For most asset classes, returns over the 12 months ending December 2011 barely beat inflation. South African listed property was the best performing asset class, producing a return of 8,93%, followed by bonds at 8,80%, cash 5,71% and equities 2,57%.
However, to generate ‘real’ returns any asset class must at least beat inflation of 5% over the same period. This means equities produced no real return, cash barely so, while listed property and bonds only marginally outpaced inflation, says Koos du Toit, CEO of P3 Investment Group.
The next challenge is that individual investors rarely make exactly what the market achieves. A research paper out of the US covering 163 US equity managers using 10-year figures demonstrated that whereas the US investment industry returned 12% a year during the decade, the average investor returned only 5%.
The gap, says Trevor Garvin, head of Nedgroup Investments’ multi-management division, is attributable to investors switching out of temporarily poor performing funds and therefore being out of the market (in cash) at critical moments.
The reason for this is that during that 10-year period 44% of US managers were in the bottom 10% for three years or more, 77% were in the bottom quartile and fully 97% experienced at least a three-year period in the bottom half of their performance-tracking table.
Private equity beats the market
One means of tapping into superior performance – and being locked into it – has long been private equity. High net worth individuals (HNWIs) have a close affiliation with private equity, typically because their own businesses started in this manner. Indeed, in many cases the bulk of their assets are still locked up in their own or other small private businesses.
One entrepreneur, Allon Raiz, CEO of Raizcorp, says he does not invest at all. “Why would I hand my money over to someone else to manage when I can invest it in my own business?” He may not consider it as such, but he’s invested in private equity.
Research performed by Momentum’s International Private Equity investment on an aggregate of 11 South African private equity funds found them to have produced a return premium of 12% a year (18% before costs) relative to the FTSE/JSE Africa All Share Index. International research has likewise found that private equity produces returns roughly double those of listed equity markets.
One family office, Stonehage, confirms that out of sheer necessity it spends much of its time advising family clients on private equity as it is such an important aspect of their portfolios. It is because of this affiliation that many HNWIs wish to take it a step further and invest in private equity within their portfolios. However, the question is how, because there are important challenges relating to the investment vehicle, the liquidity constraints and the need for diversification. This is an asset class that has not been historically accessible to the private investor, even wealthy ones.
The challenge of private equity is that like hedge funds, each has a different investment strategy which follows quite individual investment cycles. Much depends on the nature of the underlying investments, and for this reason many private equity firms are beginning to specialise. To remove cyclicality from the portfolio (which might be at odds with the client’s liquidity needs) requires diversification.
A further requirement is to select only top quartile managers, because the gap between top and median managers is more extreme than is the case with equity managers. Private equity has a five to ten year investment cycle, but there are models for the retail market whereby the fund manager makes a market for those wishing to exit earlier, at a cost. Almost all investment houses today offer retail private equity funds of funds (which therefore offer diversification), with the best known being run by Old Mutual, Momentum, Sasfin and Coronation.
Another important aspect is to personally study the underlying investments, as success or failure depends entirely on this factor. To make money in private equity, the fund has to be invested in top quality companies. A final challenge is that many of these investments when offered to the retail market are opaque and often layered with fees.
A good indicator is if the private equity manager itself has put significant amounts of capital into the fund. Beyond this it is essential to research the manager’s experience and track record and whether the company has solid succession planning in place.
Hedge funds fail the test
As to the role of hedge funds in a HNWI portfolio, financial adviser Bryan Hirsch says he no longer recommends these to clients as appetite has dried up.
“Hedge funds were supposed to protect one from the downside, with the idea they make most of their money by going short. In fact, most hedge funds turned out to be invested long and failed dismally to deliver in the 2008 crash. I’d rather have clients in property and equities than hedge funds.”
In fact, most private investors are more involved in hedge funds than they know: private client managers will ‘take protection’ when they believe the market is over-heating, and that implies hedging.
(Infographic) The 10 Things You Should Cover In Every Investment Pitch
If you want to wow potential investors, you need to cover your bases.
If you’ve ever watched Entrepreneur’s original series, Elevator Pitch, then you’ve probably seen smart founders make dumb mistakes while pitching their ideas to potential investors. They might flub an answer or get tongue-tied, or they might just be a little boring. Other times, you might notice that something seemed off about a pitch, but you can’t quite put your finger on why.
Investors are gambling every time they put money into a new project or idea. Your job when pitching is to prove to them that you’re worth the risk. That means you’ll need to not only show them the possible upside of what they have to gain, but also be clear about what they could possibly expect to lose and their odds. In other words, you need to give them a holistic view of what you do, not just the one good idea.
You might have pitched an investor yourself and thought you crushed it, only to hear that the investor isn’t interested. If that’s the case, there’s a chance the pitch was missing one of 10 essential elements.
This infographic by Buffalo 7 breaks down 10 slides you should have in your next investment pitch deck. If you’re not presenting formally, though, you can still keep track of these aspects in your head and make sure you cover each one. They include:
- The vision, where you concisely explain your idea.
- The problem. Why is your vision necessary or helpful?
- The opportunity. What is the market size, and how can you position yourself to earn a share of it?
This is just the start, though. Check out the infographic below to see the rest of the slides you need when pitching investors.
This article was originally posted here on Entrepreneur.com.
‘Shark Tank’ Investors Reveal Top 5 Tips To Make Your Business Famous
Is your business worthy of fame? If so, pay attention to what the Sharks have to say …
Shark Tank enters its tenth season as popular as ever. Over the past decade, millions of people have watched fascinated as entrepreneurs pitched their business ideas and startups in the hopes of winning an investment and support from self-made millionaires and billionaires.
The multi-Emmy® Award-winning reality-based show has had a tremendous impact on the business world and has been a major influence on the increased popularity of becoming an entrepreneur. Over the years, the show has evolved into one of the world’s top platforms to launch a business and recently reached an astonishing $100 million in deals offered in the Tank.
I was recently invited to attend a private event hosted on the set of Shark Tank to celebrate their 10th season and met with all the Sharks and most of the guest Sharks for the current season. This year’s guest list includes luminaries:
- Charles Barkley, Hall of Fame NBA star and TV analyst
- Alex Rodriguez, legendary baseball player and businessman
- Rohan Oza, an iconic brand builder and marketing expert
- Sara Blakely, founder and owner of SPANX brand
- Matt Higgins, the co-founder and CEO of RSE Ventures and vice chairman of the Miami Dolphins
- Bethenny Frankel, TV celebrity, author, and founder of Skinnygirl brand
- Jamie Siminoff, the CEO of RING, who rejected an investment offer in season 5, but went on to sell his company to Amazon for a whopping $1 billion.
My better half was also invited, and we arrived promptly on time at Studio 24 inside of Sony Pictures Studios in Culver City, CA. We were greeted by the cordial staff who informed us that the Sharks were still filming the last takes of the day. After several minutes, we were invited to chat with the Sharks on the main floor where nervous entrepreneurs excitedly pitch their companies to the investors under the bright lights of the studio set.
I was curious to know what excited the Sharks the most about their tenth season and what they believed to be the best advice for an entrepreneur to help make their business famous.
1. Create an ingenious product
When asked, Lori Greiner said, “It’s a mix, right? Of smart marketing and ingenious product. For example, Scrub Daddy was a technology. So, taking that one sponge, which was revolutionary, changed the whole sponge arena. We now have, to date, 20 different SKUs, and we have 30,000 new retail locations and 170 million in sales. That’s what takes it from one idea to a global brand.”
Of course, skillfully promoting your product on a platform like QVC is another excellent way to make your business famous. The day after the Scrub Daddy episode aired, Greiner helped CEO Aaron Krause sell their entire inventory of 42,000 sponges in less than seven minutes on QVC.
2. Leverage social media marketing
During my chat with Bethenny Frankel, she stressed, “Social networking is so important. Also being a little bit disruptive now … and you have to be creative. You have to be creative. The President was the most disruptive candidate that there’s probably ever been in history. He got people’s attention, and young entrepreneurs need to get people’s attention in some way. So be a little disruptive.”
Matt Higgins responded, “I’d say that you have to understand social and digital marketing. You can’t survive unless you understand Instagram, Snapchat or all the tools out there. You have to be contemporary.”
Barbara Corcoran claimed, “Every one of us successful entrepreneurs, for the last two years, were phenomenal at social media. It’s true. No exceptions.”
No smart entrepreneur will deny the power of social media when it comes to making your company famous. With more than 2 billion people worldwide using some form of social media, any business can put their business in front of a large audience, especially if they can create content that goes viral.
3. Build a community
Daymond John stressed the value of building a community. “You’ve got to build a community,” stated John. “Nobody needs to buy anything new in this world. They only buy it because there’s some form of community and/or need that you are supplying for them.”
John speaks from experience. He built a successful clothing empire by creating a vast community of his own via his clothing brand FUBU. John wisely invested in celebrity endorsements, making him an early pioneer of modern influencer marketing.
If you lack the resources to build your own community from scratch, you can leverage the power of others. Partnering with influencers who have cultivated their own communities allows you to introduce your product or service to larger audiences. In fact, some consider Shark Tank to be the world’s largest business influencer platform.
4. Devise a publicity hook to win earned media coverage
Barbara Corcoran also said, “I’d say you need a publicity hook. Some hook, angle or gimmick that grabs the attention unfairly from your competitors.”
Remember, Shark Tank is a unique combination of reality television, business acumen, and entertainment. Doing something unique, different, or disruptive can get you significant media attention and abundant free publicity… especially if you’re able to leverage that publicity and captivate the show’s producers, who decide your fate as to whether you’ll appear on the show.
Regardless if you want to appear on Shark Tank or not, being featured in the media is a way to differentiate your business from the competition and reach a broader audience. Be creative and willing to take educated risks when it comes to getting noticed by the media. You should always be actively building relationships with media representatives and ask for their insights when formulating your plan.
5. Know your strengths and stay focused
When I asked for billionaire Mark Cuban’s insights, he thoughtfully replied, “Knowing your unique advantages, play to that, and your strengths. And focus. You know, what happens is very often people start with an idea, get a little bit of traction, then it gets hard. And when it gets hard, they start looking for other things to do as opposed to playing to their strengths. Because businesses aren’t supposed to be easy. You know, if they were easy everybody would already be rich, and we’d all be sitting on a beach somewhere. And so, when it gets tough, you gotta dig in and work hard. I’d say the final thing I’d add is that sales cures all. There’s never been a business that succeeded without sales. So, if you focus on selling … if you’re able to sell … and that’s something that is one of your core competencies, then you’ll be okay.”
These are wise words from one of the world’s few billionaires.
This article was originally posted here on Entrepreneur.com.
The Best Way To Get Your Teenager To Start Investing Right Now
Jeff Rose advises a young fan on where to start his investment journey.
In this video, Entrepreneur Network partner Jeff Rose talks about receiving a letter from a young investor, who is looking for advice on how to begin investing.
Rose talks about the act of actually doing the investing versus worrying about reading books or asking others about the process. Taking action gets the most results, since you are able to make mistakes and start the learning process. Taking action also leads to more experience, which is to say if you begin investing as a teen, you will be much more savvy about investing as a twenty-something.
In answering this young investor’s concern about investment direction – the fan hopes to balance short-term gain and long-term gain, as well as to establish some padding for a future business – Rose turns him in one specific direction: A Roth IRA. When he was younger, Rose didn’t even know what a stock was until far into his college years; during this time, he discovered the Roth IRA and learned of its compounding power, as well as the accessibility of an initial investment.
As another route, Rose also mentions starting a business. This path, Rose explains, will help you achieve the most return on investment.
Click on the video to hear more tips for a younger investor.
This article was originally posted here on Entrepreneur.com.