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VC Valuations Down 50%

It's 2020. The world has been hit with a global pandemic. Stocks fall the fastest and sharpest on record and for the shortest duration. Things that couldn't or shouldn't be happening are happening everywhere you look. Stocks bottom out in March of 2020 and are off into bull market territory - yet no one believes the market.


Interest rates are the lowest they've ever been. Money is flooding the system. FOMO (fear of missing out) and TINA (there is no alternative) have become commonly used terms. Day trading has become the most popular full-time job. No one can lose money. Until they do.


When things go wrong, they can go really wrong. Since the market's peak, around the end of the 2021 calendar year, US venture capital valuations are still down 50% from their peak (see chart below).

Meanwhile, equities have clawed back much of their losses - US equities down about 8% since their peak, residential property, especially those in Australia, have not only held up in their valuations but in many cases increased in value. Bonds have been crushed, but certainly not to the extent of US VC. And commercial property continues to feel the heat under the spotlight as it becomes a game of chicken - who moves first. But so far, things aren't looking as bad as the experts predict.


As investors, we're so scarred of our experience of the GFC, which was over 15 years ago now, that it still haunts us to this very day. When things go wrong, the world doesn't necessarily need to blow up in all asset classes. As interest rates rose, we had a tech recession (again) through 2022. The broader market also took a hit, however recovered relatively quickly in my honest opinion. The property market flinched, however stabilised quite quickly too. Yet during this same time, we have the said asset class still down 50%. Sometimes risk can be eventually contained to an asset class. It doesn't always start that way, but it can end that way. Portfolio diversification is the only free lunch in town.


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