55: How We Find, Analyze, and Secure New Investments (Startups, Small Biz, & Stocks)
Dive into the intricate world of investment strategies with the latest episode of Rich Habits Podcast, featuring finance aficionados Austin Hankwitz and Robert Croak. In an insightful discussion, these seasoned investors unpack the process of identifying, analyzing, and securing lucrative opportunities across various fields, from the fast-paced arena of startups to the more traditional realm of cash-flowing small businesses and individual stocks. Listeners will gain a glimpse into the art of finding promising pre-IPO companies, the savvy required to buy and assess small businesses, and the techniques for discovering and evaluating profitable stock options through Exchange-Traded Funds (ETFs).
The conversation transitions to building a diversified and balanced portfolio, where Hankwitz and Croak detail their methods for blending dividend growth and high-growth stocks to foster financial stability and growth potential. They emphasize the importance of maximizing retirement account contributions as a cornerstone of one's investment approach, while also exploring the burgeoning field of cryptocurrency investments, including staking through platforms like Coinbase. With insights from these professionals, potential investors are mentored on creating a robust portfolio designed to withstand market fluctuations and trends.
This is a preview of the Shortform summary of the Mar 11, 2024 episode of the Rich Habits Podcast
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1-Page Summary
Finding, analyzing, and securing investing opportunities in startups, cash-flowing small businesses, and single stocks
Investing professionals highlight the significance of targeting pre-IPO companies with robust management teams and market validation. They recommend moderate investments in startups, suggesting amounts between $5,000 and $20,000 to mitigate risk while aiming for high rewards. For acquiring cash-flowing small businesses, experts point to resources like BizBuySell to locate viable businesses for sale, such as pizza shops. It’s critical to scrutinize the financials, ensuring that costs align with industry standards, and to negotiate owner financing for better purchase terms. In the realm of single stocks, a practical method for discovering investment opportunities involves analyzing ETF holdings. Experts advise a thorough review of financial statements to identify companies with growing revenue and margins, using examples like the expansion of Celsius, the energy drink company. Investors are encouraged to use mobile trading platforms such as Public, M1 Finance, and Robinhood for executing trades.
Building a balanced portfolio
In pursuit of a balanced investment portfolio, professionals recommend a combination of dividend growth stocks and high-growth stocks, citing successful examples like Lowe's and Home Depot, alongside tech giants and cryptocurrency for appreciation potential. They underscore the importance of fully funding retirement accounts, such as Roth IRAs and 401Ks, as a foundational strategy. Additionally, staking cryptocurrency is presented as a viable option for returns, using reputable platforms like Coinbase for added security and avoiding scams. However, awareness of lockup periods is necessary, despite maintaining ownership of the staked crypto.
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Additional Materials
Clarifications
- Pre-IPO companies are private firms that seek funding before going public on a stock exchange. Investors in pre-IPO companies freeze their investments until the company goes public or is acquired. Pre-IPO shares are typically cheaper than IPO shares due to higher risks and limited financial disclosure. Investing in pre-IPO companies can offer potential rewards but comes with significant risks and uncertainties.
- ETF holdings stand for Exchange-Traded Fund holdings, which represent the collection of assets held by an ETF. ETFs are investment funds traded on stock exchanges, holding various securities like stocks or bonds. Analyzing ETF holdings can help investors understand the composition and performance of an ETF, providing insights into the companies or assets it holds. This analysis can assist investors in making informed decisions about investing in a particular ETF based on its holdings and investment strategy.
- Owner financing for small businesses involves the seller of a business providing a loan to the buyer to help facilitate the purchase. This arrangement allows the buyer to make payments directly to the seller over time, typically with agreed-upon interest rates and terms. It can be a beneficial option for buyers who may not qualify for traditional bank loans or who want to negotiate more favorable terms directly with the seller. Owner financing can help both parties reach a mutually beneficial agreement for the sale of the business.
- Mobile trading platforms like Public, M1 Finance, and Robinhood are apps that allow users to buy and sell stocks, ETFs, and other financial instruments directly from their smartphones. These platforms offer commission-free trading, making it more accessible for individuals to invest in the stock market. Users can easily track their investments, access market data, and execute trades on the go through user-friendly interfaces provided by these apps. These platforms have gained popularity for their simplicity and convenience in managing investments.
- Dividend growth stocks are shares of companies that consistently increase their dividend payouts over time. Investors seek these stocks for a combination of regular income and potential capital appreciation. Companies with a history of growing dividends often demonstrate financial stability and strong performance. Investing in dividend growth stocks can be a strategy for building a reliable income stream and long-term wealth.
- A Roth IRA and a 401(k) are types of retirement accounts in the United States. A Roth IRA is funded with after-tax dollars, and withdrawals in retirement are typically tax-free. A 401(k) is an employer-sponsored retirement account where contributions are often made with pre-tax dollars, and taxes are paid upon withdrawal in retirement. Both accounts offer tax advantages and are commonly used for long-term retirement savings.
- Staking cryptocurrency involves holding tokens as collateral to support the operations of a blockchain network. In return, token holders receive rewards, such as additional tokens or network fees, based on the amount they stake. This process helps secure the network and incentivizes token holders to actively participate in maintaining the blockchain's integrity. Staking is a key element of proof-of-stake consensus mechanisms used by some cryptocurrencies to validate transactions and create new blocks.
- A lock-up period is a timeframe after an IPO where major shareholders are restricted from selling their shares. It aims to prevent a sudden influx of shares into the market that could impact stock prices. Typically lasting 90 to 180 days, it helps maintain stability and investor confidence post-IPO. This restriction is often agreed upon by insiders, such as company executives and early investors, to regulate the supply of shares in the market.
Counterarguments
- Pre-IPO companies often lack a track record of profitability and can be highly speculative; strong management and market validation do not guarantee success.
- Moderate investments in startups still carry significant risk, as the majority of startups fail, and such investments are illiquid.
- Using platforms like BizBuySell may not provide a comprehensive view of the market, and there could be better deals or opportunities through networking or industry contacts.
- Scrutinizing financials is important, but small business financials can be opaque or misleading, and industry standards may not apply uniformly across different regions or business models.
- Analyzing ETF holdings to pick single stocks may lead to a bias towards larger, more established companies, potentially missing out on smaller, high-growth opportunities.
- Financial statement analysis is complex and can be subject to interpretation; growing revenue and margins do not always translate into stock price appreciation.
- Mobile trading platforms can encourage frequent trading, which may not be suitable for all investors, especially those with a long-term investment horizon.
- A balanced portfolio is subjective and depends on individual risk tolerance; some investors may not find dividend growth stocks or high-growth stocks appropriate for their goals.
- Fully funding retirement accounts is generally sound advice, but it may not be the best strategy for everyone, especially those with high-interest debt or other financial priorities.
- Staking cryptocurrency involves risks, including the volatility of crypto assets and the potential for loss if the staking platform encounters issues.
- Lockup periods for staking cryptocurrency can be a disadvantage if the investor needs liquidity or if the value of the cryptocurrency significantly drops during the lockup period.
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Finding, analyzing, and securing investing opportunities in startups, cash-flowing small businesses, and single stocks
Investment strategies ranging from startups to single stocks offer various opportunities for building a robust investment portfolio. The upcoming webinar will delve into these topics more deeply.
Investing in startups
The startup sector presents unique opportunities for investors.
Focus on pre-IPO companies with strong management teams and market validation
One approach recommended during the webinar is to focus on investing in pre-IPO (Initial Public Offering) companies. Such companies should exhibit both strong management teams and market validation before considering investment.
Make small investments between $5k-$20k to balance risk and reward
Hankwitz advises making moderate investments in startups, typically ranging from $5,000 to $20,000. This strategy enables investors to balance the high risk and potential high reward that comes with investing in startups.
Acquiring cash-flowing small businesses
For those looking towards small businesses with consistent revenue streams, the webinar provides guidance.
Find opportunities on sites like BizBuySell
Robert Croak shares that he found a business to purchase, specifically a pizza shop, by browsing through opportunities on sites like BizBuySell, which list various small businesses for sale.
Analyze numbers to confirm costs are in line with industry benchmarks
Analysis of financials is key when considering the acquisition of a small business. It's important to confirm that costs are in line with industry benchmarks.
Ask for owner financing as part of the deal
Robert emphasizes the importance of negotiation and not being afraid to ask for owner financing when securing a deal, which can offer advantageous terms for purchasing a business.
Investing in single stocks
The conversation also covers considerations for investing in individual public companies.
Identify potential investments from ETF holdings
One strategy for discovering potential single stock investments is to look at the composition of exchange-traded funds (ETFs) to see what individual stocks they're holding.
Analyze financial statements to confirm growing revenue, expanding margins, and increasing c ...
Here’s what you’ll find in our full summary
Finding, analyzing, and securing investing opportunities in startups, cash-flowing small businesses, and single stocks
Additional Materials
Clarifications
- Pre-IPO companies are private firms that seek funding before going public on a stock exchange. Investors in pre-IPO companies typically invest in these firms before they are listed publicly. Investing in pre-IPO companies can offer opportunities for potentially higher returns but also comes with higher risks due to the lack of public financial disclosures. Pre-IPO investments can help companies raise capital to grow and prepare for an eventual initial public offering (IPO).
- ETF holdings, short for Exchange-Traded Fund holdings, represent the collection of individual stocks or other assets held within an ETF. ETFs are investment funds that are traded on stock exchanges, and their holdings can include a diverse range of assets such as stocks, bonds, or commodities. Understanding ETF holdings can provide insight into the specific investments within an ETF and help investors assess the fund's diversification and performance. Analyzing ETF holdings can also help investors make informed decisions about their investment strategies based on the underlying assets held within the fund.
- Financial statement analysis involves reviewing and evaluating a company's financial statements to assess its performance, financial health, and future prospects. Stakeholders like investors and creditors use techniques like ratio analysis to make informed decisions. It includes examining income statements, balance sheets, cash flow statements, and other financial disclosures. Historical data is often used alongside assumptions to forecast the company's future financial performance.
- Industry benchmarks are standards or reference points used to compare and evaluate the financial performance of a business within its specific sector. These benchmarks provide a basis for assessing how well a company is performing compared to its industry peers. By analyzing financial metrics against industry benchmarks, businesses can gain ...
Counterarguments
- Pre-IPO companies with strong management teams and market validation may still fail due to unforeseen market shifts or internal issues, and such investments can be illiquid.
- Small investments in startups may limit potential losses but also limit potential gains, and diversification across multiple startups can be challenging with a limited budget.
- Opportunities on sites like BizBuySell may not always represent the best value, and there can be a selection bias towards businesses that are struggling or have less growth potential.
- Industry benchmarks can vary widely, and relying solely on them may not account for unique aspects of a specific business or its local market conditions.
- Owner financing can be beneficial but may also come with higher interest rates or unfavorable terms if not negotiated properly.
- ETF holdings may not always include the best individual stock picks, as they are designed for diversification and may ...
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Building a balanced portfolio
In a recent webinar, experts provided insights on how to create a balanced investment portfolio that includes a mix of stocks, cryptocurrencies, and potentially startup investments.
Combine dividend stocks and high growth stocks
Austin shared his investment philosophy, which involves a balance between dividend growth stocks and high-growth stocks. He touted the benefits of investing in dividend growth stocks such as Lowe's, Home Depot, Visa, and MasterCard, which have a consistent history of paying dividends and experiencing stock price growth. Additionally, he highlighted the importance of investing in high-growth areas like big tech companies and cryptocurrencies, where significant price appreciations are anticipated, especially with the rise of technologies like artificial intelligence.
Max out retirement accounts first
Hankwitz advocates for a disciplined investing strategy that prioritizes retirement accounts. He practices this by maxing out his Roth IRA and other retirement accounts to ensure a robust financial future. The advice detailed during the webinar includes the importance of maximizing contributions to both Roth IRAs and 401K plans as a critical step in building one's investment portfolio.
Consider staking crypto through reputable platforms like Coinbase
Staking cryptocurrency was identified as another investment strategy for ...
Here’s what you’ll find in our full summary
Building a balanced portfolio
Additional Materials
Clarifications
- Staking cryptocurrency involves holding and locking up a certain amount of cryptocurrency in a wallet to support the operations of a blockchain network. In return for staking their coins, participants may receive rewards in the form of additional cryptocurrency. Staking helps secure the network and validate transactions, contributing to the overall functionality and security of the blockchain. Platforms like Coinbase offer staking services to users looking to earn passive income from their cryptocurrency holdings.
- A Roth IRA is a type of individual retirement account that allows for tax-free withdrawals under certain conditions. Contributions to a Roth IRA are made with after-tax dollars, and qualified distributions are not taxed. This retirement account offers flexibility in investment choices and can be a valuable tool for building long-term savings. Introduced in 1997, the Roth IRA provides a tax-efficient way to save for retirement.
- A 401(k) plan is a retirement savings account offered by employers in the United States. Employees contribute a portion of their salary to the account, which can be matched by the employer. There are traditional and Roth 401(k) options, each with different tax implications for contributions and withdrawals. Contributions to a trad ...
Counterarguments
- Diversification concerns: While the text suggests a mix of investments, it may not emphasize enough the importance of diversification across different sectors and asset classes beyond the mentioned stocks and cryptocurrencies.
- Dividend stocks limitations: Dividend-paying companies are not always the best performers, and focusing too much on them could lead to missed opportunities in other areas of the market.
- Cryptocurrency volatility: Cryptocurrencies can be highly volatile and speculative, which may not be suitable for all investors, especially those with a low risk tolerance.
- Staking risks: Staking cryptocurrency, even on reputable platforms, carries risks such as price volatility, regulatory changes, and technology risks that could affect returns.
- Retirement account limitations: Maxing out retirement accounts is beneficial, but it may not be feasible for everyone due to income constraints, and it may not provide enough liquidity for short-term financial needs.
- Overemphasis on tech: Investing heavily in big tech companies could expose an investor to sector-specific risks, and there may be po ...
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