Here’s the problem the Blockchain technology solves:

On the internet, you can send the same thing 1 million times and there won’t be any regard for the original. With blockchain technology, that problem was solved. Now you can have a unique item on the internet. So unique that once you send it to someone else (pass ownership) it becomes the property of that person and never again yours. The only way it remains connected to you is that it will remain on an (immutable) record that you once owned it.

This technological breakthrough made it possible for Satoshi to create (scarce and sound) money on the internet. That money is what is now called Bitcoin.

Bitcoin is the internet’s money. The first unit of Bitcoin was created (mined) by Satoshi on January 9, 2009, with the note signalling Bitcoin’s fundamental disdain for inflation (bank bailouts).

In the beginning, Bitcoin has zero value in USD. But from Zero till today, Bitcoin now commands a net worth of above $1T. It became the best performing investment in the last decade.

Through thick and thin with much criticism and antagonism, Bitcoin emerged as a dominant store of value asset.

This interesting image will give you an idea of all Bitcoin had to go through.

In the process of Bitcoin evolution, a new innovation was given birth to called Ethereum. Before we talk about that, let’s explore something.

For the Bitcoin technology to work flawlessly, trade-offs had to be made. The trade-off means less flexibility to build on the Bitcoin blockchain. However, as innovators understood more about the blockchain technology, they realized that more can be done with the blockchain technology. Albeit not on that of Bitcoin in order not to compromise the integrity of Bitcoin from its primary use case (sound internet money).

So the new innovation was given birth to in 2013 when Vitalik Buterin proposed it in a paper he wrote. The innovation is simple as an idea but programmatically complex.

It’s called Smart Contract. The idea is that you write a computer program that can execute on its own once certain conditions are fulfilled. For example, a smart contract could be programmed to release funds for someone’s birthday each year. It could also be programmed to release payment once someone confirms receipt of delivered goods.

Read this for more – https://blockgeeks.com/guides/smart-contracts/

Vitalik pursued the idea and in 2015, Ethereum went mainstream to become the first blockchain on which one can build a smart contract.

Like I said earlier, the idea is simple but programmatically complex. So Ethereum happened to have a lot of inefficiencies as well, the major ones being gas fees and scalability.

Read this – https://zycrypto.com/scalability-and-high-gas-fees-behind-ethereums-failure-to-double-all-time-high-price-like-bitcoin/

These limitations have invited competition in the cryptoeconomy who are also building something similar to Ethereum but without the limitations of Ethereum. Among them are Polkadot, Binance Smart Chain, and Cardano.

This thread on Reddit is one interesting to look at on Ethereum competition: https://www.reddit.com/r/ethereum/comments/kjo6a4/what_are_strongest_competitors_to_eth/

What’s interesting though is that because of smart contracts and other innovations on the blockchain network, the combined market value of the cryptoeconomy is now north of $2T. That is, aside from Bitcoin, other things that innovators have been creating since Ethereum was launched in 2015 now command a combined value of > $1T. And Ethereum has more than $300B of that value.

That’s where it all started from up to where we are. In the coming threads, I will share with you the interesting journey that got us here and where we could probably head in the future.

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Predictability Makes Wealth Building Easier

February 20, 2021 /

“People will do whatever they can to find a world in which they can predict the outcomes of their actions and the consequences of those outcomes”, Howard Stevenson wrote in a Harvard Business Review essay of 1995.

A profound observation I must say. And over the years our quest for predictability has only increased. We believe since we have more data about the past we should be able to predict the future. We believe since we have access to more information, we should be able to predict the future.

The quest to predict the future is honourable and we shouldn’t give it up. In fact, it makes risk-taking and wealth building easier. Which is the purpose of this article.

The first place to look at when we are discussing this quest for predictability is the stock market. The easier it is for investors to predict the revenue and profit of a company the higher the value accorded to such companies.

That’s why companies with a recurring revenue business model get the attention and money of investors more than any other company. Those companies grow wealth for their investors quickly as well.

A predictable outcome makes wealth building easier. Risk is easier to take and reasonable bets can be placed about the future when we have an idea of what we can expect.

In Nigeria, we have been deprived of this ability since I can recollect.

Sometimes in 2008, I was walking down the street with my mama, out of a thirst for predictability, she said “I wished I had some money now so I can buy some shares (of Nigeria banks) for you and your sister so that many years from now when it would have increased in value, you will have something to start life with.” A profound thought from a woman who knows nothing about the stock market but just that money invested in it can increase in value over the years.

Her ability to predict what the future would be was motivation enough for her to take a bet on the future. Also, it was enough for her to make a sacrifice today that will benefit her and us, her children in the future. She could tell with reasonable assurance that the shares she wanted to buy will increase in value.

Before 2019/2020, the truth is that Nigerians haven’t had the privilege of predictability handed over to them. Even if my mama had invested in those shares in 2008 when she made that remark, there is a high likelihood that neither us, the children nor her would benefit from that optimism. For a couple of reasons.

First, 2008 was the middle of the financial crisis and I guess that’s why she got to know about the opportunity to buy shares of banks. Not a lot of those banks have recovered and not a lot are doing great. Below is the Banking Index performance of the Nigeria stock exchange since then. Not much has happened in 13 years to make wealth for the investors. You will agree with me.

Nigeria Banking Index
Nigeria All Share Inidex

Compare that with the same period for the S&P 500, the measure of aggregate wealth creation via the stock market in the US. You see a clear dip and eventual recovery. Not just recovery but also growth.

S&P 500 Index

So our stock market hasn’t made predictability easier. And oh, don’t talk to me about the dividends that would have been paid by those banks or any other. The history of dividend payments in Nigeria only started to get better with reforms from a recent time. Nigerians used to find it extremely hard to recover their dividend.

The second reason is the instability in the exchange rate plus continuous devaluation of our local currency, Naira. In 2008, you only needed about N115 to buy $1. Today, you will need N480 to buy the same dollar. A more than 3x devaluation. That is, over the last 13 years, Naira has lost its value against the Dollar 3 times. That’s wild, compare that to the return one would have made by investing in Nigeria stock and you will see the gory image. No wealth of any significance has been created. Just wealth erosion and inflation-induced growth.

Government bonds didn’t help within this period either.

Well, within the past years, wealth building has left the dining table conversations of Nigerian families. What’s left is survival talks plus thrift contributions and a lot of debt that’s accumulating with no hope of income to furnish the repayment. Little wonder my generation talks a lot about the black tax.

When the future is predictable, humans tend to make decisions that will benefit them in the future. They are ready to make sacrifices today with the expectation of a potential upside in the future. That’s what we learn from my mama’s story and that of many others and the stock market reaction to a host of companies with business models that make their earnings easily predictable.

Otherwise, humans won’t even give a thought to the future beyond tomorrow. After the event between my mama and me that day, we didn’t have a conversation about things like buying shares anymore.

This experience is contrary to what is obtainable in the US, for example.

Before 2019, I read a lot of personal finance and investing books written by US authors. One thing that’s common among all books is the constant assumption that you could invest and reliably without any hassle make 10% ROI on an average for as long as you want to invest. This “as long” typically starts from 15 years and ends at 35 years term, it could be more. The people’s ability to reliably predict such a future gave them the motivation to sacrifice a portion of their income today to build wealth for the future. Otherwise, there’s no point.

The result of such a predictable outcome is not far-fetched. More than half of American households have an investment in the stock market.

The new renaissance

To express the gratitude I have right now, I will start by saying, God bless the innovators of this generation. They are incredibly brave, forward-thinking, and down to earth. These innovators will change a lot of things. They will bring back wealth conversation to the dining table and many generations starting from that of mine will benefit from what they are building. Already we do all these on Twitter. It’s no longer conversation as usual.

Alright, David enough of prayers and adulation. Lol.

The new renaissance is being led by companies like Risevest, InvestBamboo, Trove, and Chaka. They are at the forefront of this. What they bring to us is predictability. The single item that motivates us to build wealth.

With their products, they have made predictability easier by eliminating the devaluation and inflation risk and they also expose us to assets that are growing at a predictable estimate.

Together, they give us a form of exposure or the other to the US stock market. A market where you can reliably estimate what the future will look like. It’s market share where you don’t need to be a fortune teller to be able to tell that the future is that of growth and wealth creation. In fact, you can reliably put a measure of growth at 10% per annum and you won’t be too far from the truth.

You have no excuse anymore now. You must build wealth. I am not giving you the option not to build wealth. It’s a must.

The only excuse that is tenable is the lack of knowledge. And that’s why I work day and night to bring you articles on this blog. Make this blog one of those that you visit daily. Read the latest articles, and read past articles as well. Also, subscribe to my newsletter where I will bring you some of the contents that you may have missed. You have no excuse again afterward.

You can also book a session with me if you require one to plan your financial life and build wealth. You are a privileged generation. If my mama was able to invest even $1,000 for me in 2008, which would have cost her N115k, that amount would be more than $3,000 now or N1.4M. You have the advantage today. Utilize it. Okay, let me beg you, please, utilize it.

NairaLifeLesson: What You Earn Is Not A Reliable Measure Of Wealth

February 16, 2021 /

#NairaLifeLesson: What You Earn Is Not A Reliable Measure Of Wealth

In this week’s #NairaLife by Zikoko, a message that I’ve always preached on this blog comes with an astonishing example.

She’s a project manager (I will call her Cynthia) and earns about N42m per year or $110,000. Yet, she only has a paltry in terms of net worth. It’s been balling and Insha Allah for her for the past 10 years of her working experience.

The good thing, she’s now on her path to financial freedom and wealth accumulation.

3 lessons from her story

You can earn millions of money and still have money problems

Many of us like to think more money will solve our money problem. And maybe it will solve some kind of problem. But never some.

Problems it will solve would be your spending problem. More money will give you room to spend more. You can travel to the US 4 times a year, maintain a high standard of life, make your parents happy, buy, buy and buy even more. That’s the problem that more money will solve. Outside that, nothing more.

In Cynthia’s story, we saw how she could buy a property of N33m, a car of $21k and lived larger than life for the past 10 years.

The problem more money won’t solve can only be solved by the money you did not spend.

After 10 years of living large, Cynthia began self-talk that revealed a more damning problem than she’d ever faced in her financial life. She has not been thinking of savings, investment, financial freedom and retirement.

She listened to some podcasts, read some books and heard people in their 60s and 70s recounting how life is difficult because they also didn’t consider investment when they were young. That opened up her eyes to a problem that needs fixing immediately. 

To fix that problem though, she needs to stop spending not to spend more. Yes, savings, investment, financial freedom and retirement are problems that can only be solved by not spending.

This problem doesn’t require more money, it only requires more discipline and plan. It requires not spending. So whatever stage of life that one may be in, they can begin to solve this problem. Starting small is one of the most important ways to learn to solve this.

I remember how I will save 7k out of the 70k from my first job. It was difficult but I know if I make excuses then, I will make more excuses later on.

Wealth is what you don’t see and it gives you peace of mind

Anyone who knows Cynthia for the past 10 years will wish for her kind of life. Unfortunately, she doesn’t wish it for herself and she even has regrets.

You will wish for it because it’s full of signals of wealth. Who doesn’t want to travel to the US 4 times a year? Who does want to earn $95k per year? Who doesn’t want to have the means to buy a property of N33m for their parents? I guess you don’t want to drive a car that costs $21k.

You see I’ve written here before that all those things are not a pointer of wealth but only a signal of wealth. And like I noted in the article, the problem with optimizing for signals of wealth is that it conditions you to consumerism. You will be pushed to look away from the real wealth and optimize for what will make people perceive you as wealthy.

Don’t fall for it. Wealth is what you don’t see. Not the flashy cars or the latest iPhone. Now, Cynthia understands that and she’s aggressively optimizing for real wealth.

She’s building her retirement account, saving for an emergency, investing in stocks and getting professional money advice. These are things you won’t see outside. Yes, if you want to judge someone’s wealth those are things that are not visible to the eyes. But those are things that give real wealth. And they give peace of mind. If you read the Zikoko article, you will feel the sense of peace that surrounds Cynthia now that she’s building up her investment portfolio and money habits. 

That’s it, wealth gives you peace of mind. Signals of wealth are just vibes and Insha Allah. Nothing more.

Don’t wish for or optimise for signals of wealth. Wish for real wealth and aggressively optimize for it.

Debt is wealth killer, take it only on conditions

Cynthia earns $110k per year but she feels the weight of her debt more than the joy of earning more than most of her pairs.

Just a few days ago as recounted by Cynthia, she had $15k in her emergency fund. But when she looked at her debt profile, it took a toll on her and she could bare having so much debt again. So she paid $10k just to clear a portion of the debt.

Imagine what $10k compounded over the next 20 years at an annual rate of 10% would have been. That’s $67k. Left for 30 years when she will be about 70 years old, the $10k would have grown to $175k. Alas, all that is gone.

And she’s not free yet. She still has a student loan of more than $50k to pay.

Student loan is one of the things that a lot of us may have to take at a point in time. It is sometimes a worthy investment. However, keeping it to the barest minimum possible is wisdom. While at that, please don’t take on more loans through your credit cards. It always comes back to bite.

See how the US is always debating policy stances on student loans. It’s not so bad but it’s not so good as well.

Debt generally should be avoided. However, there are occasions when debt is good or the only available option. A case in point is student loans. You can only get some opportunities if you have an advanced degree from a reputable institution. And that usually comes at a cost that one can’t afford. So taking a loan is the way out. And we take such a loan because we believe it will pay itself. That is, you make enough income to pay it off comfortably.

Other times when it is good is also when you believe it will pay for itself. If you used the loan to invest or booster a business venture. In this case, taking a loan is good.

It will also be good if you need it to survive but have a clear path to repay it. I wouldn’t have had education if not for the loans that my mama took to pay my school fees, feed me and buy me textbooks. So I understand this angle as well. One thing my mama is reputable for though is that she will always repay the loan. Don’t make excuses for not repaying a loan. It’s not free money.

Except for these conditions, loans will deprive you of wealth and take peace away from you.

Wealth is what you don’t see. A reliable measure of your wealth is not in the abundance of what you spend but what you didn’t spend out of what you make. That portion, invested in computing assets over the years will make you wealthy and give you peace of mind. A loan is only to be taken on conditions that it can pay back for itself or necessary for survival.

A Better Valentine Gift That Keeps Giving

February 9, 2021 /

Let’s start with a needed disclosure, I am no relationship expert. Lol. I am only someone who seeks to guide everyone on the path to create generational wealth. I am doing this as I build my own.

Valentine is a symbol of love. My girlfriend and I always look forward to it. We like the day and we have a fun memory of it. 

I bet you also have someone you can share the day with.

In sharing, we go out on a date, buy the box of chocolates, the perfumes, the cakes, the roll-ons, the different gifts. But if I ask you how many of those gifts exist today? Maybe some. But how many of it has increased in value? None of it I can bet. What if you can give a gift that will keep giving? A gift that your loved one can keep reaping the dividend even after 10 years?

A gift that keeps giving 

13 years ago, my mama wished she could give me this gift but she couldn’t. She wanted to buy me stock of some Nigeria banks. She wanted to put some money in it for me so that in some 10 years time, when it would have appreciated, it can serve as a good base for me. But she couldn’t

One, because she didn’t have the access and two because she didn’t have the money. And I still have that memory till today. You have the access and you have the money today.

Gift your lover a stock plan on Risevest

Risevest allows you to “gift a plan” to anyone just with their email. You deserve to be flogged if you don’t know his/her email. Lol.

It’s a simple step of clicking on the feature, entering their email, choosing a plan, then sending money from your wallet to your loved ones. The minimum you can send is $10.

No matter the amount that you give, many years from now, the money will keep on appreciating and your loved ones will keep reaping the benefits. As long as they keep the plan of course.

That’s it. When you give them such a gift, you are helping them build wealth on a solid foundation. 

The assumption here is that you have a plan  for yourself already. If you are a reader of this blog, you will be disappointing me if you don’t. 😩. But it’s not too late. You and your loved ones can start today.

Read this to know more about Risevest. – There Is Wisdom In Investing With Risevest

Gift them Bitcoin

A lot is going on in the financial world. And even if you don’t know all of it and probably don’t care about knowing all of it, you can lean on the judgment of those who care enough to know it. That was my premise in this article that I believe you should read.

That said, unlike Risevest, you will need your lover’s phone to gift them Bitcoin.

That’s necessary because they need to create an account first before they can own this other kind of gift that keeps giving.

So get their phone, register them with their KYC and buy them any amount of Bitcoin that you can afford. Don’t worry about the price of Bitcoin now. Just gift it to them.

I wrote here how to do a p2p transaction on Binance since CBN has restricted exchanges access to Naira.

Gift your lover Bitcoin. It’s a gift that will keep giving.

Of course, this is not to say you should not go on the date or buy the wristwatch and box of chocolates. It’s just to tell you that there’s even a gift that will keep on giving and that many years from now, you will still talk about it.

You can gift it to your kids and parents as well.

GameStop Stopped Gaming: Wealth Erosion And Aftermath

February 7, 2021 /

At the peak of the event that was GameStop, an acquaintance reached to me to enquire if it was alright for her to buy GameStop stock. I cautioned immediately and advised against it. What became of GME stock afterwards was that of premium tears for the uninitiated.

I have a saying for which I have been labelled with on Twitter. “Know your game, play your game” goes the saying. Unfortunately, a lot of people take the stock market as one of a play. It is a brutal environment where your wealth can be wiped off overnight if you are not careful. So far, it gives me great joy that some people that I know have made wealth than burn wealth.

Knowing your game and playing your game is my way of telling everyone to have a reason for being in the stock market, have an investment strategy and don’t sway from your reason or strategy except you are doing so after much thought and intentionally. The fellow that reached to me is an example of someone not adhering to their game. And it would have cost her, glad she consulted before acting.

As GameStop rose rapidly, so did it fall rapidly. But those who made the most gain were not the retailers who thought they were gaming the system but the folks whom they think they outsmarted.

Ryan Cohen made $1.3B from the event.

This hedge fund made $700M

And the mastermind behind it all Keith Gill was a CFA charter who understands very well the world of investing. He is not some amateur at all.

Do you know what happened to the amateurs? The ones who didn’t know their game or who knows it but didn’t stick to it?

See this:

https://twitter.com/nikitabier/status/1356793829240631296?s=20

Then this too:

https://twitter.com/thewealthdad/status/1357019599439605760?s=20

Then see this person lost $1m already and still hoping. 

It is easy to think you can make easy money on the market, and make the maximum return possible but your goal, what you should be optimizing for, shouldn’t be about things like this. It shouldn’t be about being right 1% of the time like with GameStop but about being right 90% of the time and growing wealth slowly for that is the only sustainable way.

You Can Invest Your Way Into Wealth

February 6, 2021 /

Wealth is never gotten overnight and the want of overnight wealth is the root of all evils. Evils hiding under greed, fear and lack of contentment.

Investing is a game of wealth accumulation not that of income generation, at least not in the short term. When you invest you are betting that the future will be better than today. Not two weeks will be better than today, no. It’s that ten years will be better than today. Two weeks can carry a lot of disaster with it, but in ten years, even if there were disasters, it won’t matter because we would have had significant progress.

In a previous article, I wrote that investing won’t solve your income problem. Here’s like a sequel to say, investing will solve your wealth problem.

Anybody can build wealth from the habit of investing. And your income doesn’t matter here. Of course, it will matter when you are defining wealth for yourself. You can’t earn $100 per month in 40 years working career and expect to have accumulated a wealth of $1m.

So while investing will bring wealth to anyone, we still have to define that wealth within the threshold of someone’s lifetime income.

Investing your way into wealth

Investing is a way to put your savings (the difference between what you earn and what you spend) into work for you. 

Do it for a long enough time, and you will make wealth. Yes, you will make wealth because assets that you are investing in will grow in value and your wealth will grow as they grow.

You don’t need to have the best of knowledge before you can invest. I wrote about how doing that investment with Risevest can be the best option for you. And I’ve also written about how buying simple ETFs can be a viable option. Both of which I am doing for myself by the way.

What I’ve not shared on this blog is the power of compounding as you build wealth.

S&P 500, an index that tracks the top 500 companies in the US have returned about 10% per year on average in 50 years. If you managed to invest just $100 per month for your 30 years of a working career, you would end up with a net worth of $200k. And as I noted in the tweet below, that might be just more than enough for anyone out of developing countries to maintain an upper-middle-class lifestyle.

https://twitter.com/DavidAlade__/status/1357439181253926912?s=20

Even though all that you were able to contribute in your entire working life was $36,000, with the help of compounding, you were able to earn more than $170k in interest. 

This is to show you that investing can help you build wealth but it cannot do it overnight. It is so interesting that if you choose to work just an extra 5 years, your net worth would grow to $340k within that short period of time. Yes, with time, everyone can build wealth.

On the hand, the first 10 years of investing your paltry $100 monthly cannot even move a needle. That’s why all who desire overnight wealth never get it and they are almost always parted with their money. Oftentimes, out of greed.

You must define your wealth

When we talk about wealth, the first thing that comes to a lot of people’s mind is the kind of Elon Musk or Jeff Bezos money. I’m sorry, very few people on earth will ever have that kind of money. Also, you don’t need that kind of money to be wealthy.

The beginning of your definition of wealth must start with contentment. Because wealth is not how much you have in your bank account or aggregate investment that you have but the difference between what you desire and what you have. Yes, if you desire a Richard Branson lifestyle, it doesn’t matter if you have $10m in your bank account, you will always be poor (albeit mentally). Someone with $1m may be richer than the one with $10m, it’s a matter of your desire and what you can afford.

I should mention lastly on this point that, you need not be able to afford everything that your eyes desire before you can be wealthy. As a matter of fact, only King Solomon has had that kind of wealth. Everything that his eyes desired, he gave to it. You know his conclusion; vanity. So please define your wealth.

While investing won’t solve your income problem, it can help you to build generational wealth.

Join 600+ people who are subscribed to my newsletter via this link to get notified of future posts like this and more. 

You Can’t Solve Your Income Problems With Investing

February 4, 2021 /

Invest $200 and earn 30% ROI in a year, you will feel two things. One, 30% in the scheme of things is a lot and you may even brag about it. Two, when you realise that a 30% ROI is mere $60, you become unsettled. Unsettled because your target towards financial freedom is $1m.

So you wonder, how soon will I get to $1m if all I can do is to earn $60 more on my $200 per year?

On the other hand, if you earn the same 30% on a capital of $100k, you can see the straight path to $1m. It is so straight line to you and it’s so nearby.

The same 30% different outcomes.

I have an extreme example that I like to use. “200% return on a $200 investment will still leave you with $600 in the end.” Now tell me, is it easy to make that 200% return and how many times you can make it.

When people are plagued with an income problem, the easiest place they run to is the world of investing. The thought is that by investing, they can escape their income problem. If anything, the illustrations so far would have taught you that it’s not possible. Income problems can’t be solved by investing. Investing a long term game of wealth accumulation through compounding.

We run to investing simply because it’s the easiest way out. By doing nothing at all, you can earn 30% more. Who doesn’t like that? We all want our money to work for us. It’s laziness subtly showing itself in us. We want free money that doesn’t require work. Yet, wealth is a two-way equation. It is an interplay between your income and the part of that income you invest in compounding assets.

I don’t think we are unaware of where income comes from or what we can do to increase our income. We know.

However, the thought of investing 3 months, 7 months or 12 months as the case may be in developing a new skill or a new income source doesn’t sit well with us. We want an immediate result. If you invest in the stock market today, you can wake tomorrow and your portfolio is up 10%. Free money from doing absolutely nothing is sweet.

But you can’t solve your income problem with investing. While the 200% ROI from above will still leave you with a paltry income, just 10% on some capital can take care of your year’s expenses. Give or take, having N100m and earning 10% ROI per year means N10m per year. For an average person, that’s more than enough to maintain an upper-middle-class lifestyle. Can you see the power of a robust capital base? And yes, the capital base comes from your income. Else, where will N100m come from?

When you have an income problem the best you can do is to focus on solving that. Don’t be lazy around looking for some 200% that won’t even change your life significantly. People with a large capital base don’t look for that kind of high returns because little is enough in the scheme of things.

Where income comes from

Income comes from value creation. You make money when you contribute value to society.

Value creation may be arranged in the form of corporate employment or self-employment. It doesn’t matter where it comes from as long as someone is ready to pay you for the value you are creating or created.

Income is a societal way of saying “this person has created this value to someone at a particular time, so they can also earn equivalent value from someone else.” Your income is a representation of the amount of value that society owes you.

When is it right to start investing then?

Immediately! Right now is the answer. The fact that 200% on $200 isn’t that much doesn’t mean you shouldn’t get it if it’s available.

Investing should start immediately for everyone. There’s a caveat though. If you have an income problem, don’t obsess too much on investing in assets. Let your priority be geared towards investment in yourself.

That statement implies that if you find an opportunity to invest in yourself with great ROI but that investment would require you to empty your stock or other investment accounts, do not hesitate. You want to transition your career to a more lucrative field and you realise that everyone in that field has done a course. However, doing it for you mean emptying your stock or any other investment account, please do not hesitate. Emptying it already indicates that you don’t have a lot there relative to where you are going. Make necessary sacrifices and you will be fine.

Again, you can’t invest your way out of an income problem.

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