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Abstract:The world has gone through a great deal of changes over the last few decades. We are currently experiencing a reactionary paradigm shift owing to a society fighting to characteristically adapt to the radical changes present in every facet of our lives.To whatever extent such forces are an invisible hand or a visible iron boot, I will not comment as that is subject to interpretation, but the ensuing results are self-evident, and they have manifested themselves accordingly in the decisions that people, money managers, and institutions are making towards their wealth and resources.

The Old World:In the Old World, Inflation was a critically important and correlated feature (not a bug) of a healthy and growing economy. A worker or business would offer their services and products to participate in a reasonably meritocratic commercial upside. In order to diligently preserve and grow their wealth, they would invest in equally diligent businesses and opportunities. This achieved the dual purpose of preserving their hard won capital and growing it to outpace inflationary pressures. This system is what inherently created and cultivated the middle class, giving the majority of citizens living in inclusive economic institutions a meaningfully high standard of living. The system worked, until it didn’t…

The New World:Inflation has become a cats paw, a tired and weathered name that shoulders the burden of greed, corruption and corporatism. The open secret amongst economists is that inflation is structurally underreported. Statisticians within the Bureau of Labor Statistics (BLS) continuously adjust the basket and methodology for comparing cost, quality, and substitutability of goods and services in the CPI, making the quoted inflation report a moving target that changes whenever is conveniently needed by those that report it. An independent calculation of inflation based on prior methodologies reveals the potential for abuse, causing a persistent annual inflation undercount.Of course inflation is underreported, pandemonium would ensue if it wasn’t. But I know you see it. You see it when you get your insurance bill, your cable bill, when that number comes up on the sale terminal at the grocery store. You know inflation is an order of magnitude higher than 2%.

The Implications:Over time anything can become normal. Imagine telling an office worker in 1975 that it would be prudent to take their hard earned salary and purchase money that is neither legal tender nor actually used to transact on their computer to get rich (by which I am referring to cryptocurrencies).People are chasing what I will call “Perception Assets” (Something only perceived as having value by a collective enough majority without possessing any inherent utility) with zero quantifiable fundamentals on a wing and a prayer and hoping that it will generate for the speculator an extraordinary return on investment.Are such investors and speculators ignorant or naïve? Absolutely not. Necessity is the mother of invention. And desperation is catalyzing many people to take uninformed moonshots with their money, at great detriment to themselves. And what other choices do they have? Wages and incentives have stagnated with no sign of increase owing to fierce competition for positions in the labour market, and savings rates are being compressed by the heightened need to absorb the rising cost of living. Even if salaries did eventually trend upwards, the majority of careers still have a well defined upside that would require an extraordinary level of innovation and ingenuity to surpass. So where does that leave those that want to build wealth?

The Solution:Investors need greater returns to meaningfully preserve capital and hedge inflation (the real amount of inflation). This requires a larger proportion of high risk / high reward allocation strategies across a portfolio. As risk and return are perfectly and positively correlated, we cannot remove risk, but we can change the nature of risks being taken, and manage them more effectively. That is what I have set out to do in my personal and professional life. That is my ethos for adapting. I have taken my own liquid capital and allocated into earlier stage private deals drawing from my own experiences as an entrepreneur, with positive results thus far. In any case though, no great ideas live in a vacuum. I would love to hear your thoughts. It would mean the world to me to know someone read this and had an opinion on it.

About Me:My name is Daniel, and if you're reading this we likely connected on LinkedIn or met at that networking event the other night. I previously worked for IBM and Deloitte allocating Capital through their CVC funds along with doing Corporate Development / M&A.After starting and exiting an API startup, I now angel invest full time and am starting a VC fund to deploy capital at scale.

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