KP Unpacked

Braving the High Seas of Investment Risk

• KP Reddy

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In today's episode, KP takes you on a journey through the ever-evolving landscape of architecture, engineering, construction, and real estate, infused with a zest of startup culture. This episode promises to shed light on the complexities of investment risk and liquidity that may just revolutionize your approach to the market. With Morgan Housel's insights on the nature of risk serving as our compass, we navigate through the tumultuous waters of high liquidity investments and explore the tranquility that private equity's longer redemption periods can offer.

We'll dissect the emotional rollercoaster that often accompanies public stock investments and probe the stability that comes with less frequent redemption windows. We'll also uncover how daily interactions and a voracious appetite for knowledge can create a treasure trove of content ripe for discussion. So tune in to the Shadow Network for an engrossing conversation that might just be the key to anchoring your investments against the unpredictable storms of market sentiment.

Want more discussions like this? You can connect with KP Reddy at https://kpreddy.co/ and follow him on LinkedIn https://www.linkedin.com/in/kpreddy/!

Speaker 1:

You are listening to the Shadow Network with KP Ready, your gateway to innovation and architecture, engineering, construction and real estate, with a sprinkle of startups that are making a difference. In between, check us out on YouTube at Shadow Partners. Never miss a live stream fireside chat or talk that we got going on with the industry's most interesting innovators and leaders every single week. You can connect with KP Ready and other innovators in the AEC and CRE industry in the Shadow Partners community. Go to bitly slash shadow partners community to learn more. Today. All it takes is a few clicks for you to make a difference. Welcome to the future and welcome to the Shadow Network with KP Ready.

Speaker 2:

So I'm back here with KP Ready today, the founder and CEO of Shadow Partners, and one of the things that we've been doing is going through some of its LinkedIn posts. If you don't follow KP Ready on LinkedIn, you need to K period, p period ready or E-D-D-Y on LinkedIn. Many intriguing posts, many stir up a lot of comments, a lot of reactions, and so we've started this series of unpacking KP. So, basically, what were you thinking? What was going through your head when you wrote that post? And so I was reading this one this morning. You actually posted it this morning.

Speaker 2:

As we're recording this, so I'm going to give it at least a portion of it, a read and then we'll start to unpack. It Sounds good. So what are you thinking? It's interesting how investment illiquidity is often considered as part of risk variable. One could argue that investments with high liquidity, like public stocks, have a higher risk because emotion can drive poor decisions. For example, you invest in a private equity fund with annual redemption windows, so you go on to explain more about that. But why did illiquidity come into your mind as you were jumping on LinkedIn this morning and you're getting ready to post?

Speaker 3:

So a lot of people ask me, like KP, how do you come up with so much content so consistently? I have the benefit of talking to like 10 or 12 people a day. It's my job.

Speaker 3:

I also consume about two books a week. That's a pretty good cadence for me, and I've been reading this book same as ever by Morgan Housel, who's a super interesting dude, but he basically his thesis in his book is that, like nothing changes, like the Great Depression, the Great Recession, like they're all the same. So what was interesting was he was talking about risk and risk being the unknowns. Everything else is like trackable, it's really the unknowns, it's a pandemic, it's a 9-11. Those are the stuff that nobody can really factor for.

Speaker 3:

And so, even as I look at my own investing strategy you know, of course, you have the venture capital firm and I have my family office and you know, do personal investing and all that is how do I think about risk and really open my idea about like risk and this idea of illiquidity takes the people factor out of it. In other words, if tomorrow we hear something you know we're like oh, I want to do Bitcoin, I invest in Bitcoin. All it takes is four or five tweets to change the market sentiment and then you're selling out of Bitcoin versus something that I invest in and I can only maybe take money out of it once a year or once every five years or once every 10 years, like whatever the time horizons are. There's a bit of a set it and forget it and also this idea that nobody else can get out of here, right? So a lot of this like getting out of the stock.

Speaker 3:

It becomes like a mad rush, kind of like a run on the banks that we had earlier this year with Silicon Valley Bank. It was all people driven. And if you look at how social media works, if you look at email and how quickly the group them and I probably have 15 group texts on my phone word gets out very quickly. People don't do research, they grab a sound bite and they're like oh my God, did you see Microsoft's numbers and disclaimer? This is not investment advice, but the question really is, if you're signing up for a 10 year investment cycle, yeah, you kind of set it and forget it, and whatever bumps in the road happen, you don't care and you're not emotional, and neither is anyone else, I think, which is fantastic because nobody else can get out either, but in the public markets one, they're just so consumer sentiment driven. Now you have this thing, as we go into the fourth quarter, where mutual funds will start to sell certain stocks just to make their portfolio look good by the end of the year. In other words, they were in a dog all year, but they're going to sell it, so that when they reported in January what stocks were, they were in it's the end of the year window dressing. Well, god forbid. You have a couple of bucks in one of those stocks and you're down 20 percent. I know I've done it, I've been an emotional investor. Oh my God, it's a falling knife, I better get out now. Then I look back those same stocks a year or two later and they're up 20, 30 percent. But what did I do? I took liquidity out. I'm like, oh my God, I didn't need the money. I'm fortunate I don't have to pull money out to pay a medical bill. But I pulled the money out and I was like, okay, I think this other stock is a better bet. Then I go look at that other stock and it's probably down. What was the point of all that? I think, operating on emotion, that the liquidity actually drives much more emotional behavior.

Speaker 3:

Now I do believe if you have money in a liquid situation, if you need the money 100 percent, like hey, I've got college tuition coming up next year, I need to make sure I can get the money out. And then you're operating in a more conservative manner. But with the higher interest rate environment, you're seeing all these CDs. I saw one the other day 18 month CD, 5 percent. Now you have to tie it up for 18 months, so there's no liquidity. And then they're only giving you 5 percent, which some people say 5 percent is fantastic, kp, that's better than my checking account. Yeah, but your checking account you can take it out. So I look at it and say 5 percent is not good enough because the opportunity cost that. What I could be doing with that money is much better for an 18 month cycle, tying it up for 18 months. So I think you have to bifurcate liquidity as a risk quotient and make it part of your plan.

Speaker 3:

If you're like KP, I want to buy a second home, it's going to be in 10 years. Why would you put it in the public company? And then you're going through the ups and downs and then, three months from now, you're freaking out because some the Fed did something right and you're selling out your position. It's like but dude, you didn't need it for 10 years. Like, why are you all fired up about it? So that's kind of where it came from.

Speaker 3:

That, as you start seeing, you know the end of the year, there's some highly predictable things. You can do all the charts, you know. There's always a Santa Claus rally, there's always a post Christmas sell off and one of the things people never look at in public markets is not only is it the movement of the stock, but it's also the volumes. A stock can go down on low volumes and you're freaking out and it's like, well, if you don't look at the volumes, it's like, well, a small portion of people are unexcited about the stocks that they're selling off. And oh, by the way, it's the day after Christmas and you know, none of the billionaires are playing stock market the day after Christmas, right, so they're too busy at their islands or whatever. So, anyway, I think, as a mindset of how we think about investing, I just really feel like, you know, liquidity actually drives kind of bad emotional behavior.

Speaker 2:

That makes total sense. I mean, many of us are driven by emotional decision making. I mean our brains work that way. Is there a correlation? I mean you mentioned the VC side. Is there a direct correlation, you know, in the commerce, from here to the conversations that you have on the VC side, when you're thinking about different funds and investments? And you know, speaking generally, yeah, I think.

Speaker 3:

Look, if you're an individual, you're an individual, a higher-neighborhood individual and you're 90 years old and you're investing in a 10-year fund, Right, you're not investing for yourself, You're probably investing for your trust, You're investing for your family, and so I think it comes up a lot, mostly because we're a small firm, so we don't have teachers unions, and they're highly sophisticated.

Speaker 3:

I would say probably 80% of our investors this is the first time they've ever been looked at a venture fund, and I see it in their eyes when we're talking to them about like 10 years man, 10 years. And it's like, well, no great startup was built in three years, right, these things take time and therefore they need the money. Right, they need the money over a long period of time. So it does come up a good bit, but it's not for everyone. Every investment is not for everyone, and you do, once again, not giving investment by disclaimer but I do think younger people should be thinking more long-term because they have a little bit of more of a set it and forget it mentality. But definitely don't invest money that you might need.

Speaker 2:

Right, right, yeah, yeah, that makes a lot of sense. So if you miss this or if you have not yet seen the post on LinkedIn, so again, follow KP on LinkedIn. I mentioned the way our brains work. He mentions the lizard brain in the post itself. So that's worth the price of admission, if nothing else, but check it out. Kp ready on LinkedIn. K period, p period ready on LinkedIn. If you don't already follow him, I'm assuming, since you've listened to this, you probably do. But this is a series that KP and I do, where we just we take a few of his posts and I ask hey, what came to mind? What was it that inspired this particular post? And this one starts out it's interesting how investment liquidity is often considered as part of a risk variable. So, kp, thanks for enlightening us, letting us sort of get a peek behind the curtain about what you were thinking about. When this post came to mind, you started typing. If you're listening to us now again, subscribe here and we'll be back again next week with another Unpacking KP.

Speaker 1:

Thank you for tuning in to another episode on the Shadow Network here with KP ready as always. Remember you can connect with KP and other innovators in the AEC and CRE industry in the Shadow Partners community. Go to bitly slash shadowpartnerscommunity to find out more today. Until next time, revving music playing.