You rely on financial markets.
You take money, invest it, and hope to multiply it – to become Tired & Rich.
And only two things can happen when dealing with financial markets.
You make money.
Or you lose money.
That’s it.
Furthermore, it’s not just you investing; three more players are at the table anytime you do something in the financial markets.
And they are worth knowing.
This week, I will share an embarrassing story about a mistake I thought I’d never make and explain how you can better understand the players at your financial table.
Let’s get into it.
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It was November 2022, a Saturday morning like any other; I was making breakfast for my family and enjoying a cup of coffee in our kitchen.
I get a text from a friend: “You hear what happened to Blockfi?”
A massive knot formed in my stomach, and I texted, “No, what’s up?”
I didn’t even wait for a response and went straight to Twitter.
BlockFi was going down, and people’s crypto, including mine, was locked up in a soon-to-be-bankrupt company.
It was like a Nuclear bomb went off – first FTX, now Blockfi.
BlockFi went from a $4.5b valuation to $0 in 16 months.
I was furious, still am.
How could this happen to me?
Every Finfluencer pitched BlockFi as the future of finance, backed by hundreds of millions of venture funding and some of the brightest minds in crypto.
I viewed BlockFi as the place for the “smart money” in crypto that would successfully connect Crypto to Wall Street.
For the crypto I had, for what I knew about the space, BlockFi seemed like the place to be.
But a fraudster named Sam Bankman-Fried and a few of his friends took down the entire company.
I lost money not because of a decision I made but rather a decision someone else made for me.
That day in November, I learned a lesson:
Be even more skeptical.
Knowing where your money is invested, who the players are, their motives, and your worst-case scenarios is beyond critical.
If you plan on retiring one day with a million, two, five—whatever your number—it makes sense to ensure it’s in a safe spot to grow and produce income, right?
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Let’s quickly dive in and answer some key questions:
Who are the people that make up financial markets?
The financial markets always involve four players—you are almost always a buyer or seller.
- The buyers come with money to invest.
- The sellers sell to the buyers.
- The producers create investment opportunities.
- The platforms create the systems and places for buyers, sellers, and producers to come together.
Simple enough.
In my story above, the fail point in the 2022 crypto markets was the platforms themselves.
Buyers and sellers invested in crypto in a burning building seconds from collapsing, and no one knew it until it was too late.
Tragic.
What are the motives of each player?
- Buyers buy stuff they think will increase in value or produce steady cash flow.
- Sellers need to sell. They sell whatever they believe is highly priced to the buyers.
- Producers package investment opportunities and compete for buyers. They want more buyers than sellers.
- Platforms want people to show up and buy/sell because that is how they make money.
What are the worst-case scenarios for each player?
- Buyers buying high and losing money.
- Sellers selling at the wrong time (low).
- Producers selling crappy investments to people, that cost a fortune to own, that lose money.
- Platforms going bankrupt and investor money going down with it.
How to avoid these worst-case scenarios?
- Invest with professional guidance.
- Keep your investments at massive, well-capitalized companies (Fjell uses Schwab as our custodian, for example)
- If it sounds too good to be true, it probably is.
The financial system you rely on to retire, grow, produce income, pay for college, etc., is built on mutual trust between the four players.
This mutual trust is given at first but must be continuously earned.
While I oversee over $140m in assets at Fjell, which requires immense trust between clients and our team, I constantly examine the markets and the evolving landscape between buyers, sellers, producers, and platforms.
What’s changing? Have the motives changed? What are the sellers thinking? What are the buyers doing? What are the producers creating?
Heck, just a few minutes ago, Jacob sent me a research report from Goldman Sachs on a company we’ve owned for years.
We’ve made a lot of money owning it and love the company, but we wanted to verify our investment thesis.
The idea here is to acquire the best combination of assets from the best producers and hold them on the most stable, rich platforms, and in doing so, at every step:
Trust, but verify. And keep verifying.
The financial markets can be a brutal or beautiful place.
There are two outcomes when dealing with the financial markets you rely on for a better financial future.
You win.
Or you lose.
All you need is a winning record over time.
Know the players, know the game.
