Vehicles of Investing: What Am I Buying? | Brandon Averill, Justin Dyer | AWM Insights #96

So now you are ready to invest and become an owner or lender, but what do you buy and how?Stocks, bonds, mutual funds, ETFs, hedge funds, and private investments all make up the universe you have an opportunity to invest in. To keep it simple, buying stock is ownership and buying bonds is lending. Both mutual funds and ETFs can be very efficient vehicles to access public markets but understanding the details is an essential step.Private investments like hedge funds, venture capital, and private equity can be a source of great returns but are also less transparent with much less information than the public markets.EPISODE HIGHLIGHTS:(2:01) Stocks are ownership and bonds are lending.(2:30) Stocks are direct ownership. Think Apple, Microsoft, Tesla. (3:34) Bonds are just loans. These loans can be to the US government, local government, or companies. (3:55) Publicly traded companies (Apple, Microsoft) also issue bonds to then use that money to create more value or feed growth.(4:40) There is a hidden cost: the spread between the bid and the ask price.(5:25) Access to public markets is incredible and as simple as it has ever been for investors.(6:05) Mutual funds, why they exist and what they offer.(7:27) Single stock risk and why the diversified portfolio outperforms.   (8:30) Before diversified pooled investment vehicles, investors were overly concentrated in just a few stocks to the disaster of many during the Great Depression. (9:01) Diversification and the closest thing to a free lunch in investing. (9:08) Private markets have illiquidity issues and slower transaction time to complete a purchase or sale. (9:46) Mutual funds are only priced once a day. At the end of the day they are traded or redeemed at their Net Asset Value or NAV.(10:30) Exchange Traded Funds or ETFs are traded similar to a stock throughout the day.(11:45) ETFs have gained in popularity but have been around for more than 30 years.(12:30) The misconception of mutual funds due to some fund companies charging high fees in the past. Not all mutual funds are the same. They are just a vehicle. (13:20) There are expensive ETFs and inexpensive ETFs just like the mutual fund universe. (14:50) Derivatives. How ETFs use these to juice returns and the drawbacks.(16:10) The movie to watch on derivatives is The Big Short. (17:00) Hedge funds were originally started to hedge market downturns. (18:05) Hedge funds have evolved into a bet on an active manager that they can beat the market. There are many strategies that now fall under hedge funds but very few do any hedging anymore.   (20:24) Private companies also sell ownership in stock or take money in the form of loans as bonds.(21:33) Buying stock of private companies or lending them money is called direct.(22:11) Buying into a private fund gives you the claim to ownership and the fund managers are responsible for finding worthy investments. (24:55) NFTs and how you should think about these crypto and web 3.0 talk.(26:30) Crypto is speculative because it is not ownership of a business or lending of money. This isn’t a bad thing, it just means it is speculative and buyers hopefully understand that.(27:13) There is tremendous hype and it's hard to know what you actually own with NFTs. (28:00) There is a disconnect between perception and where the NFT market is currently at.(28:55) NFTs will be covered in depth next week.