Investing in Main Street vs. Wall Street

On this episode of Investing With Purpose, Kyle discusses the differences between investing in Main Street vs. investing in Wall Street. Kyle gives us examples of each along with the benefits of investing locally compared to investing in Wall Street.

 

“Investing locally may not be sexy or draw national attention, but it’s the engine of our communities and our country. When you invest local, shop local and spend local you are directly impacting your neighbors’ lives in a positive way.”

 

HIGHLIGHTS:

0:00 – Intro
1:10 – Kyle speaks about the Main Street spirit and communities supporting local businesses
1:48 – Main Street is the story of “us us us” while Wall Street is all about “me me me”
2:26 – An asset’s worth has nothing to do with any economic values on Wall Street
3:08 – You invest into nameless, faceless executives when you invest in Wall Street
3:43 – Kyle talks about the popular scheme known as the double Irish with a Dutch sandwich
5:25 – Kyle mentions social responsibility to the American worker and explains how Johnny Coraba is the epitome of what it means to invest locally
6:26 – Kyle discusses investing in a private local business and the transparency you get when doing so
7:12 – Kyle mentions the recent events that occurred on Reddit with Wall Street Bets
8:15 – Kyle points out a fundamental difference between investing in Main Street vs. investing in Wall Street

 

FULL TRANSCRIPTION:

When it comes to investing, investors think of Wall Street, it’s all they’ve ever known and it permeates every aspect of their lives. From the financial press to social media, to their pensions and 401k’s, Wall Street dominates the investor space because it has the media, politicians, and corporate elites all in its pocket.

Do you ever get the feeling that Main Street is always being looked down upon? It’s because Wall Street doesn’t want you to know about Main Street investments. It doesn’t want you to believe that you can make good honest money from non-Wall Street investments. Over the past years, I’ve surveyed the national landscape and assess the damage both economic and social that COVID-19 has inflicted on America. I’ve been saddened by the widespread suffering, but I’ve also been encouraged by the Main Street spirit, the spirit of communities rallying to lift each other and support local businesses.

One example of this is when Dave Portnoy, founder of Barstool Sports started a fund in December with $500,000 of his own money to assist small businesses who write in to tell their story of their small business and why they need assistance. Together with donations from over 200,000 Americans including some celebrities like Tom Brady, Aaron Rodgers, Guy Fieri, Elon Musk, and many others, the fund has grown to over $35 million so far. A great example of an influencer using their platform to invest locally.

On Main Street, it’s been the story of us, us, us. While on Wall Street, it’s been the story of me, me, me with greed and money-grabbing all on full display. Just like living on Main Street, when investing in mainstream fundamentals still matter. Demographics and economic metrics and indicators don’t lie. When investing locally whether directly or indirectly in real assets like income-producing businesses or cash-flowing real estate, fundamentals are essential for valuing an asset and for making financial projections. Supply, demand, income, and macroeconomic factors like employment, household income, and other economic indicators all still matter when evaluating a potential investment’s economic performance.

On Wall Street an asset’s worth has nothing to do with any economic principles. There are no underlying economic metrics right now to justify the stock market’s valuation. The price-to-earnings ratio has historically been a good gauge of the overvaluation of the market. The average PE ratio since the 1870s has been about 16.8.

In 1999, a few months before the top of the.com bubble, the PE ratio was 34. The current PE is around 30, which is dangerous territory. Experts nationwide are screaming bubble. But what’s even more alarming in today’s underlying economy is much worse than the one in 1999 with stagnant GDP growth and high unemployment. In other words, the fundamentals are even worse today.

When investing in Wall Street, you’re investing in nameless, faceless executives. Unless you’re investing in Tesla or Amazon, chances are that you won’t even know the name of the CEO of the company you’re investing in, let alone have a conversation with them or meet them face to face.

When executives and public companies talk about the bottom line, they’re not thinking about investors, they’re thinking about their jobs and bonuses. A study by Fair Tax Mark found that Amazon, Facebook, Apple, Netflix, Google, and Microsoft just to name a few collectively avoided about $100 billion in taxes through the use of foreign tax shelters. A popular scheme called the double Irish with a Dutch sandwich. This involves channeling profits first to an Irish company than through a Dutch company and then to another Irish subsidiary headquartered in a location like Bermuda with lower or no income taxes. As a result, large corporations are parking a tremendous amount of cash offshore. The top 50 US companies have about 1.4 trillion in cash offshore.

At a time when the corporate tax rate was 35%, which is now 21% after the 2017 tax reform, Amazon was cited in the study as the most significant tax avoider. They paid only about 12.7% in taxes. In 2017, Google reportedly transferred roughly 22 billion through a Dutch company which was then forwarded to an Irish company in Bermuda. Companies pay no taxes in Bermuda. In short, Google’s subsidiary in the Netherlands was used to transfer revenue to the Irish subsidiary in Bermuda. These are all public links, you can look for yourself. The giant companies like Amazon, Facebook, Google, and Apple hog all the airtime on CNBC and Bloomberg with the pundits discussing whether they will hit their earnings expectations or if they are buy, sell or hold or what’s next for the giants as if the universe revolves around these companies.

Investors hang on to every word, and money and shares constantly change hands as a result. Many investors pour their hearts and souls and sometimes their life savings into these companies. It’s all about profits for these companies and shrinking their tax obligations is one big scheme they use to pad their own war chest. One thing is for sure, their army of accountants and tax strategies keep them rich while the rest of us pick up the slack.

So many companies pride themselves on corporate social responsibility and many have touted their green initiatives. But what about social responsibility to the American worker In 1986, Johnny Carrabba opened the original Carrabbas on Kirby drive here in Houston. And in 1993, under a joint venture with Outback Steakhouse, he opened up 10 new Carrabbas locations between Houston and Florida. Two years later, OSI acquired the rights to develop the Carrabbas chain nationwide and ended up taking it internationally.

But Johnny kept the rights to the first two locations of the original Carrabbas here in Houston. And he also went on to open up Grace’s, which was named after his grandmother, and Mia’s table, which was named after his daughter Johnny is the epitome of what it means to invest locally. He invested his own sweat, his own money, and his own time to create 1000s of jobs. He’s created a loyal following because he’s a man that stands on true values and principles. I actually met Johnny at the opening of one of the Mia’s Tables locations that’s near my house here in Houston. And he made you feel like you were his own customer. And I imagine that he also treats his investors no differently by making himself available at any point.

When investing in a private Local Business Management goes out of their way to meet customers or even potential investors to make themselves available to answer any questions. They know that your investment decision will mostly be driven by your impression of management and management’s track record and experience. We also practice this at my company. Every investor in our deals, has my email, they have my cell phone, they can reach me at any time. This shows transparency. This gives them access to me so they can ask questions at any point, at any time that they’re invested in our deal. If they have a question on a decision that we’ve made about the strategic direction of the property, they can call me.

When hedge funds short sell companies and drive their share prices down to pocket billions who holds them accountable for ruining the retail investor’s portfolio? Reddit has been in the news lately when members of one of its popular subreddits Wall Street Bets tried to hold hedge funds accountable for their short-selling activities by banding together and buying up GameStop stock to drive up the share price to make hedge funds lose money. It worked to the tune of more than $13 billion in hedge fund losses. But there was collateral damage.

However, after peaking at a record $430 a share last week up from $17 a share at the beginning of the month, GameStop has sent shed 81% is now hovering around $100 a share. Who’s going to hold Wall Street bets accountable for their losses incurred by bandwagon investors who bought at $430 only to see their holdings lose 81%?

Wall Street holds nobody accountable. The managers of mainstream investments make themselves available to be transparent to hold themselves accountable. On Wall Street, everyone gets paid no matter what, except the investor. Executives and directors of public companies, hedge fund managers, financial advisors, and so on, make sure that they all get paid first, whether investors get paid or not.

Most passive income local investments are structured to pay the bulk of management compensation only if the company is actually profitable. This concept is foreign to Wall Street. With stock prices constantly manipulated by the many players on Wall Street, it seems honesty is in short supply. The line between what’s legal and what’s ethical is constantly blurred and everyone is looking for a quick buck.

They just want to get back to their social media and their video games. On Main Street, hard work pays off. Local businesses and real estate investments offer those who are willing to put in a little bit of work, actually grow their investments. This is a value-add. A real estate investor willing to clean up the exterior of an apartment building or a business investor willing to improve the efficiency of a machine can all see improve returns from their efforts.

By investing locally, you’re contributing to your communities and taking care of your neighbors. On Wall Street, your investments could be going offshore to support foreign principles for all you know. Investing locally may not be sexy or draw national attention, but it’s the engine of our communities and our country. And when you invest local, shop local, and spend local you are directly impacting your neighbor’s lives in a positive way which we all know is something that we desperately need as a nation right now.

Help yourself by helping take care of your neighbors, invest local.

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