The 2022 Indextravaganza!

“You say goodbye, I say hello” -The Beatles (from Hello, Goodbye)

It’s the time of year again when we get to bid farewell to the calendar year that was and welcome the new year ahead. As we’re about to put 2022 in the record books, today’s Alt Blend is the second-annual archiving exercise to briefly recap everything we’ve discussed over the past year for easy reference and/or revisitation. In other words, it’s another Indextravaganza! Here we go!

Incoming! Series: Alt Blend Editions 30-33 (1/12/22 thru 2/23/22)

How income generation, distribution, and taxation work for various investment types.

  1. Incoming! Part 1 – Basics of Investment Income Generation: The building blocks of investment distributions (interest, dividends, cap gains, and return of capital) and structures in which we may encounter them (e.g., mutual funds, ETFs, CEFs, Alts, etc.).
  2. Incoming! Part 2 – Income Distribution Mechanics: Important dates (declaration date, ex-dividend date, record date, and payable date) and how income distributions affect our investments (stocks, bonds, mutual funds, ETFs, LPs, etc.).
  3. Incoming! Part 3 – Yield: Various yield measurements and how these apply to bonds and other types of investments, including Alts.
  4. Incoming! Part 4 – Taxes!: Tax implications for investment distributions, why some structures may be more tax-efficient, and how the tax reporting for your investments gets sorted out. And, finally, the source of constant confusion that led to the writing of this series in the first place: taxable gain/loss vs. total return.

Knowledge & Expectations: Alt Blend Editions 34 & 35 (3/9/22 thru 3/23/22)

Unintentionally, these topics fell on the 13th anniversary of the Financial Crisis low (March 9th, 2009) and the 2nd anniversary of the Covid lows (March 23rd, 2020). Examining what we know (or think we know) and setting expectations are important components of life, portfolios, and alternatives.

  1. The Knowledge Problem?: Using Hayek’s “Knowledge Problem” and Einstein’s theory of relativity as starting points, we’re reminded why all decisions come with imperfect knowledge, why we should be more empathetic, and why Alts and financial planning can offer some advantages to investors.
  2. Expect the Unexpected: Rarely does life or investing go as planned. By accepting what we don’t know and expecting things to go wrong, we can take a more disciplined approach to investing in Alts (and all assets). Diversification lives on!

Crypto Dip-Toe Series: Alt Blend Editions 36-44 (4/6/22 thru 7/27/22)

We put it off long enough. This series examines the basics of cryptocurrencies and the blockchain to learn more about what it is, why it is, and how it may continue to play a role in our lives from here.

  1. Crypto Dip-Toe: After a shoutout to Marty McFly, we learn that the underpinnings of crypto go back to the early ‘90s. The bitcoin whitepaper and why this may have all come about in the first place.
  2. Crypto Dip-Toe Part 2 – The Distributed Ledger & Cryptography: DLT vs. blockchain. The blockchain and cryptography and how they work.
  3. Crypto Dip-Toe Part 3 – A (Digital) Currency Caper: Exploring the history of money and currency to provide context for developing an opinion on cryptocurrency. Functions vs. attributes of money.
  4. Crypto Dip-Toe Part 4 – Prodigital Concurrency (of Digital Currency): The pros and cons of money characteristics (anonymity, centralization, Openness, Limit of Supply, Physicality) and how they tie into what we’d want from a cryptocurrency. Mention of the most well-known cryptocurrencies.
  5. Crypto Dip-Toe Part 5 – Proof-of-Work: Bitcoin mining and when we’ll see it max out at 21 million tokens. The proof-of-work methodology and proof-of-stake as an alternative to it.
  6. Crypto Dip-Toe Part 6 – Into the Ether: Ethereum and its cryptocurrency, Ether (ETH). Use cases, why it may be a compelling technology, and how it works via smart contracts, the virtual machine, and gas fees.
  7. Crypto Dip-Toe Part 7 – Stable on the Label: Bitcoin down 70% and not keeping pace with inflation? Stablecoins and how they are backed.
  8. Crypto Dip-Toe Part 8 – Stable on the Label (continued): The LUNA blowup and real-time stress-testing of other stablecoins. USD Coin and missing volatility at Coinbase? 2008 flashback to the “breaking of the buck.”
  9. Crypto Dip-Toe Part 9 – Decryptolemy: What’s here and what may be coming. Digital integrity, fighting misinformation, voting integrity, cryptophones, forking, and lightning finance.

Looking forward and backward: Alt Blend Editions 45-49 (8/10/22 thru 10/12/22)

Perhaps good ol’ securitization can win out over the blockchain? Also, why looking to the past may be misleading, and how investment returns are measured.

  1. The Future is Off the (Block)Chain!: Recent application of securitization to illiquid assets – like real estate and art – is surprisingly already achieving what many (or just me, at least) expected would be a significant use-case of the blockchain.
  2. Don’t Look Back (Sometimes) – Part 1: Cadillacs and Boston 8-tracks. There is a lot we can learn from past investments. Still, there’s the risk of highly negative experiences causing an investor to be too fearful, thus taking too little risk vs. what’s appropriate for their situation.
  3. Don’t Look Back (Sometimes) – Part 2: On the other hand (relative to Part 1), an investor basking in the glory of positive past-investment returns involving an excessive amount of risk can lead to a lack of healthy skepticism and inappropriately high risk-taking. That usually doesn’t end well. We need to put past experiences in context and expect the unexpected.
  4. Return Matters – Part 1: The basics of time-weighted vs. money-weighted rates of return and how/why these can be used to make sense of your investments. And, of course, a note on taxable gain/loss vs. total return.
  5. Return Matters – Part 2: Additional ways to measure return, especially regarding Alts, including the alphabet soup of ROI, CAGR, NPV, MOIC, DVPI, RVPI, TVPI, and PME. Also, this is the final audio/podcast installment of Alt Blend (now in written format only).

Inflation Roundup from the Ground Up Series: Alt Blend Editions 50-53 (10/19/22 thru 11/30/22)

In the 2022 environment of higher rates and substantial inflation readings – factors we haven’t experienced in many years – this series explores how Alts strategies have been affected and how managers are navigating the headwinds.

  1. Inflation Roundup from the Ground Up – Part 1: Real Estate. Higher financing costs and lower values. Challenges as well as what opportunities may still exist, considering factors like affordability, location, property types, value-add, and acquisition costs.
  2. Inflation Roundup from the Ground Up – Part 2: Private Equity (PE). PE is affected similarly to real estate regarding higher borrowing costs and reduced valuations. Still, there are ways for some businesses (and investment strategies) to be much more resilient than others.
  3. Inflation Roundup from the Ground Up – Part 3: Robert Johnson’s “Cross Road Blues” and this series moving from Private Equity into Private Credit. How Private Credit has so far been affected, and a potential current opportunity in this space.
  4. Inflation Roundup from the Ground Up – Part 4: A brief history of securitization, structured credit in the current environment, prepayments, and why event-driven ideas may be timely.

Thank you for enduring another action-packed year of Alt Blend! Please let me know of any feedback, how this blog can be more beneficial for you, and any future topics you may want to learn more about.

Until next year, this is the end of Alt Blend. Happy Holidays! See you in 2023!

Steve

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About the Author

Steven Tresnan, CAIA®, CFP®

Private Wealth Advisor

Steve is a Certified Financial Planner as well as a Chartered Alternative Investment Analyst®. He is also an Accredited Investment Fiduciary, which helps him offer guidance to clients with fiduciary responsibilities, such as board members of trusts, foundations, and endowments. Steve earned a Bachelor of Science degree in Industrial Engineering from Penn State University.

Steve serves on the board and finance committee of New Music USA – a national nonprofit devoted to the development and appreciation of new music in the U.S. – and volunteers as the Treasurer for Campus Fun & Learn, a child development center on the campus of Rockland Community College in New York.