over the last two years, the value of everything from G-Class Mercedes to Rolex Submariners, luxury handbags, and trading cards has taken a huge hit. Basically, if you saw a luxury product in a sketchy ad from some guy trying to sell you a dropshipping course, it's

probably halved in value. If you are ever feeling bad about your own personal financial choices, go and watch finance brokers try to unwind someone who is $150,000 in negative equity on an electric Hummer that they purchased with an 8-year loan to rent out on Turo. It

should make you feel much better. But I am sorry to tell you that these things might be starting to turn around for these douchebags. We are re-entering a market where Bitcoin is breaking all-time records, stocks are only going up, and Dogecoin is worth more than Nintendo,

Delta Airlines, or the Ford Motor Company. In a market where prices only go up, you better brace yourself because people are going to say that just about anything is an investment to convince their customers, to convince their partners, or just to convince themselves. But that doesn't matter as long as they can

convince you that it is. How could I justify spending $1,000 on a first edition pack of Pokémon cards from Logan Paul? That watches are actually not just fashion, not just a statement about who you are. I have been collecting these bags for a

minute. They're also a great investment. Sorry, you owe about 190 left. Yeah, all right. Hummer EV. Did you see my other Hummer video with the guy that was like $100,000 upside down? Yeah, that was yeah, yeah. Alternative investments do have a

A lot of attractive qualities for sophisticated investors that know how to effectively use these assets like commercial real estate, patents, private equity, distressed debt, commodities, and even some collectibles have been purchased by wealthy people as part of their broader investment strategy.

Because they do actually have a few advantages. The value of these assets are often uncorrelated to the return of the stock market, which means that if you're a wealthy individual that loses their job during a market crash, you won't have to sell your investments at record low

prices to stay afloat because some of your alternative investments should still be doing fine. If you just had investments in equities and lost your high-paying job in a market crash, you might be forced to sell your shares at the bottom of the market, which, as the finance bros say, is not

awesome. Some alternative investments also let their investors have more control over their value. If you own a boring old well-diversified stock portfolio, there isn't much you can do to make the whole stock market more valuable. If you own a piece of commercial real estate or even something

like artwork, you can market it or do it up, which might help improve its sale price. Alternative investments also generally have less competitive markets. If you are trying to find an edge in the market for stocks or bonds, you are going up against teams of quantitative analysts from Jane Street and Citadel

Securities who did a 4-year math program at MIT just to eek out five basis points of alpha. You might actually know something about a niche alternative investment that does genuinely give you an edge without it bordering on insider trading because the Securities and

The Securities and Exchange Commission really doesn't care about what happens in these markets now. If you are an industry insider, that could be a really good thing, but more likely for you, it's a really bad thing. So before you go and rethink that Masterworks investment, you should also

know about the long list of drawbacks with alternative investments. They are normally highly illiquid because the market for them is niche, which means finding a competitive buyer can sometimes take years. They are also much more expensive to buy and sell. You can buy stocks on any number of commission

free brokerages, and while they do have some hidden fees, they are barely around. If you want to sell a piece of artwork, a piece of jewelry, or some other collectible, you are probably going to need to go through an auction house or third-party dealer. Sotheby's for

example is the most well-known auction house in the world, and they charge a 20% commission on any sale under $10 million, which is actually paid by the buyer. Any investment where you are automatically 20% down the moment you make your purchase is going to be risky at best.

But let's be honest, most of you watching aren't seriously considering a multi-million dollar artwork to round out your investment strategy. And if you are seriously considering a syndicated artwork investment system, then I have really failed to teach you how money works. The alternative investments that

have really been generating all the attention are manufactured luxury goods that can't keep up with demand or intentionally limit production to create a sense of exclusivity. High-end luxury watches from brands like Patek Philippe and Rolex, limited-run cars, as well as

Certain designer shoes and handbags all have long waitlists from authorized dealers that can stretch for years before you're even allowed to drop five figures on a fashion accessory. This has created a huge gray market for these items where people can wait to

buy a bag or a watch from these stores and then sell them for a premium to a buyer who just wants their new toy right now. Something that you can buy one day and then instantly sell the next day for a huge premium sounds like the most risk-free investment there is, and it

would be if it actually worked like that. People have seen the opportunity to make some easy money and have run with it so hard that there are even sites that collate sales data to make trackable indexes which, as you can see, have not been telling a good story about the

actual performance of these investments. It might be unsurprising to you, but the hype around these markets is also highly correlated with the hype around other alternative investments like cryptocurrencies and with the current massive rally in dog-themed financial instruments and other such nonsense. We

got to talk about it before anybody else does something stupid. So it's time to learn how money works to find out just how risky these alternative investments can be. This week's video is sponsored by Ridge. I've always had a habit of carrying way too much in my wallet, but

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that's built to last at ridge.com Money there is of course another reason why people are attracted to highly speculative alternative investments and that's simply their potential to be a lottery ticket out of poverty A well-diversified portfolio of stocks, bonds, and real estate is an incredibly

powerful tool to build wealth but if you don't have any wealth to begin with even Warren Buffett level returns won't make you wealthy within your lifetime unless you can make consistent contributions towards those investments Cryptocurrencies, meme stocks, trading cards, and even straight-up gambling is

giving hope to a lot of people even if for most of them it will only make their problems worse But for the lucky few who did time their purchases correctly, they have turned incidental amounts of money into very substantial positions The people that have sold out of these

positions have a higher propensity to consume, especially on luxury goods to show off their new fortunes which was in part why the aftermarket for luxury goods saw such a boom from 2020 to 2022 The trend was so strong that these items were seen as investments themselves the

brands themselves, although they would never publicly admit it, heavily played into this idea of scarcity by limiting their production of popular products and raising prices above the rate of inflation year after year to make it seem like it was a privilege to pay the price of a family SUV for a watch at the

end of the day, these are companies with a profit motive and the only reason they would limit production is because it would increase the premium they could charge. Paying $50,000 for a watch seems stupid, but if someone that just made a fortune on a monkey JPEG is willing to

buy it off you for $100,000 then it's just responsible investing. But what is particularly interesting is why this isn't happening again this time. The price of highly risky investments is up, but the price of all the junk that people normally buy when their doggy

coin moons has stayed down, so what gives? The logical answer is that sports betting and meme coin speculators have suddenly become very fiscally responsible and instead of blowing their profits on babbling goods to show off their new found wealth, they are

prudently investing it into a structured portfolio to provide them with a stable return. Yeah, okay. So there are actually three things that have happened here. These dumb, expensive trinkets that people insisted were great investments are actually an indication of a much bigger shift in the economy and habits

of retail investors. The first big change is that these markets, which used to be made up of small-time, unsophisticated investors, have become just as consolidated, if not more consolidated, than traditional equities markets with the largest, wealthiest investors controlling a huge share of the total

supply of things like cryptocurrencies Bitcoin going from 20K to 90K in a year will make people a lot of money but it's going mainly to the type of people that already had a lot of money to put into a risky investment. It's a huge return but

to someone who only had $1,000 to invest it's not going to make them life-changing amounts of money like it would have if they invested early in the 2010s. If the Winklevoss twins make an extra billion dollars on the

appreciation of Bitcoin they are not going to wear 100,000 PCH phips. Which means even though the net wealth creation might be the same the resulting propensity to consume is much lower when the rewards are going to people who could have already purchased any luxury

good they ever wanted. For many of the small investors who want a chance to make life-changing amounts of money from their limited capital the boat has already sailed on Bitcoin. Which is why people keep falling for rug pull after rug pull on the promise that this time

will be different because they simply need the chance. The reason that people are making these gambles is also different. A Wall Street Journal survey of investors with low FICO scores found that their primary reason for investing was not to build wealth but to pay off debt. Credit card debt is now approaching

all-time highs and interest rates on all kinds of borrowing is up so even when people are lucky enough to turn a profit on these extremely risky investments they are just going back to square one, not actually getting ahead. Four years ago dumb investments were turning people's stimulus checks into enough

money for a down payment on a Lamborghini Urus today, they are lucky if it pays off their heavily underwater car loan. People are no longer being greedy, they are just being desperate now. You have probably experienced this cultural shift from the pandemic era exuberance

to the more cautious financial environment today, even though most macroeconomic indicators are up and to the right. But these investments are also getting hurt by a market where none of you are watching, which hasn't even been able to make its broad economic indicators look good. China has become

the largest market in the world for luxury goods because the country has produced a lot of wealthy people very quickly and those people are eager to show off their newfound fortunes with luxury goods. Unfortunately, real estate, the primary wealth generator in China and the single largest asset market in

the entire world, has been floundering since Evergrande and other major property developers started failing and flooding the market with more apartments at fire sale prices. This wealth destruction, along with a strong push by the government to crack down on extravagant displays of wealth, has meant demand for

luxury goods in the country has fallen at the same time as luxury good companies have expanded to keep up with demand that has disappeared. It should go without saying, but even really smart people can do stupid things with their money if they want something to be true.

A lot of people want to convince themselves that their new luxury purchase is not only a nice toy but a prudent investment when it simply isn't. Even if there is a premium between retail price and what it could be sold for in the gray market, you normally have

to spend a lot of money at authorized dealers before you're allowed to get to the front of the wait list after that the risk adjusted returns are probably very bad if not non-existent if you want to invest your money invest your money if you want to buy something nice to treat

yourself by buying something nice treat yourself don't compromise and do both poorly now the bonus fourth reason is the cultural shift away from conspicuous displays of wealth I am going to be writing an article on my completely free email newsletter about why role playing

as a poor person has suddenly become the new trend amongst wealthy people especially in big cities and if all this has convinced you to stick with traditional investments then go and watch my other video on why you are not actually an investor at all to keep on learning how money works

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How Money Works

Decline and potential resurgence of luxury goods market

Luxury goods like cars, watches, and handbags experienced significant value drops.

High-value, leveraged purchases of luxury items are highlighted as examples of poor financial decisions.

A shift towards a bullish market is noted, impacting the perception of luxury goods as investments.

The narrative emphasizes the ease with which almost anything can be framed as an investment in a rising market.

Examples of justifying high-value purchases of collectibles as investments are given.

Alternative investments: advantages and disadvantages

Alternative investments like real estate, patents, and collectibles are presented as attractive to sophisticated investors.

Advantages include uncorrelated value to the stock market and greater investor control.

The benefit of uncorrelated assets during market crashes is emphasized.

Greater control over asset value is discussed in the context of real estate and artwork.

Less competitive markets for alternative investments are contrasted with the highly competitive stock market.

Drawbacks include illiquidity, high transaction costs, and significant commissions.

The high commission rates of auction houses are highlighted as an example of high transaction costs.

The discussion shifts to focus on manufactured luxury goods as a specific type of alternative investment.

Manufactured luxury goods as speculative investments

High-end luxury goods with limited production and long waitlists are discussed.

The existence of a gray market for reselling these items at a premium is explained.

The apparent risk-free nature of this investment strategy is questioned.

The oversaturation of the market and the existence of sales data indexes are mentioned.

The hype surrounding these markets is correlated with other speculative investments like cryptocurrencies.

The lottery ticket mentality and the role of debt

The appeal of speculative investments as a potential quick path to wealth is explored.

The contrast between building wealth steadily versus the lottery ticket approach is discussed.

The connection between successful speculation and increased consumption of luxury goods is noted.

The role of brands in creating scarcity and driving up prices is analyzed.

The profit motive behind limited production of luxury goods is highlighted.

The question of why the current market differs from previous speculative booms is posed.

The idea that speculators are now more fiscally responsible is dismissed.

Three major factors contributing to the shift are introduced.

Market consolidation, with larger investors controlling a larger share of assets, is highlighted.

The impact of market returns on different investor groups is discussed.

The difference in consumption patterns between those with pre-existing wealth and those without is noted.

The persistent hope for life-changing returns from limited capital is discussed.

The motivation of investors with low credit scores, focusing on debt repayment, is revealed.

The change in outcomes from speculative investments is compared to the past.

The shift from pandemic-era exuberance to a more cautious financial environment is described.

The impact of the Chinese real estate market on luxury goods demand is explained.

The effects of the Chinese government's crackdown on extravagant displays of wealth are mentioned.

The mismatch between supply and demand in the luxury goods market is highlighted.

Concluding remarks and additional factors

The irrationality of treating luxury purchases as investments is emphasized.

The poor risk-adjusted returns of luxury goods investments are mentioned.

The advice to separate investment and personal spending is given.

A cultural shift away from conspicuous consumption is mentioned as a final factor.

A recommendation to watch another video on investing is given.

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