Bowie, Bonds and Beer
When David Bowie recently passed away, a spotlight was shone on how the iconic performer had managed to raise capital for his later works. The term that got coined in the media was “Bowie Bonds”, but the business practice behind it was straight out of Wall St.
In 1997, an investment banker by the name of David Pullman offered investors the chance to buy into David Bowie. For a 10-year period, institutional investors received a 7.9% return based on royalty payments for all of David Bowie’s 25 albums recorded before 1990. At the end of that time, their initial investment was repaid in full. As a result of the deal, Bowie was able to borrow $55m from the Prudential Insurance Company of America, which was then used to stump up the costs of recording new material.
And it’s not just Bowie getting on the bond bus, with bonds being offered in products as diverse as whiskey, parmesan cheese and even beer. In fact, Scottish brewery BrewDog has built up such a loyal following, it meant that they were able to turn the business rule book on its head upon opening the world’s first crowdfunded brewery. Their investors buy into the the brewery by purchasing bonds, which don’t offer dividends but do offer first dibs on new beers and other products.
And it’s not just the beer drinkers and Bowie aficionados that are getting in on the financial markets. So called Contrarian Investors are shaking up the very fabric of the markets, and revolutionizing how and what we invest in.
The Hipsters Are Coming…
Mathematical neuroscientist Jonathan Touboul from the Collège de France in Paris, has come up with a mathematical formula to explain how hipsters’ appearances converge because trends in fashion and lifestyle move so quickly that those who attempt to adopt them before they take off — your bearded or quirkily-haired, artisanal-clothed, ironically-pipe-smoking, tattooed hipsters — are too slow to pick up a new trend once their original trend has become too popular.
And, most interestingly, he thinks that this can be applied to the financial markets, and could be the reason why some companies enjoy such sustained investment — American Apparel and Urban Outfitters being two that appeal to the hipster/contrarian investor in particular.
The way this works is such — the stock enjoys the initial boost from the first wave of contrarian investors, and then becomes fashionable, and is then simultaneously enjoying the investment from the second wave of slightly slowly adoptees whilst no longer being cool enough for the first wave hipsters. Eventually, it becomes fodder for the traditional investor, drawn to the stock by the interest it has gained along the way.
But that’s just stock… what happens when hipsters want in on investment portfolios?
Meanwhile in California…
Wealthfront is an automated investment service firm based out of Palo Alto, California. It’s by no means the only company of its kind — there is also Betterment and Nutmeg to name a couple — but it is by far the biggest.
Wealthfront uses a simple web-interface and limited jargon to explain investment strategies to potential clients. Aimed mainly at millennials with minimum knowledge of the markets, they’ve been able to raise $2.6billion in assets in the eight years they’ve been around.
But it’s not just the speed that they’ve grown that makes them interesting — it’s the sheer number of their investors, and the fact that the majority of them are under 40. More and more companies, like Wealthfront, are offering lower entry levels and breaking down the barriers for those wanting to join the party. And they are not the only ones…
Timberlane Partners are revolutionizing property investment in the US, offering investment in real-estate but by not just buying neglected apartment buildings in promising neighborhoods, renovating, raising rents, and filling them with young professionals, but also taking extra care to provide touches it can market specifically to the perceived whims of millennial tenants. With this Timberlane have hit on a winning formula.
The four-year-old firm earned a 24 percent return on its first five buildings. An additional seven sites, owned for at least a year, are producing annual yields — cash as a share of investment — of 11.2 percent. Investors funded an expansion into Salt Lake City in 2013 and Los Angeles in 2014, and Timberlane now has a real estate portfolio of $160 million, up from less than $80 million at the end of 2013.
But whether its buying bonds in beer, investing strategically in online automated services, or just buying into the housing bubble — hipster investors are marked by another card, their desire to invest ethically.
Solar is in, oil is out; organic, small-batch cocoa is in, big-brand confectioners such as Nestlé are out; credit unions good, banks bad… and so the list goes on. But whereas previous generations were happy just to grow their money, this generation likes to do so without detrimental effect to those around them.
And it could be that some stocks will, in the future, fall completely out of favor with whole swaths of investors.
Fractalerts’ Final Thought
We are forward thinking and proactive, and that’s why we offer our trading alerts in simple, modern ways. They come direct to your inbox, and are available on various subscription plans which can be cancelled by you at anytime. The alerts themselves are based on almost a decade of research and development into unique algorithms, which digest and project the movement of the markets, meaning that you are always ahead of the curve..
Because, after all, we might help you invest in the traditional markets, but we do it in a modern way.
Originally published at www.fractalerts.com, on 15th February 2016.