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Welcome to the latest edition of the Healy Wealth Management newsletter, your monthly guide to navigating the financial complexities of life.
Let us know your thoughts. And if there’s something that could benefit a friend or family member, please send it their way.
NIL (Name, Image, and Likeness) deals now let college athletes get paid, sometimes seven figures, before they’ve ever filed a tax return or built a budget.
In this episode of North Fulton Business Radio, HWM’s own Erick Murray joins host John Ray to unpack what happens when generational wealth arrives decades early.
The realities include:
Click below to hear Erick share real stories, tax traps, and the questions every family should ask before spending a dime of these windfalls.
A person who doesn’t know that they don’t know something is unconsciously incompetent.
A person who doesn’t know that they know something is unconsciously competent.
A person who knows that they don’t know something is consciously incompetent.
A person who knows that they know something is __________.
Companies are staying private much longer than they used to. Twenty years ago, a successful company might go public within five to seven years of founding. Today it’s common for a company to stay private for a decade or more before it ever reaches an exchange. A meaningful amount of growth now happens while a company is still private, and that fact gets used to argue that a portfolio needs private equity to fully participate.
It’s worth being skeptical of that argument. You don’t necessarily need to own private businesses to meet your investment goals. Public markets already give you access to thousands of companies, including plenty of younger, smaller, and faster-growing ones, with full daily liquidity and real-time pricing. Private equity is one way to try to capture additional return. It isn’t the only way, and it comes with real costs, benefits, and tradeoffs worth understanding on their own terms.
What Private Equity Actually Is
In the language of Wall Street, there are Traditional, Nontraditional, and Alternative assets. Private Equity, generally considered the largest class of Alternatives, has many subclasses. Preqin, a London-based investment data company owned by BlackRock, classifies Private Equity into seven strategy types, by far the largest of which is Leveraged Buyouts (LBO), followed by Venture Capital, Growth Equity, and Secondaries.
LBO’s – While all PE firms raise money from investors, pool it into a private partnership, and use that money to buy companies, leveraged buyout firms borrow heavily against the target company, often 4 to 5 times its cash flow, and use that debt to fund most of the purchase price. If the business grows and the debt gets paid down, the equity left over has grown multiples faster than the business did on it own.
Venture Capital – Targets pre-revenue, or early-revenue companies where the business model is still unproven. No leverage, but future capital injections are necessary for success as these unprofitable companies burn through cash just to keep the lights on.
Growth Equity – Targets companies that already have predictable revenue but are only profitable from management’s point of view (not reported earnings). Investment success means that growth, with the help of future capital injections, has accelerated.
Secondaries – This strategy involves buying part or sometimes all of existing PE firms, usually LBO, Venture Capital, or Growth Equity, but at a later stage and at a discount to appraised value. There’s a reason for the discount. Structurally, secondaries involve conflicts of interest that don’t exist in primary investing.
Benefits
Access to more of the economy. As companies stay private longer, some of the most significant value creation happens before a business ever reaches a public exchange. Private equity is one route to participate in that stage.
Active ownership. Unlike owning a small slice of a public company, a private equity fund often takes control of a business outright, giving it the ability to make operational changes, replace management, or restructure the business in ways a passive public shareholder cannot.
Reported smoothness. Private equity returns, as reported, show low volatility and low correlation to public markets. For an investor focused only on today’s market value and not the long-term value of their fund, that looks like a diversification benefit.
Costs
Fees. The standard arrangement is “2 and 20”, meaning a 2% annual management fee plus 20% of profits above a set return (around 8% today) going to the fund manager. With no market pricing, the fund manager appraises the assets, subject to audit.
Illiquidity. Capital is typically locked up for 7 to 10 years with no guarantee of future liquidity. If you need to exit early, you’re selling into a thin and unreliable secondary market at a discount, if you can find a buyer at all.
Leverage Risk. Buyout leverage carries fixed and/or floating coupons, maturity dates, and covenants that can be tripped if the business underperforms. That debt has to be serviced whether or not the business cooperates, and a downturn at the wrong time can turn a temporary problem into a forced and permanent loss.
Cash Burn – Time is not on our side with Venture Capital.
Dilution Cost – If you look at Growth Equity from the perspective of intrinsic value, dilution from future capital injections means the company must grow INTO a fair valuation in order to succeed. This dilution reduces the final return. It’s a drag, or cost, that is rarely highlighted.
The Tradeoffs
The modern case for alternative investments traces back to a specific source: the Yale Endowment. Starting in the 1990’s under David Swensen, it grew from $1.3 billion to nearly $42 billion over 35 year. And the playbook — heavy allocations to private equity, venture capital, real assets, and hedge funds — became the template every institution tried to copy. The part of the story worth examining more carefully is the reasoning behind it, because two of its central claims deserve more scrutiny than they typically receive.
The first is risk reduction through diversification into “uncorrelated” assets. Private equity and venture capital holdings are valued quarterly by fund managers using internal models — not by markets. When public stocks fell 40% in 2001 and 2002, Yale reported positive returns of 9.2% and 0.7%. That looks like diversification working. What it actually reflects, in significant part, is that private portfolio companies did not get marked down immediately — the losses trickled through over subsequent years, quietly, as write-downs rather than headline losses. The smoothness of private market returns is partly real and partly a function of infrequent, manager-controlled pricing. Assets that look uncorrelated to public markets during a crisis are often simply unpriced — which is a different thing entirely.
The second claim is the illiquidity premium — the argument that patient, locked-up capital allows managers to invest with a discipline that liquid funds cannot match. If investors cannot redeem their shares during a crisis, the manager never faces forced liquidations, never has to sell good assets at bad prices, and can underwrite to long-term fundamentals rather than short-term noise. This is the strongest version of the argument, and it is not wrong. What it requires, though, is that the manager is actually exploiting that structural advantage — buying assets others cannot hold, in markets others cannot access, with genuine value creation that the public market cannot replicate.
When private equity is simply buying public-market-equivalent businesses at public-market-equivalent multiples and adding a lock-up, investors are paying the illiquidity price without receiving the illiquidity benefit. And when circumstances force the hand — as they did for Yale after 2022, when the university was reportedly selling $2.5 billion of private equity to fund university operations — the lock-up stops being a feature and becomes a trap. The premium is real, but only for managers disciplined enough to earn it.
What You’re Actually Buying
Alternative investments are sold on compelling narratives — access to elite managers, uncorrelated returns, the illiquidity premium, the Yale Model. Some of those narratives have merit. Some do not survive close examination, as we have tried to show. What matters is not whether the asset class sounds sophisticated, but whether the specific investment makes sense for your specific situation, at the price you are paying, with the liquidity you are giving up, and the fees you are absorbing.
Focusing on patient, long-term ownership of good businesses does not require a private equity fund. Berkshire Hathaway buys and holds entire companies permanently, employing its synergistic, self-reinforcing flywheel of insurance float at near-zero cost, with no lock-up, no management fee, and no carried interest between you and the results. We own Berkshire stock in most of our client portfolios. It is not a substitute for everything alternatives can do, but it is worth knowing it exists before writing a check that locks your money up for a decade.
If you currently hold alternatives and have never had a clear conversation about the leverage involved, the fee drag, or how and when you actually get your money back, that conversation is overdue. The alternatives industry has grown dramatically over the past decade, and so has the pressure on advisors to offer access to it — not always because it is the right fit for a given client, but because it helps advisors attract more assets to manage. Call us. We will walk through what you own, what it is costing you, and whether it fits your plan. No obligation. No pitch. Just a realistic second-opinion.
“If it’s a penny for your thoughts and you put in your two cents worth, what happens to the extra penny?”
Steven Wright
On July 18, 2001, Warren Buffett stood in front of a packed auditorium at the University of Georgia’s Terry College of Business. The S&P 500 was sitting about 28% below the all-time high it had set on March 22, 2000. The dot-com bubble had burst, and the wreckage was still falling.
It’s worth remembering where Buffett stood in the eyes of the market at that moment. For years, he had been written off as a relic. Through the back half of the 1990s, while internet and technology stocks compounded at astonishing rates on the theory that traditional valuation no longer applied, Buffett kept talking about cash flows, discount rates, and businesses he could actually understand. To a lot of people, that made him look like he’d missed the new era of investing entirely, a has-been still playing checkers while everyone else had moved on to a different game.
Then the game ended. The new era investors who had dismissed him were nursing devastating losses in former darlings. Buffett wasn’t the only one vindicated. He was part of a minority of value investors who’d stuck to their principles while being told they were obsolete. But the math of what happened next is the real point. Buffett hadn’t beaten the bull market of the late 1990s; by his own admission he’d lagged it, sitting out gains other investors were posting. What he’d done instead was avoid the collapse that followed. A smaller gain compounded through the boom, paired with a far smaller loss through the bust, had put him ahead of most of the people who’d outrun him on the way up. Not losing was its own form of winning.
So when a student in that room asked him a deceptively simple question, “how do you find the intrinsic value of a company”, the answer carried a different weight than it might have in 1999. This wasn’t theory. It was the explanation for why he was right.
Buffett’s definition was direct: intrinsic value is “the number that if you were all-knowing about the future and could predict all the cash that a business would give you between now and judgement day, discounted at the proper discount rate – that number is the intrinsic value of a business”.
The Bond You Can’t Read
Buffett continued his answer by making a comparison most people overlook. “When you look at a United States government bond, it’s very easy to tell what you’re going to get back. It says it right on the bond.” The interest payments and the principal repayment are printed right on it. You don’t have to guess.
A stock certificate doesn’t come with that printout. The cash flows aren’t written on it anywhere. Buffett’s view is that this is precisely the analyst’s job: to take a stock certificate representing a piece of a business and effectively turn it into a bond, by estimating what the business is going to pay out over time.
That reframing is the whole exercise. Every investment, whether it’s a share of stock, a farm, an apartment building, or oil in the ground, comes down to the same question: you’re laying out cash now to get more cash back later, and the real questions are how much you’ll get, when you’ll get it, and how sure you can be.
Notice what’s missing from that question. It isn’t a question of how many analysts recommend the stock, what the trading volume looks like, or what the chart shows. It’s strictly a question of how much cash the business will generate. Price targets, momentum, and sentiment don’t enter into it at all.
One Business, Whole or in Pieces
Here’s a distinction that separates Buffett’s approach from how most people think about the stock market. Whether he’s buying an entire company or a small slice of one, Buffett says he always evaluates it as if he were buying the whole business. The question is the same either way: what will this business produce, and when will it produce it?
That mental model matters because it forces a different kind of discipline. You’re not asking “will this stock go up.” You’re asking “what is this business worth as an enterprise, and is the price I’m being asked to pay for my slice of it reasonable?”
The Honest Limitation
The part of Buffett’s answer that’s easy to skip past is the most important one, especially given the moment in time in which he was standing. He was direct about the fact that this framework simply doesn’t work for every business. It only works when you understand the economics of the business. If you can’t answer the question of what a business will generate and when, you can’t really buy the stock with any conviction. You can still gamble on it if you want to, but he won’t.
Buffett was candid that there are entire categories of companies, internet stocks among them, where he simply can’t answer that question and so he stays away.
That’s not a failure of analysis. It’s the discipline itself. Buffett isn’t claiming he can value everything. He’s claiming he only invests in what he can value, and he’s comfortable walking past everything else.
The Takeaway
Standing in front of that room in July 2001, Buffett wasn’t offering an abstract investing lesson. He was explaining, in plain terms, the discipline that had just kept him out of a bubble nearly everyone else mistook for a new paradigm. The lesson wasn’t that he predicted the crash. It’s that he never needed to. He simply refused to pay for businesses whose future cash flows he couldn’t reasonably estimate, no matter how loudly the market insisted that old rule no longer applied.
At Healy Wealth Management, we follow a disciplined value investment strategy. That means working to understand and estimate the value of every security our clients own in their portfolios. We would rather understand what we own and underperform a euphoric market than chase a story we can’t underwrite. After all, the businesses we can actually value are the ones that will generate the returns baked into our clients’ financial plans.
It’s worth noting that the parallels to today aren’t subtle. The current enthusiasm around artificial intelligence has many of the same hallmarks as the dot-com era Buffett was speaking into in 2001: a transformative technology, genuine and real, wrapped in valuations that assume flawless execution and unsustainable growth, with little patience for the question of what cash these businesses will actually generate and when.
We don’t know how the AI story ends any more than anyone did with the internet in 1999. What we do know is that the discipline of sticking to businesses we can value, rather than ones we can only hope to value, is the same discipline that served patient investors well the last time a “new era” insisted the old rules didn’t apply.
A few weeks ago I found myself troubleshooting a problem with our home alarm system. There was no obvious fix, no manual to follow, and no shortcut available. The only way for the technician to help me was to be creatively inquisitive, to ask thoughtful questions, and to honestly and genuinely work the problem step by step, the way a good detective does. Any attempt to rush through procedures or apply a standard protocol would have made things worse, not better.
It got me thinking about the difference between a process business and a people business.
A process business runs on repeatable steps. You can document it, systematize it, and hand it off to software or a script. A people business runs on something else entirely: attention, patience, and the willingness to sit with a problem until you actually understand it. You can support a people business with good systems, but you cannot replace the core of it with one.
At its core, wealth management is a people business.
Yes, there is a great deal of process underneath what we do. Trades need to be executed and settled without error. Statements need to reconcile. Compliance requirements have to be met precisely, every time. Those things benefit from good systems, processes, and procedures – and we invest maximum effort in getting them right.
But none of that is the work that actually matters most. The actual work is sitting with a client and figuring out what they are really worried about when they say they are worried about the market. It is remembering that a client’s aversion to risk traces back to watching their parents struggle in a downturn decades ago, not to anything printed on a risk tolerance questionnaire. It is noticing when a client’s questions have changed, which sometimes means their life has changed in ways they have not said out loud yet.
None of that can be templated. A checklist can confirm that a financial plan was reviewed. It cannot tell you whether a client left that meeting feeling heard – or just processed.
This matters because the financial industry is under constant pressure to scale. More clients, more automation, more efficiency. Some of that pressure is healthy. Good technology should absolutely handle the parts of this work that are mechanical, so that more time and attention can go toward the parts that are not.
But when scale starts to replace the listening itself, something essential is lost. A client does not just want their portfolio managed. They want to know that someone is paying attention to their actual life, patiently and without a stopwatch running, especially when the situation does not fit neatly into a standard case.
That is the part of this work we take the most seriously. Not the trade execution or the paperwork, important as those are, but the willingness to slow down and stay with a client’s real question until it is actually answered.
If there is something on your mind about your plan, your portfolio, or anything else, that has not fit neatly into a form or a quick answer, we would genuinely like to hear it.
John Healy, CFA
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
– Phillip Fisher
Answer:
Competent.