🎙️ The Basic Advantage

The S&P 500 is up 23% in the first 202 trading days of 2024, the best start to a year since 1997 and the 13th best in history.

Unsurprisingly, rising markets mean more Americans are millionaires. And when it comes to building personal wealth, Morningstar notes that simplicity often reigns.

The main way Americans become millionaires “isn’t through timely real estate purchases or being early investors in startups. The formula is much simpler: consistent buying, usually in the form of automatic contributions from every paycheck into a retirement account.”

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• The hidden economy of college sports

• Has it ever been this hard to be a disciplined investor?

This, and more, in just 5 minutes to read.

Chart(s) of the Day

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In The News

⚽ The Hidden NIL Economy of College Sports

For the past three years, college athletes have been able to make money on their personal brands. For example, a star athlete can host an autograph signing in the local town, charging, say, $50 for an autograph and photo opp. Or an athlete can endorse a local business for $20,000 with billboards, radio, and TV advertisements. 

But the details are murky, and the NIL (Name, Image, Likeness) economy is a bit hidden. 

The Washington Post analyzed college sports’ hidden NIL economy, giving some answers into how it looks. The publication analyzed $125 million in payments. 

For example, The Post found:

• A UCLA softball player earned $20,000 for a Nerf endorsement

• A Colorado women’s soccer player made $122 for merchandise royalties

• A Maryland gymnastic earned $10 for a public appearance

The Post concluded the following:

• With most funding shrouded in mystery, athletes have limited information to determine their market value.
  

• Men earn the majority of the money
  

• Aside from big college stars, most payments are small-money deals under $500; many athletes earn very little, if anything at all

Private companies can bankroll publicly funded sports programs with little oversight. Such is the case at the University of Colorado, where a production company has given roughly $600,000 to the football team’s players.

Why it matters:

After years of debate, NIL ushered in a new era for college sports, many of which are big money-makers with enormous followings. 

Most top athletes earn the bulk of their money from endorsing corporations. Often, they pay based on the size of an athlete’s social media following. For example, The Post reports that a UCLA basketball player with 89,000 Instagram followers earned $150,000 in an agency’s campaign promoting milk. 

A Colorado quarterback has deals with Overtime, Google and KFC valued at $400,000. Another athlete with 700,000 followers across TikTok and Instagram made about $42,500 for posting ads for Marriott and Meta. A Maryland football player earned $80,000 for a public appearance, while a California men’s basketball player earned about $415,000 for a year, received in monthly installments. 

You get the idea. But many athletes don’t disclose their NIL deals — despite laws that require it — so some school records contain only a portion of the actual totals. And even at big-time schools with rabid fanbases, the pay varies widely based on gender and sport. 

As The Post reports: “At LSU, athletes disclosed around $23 million in NIL payments from July 2021 to July 2024. But the women’s tennis team, which reached the second round of last season’s NCAA tournament, helped prove that for many athletes, amateurism is alive and well: They didn’t disclose a single dollar.”

Read more

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📢 Why the stock market gets so much negative news coverage

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💡 Has It Ever Been This Hard to Be a Disciplined Investor?

The Wall Street Journal’s Jason Zweig argues that being a disciplined, independent investor has never been harder. We think he has a point. 

Benjamin Graham wrote, “The investor’s chief problem—and even his worst enemy—is likely to be himself.”

And, in a new edition of “The Intelligent Investor,” Zweig underscores that quality investing isn’t typically about brilliance or market timing — it’s often about discipline and thinking for yourself. 

• Zweig writes, “That independence is your single most valuable asset, a luxury most professional investors can only dream of possessing. It’s what Graham called the ‘basic advantage’ of the intelligent investor. But, he warned, ‘the investor who permits himself to be stampeded [by other people’s behavior]…is perversely transforming his basic advantage into a basic disadvantage.’”

Herd mentality: It’s arguably never been harder to keep one’s emotions in check. Zweig notes that smartphones, investment apps, 24/7 financial news, and streaming can tempt investors to trade more, panic sell, or rush to chase stocks at the worst time. Reddit, Twitter, and Discord allow investors to discuss stocks, which is often a part of herd mentality. 

• “Own a soaring stock you can chat about online with thousands of other people who love it, and you’ll feel you belong to a pride of lions,” he writes. “Own a falling stock that nobody wants to touch, and you’ll feel like a skunk at a garden party.”

Echo chamber: Investing has no barriers to entry. Pundits can pick stocks on platforms like CNBC and not be held accountable if the trade goes south. 

• One study found that investors on social media are five times more likely to follow users who agree with them. They will see three times more messages they agree with than they disagree with, which creates an echo chamber. The study found that that, in turn, drives people to trade more, earning lower returns.
  

• Some trading apps simply want to encourage users to spend more time on their apps and place more trades, regardless of how they pan out. Some frequently send users push notifications alerting them of big moves, essentially begging them to place another trade.
  

• Some onlookers call this “gamification.” Zweig? He calls it “gamblification.”

Why it matters:

We live in a noisy, news-filled world. Fortunately, there are ways to remain disciplined. Some investors refuse to download any financial (or news) apps to their phones. Others remain in online communities such as bogleheads.com, HumbleDollar.com, ValueInvestorsClub.com, or paid, highly-vetted communities like The Investor’s Podcast Networks’ Mastermind Community. 

Zweig also suggests asking numerous questions and going down a checklist to evaluate an underlying business (not just a stock price) before making investments:

• Have I read the company’s financial reports? 

• Do its executives admit mistakes, use conservative accounting and avoid hype? 

• Have I written down at least three reasons why this is a good business that will be even better five years from now? 

• What, exactly, do I understand about this company that most other investors are missing, and why?

Read more about disciplined investing

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Quick Poll

On Friday, we asked: Where do you think bitcoin's price (~$69,000) will be at year-end?

— About half of investors said they believe bitcoin will remain in the $60,000-$80,000 range. “End of year run-up in all equities will fuel speculation in bitcoin. Interest rates are down; optimism is in the air. Bitcoin will pick up...again.”

— Others think bitcoin has had a good run, but it might cool off until 2025. “Just my gut take based on the growth in the past year. There are so many other things to invest in now with cash flow and real earnings. The ETFs are great for market liquidity in both directions, not just up.”

See you next time!

That's it for today on We Study Markets!

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_{*The content is not intended to provide legal, tax, or investment advice.}

_{No money is being solicited or will be accepted until the offering statement for a particular offering has been qualified by the SEC. Offers may be revoked at any time. Contacting Masterworks involves no commitment or obligation. Contemporary art data based on repeat-sales index of historical Post-War & Contemporary Art market prices from 1995 to 2023, developed by Masterworks. There are significant limitations to comparative asset class data. Indices are unmanaged and a Masterworks investor cannot invest directly in an index. “Net Annualized Return” refers to the annualized internal rate of return, or IRR, net of all fees and costs, to holders of Class A shares from the primary offering, calculated from the final closing date of such offering to the date the sale is consummated. A more detailed breakdown of the Net Annualized Return calculation for each issuer can be found in the respective Form 1-U for each exit. The 3 median returns above represent the ones closest in percentage to the median of the 12 exits with holding periods over 1 year. Net proceeds distributed back represents the total liquidation proceeds distributed back to investors, net of all fees, expenses and proceeds reinvested in Masterworks offerings, of all works Masterworks has exited to date. See important Reg A disclosures at masterworks.com/cd.}

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