⚠️ TRILLIONS LOST? The Fed Just Crashed Growth Stocks - YouTube

If you're not familiar with Jerome  Powell or quantitative easing,  

let me give you a quick rundown of what's going  on.   Then I'll talk about what this means for us,  

as growth oriented investors who follow  ARK Invest and the Metaverse Index  

and emerging markets, and so on.   Then I'll  tell you exactly what I'm watching out for and  

what I'm buying moving forward.   Your time is  valuable, so here's a quick summary up front:  

the Federal Reserve is stopping the money  printer completely over the next 4 months  

and is now expecting to raise interest rates  several times over the next few years.    

Research shows this could be even worse for growth  stocks than we expect.   Either way, in the short  

to medium term, growth stocks in general and  probably fintech stocks specifically are going  

keep going down in price because they just got  riskier.   Since these growth stocks just got  

riskier, I'm going to diversify my holdings  a little more, both in terms of stocks and  

in terms of other assets and I'll talk about  exactly which ones.   If you've got places to be,  

that's the high-level overview.   For those of  you sticking around, let's get into the details.

As Jerome Powell said in that clip, the Federal  Reserve has two goals: maximize employment  

and keep prices stable.   Right now, inflation is  near a 30 year high.   So, while lowering interest  

rates and quantitative easing helped with maximum  employment, it also caused prices to rise.    

A lot.   If you don't know what quantitative  easing is, it's actually where the Federal  

Reserve increases the money supply to encourage  borrowing and investing by buying bonds on the  

open market.   So, when you hear big news channels  talking about "tapering" or the winding down of  

pandemic support, that's the Federal Reserve  slowing down how many bonds they're buying until  

they're no longer buying any bonds at all, which  they expect to happen in March of next year.    

Once that "money printing" hits zero, the Fed  can begin raising the federal funds rate, which  

is also called the overnight lending rate.   The  federal funds rate is the interest rate that banks  

charge each other when they borrow money, which  in turn determines the short-term interest rates  

that banks and other lenders charge companies  and individuals to borrow that money from  

them.   Currently, that lending rate is close to  zero, which is great for growth stocks.   Here's  

the issue.   Back in September, most Federal  Reserve Officials agreed that this federal  

funds rate will stay under 0.5% by the end of next  year and around 1% by the end of 2023. As of this  

last Fed meeting on December 15th, those estimates  essentially doubled to roughly a 1% federal funds  

rate by the end of 2022 and as high as 2% or more  by the end of 2023. We should also consider the  

possibility that the Fed could decide to raise  this rate even higher if inflation data pushes  

them in that direction.   For example, Goldman  Sachs Global Investment Research expects the  

overnight lending rate to rise even faster through  2024 and reach over 2.5% in 2025. So, according to  

them, the market needs to price in even MORE  pain for growth stocks than it has been.    

Let's stay on topic for now and I'll get back to  this when I talk about the stocks I'm watching.

Rising interest rates are bad for growth companies  because it now costs them more to borrow money  

which they'll sometimes do to reinvest into their  growth.   It's even worse for younger Fintech  

companies who are trying to acquire customers as  cheaply as possible since now they have to charge  

those customers more money for loans and lines of  credit.   That could slow their overall growth.    

Yet another issue is when interests rates rise,  bond prices usually fall, making them much more  

attractive investments.   When bonds get cheaper,  risky growth stocks look riskier, since they have  

to provide an even bigger return to outperform  bonds.   So, these rising interest rates can be  

a real triple-whammy for growth stocks, which is  why ARK Invest's funds are so sensitive to them  

and why they've been underperforming  the market all year.   As a result,  

I expect two things.   First, I expect growth  stocks to keep going down for a while.    

I know.   You're shocked.   The other thing I  expect is that they'll also get more volatile,  

which will cause a lot of investors to panic sell  stocks they don't have high-conviction in.   Just  

look at Tesla, which is ARK Invest's number  one holding.   Maybe it's yours too.   Yes,  

Tesla is down by over 20% over the last couple  months, but look at how it got there.   Volatility  

is way up because the market literally cannot  agree on Tesla's value.   Is it a tech giant? Is  

it growth company? At almost a trillion-dollar  market cap, can it somehow be both?  

If so, what exactly do these rising interest  rates mean for Tesla as a result? The overall  

market is confused on Tesla right now, so its  share price looks like a literal rollercoaster. 

Here's my honest advice.   If rollercoasters  aren't for you, don't get on the ride.   There's  

no shame in staying on the sidelines until YOU  are ready.  You also don't have to put ALL of  

your money into these very volatile stocks if  that's not for you.   And if it IS for you,  

you can still choose to average that money  in over time instead of getting on the ride  

all at once.   Even though it's not always easy,  averaging in is actually the simplest form of good  

risk management.   Diversifying your holdings  is another form of good risk management.    

Here's an example of a great little  micro-portfolio of just four holdings:  

Tesla, Palantir, the Grayscale Bitcoin  Trust, and SPY, which tracks the S&P 500.  

In just 3 positions, you've got exposure to  the bleeding edge of artificial intelligence,  

energy storage, robotics, enterprise software in  a wide variety of markets, and a cryptocurrency  

that more and more institutions are starting to  put on their balance sheet.   Then, you can use  

the S&P500 as a hedge and lower the volatility  of this little portfolio, all while still getting  

some very reasonable returns.   If you're  keeping up with my portfolio project,  

you're seeing me do this exact same thing, except  I'm holding Ethereum and Bitcoin instead of GBTC  

and I'm holding Google and Facebook instead of  the entire S&P500. The less confident you are  

in picking individual stocks like Tesla and  Palantir, the more you can consider putting  

into SPY until you clarify your position on your  individual companies.   It's not all-or-nothing.

What's that? You have a life with more important  things to do than reading investor presentations  

all day? Heh.   Yeah.   Me too. [shifty eyes].  That's where fund managers like Cathie Wood  

and Matthew Ball come in.   I'm not a financial  advisor or professional money manager,  

but they are.   So I could take something like 5  or 10% of my money and put it in ARKK, which is  

Cathie Wood's flagship innovation fund, or META,  which tracks Matthew Ball's Metaverse Index.    

By doing that, I've actually diversified the  investing behavior that influences my returns  

altogether, since a separate person would be  managing some of my money. I would also gain  

exposure to some new areas of technology, like  genomics in ARKK and semiconductors in META, all  

without compromising on my personal investment  philosophy.   I know what I hold and if I don't,  

I at least understand why these fund managers hold  things at a high level.   Why is that important?  

Because that's exactly how you get the conviction  to hold these things as they drop 10, 20,  

30%, or more in the first place,  let alone buy more as they crash.

Here's the thing.   When the Fed raises  interest rates, all growth stocks are affected,  

regardless of who is managing them.   So, another  way to protect yourself from volatility is to  

invest in assets that aren't correlated to the  stock market.   I already mentioned one example,  

which is cryptocurrencies like Ethereum and  Bitcoin, or even the Grayscale Bitcoin Trust  

which trades like a stock but tracks the price of  Bitcoin.   Another example would be real estate,  

which is how YouTubers like Graham Stephan,  Meet Kevin, and even Steven Mark Ryan got their  

start. They can go for the more volatile kinds of  growth stocks because they've spread their overall  

financial risk across different asset classes  like real estate and crypto.   If I'm right  

about growth stocks getting more volatile in the  near future, I think assets that don't move the  

same way as them should become more attractive  as investments.  Well, not everyone can afford  

a mortgage and not everyone is comfortable  with crypto or interested in pokemon cards,  

so how can we invest in assets that  aren't correlated to the stock market?

I actually spent a lot of time digging into  this and the partner for today's video is a  

great way to do just that.    Masterworks dot  IO is the only platform that lets you invest  

in physical multi-million dollar  paintings without breaking the bank.    

Before I learned about Masterworks dot IO,  I thought investing in art was only for the  

super-wealthy, but I was wrong. I like Masterworks  because, according to a recent report by Citibank,  

fine art had the lowest correlation to the  stock market of any major asset class, and  

that's exactly what we're looking for as interest  rates rise and growth stocks continue to fall.    

Also according to Citi, contemporary art pieces  have almost tripled the S&P500's total return  

from 1995 to 2020. That's why billionaire  art collectors allocate between 10 and  

30% of their overall portfolios to art.    That's way more than you thought, right? 

The other thing I really like about Masterworks  is that they're really focused on the investment,  

not just the art.   Their team of analysts use  proprietary data to identify artists whose work  

would produce the best risk-adjusted returns.    Then, they acquire paintings by these artists,  

file the artwork with the SEC, and then  securitize it, meaning regular people like us  

can buy shares of the artwork as if it were a  stock.   These aren't no-name artists drawing  

animals on digital coins.  In 2020, investors  saw a 32% net return on their sale of Banksy’s  

Mona Lisa. That’s two times better than the S &  P 500. They also just got a brand new painting  

by Pablo Picasso. Masterworks dot IO is disrupting  one of the most exclusive asset classes in history  

by giving everyone frictionless access  to artists like Banksy and Picasso,  

instead of just the ultra-wealthy.   That's  why I partnered with them.   I think the reason  

Masterworks has such a long waitlist is that  they make something that used to be impossible  

so easy. You go to Masterworks dot I O, create an  account, browse their artwork, and can instantly  

diversify your portfolio with one of the  oldest and most stable assets around.   So,  

I reached out to them and they're giving you VIP  access to their latest offerings, including that  

new Picasso painting. I'll leave a link to  that offer for you in the description below.

Great.   We've covered the Fed working toward  raising interest rates, the effects those interest  

rates have on growth stocks, the potential  increase in volatility of those growth stocks, and  

ways to manage our risk accordingly, both inside  our portfolio and out.   Now let's bring it all  

together and talk about specific stocks.   This  Goldman Sachs Forecast is really changing my 5  

year outlook on growth stocks.   If Goldman Sachs  is right, the stock market is really only pricing  

in about half the pain it should be from these  future changes in interest rates.   This is where  

all the research that went into this episode comes  together.   There are two specific types of stocks  

that I think are are becoming much more attractive  right now, neither of which should be surprising.

The first kind are the mega-cap tech companies we  all know and love today. Specifically, Google and  

Microsoft.  In addition to being big innovators  in many different markets with fairly diversified  

income streams, these companies all have high  amounts of stable free cash flow and large cash  

reserves on their balance sheets, so they don't  really need to borrow as much money to grow.  

Here's what makes these 2 companies special among  the other tech giants like Facebook and Amazon,  

as well as Nvidia and Tesla. They're much  lower volatility. Microsoft has a beta of 0.87,  

meaning it's even less volatile than the overall  market. A beta of 1 would mean a stock is just  

as volatile as the S&P500 over the last 3 years.  Google has a beta of 1.07, so its price is also  

very stable. This is a catch 22 because Google  and Microsoft are big parts of the S&P500,  

so they're defining the beta for the market.  But if you're already investing in the market,  

you might as well pick the technology innovators  driving its baseline performance, not just its  

measure of risk. Those are the reasons Google and  Microsoft stand out from the rest, at least to me.  

Google and Facebook are already in my portfolio  and I'm thinking about adding Microsoft as well.

The other kinds of stocks I think are going to  be great are the ones that are being mistaken  

for Fintech stocks buuuuut they're not. For  example, Sea Limited has 3 business units: Garena,  

their online game development and publishing arm,  Shopee, which is their big e-commerce marketplace,  

and Sea Money, which is their digital wallet  and payments solution. It's easy to look at Sea  

Limited, say two out of three of their business  units get hit by these interest rates, and write  

them off as a Fintech company. Even though Shopee  and Sea Money are quickly growing and exciting to  

follow, all of actual their operating income comes  from Garena, which is digital entertainment. This  

is kind of like mistaking Tesla for an insurance  company because Tesla insurance is a thing. I'm  

not saying that this hundred billion dollar market  cap company, which headquartered in Singapore and  

makes most of its money through gaming, shouldn't  be affected by these raising interest rates. I'm  

just saying that maybe it shouldn't be as effected  as Paypal and Square have been. I WOULD start a  

position in Sea Limited, except it's already my  number one position by a very large amount. So,  

I'm watching out for more companies that the  market appears to be mistaking for a small cap  

fintech company when in reality they're something  else. I'll keep you posted if I find more.

So, there you have it.   Comment  below or tweet me at Ticker Symbol  

YOU with your thoughts on  inflation, on volatility,  

and on risk.   Are you worried about the  future of some of your favorite companies?  

How far out are you thinking? Do you often think  about your overall portfolio, including assets  

outside of the stock market, or are you just  looking for new stocks now that interest rates  

are going to change? I read all my comments and  tweets and I'm excited to hear your thoughts.

And if you want to be updated as soon as I  make an investment decision instead of waiting  

for me to make a video about it, consider  joining my highest-tier Patrons on Patreon  

or Channel Members right here on YouTube.    Those supporters are getting a lot of extra  

content each week as growth stocks keep trending  downwards.   If seeing me lose a ton of money  

every day isn't really your thing, no worries,  I totally get it.   I talk about my portfolio  

and its holdings here pretty often, whether  they go up or down. [and it's gone] 

Either way, I hope this episode  helped you understand what's going  

on with the Federal Reserve, what their  updated policy means for growth stocks,  

and gave you ideas for how to manage your risk  inside your stock portfolio as well as outside of  

it. Thanks for watching and until next  time, this is Ticker Symbol YOU. My name  

is Alex, reminding you, that the best  investment you can make... is in you.