BIGGEST Opportunity For Investors in 2022 | Yahoo Finance

[Music] I want to start with this sell-off we're seeing in stocks. Actually, last week was a really rough start to 2022, and we're seeing big tech get beaten up, really the most, with the Nasdaq now formally in a correction. Are you using this as a buying opportunity? And if so, what are you loading up on right now?

I am actually. I mean, first of all, let's talk about the volatility in tech. Tech stocks are historically volatile. They trade at high PEs; many of them trade based on growth metrics, not necessarily earnings, and that gives them very, very high multiples. So, generally speaking, they have volatility. But the way I look at it in corrections like this is: has anything fundamentally changed in their business models? I mean, are you going to use Zoom less? There's a speculative name. Are you going to use Google less, or is it going to continue to grow? Is Microsoft still going to be an enterprise platform? The answer is yes to all these questions.

So when you get volatility, generally speaking, in my world, I take advantage of it because I have to deploy capital all the time, and I have to decide where am I going to put it. I like growth, and I understand it's going to be volatile. Days like this, I remind myself I've seen this movie before. Go back 17 years on Amazon, which I've owned for almost that entire stretch. We had 30, 40, 50% corrections each year, and yet look where you end up today. So I look at it and say to myself, let's learn from the past, apply that to the future, take advantage of volatility. The economy is strong. The use case for technology gets more important in enterprises every day in every part of the globe. That's the investment thesis.

So, Kevin, we know the new year brings a lot of headwinds, but there are also lots of opportunities. So what is the biggest opportunity for investors as you see it in the new year?

Well, the one that I really found interesting over the last 24 months has been crypto and blockchain technologies and tokens and NFTs. You know, you have to make a binary decision about this stuff, and this is very difficult for many institutions. I talk to them every day because I'm in the indexing business, and many of them have not even started their journey into cryptocurrencies. But the reason you should think about it is this: this is how I wrap my head around it, and I think it helps investors to think this way. If you invest in Microsoft and Google and Amazon and so many of these other platforms, what is the core you're investing in? It's basically software. Google is software. Well, Bitcoin is not a coin; it's actually software. The blockchain is software. Ethereum is software. HBAR is software. Polygon is software.

So the real decision is if you're willing to invest in software because it's a productivity tool as an equity, such as Google, why wouldn't you invest in software such as Ethereum? Because it provides a service, particularly in payment systems, that is being used globally. And that's sort of my investment thesis.

Then the question is: which coins, which tokens, which blockchains? And for that, I apply the same rules of diversification I apply to my stocks and bonds—no more than five percent in any one position, no more than 20% in the whole sector. So I'm not anywhere near 20% in crypto; I've just gone over 10.7% in our operating company. But I have a plethora of positions, and I'm going to make this decision that this is even more volatile than technology equities, and it certainly is. Bitcoin's having one of its worst starts ever, but you have to get used to it, just like you had to get used to Amazon, where it would have these 30% to 50% corrections. Same thing with Bitcoin.

So, are you using crypto sort of as a way to hedge or diversify from other assets like real estate, for instance? Are you using it sort of instead of the way we would traditionally use gold as a hedge?

That's an excellent question, and the answer is yes. There's a direct tie-in. Real estate here was my dilemma last year. I sold a lot of our commercial real estate in our portfolio, turned it into cash, called my cash desk, said, "What are we getting for this cash?" Because I haven't got any ideas to deploy it yet. I need some time because I like to put cash back in the market slowly, take advantage of corrective days like this, etc. They said we can get 20 basis points. I said, "Wait a second; inflation's over 6%. That means I'm being taxed at 5.8% on holding cash."

And that was when I started my exploration into crypto, and it took me to two platforms that I use today: FTX for where I hold a lot of my decentralized, and I have to disclose I'm a paid spokesperson and an investor in FTX and use their platform, and Circle, where I use USDC, where I stake stablecoins and get somewhere between four and six percent interest. That was my first exposure.

Let me tell you something, you know, it took me six months to get my own compliance department and my own external auditor to agree to sign my statements. That's how difficult this is going to be. But as the adult, and that is in fact the tremendous potential of crypto, if we make it regulated, if we get institutions into it and find a way for them to be compliant, there are trillions of dollars going to come into this space because it has a pragmatic use. Now, I'm at least keeping pace with inflation on my Circle stake, and I've got a wide range of holdings in my FTX account, and it's completely compliant with my external auditors and my internal compliance department. It took a long time to set up; other institutions are going through the same birthing pains.

Yeah, we'll see if 2022 brings some clearer regulation in that space, Kevin. But I'm curious if you've bought any of those non-fungible tokens, those NFTs. How much of the portfolio is dedicated to those?

No, I don't have a lot of NFTs yet, but I will tell you I actually believe that the potential for the NFT market is actually larger than Bitcoin. And I'll tell you why. The idea—and let's take a physical asset—the one I like to use as an example is watches. I'm a huge watch collector; I have a massive collection of watches. One of the biggest challenges I have is inventory management, insurance management, and then, of course, authentication. When people offer me vintage watches, I have to go through a very arduous authentication process to know if it's fake or not. There's so many fake watches in the market; NFTs could solve all of those problems.

So in the case of a use case for the multi-billion dollar watch industry, because the actual trading of second-hand watches is 10 times the size of the original watch market each year, because there's billions of dollars worth of very desirable watches that trade all around the world. If I could turn all of my watches into NFTs, and that way I could let my insurance company know, "Look, these are the 10; they're out of the vault this week; bid me on insurance just for these 10. Here's where they're located; here's why I want them insured." All the rest, I’d self-insure because they're in a bank vault in some city somewhere. Authentication—every time I sell that watch, the scan of its dial, which is down at the micron level attached to the NFT, would authenticate it; you can rescan it and prove that was the original watch.

So for that kind of thing, same with real estate, same with fine jewelry, same with pins, same with cars—all of this is going to move onto the chain. The best way to invest in it, from my point of view, is to make positions. Like I invested in Immuno.com; they own NFT.com. They're building a curation platform for NFTs everywhere, and so that's an equity that I own. I own Wonderfy.com, which just bought the largest exchange in Canada; they have 375,000 accounts in a jurisdiction that really is progressive in crypto. The Swiss, the Canadians, the UAE government—some of these places are now becoming a little bit more progressive, and you have to invest in those geographies if you want exposure.

So there's a lot going on, but it certainly takes a fair— you know, a lot of time in my day just tracking all this stuff. I'd say I spent 40% of my investment day tracking cryptocurrencies now.

You know, we actually had the CEO of Wonderfy, Ben Sammer, on recently to talk about that deal. So, alright, we understand it; we get it. You're liking the NFTs, you're liking the crypto. What else do you like? Talk to us about other sectors where you really see opportunity this year.

Well, you know, I've always had a 5% weighting in gold. People don't talk about gold very much anymore because crypto has become the gold du jour, the digital gold so to speak, but it's still actually I think an asset you want to have in a rising rate environment. I think diversification now towards stronger balance sheets is going to be very important. I think if you think about a portfolio—you're managing an equity portfolio for growth—you're going to have volatility; there's no question.

So if you're going to put 20% into technology, you're going to see price swings like we're having today. But if you want stability, go through the S&P 500 and find the balance sheets that are the strongest, that actually are growing free cash flows, distributing portions of those profits through dividends. So my theory for 2022 is this: we're not going to get another 20 plus percent return in the equity markets; it's going to be more muted, more like eight or nine percent. Earnings growth, I think, will be around eight percent on the S&P 500; plus, add another 100 basis points for dividend distributions. You're gonna make eight or nine percent this year.

You're going to go through a lot of volatility, but that's still way better than how you're being treated in the fixed income market. Plus, think about the risk you've got. If you buy long-duration bonds right now, you're going to get killed if rates continue to go up and the yields right now on AAA or triple B and above corporate credits are not that attractive. They're still sort of three to three and a half percent, which doesn't even beat inflation.

So I think right now it's focusing on higher quality names. For example, I don't own the airlines. Take United for example: I always use this use case. They started the pandemic with 7 billion in debt; now they're way over 20. Why would you want to own that balance sheet? Why? There's no reason to do that. There are so many other companies that don't have that upside-down balance sheet situation today, and those are the ones you have to look at. You've got to groom through the S&P and pick your positions. Then for growth, you stick with technology.

Hey, Mr. Wonderful here, and you know where I am. This is one of the biggest boat regattas in the world—it's the Head of the Charles in Cambridge, Massachusetts. Now, it's a really big weekend, and people come from all around the world to watch and be participants in it. Over 9,000 athletes are here, some of them Olympians, some of them like Rob right here, who's part of this whole organization and a rower. How did it get started? Because I know it's been around forever, but it started in 1965. It was a small event, and as it's grown over the years, it's now over two and a half days long. There are hundreds of competitors—different clubs participating—and all the competitors across the days.

[Music] Alright, you can't have an event like this without huge sponsorship. There are hundreds of thousands of people attending this—that would give you some idea why sponsors would want to sponsor it, of course, but it’s only a two to three day event at best. So, let's ask Jim here, who’s a major sponsor—why? What's the reason you do this?

So the reason we chose the Head of the Charles to sponsor this year is it really embodies crew in general. It embodies the entrepreneurial spirit that the owners of the company really always enjoy talking about. They've started this themselves; we're 23 years old, and we're thrilled to jump into this for the first year. We're in a very competitive market—clothing, right? Absolutely.

Okay, and what is it? What's the association with rowing? Is there a fit?

So for the association of rowing, we're not going to be the technical brand, but we're going to be the brand that shows up to the event you feel comfortable in, you feel great in, and you're proud to be alongside. We've got friends and family supporting these rowers, and rowers themselves are just thrilled to be out and about again after COVID. We've got 11,000 competitors; we’ve got 800 clubs, and we've got roughly 400,000 people walking through here. The excitement is absolutely palpable.

So this is a pop-up boutique?

This is a pop-up boutique. This was a one-day build—get it all rolling, make sure the registers go—and we're thrilled. This was canceled last year for COVID, for good reason. This year, you know, the team here did an amazing job at making it COVID-friendly yet also service-friendly. Whether the weather came at us—which thankfully it didn't—we had tents available if need be.

Tell me about your business. How much of it is retail, and how much is direct to consumer online after the pandemic?

So we really leaned into the direct-to-consumer online during COVID, obviously. But that being said, we kept our retail doors going the entire time. We've taken this as an opportunity to really connect with our customer and find out what they're looking for and moving forward, how we can better serve them. Whether that's doing things spur of the moment and on demand, which we've really become experts at, or delivering some of the classics that we have. So, you know, a vest over here or a shepherd on one of the mannequins behind me is something that we've been behind for 20 years.

What they encourage is entrepreneurship. So everybody on our team is going to go home and say, "How can we make this better for next year? How can we come up with new fun exciting ways to do it?" And the encouragement from two brothers who own the company is just absolutely something that everybody in the tent behind me... sounds empowering.

So, let's talk about the daily regimen. You talked about getting up and doing it before you went to work. What time do you get up in the morning?

Well, obviously, this is the thing. You got to get to—you got to get like six hours, right? So, you know, if you're getting up at 4:30, 5 o'clock, you got to get to bed 10 o'clock, 10:30, something like that. And if the sleep will kill you, that's the one thing that you can't do without.

Yeah, so you’re going to bed around 10, you’re getting up at 4:30.

Yeah, and then when are you on the water?

Usually on the water here about 5:30.

There's no light.

Ah, there is in the summer! In the summer it's really nice; the city's really quiet; you got the whole place to yourself. You know, in the fall, the schools are back, and you know the days start getting shorter, so it gets a little crazy here in September. Once you've learned how to row in the dark, you can do it because you just follow the shoreline, and you can do it. You have to have bow lights and, you know, safety equipment and all that kind of stuff. But there are people that row, and I'm not one of those, but there are people that just row in the dark.

[Music] One of the things that sometimes people don't realize is just how technical a sport it is. So it certainly involves a lot of strength, but getting eight people working together in unison to maximize the speed of the boat really involves a huge amount of technique as well as strength. So that’s why they practice, practice, practice. They know each other. This crew's been together, right?

That's correct.

Who's the oldest rower? I mean, there must be somebody...

There are people in their 80s who are still competing in the Head of the Charles.

You chuckle.

You can do it, and it's never too late to start, Kevin. Really?

I'm going to get you out there; we're going to get you.

I got to get out there, no questions about it!

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