Dear Warren,
I’d like to offer a potential solution! I understand part of the problem. Like you, when I survey the publicly traded equity markets, they look expensive. The S&P 500 is near all-time highs and multiples are over 20x even after the latest pause in market performance—this is an exceptionally high valuation by any historic comparison.
I also understand why it may seem like cash is a good option while you wait for value to materialize in publicly traded markets. After all, with the yield on cash at over 5% today, you should have more in cash than you did 5 years ago when the return was 0%. But cash comes with a cost. Core CPI inflation is close to 4%, meaning a 5% yield on cash actually isn’t providing much real return.
I would like to propose an alternative that may be able to solve your cash conundrum and offer access to growth companies at good value: Middle market private equity. Private equity offers direct access to the middle market, an engine for growth that includes roughly 200,000 companies and accounts for about a third of gross domestic product. Investing in the U.S. middle market offers a differentiated source of growth, and when compared to large-cap private equity buyouts, has less reliance on leverage, and greater exit potential.
The U.S. economy is on solid footing. The unemployment rate has been below 4% for over two years now (the unemployment rate in Omaha is only 3.1%). This is a great foundation for investing in the middle market.
Publicly traded markets have solid earnings and reflect strong growth, but valuations are stratospheric. Don’t settle for 5% return on cash when you can potentially generate attractive returns in the U.S. middle market.
Well, Warren, what do you think?
