As we head into 2022, I see some huge wins ahead for private investors…
But I also see some shocking losses.
Before diving into specifics, I want to share my approach to the market as a private investor.
To maximize your own success, I encourage you to start viewing the economy and investing world through a similar lens…
Ignore Short-Term Noise
Most of my personal wealth is invested in private companies. However, I’m also diversified across stocks, real estate, crypto and random assets like art, precious metals and collectibles.
Of all the investments I have, my personal stock holdings (and crypto) are the only assets I can check daily. I can see the value of my stock portfolio in real time anytime I log into my brokerage account.
The rest of my investments — real estate, private equity holdings, art, etc. — are nearly impossible to value day to day. And that’s fine by me.
I’m not really concerned by daily fluctuations in the market… it’s just meaningless noise. The bigger picture — where the world is moving — is what I prefer to focus on.
As a private equity investor, you shouldn’t get distracted by the daily ups and downs of the stock and crypto markets. Instead, you should be paying attention to the broader economy.
That will paint a clear picture of what profit opportunities lie ahead.
So what’s going to happen for private investments in 2022?
First, the bad news…
2022 Prediction No. 1: The Collapse of Mega-Valued Private Companies
I believe we’ll see the collapse of several mega-valued private companies.
An enormous amount of money flowed into private startups in 2021… and the reality is that many of those startups will fail.
One area of particular concern, for me, is the fintech sector. One out of every three new privately held startups that became a unicorn (valued at $1 billion or more) in 2021 was fintech related.
Worldwide, nearly 50 new fintech companies entered the unicorn club.
That’s right. Dozens of brand-new fintech companies (many of which are barely generating revenue) are valued at over $1 billion.
To make matters worse, many of these companies are competing with each other. This means that grabbing as many users/customers as possible will be more important than the actual backend tech of each company. (The fancy backend tech is how many of those companies were able to raise massive amounts of funding in the first place.)
Now I’m not saying that private fintech investments are bad. In fact, I am extremely bullish on fintech investing. Our global economy is going through a massive shift in the way value is transacted, and fintech companies with breakthrough tech are driving that change.
But like I mentioned a couple of weeks ago:
“When you start to see a dramatic increase in numerous multibillion-dollar deals happening — in any industry — you should probably take a step back to figure out what’s going on.”
The long-term outlook for fintech investments is bright… but we could see a correction in the short term.
Too many fintech companies have raised too much money… and many of them will fail.
Just look at the data…
- Q3 2021 fintech investment is 90% higher than all 2020 funding, totaling $34.4 billion globally.
- Megadeals, or funding rounds equal to or over $100 million, are driving the dramatic investment growth seen in 2021; 101 megadeals were made in Q3 2021 alone, totaling $23 billion — a 250% increase over the same quarter in 2020.
And from KPMG:
- $98 billion in fintech investment (mergers and acquisitions, private equity and venture capital) in the first half of 2021, compared with $121.5 billion during all of 2020.
- Global VC investment in fintech reached a record $52.3 billion in first half of ’21 — more than doubling the $22.5 billion seen in second half ’20.
In my opinion, participating in most mid- to late-stage funding rounds of private fintech companies is a risky move right now. Tread with caution.
(There are several other industries that are getting a bit alarming to me right now as well. I’ll be reviewing them in the coming weeks with my Venture Capital Investor readers. VC Investor is my paid service that will be launching in the coming months. Stay tuned!)
Now, on to the good news…
2022 Prediction No. 2: A Massive Shift in Investor Behavior
We are on the cusp of a massive shift in investor behavior, and you can be at the front of the line.
The days of calling up a stockbroker, placing an order and then crossing your fingers that everything goes well is over.
The financial world, notoriously, has been extremely opaque for the past century.
Our global financial system has been engineered to reward the middlemen, those who tack on fees before the general public has a chance to act. These middlemen have bent the laws in their favor by lobbying for government-imposed regulations that exclude outsiders — aka, all non-Wall Streeters.
Retail investors have been excluded from the most lucrative investment opportunities.
But as you know, due to recent changes in federal regulations, private investment opportunities are now available to non-accredited investors. I’ve shared three private investments that you can participate in right now here.
But it’s not just these rule changes that are transforming the investing world. The introduction of decentralized finance (DeFi) is now handing the power back to the individual.
Instead of relying on centralized institutions, like the big banks and quasi-government agencies, DeFi is enabling everyday people to participate in some of the world’s best investments.
In the near future, there will be less of a division between public investments (the stock market) and private investments (like angel investing, venture capital and private equity).
Instead, all individuals will have access to all investable opportunities, without any centralized authority subjectively charging “toll road” fees.
We’ll have traditional investment opportunities, like owning shares (or tokens) of a company.
And we’ll have many new investments like…
- Owning fractional real estate (Realty Mogul and many others are already doing this).
- Investing in individual people (check out Rally).
- Owning a portion of entertainment royalties, like Royalty Exchange.
We’re living in a remarkable time, and as investors, we have the opportunity to create massive gains that could lead to generational wealth.
Here are some of the areas that I am excited about:
- Longevity and antiaging
- Transportation (alternative fuels and autonomous driving)
- Artificial intelligence, machine learning and automation
- The Internet of Things (IoT) and 5G
- DeFi, blockchain, metaverse and the rise of cryptocurrencies
- Food technology
- Space tech
We’ll be covering these in detail in the coming year.
Stay tuned! There are many exciting private profit opportunities on the horizon.
On the date of publication, Cody Shirk did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
By focusing on megatrends that will shape the future, Cody Shirk uncovers generational wealth in the private investing space. To make sure you never miss Venture Capital Digest, click here to subscribe.