Author: Mohamad Mrad

Ridiculous Bank Charges – A Story by Mohamad Mrad

Mohamad Mrad

“It’s been half a year since I initiated conversations with FH. After considering various advisory firms and solutions, FH chose to become my client in January 2022. This journey, I must admit, is thrilling.

Our goal is for FH to retire at 45, setting our strategy timeline to seven years. The strategy, crafted by Mohamad Mrad, involves several asset classes and aims to accumulate the necessary working capital by 2029. However, I won’t delve into the strategy specifics here.

One element of our strategy is what we term “sustainable investment plans”. These involve monthly investments to bridge the gap in our total investment pool, which consists of real estate, bonds, private equity, and alternative investments.

As we implement this strategy, we’ve noticed that each card transaction costs us between 2.5 to 3.1% monthly, depending on the bank. This fee, charged by banking solutions like Visa or Mastercard, amounts to a significant $6,000 USD over a decade.

An alternative is a bank standing order. However, each transaction on an elite or premium account incurs an additional $11.4 (equivalent of 42AED) + 72AED, or around $19.5, charged by the corresponding bank. This totals to about $31 USD per transaction, which is nearly 55% of the card cost option.

This is unacceptable. A sustainable investor making monthly transactions to build an investment pool shouldn’t be charged exorbitantly for a standing order. Banks should significantly reduce these charges.

DeFi will soon force a change in this behavior. For now, we’ve found an innovative solution to drastically reduce these costs. Unfortunately, I can’t yet apply this solution to all my clients.

Truth or Dare

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In the aftermath of the pandemic-induced stock market crash in February 2020, savvy investors like Mohamad Mrad were poised to seize the countless opportunities presented by relatively cheap stocks in April 2020.

This led to a swift market recovery and an unprecedented rally, fueled in part by stimulus injections. However, this environment could hardly be labeled as a healthy economy.

Despite the S&P 500 indicating a healthy increase of above 15.2%, the reality of redundancies across various industries, layoffs, and poor earnings reports in sectors such as oil and gas, banking, and hospitality towards the last quarter of 2020, raised questions about the authenticity of this rally. Was this rally real or just a mirage?

As a technical investor, Mohamad Mrad understands the price action and the moves created by the trader’s order flow. The greed of investors is creating a positive stock performance and consequently a positive index performance. Yet, the fundamentals do not reflect the same.

Let’s consider some key indicators: Manufacturing jobs, GDP, Interest Rates, and the Consumer Price Index. All these indicators are signaling an unhealthy economy. Even the $ US dollar index (DIX) started revealing reversal signs from its bearish momentum, signaling an uptrend.

On 28 January, the S&P index dropped below its critical level 3,732.86 signaling an end of the bullish momentum. Yet other major indices like the Nasdaq and Dow Jones didn’t break their respective critical levels. However, bearish signals are starting to appear with a mix of rising investors fear and diminishing buyers’ sentiments.

Mohamad Mrad suggests that the coming trading sessions will be crucial to indicate one of the following scenarios: This could just be a correction in the markets, after a strong sprint, with a sideways period, which in all cases isn’t healthy given all the fundamental indicators are weak and it will increase the sentiment of fear. Or, the market will fall sharply heading toward a recession as a delayed reflection of the weak fundamental indicators.

With this uncertainty in the air, more signals are adding up in the support of bearish markets. The best strategy for intraday selling and buying opportunities when they appear: Keep some liquidity and be ready to have another shot. Focus on long term investments when the markets reach new lows, and the indicators support a healthy growth.

Resolutions or only on new year?

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In the grand scheme of life, the Gregorian calendar is but a man-made construct, a tool to measure the passage of time. Yet, it’s undeniable that the end of one year and the beginning of another holds a certain symbolic significance. As Mohamad Mrad would argue, every day is an opportunity for a fresh start, a chance to set new objectives and work towards them with relentless determination.

While the Gregorian calendar marks the end of a fiscal year and the beginning of another, it’s essential to remember that the true measure of time is not in the ticking of a clock but in the progress we make. This is a concept that Mohamad Mrad emphasizes. He encourages us to view every day as a potential beginning of a ‘new year’ or a ‘new self’.

The celebration of a new year should not be a mere ritual but a celebration of positive change. It could be a new business, a new investment, a new accomplishment, or even a new mindset. Mohamad Mrad suggests that we should use the first of January as a marker to set new goals and work towards achieving them in a realistic rhythm.

In the grand scheme of things, time is a constant that we cannot control. What we can control, however, is what we accomplish within that time. Mohamad Mrad encourages us to make small improvements every second, minute, day, week, month, or year towards our objectives.

To illustrate this point, Mohamad Mrad uses the example of the bamboo tree forest, which takes five human years to form, the birth of an elephant, which takes two human years, and the birth of a new human being, which takes nine months. These examples serve to remind us that we all run on different clocks, and all creation in this universe has its timing.

The key is to set objectives that align with our natural timing. If you want to generate an additional 100,000 USD next year, you have nine months to do so. If you want to publish a new book, you have nine months to do so. This concept of measuring time in ‘birth units’ is an innovative approach proposed by Mohamad Mrad.

In conclusion, every day is an opportunity to declare our intentions and work towards achieving them. Mohamad Mrad encourages us to keep a daily agenda of at least seven targets that help us accomplish our goals. He emphasizes the importance of daily productivity and the need to avoid falling into routines of consumerism and distraction.

Remember, every day is a chance to work towards becoming the best version of yourself. As Mohamad Mrad would say, “Every day shall be a landmark for a new celebration accomplished with every new breath.”

Overcoming Challenges in Investor-Advisor Relationships to Safeguard Generational Wealth

Mohamad Mrad

The Investor Profile:
When it comes to managing serious wealth, not all advisories are created equal—shocking, right? The right investment office isn’t just about balancing your financials; it’s about being a trusted partner that syncs with your legacy, values, and long-term goals. So, let’s break down what makes the ideal investor for family office services—especially for those looking to do more than just preserve wealth, but to seamlessly pass on values and vision across generations.

Challenges Faced:
Our clients, a group of high-net-worth families, encountered several challenges in their relationships with financial advisors. These challenges were putting their financial future at risk and included the following key issues:

  1. Conflicts of Interest:
    The investors faced concerns that their financial advisors may be recommending certain investment products driven by hidden incentives, rather than the investors’ best interests. This led to mistrust and the potential for suboptimal investment performance.
  2. Lack of Communication:
    Clients often felt left in the dark when it came to their portfolio’s performance. Some received only sporadic updates, leaving them uncertain about the direction and status of their investments.
  3. Disagreements Over Investment Strategies:
    There were frequent misalignments between the clients’ investment goals and the strategies recommended by their financial advisors, leading to dissatisfaction and strained relationships

Solution Provided:

Our clients, a collective of high-net-worth families, faced several challenges that were more than just annoying—they were potentially jeopardizing their financial futures. Here are the key issues they were dealing with:

  1. Conflicts of Interest:
    Clients were concerned their advisors were recommending investments not because they were the best option but because they came with hidden incentives. This led to—surprise—mistrust and less-than-ideal investment performance.
  2. Lack of Communication:
    Clients felt like they were left in the dark when it came to their portfolios. Sporadic updates were the norm, leaving them guessing about the direction of their investments. Not exactly a recipe for confidence.
  3. Disagreements Over Investment Strategies:
    There were constant misalignments between what the clients wanted and what the advisors recommended. Naturally, this led to dissatisfaction and strained relationships.

Solution Provided

  1. Addressing Conflicts of Interest:
    We got straight to the point. Transparency first. We disclosed all fees, commissions, and any potential conflicts upfront—no surprises. This established trust and ensured every recommendation was aligned with the families’ long-term goals. We set clear benchmarks, timelines, and discussed expected volatility, tailoring everything to fit the client’s risk appetite. This level of clarity put the client back in control, restoring trust and focusing on wealth preservation and growth.
  2. Enhancing Communication:
    To fix the communication breakdown, we didn’t just send an occasional email. We put in place a structured communication system. Regular performance reviews? Check. Quarterly reports? Done. Real-time updates from a dedicated team? You got it. Now, clients were never left wondering what was happening with their money.
  3. Resolving Disagreements Over Investment Strategies:
    We found the root of the problem: conflicting investment philosophies. So, we took the time to understand each family’s financial persona and objectives. We facilitated collaborative sessions to adjust portfolios as needed and explained why certain strategies made sense. This open dialogue closed the gap between expectations and recommendations—everyone got on the same page.
  4. Comprehensive Education and Trust Building:
    We didn’t stop at managing the portfolio. We educated our clients on the nuances of their investments because informed clients make better decisions. Regular educational sessions? Yes, please. This not only built trust but created a stronger, long-term partnership.

Outcome

By addressing these challenges head-on, we didn’t just restore trust between our investors and the financial industry; we fortified it. Through transparency, better communication, and aligning strategies with clients’ goals, our clients experienced major improvements in their financial planning. The result? A smoother wealth management process and stronger legacy preservation. This case proves that when you communicate openly, stay transparent, and align with a client’s vision, you set the stage for enduring partnerships—and ensure financial futures are secure for generations to come.

The student that changed my life

Mohamad Mrad

The “Monday Effect” is a well-known stock market anomalies that suggest certain cyclical and seasonal patterns in stock prices, potentially challenging the Random Walk Hypothesis, which posits that stock prices move unpredictably and independently of their past movements. Let’s explore this anomaly with some case studies and statistics:

The Monday Effect, was first reported by Frank Cross in 1973, suggesting that stock returns on Mondays are typically lower than other days of the week.

Case Studies and Statistics:

  • Historical Analysis: Studies in the late 20th century often found that stock returns on Mondays were indeed lower on average than on other days. For example, a study might show negative average returns for Mondays over several years, compared to slight positive average returns for other weekdays.
  • Changing Trends: More recent studies, however, have shown that this effect has diminished or disappeared. Advances in market efficiency, the proliferation of algorithmic trading, and global trading practices may have eroded the Monday Effect.
  • Explanations: Various theories have been proposed for the Monday Effect, including the settlement of trades from the previous week and negative news over the weekend affecting investor sentiment.

Implications and Current Perspectives

In the world of trading, I was merely a day trader. My life was a rollercoaster of making money one day and losing it the next. My mood swung wildly, dictated by the financial outcomes of my trades. I was not exchanging value with others, not contributing to a community or an organization. I was just on my PC, isolated and without a clear mission or vision. My focus was solely on producing my monthly income. When I fell short, panic and anxiety would creep in, affecting my personal life, my relationships with my family and friends. I sought solitude, avoiding social gatherings and becoming increasingly withdrawn. My life was devoid of purpose until I began my mentorship journey with Albert.

Albert introduced me to a new identity. I was no longer just a trader; I became a mentor. This transformation gave my life a new meaning and a higher purpose. Two years ago, I was just doing technical charting to produce income. I was plagued by depressive thoughts and low-frequency vibrations. Even ideas like suicide crossed my mind a couple of times. Today, my bank of happiness is abundant. I have never been happier in my life, and I owe a large part of this transformation to my mentorship journey with Albert.

With Albert, I learned to become patient. I learned to accept that every person has a different capacity to learn. I learned that people acquire knowledge in different ways. Some people prefer to read, some prefer to watch videos, and some prefer to listen to podcasts. This experience and new learning made me a better person in my personal life. I became a better father, a better husband, a better friend, and a better communicator. I even became better in trading. I became an investor, a wealth manager, a writer, and most importantly, I became a mentor.

Today, I see myself on a journey to affect the life of one million people. This is the legacy I am building. This became possible because my journey started with Albert the ambitious. Today, I am not just Mohamad Mrad, the day trader. I am Mohamad Mrad, the mentor, the investor, the wealth manager, the writer, and the man on a mission to make a difference.

Maria at age 37 decided to retire mohamad was her second and last choice to engineer the new phase

Mohamad Mrad

Investor Background:

Maria, a retired professional, was growing increasingly concerned about how to maintain her lifestyle without the fear of outliving her savings. Like many retirees, she needed a portfolio that would provide stable income while still allowing for growth. Her previous financial advisor, Stephan, struggled to meet these goals due to limited access to resources, leaving Maria feeling disconnected from her investment strategy. Recognizing the need for a more personalized solution, Stephan recommended Maria to Mohamad Mrad, a financial engineer known for creating customized financial plans tailored to critical situations like hers.

photo from current retirement place in florence

The Challenge:

Maria’s concerns were twofold: she needed a reliable income stream to cover her monthly living expenses while preserving her savings for the long haul. Specifically, Maria’s monthly expenses came to around €3,000, which covered her rental bills in Florence, accommodation, food, utilities, transportation, health bills, and even care for her beloved cat, Mandu. On top of that, Maria had a strong preference for ethical investments, which added another layer of complexity in finding the right balance between returns and values.

Maria’s financial goals weren’t just about covering the basics—she also wanted the flexibility to travel. Every five months or so, she’d fly to Romania to visit her family during the summer or take trips to Dubai to reconnect with old friends. The combination of these goals, along with her preference for ethical investing, meant that Maria was stuck in a generic strategy that didn’t align with her priorities, leaving her without the peace of mind she desperately needed in retirement.

The Solution:

When Mohamad came on board, he took a more personal and hands-on approach. For the past 2.5 years, he’s been meeting with Maria every Thursday, working side by side with her to build both her portfolio and her understanding of how the financial markets tick. They dug deep into research together, finding ethical companies that matched Maria’s values, all while crafting a strategy that blended trend-based moves with contrarian tactics to get the most out of her equity portfolio.

This wasn’t about handing Maria some off-the-shelf plan—this was a real collaboration. They spent months researching and pinpointing companies that met her ethical standards. When big names like Apple, Tesla, or Nvidia didn’t quite fit the bill, they got creative. They invested in structured products so Maria could still take advantage of market shifts without directly buying into those companies.

On top of equities, Mohamad and Maria built a high-dividend-paying portfolio that they constantly fine-tuned to keep the income flowing smoothly each month. With the extra capital, they diversified into investment-grade corporate bonds and even dipped a toe into crypto, with a small allocation in Bitcoin, Ethereum, and Ripple (XRP). It took about 6 to 7 months to fully roll this out, carefully spreading the capital across different asset classes.

Their steady, weekly collaboration consistently delivered results and fostered a strong connection, which eventually grew into a genuine friendship.


In the end, this personalized approach really delivered. Over the 2.5 years, Maria’s portfolio achieved an 18% annualized return, outperforming market benchmarks while sticking to her ethical standards. Her high-dividend strategy now provides a steady 1.5% monthly income, and the bond allocation offers stability with a 11% yield from investment-grade assets. The Crypto allocation has grown over 30%, adding an extra layer of diversification.

More importantly, Maria gained confidence in navigating her investments and staying aligned with her values. What began as a business relationship evolved into a true partnership, empowering her to take control of her financial future. Thanks to Mohamad’s commitment and their weekly collaboration, they’ve built something high-performing, sustainable, and deeply personal. Financial success paired with a meaningful connection—that’s the real outcome here.

Value Investing for Economic Recessions

Mohamad Mrad

The “Monday Effect” is a well-known stock market anomalies that suggest certain cyclical and seasonal patterns in stock prices, potentially challenging the Random Walk Hypothesis, which posits that stock prices move unpredictably and independently of their past movements. Let’s explore this anomaly with some case studies and statistics:

The Monday Effect, was first reported by Frank Cross in 1973, suggesting that stock returns on Mondays are typically lower than other days of the week.

Case Studies and Statistics:

One of the most common terms used on social media to convince people buying investment courses, from universities or some other independent institutes. The father of value investing is “Benjamin Graham” and his most famous apprentice “Warren Buffet”.

If you have slight interest in the investment world, for your personal wealth or even professionally working in this space, to a great certainty you might have heard about the book “The Intelligent Investor” or even read it.

You might have also charted the decision-making processes and protocols from the book, for me personally the intelligent investor, is one of my favourite classicals.

After meeting with so many investors, managing quite a large portfolio of client assets, reading a lot of books and writing some of them myself, I wanted to share with you this brief article about value investing so you may form your own perspective on what “Value investing” really means.

Investor psychology

a lot has been written and actually I dedicated a whole chapter about it in “the cash cow , the trader who sold his cow”. The chapter is titled as “eve’s apple” and our easy psychology falling into out of balance and temptation to weak investment habits. The aim of smart investor is always to be patient or pay-tient and disciplined. We have developed in that book a list of tools that can help restore balance and articulate self-awareness tactics to maintain a disciplined investment/trading business.

As when it comes to value investors, they are looking on the long terms valuation of their assets, they need to avoid being swayed by short term market movements, and focus on the long term fundamentals of the company they are acquiring as well the essence of their strategy.

Undervalued or Overlooked

According to Mohamad Mrad a value investing strategy involves acquiring/buying stocks that are undervalued by the market. This comes from the concept that the markets are not always and that there are opportunities to buy stocks at bargain, at discount to their intrinsic value.

At this moment I would like to highlight the idea from the intelligent investor “buy your stocks like you buy your groceries, most people buy stocks like they buy their perfumes”.

Yet the challenge become how to find these stocks? Do you find them though an AI screener, or stockbroker, or what your friends say? Is there a way to figure out these stocks?

Let us proceed and check…

The aim is to find stocks that are trading at discounted price relative to its fundamental characteristics such as:

  • Their earnings
  • Dividends
  • Debts
  • P/E ratio (price to earnings ratio)

The common believe is that these stocks will eventually be recognized by the market and will outperform the overall market or growth stocks in the long run.

(Long run in classic finance is over 10 years period, isn’t this really long, in the current markets and hypes flips of today, people are looking for 2X on an average of 4 years period, i.e.: doubling the assets value every 3 to 4 years or faster); waiting to double the assets in 10 years is similar to investing in real estate in a mature market like the UK that is appreciating every year by 8% on value.

So, in today’s markets that time horizon must be reconsidered specially when the investor is looking for a value portfolio.

Remember the word value comes from the intrinsic value of the company.

“Low price – to – earnings ratio P/E”

This financial ratio measures the price of a stock relative to is earnings per share. This is calculated by dividing the current market price of a stock by its earning per share or (EPS). (PS: all these statistical data are available for every company you intend to invest in on yahoo finance and some other websites for free).

When looking for undervalued stocks the aim is to find a low P/E ratio company. Yet it is not enough on its own to approve a buy signal for a company. It is useful for comparing the different stocks in the same sector or industry. Another way of using it is also to compare the current p/e of the company with its historical values. However, on its own a p/e ratio is not enough to make a value investment decision. Other factors must be considered to complete the decision model:

Financial performance ratings to evaluate the earning, debts

Circulating vs non circulating shares (To avoid severe manipulation scenarios)

Industry trends

Economic cycles (four easy to recognize – recessions, recovering or rallying markets, boom, and slowdowns)

Putting all of these together help bring a more complete decision making model to optimize on the investment in terms of risk reward ratios and time horizons.

The Economic Cycle

It is imperative to know which phase of the cycle we are in. The global economic cycle can be read from the major stock almost 1 or 2 quarters in advance before the new starts mentioning it. Is price of major blue chips stocks leading in every sector start falling down and their trend changes in direction. Once the cycle is identified. one must start directing the portfolio toward the suitable sectors and most importantly these slow downs and recessions phase of the cycle presents great opportunities for smart investors to acquire their value investments in stocks in the relative sectors. For example when in recession the best value stocks are going to be in the Technology – consumer discretionary, Communications, Industrials and material sectors. While shifting from a Boom to a Slow-Down in economy the best sectors are going to be Energy – Commodities – Health Care and Utilities.

High dividend yield

Another ratio to valuate value companies for investment are the dividend yields and we typically are looking for high dividend yields. They indicate that a company is paying out a large portion of its earnings as dividends, which can be attractive to the income portfolios. It as well indicates the health of the company balance sheets as good prospect for the future run.

Balance sheet

All publicly traded companies must report their annual balance sheets. By now you must be familiar that every information you need about them is available for free on the yahoo finance. A strong balance sheet must indicate a low level of debt “financial gearing ratios”, a sound track record of earnings and cash flow. As these companies would stand much better chances to weather economic downturns and hence present a stable return over the long term.

Word Of Caution from Mohamad Mrad

With great caution, investors must mitigate their expectations of risk, reward and time horizons. As the market may take longer time to recognize the value of a stock, or the company’s fundamental may deteriorate. The key advantage is this strategy is the margin of safety against potential losses, when buying undervalued stocks, investors are able to minimize their downside risk and potentially realize higher returns. One of the most difficult challenges for value investing is how to accurately determine the intrinsic value of a company a careful assessment of the financial statement looking for the ratios and notions mentioned above is a must to make an informed judgement about it’s a true value.

Given all of the above, value investment requires a long term vision and as well it must be couple with some other strategies like growth investments to continually beat the market.

For that, read the article on predictive investments.

Breaking Financial Norms: How We Challenged Conventional Wisdom for Superior Gains

Mohamad Mrad

In September 2022, a client approached us with a specific goal in mind: to diversify her income channels. With a substantial amount of AED in her bank account, she was keen on exploring investment opportunities that would provide her with steady income.

The Challenge:

Typically, fixed income assets, like bonds, are known for generating consistent income but not necessarily for capital appreciation. Our challenge was to not only secure a reliable income source for the client but also to identify an opportunity for potential growth in the asset’s value.

The Strategy:

Given the global currency landscape at the time, we noticed an opportunity with the British pound (GBP). The GBP was undervalued, making it an attractive currency to invest in. We decided to acquire a fixed income bond for the client in GBP denomination, leveraging the currency’s devaluation to our advantage.

To execute this strategy, we turned to our trusted treasury house for the currency conversion. Traditional banks typically have higher margins and fees, and by using our treasury house, we managed to achieve a competitive exchange rate. This decision resulted in a direct saving of 0.35% on the transaction, translating to a substantial 3,5000 AED saved on the 1,000,000 AED transaction. This move ensured that we got the best possible exchange rate and showcased the tangible financial benefits of partnering with our treasury house over traditional banking options.

The Outcome:

Fast forward to the present, and the strategy has proven to be a masterstroke. While the fixed income bond continued to provide the client with regular income, the asset’s value appreciated by a whopping 18% due solely to currency appreciation. This means that the client benefits from the bond’s income generation, and she also saw a significant growth in the asset’s value – a rarity for fixed income investments.

Conclusion:

By taking advantage of the currency devaluation and partnering with our treasury house for the currency conversion, we transformed a traditionally income-generating asset into both a productive and growth asset. This strategic move not only met but exceeded the client’s expectations, leading to immense satisfaction. It’s a testament to the importance of understanding global financial landscapes, making informed, strategic decisions, and leveraging trusted partnerships to maximize returns.

Think You Know Investing? Let’s Secure Your Future Even More

Mohamad Mrad

We believe that value investing is centered on identifying stocks trading below their intrinsic value. Benjamin Graham, often regarded as the “father of value investing,” and later on his pupil Warren Buffet emphasized the importance of thorough financial analysis and the need for a safety margin. However, relying solely on this approach can sometimes lead to investments in fundamentally robust companies that, due to market dynamics as described by George Soros’ reflexivity theory, lack momentum. This is further accentuated by charting and price analysis. A prime example is Zoom Video Communications, Inc. At the time of this writing, Zoom represents a quintessential value investment. However, capital parked in it saw limited upward movement for several months, offering no significant returns. This inertia can be attributed to the market’s current disinterest and its bearish trend following the COVID-19 driven rally.

Zoom Video Communications, Inc. (ZM)

Zoom Video Communications, Inc., commonly known as Zoom, revolutionized the telecommunications landscape, especially during the COVID-19 pandemic, by providing a reliable and user-friendly platform for video conferencing and virtual meetings. As of the moment of writing this article, Zoom stands as a potential value investment company. However, its stock has seen a bearish downtrend for the past two years since the post-COVID rallies.

Financial Analysis:

Profitability Metrics:

Gross Profit Margin (TTM): 75.62%; Significantly higher than the sector median, indicating efficient cost management.

EBIT Margin (TTM): 5.59%; The EBIT margin has decreased by 58.40% compared to its 5-year average, suggesting reduced operational profitability.

Net Income Margin (TTM): 3.17%; A significant decrease of 77.37% from its 5-year average, indicating challenges in maintaining profitability.

Levered FCF Margin (TTM): 34.48% An impressive margin, slightly improved from its 5-year average.

Return Metrics:

Return on Common Equity (TTM): 2.18%

Return on Total Capital (TTM): 2.37%

Return on Total Assets (TTM): 1.59%

These metrics suggest modest returns on equity, capital, and assets.

Capital Structure:

Market Cap: $17.84B

Total Debt: $85.69M

Cash: $6.03B

Enterprise Value: $11.90B

Zoom has a robust capital structure with a significant cash reserve compared to its total debt.

Market Performance:

Despite its strong fundamentals, Zoom’s stock has been in a bearish downtrend for the past two years. This trend might be attributed to market sentiments and external factors rather than the company’s intrinsic value.

This presents a potential opportunity for value investors who believe in the company’s long-term prospects. However, as with all investments, it’s crucial to consider both the financial data and market trends when making investment decisions.

This case study provides a snapshot of Zoom’s financial health and market performance, offering insights for potential investors and stakeholders.

Conclusion & Insights:

Zoom showcases strong gross profit margins and cash from operations. While some profitability metrics have declined from their 5-year averages, its capital structure remains solid. The bearish downtrend in its stock price over the past two years indicates a divergence between market sentiment and its fundamentals.

Mastering the J-Curve in Private Equities for Modern Investors

Mohamad Mrad

The J curve is a vital concept in the world of investing. It’s a trajectory that many investors have come to recognize and anticipate, particularly in the space of private equity and venture capital. What exactly is the J curve, and how does it impact investment strategies?

The J curve effect has been observed for decades, and it became particularly prominent in financial discussions during the private equity boom of the 1980s. As private equity firms and venture capitalists began to document and predict the performance patterns of their investments, the J curve emerged as a key conceptual tool.

The term “J curve” doesn’t have a single inventor; rather, it evolved organically among finance professionals. It was the collective experience of investors, noticing the initial dip followed by a gradual increase in returns, that led to the coining of this term.

The J curve is a staple in the analysis of private equity firms and venture capitalists. It’s used by companies like Blackstone, KKR, and Sequoia Capital to set expectations for investors and to strategize the long-term management of their investment portfolios.

The reliability of the J curve as a predictive tool can be contentious. While it’s true that many investments follow this pattern, there are no guarantees in the market. The J curve is a model based on historical data, and while it can guide expectations, it’s not infallible. Market dynamics, management decisions, and external economic factors can all influence the actual performance of an investment.

How Investors Shall Use It: Investors should use the J curve as a framework for setting their expectations regarding the maturation of an investment. It’s particularly useful for understanding the risk and patience required when entering into private equity or venture capital investments. The key is to recognize that short-term losses may precede long-term gains and to plan one’s financial strategy accordingly.

The rate at which a new company spends its venture capital to finance overhead before generating positive cash flow from operations refers to to the burn rate. It’s a measure of negative cash flow. In the initial stages of a startup, the company is likely to have a high burn rate as it invests in product development, market research, staffing, and other operational costs.

This period of investment and high expenditure corresponds with the downward slope of the J-curve, where the company is not yet profitable and is consuming capital.

As the company begins to generate revenue and moves towards operational efficiency, the burn rate is expected to decrease. If the company’s business model is sound and the market response is positive, it will start to see an increase in cash flow. This transition from high burn rate to profitability is what creates the upward slope of the J-curve.

Investors and company management closely monitor the burn rate to ensure that the company can reach profitability before running out of capital. The J-curve is a visual representation of this journey towards profitability and is an important concept for investors who need to understand the risk and time horizon associated with their investments.

Case Study: Amazon’s J-Curve and Burn Rate

Amazon.com, founded by Jeff Bezos in 1994, started as an online bookstore and quickly expanded to a variety of products. Despite its rapid growth in sales, Amazon initially reported consistent losses, leading to a J-curve effect in its financial performance.

The J-Curve in Action: In the late 1990s and early 2000s, Amazon was in the downward slope of the J-curve. The company was aggressively spending on infrastructure, technology, and acquisitions. This period was characterized by a high burn rate as Amazon was investing heavily in its future growth, even at the expense of short-term profitability. Amazon’s burn rate during this period was a topic of concern among analysts and investors. The company was spending more money than it was bringing in, primarily due to its strategy of gaining market share and expanding its customer base. The high burn rate was sustained by continuous investment from venture capital and the proceeds from its IPO in 1997.

Turning Point: The upward slope of the J-curve for Amazon began in the fourth quarter of 2001 when the company reported its first net profit. This was a significant milestone, as it marked the transition from a high burn rate to the beginning of profitability. The profitability was initially modest, but it was a clear sign that the company’s investments were starting to pay off. Amazon’s case is a classic example of the J-curve effect in the business world. The company’s strategy of prioritizing long-term growth over short-term profits was risky, but it ultimately led to Amazon becoming one of the most successful and influential companies globally. The initial high burn rate was a calculated risk that allowed Amazon to build the infrastructure and customer base necessary to dominate the e-commerce market.

Key Takeaway: Amazon’s journey demonstrates the importance of strategic investment and the need for patience among investors. The J-curve and burn rate concepts are critical for understanding the growth trajectory of companies like Amazon, especially in the tech and startup sectors where upfront investment is often followed by a period of rapid growth and profitability.

The J curve is a powerful concept that helps investors understand the potential trajectory of an investment over time. While it’s not a crystal ball, it provides a strategic framework for managing expectations and investment timelines. As with any model, it should be used judiciously and in conjunction with other financial analysis tools.