What is a good return over the long term?

I often talk about what the maximum return is over a long period of time that can be achieved without taking excessive risks. After all, there are lots of financial products in the market for private individuals and everyone is trying to outdo each other to get investors.

If we take a step back and think about what we should reasonably expect for returns, I always come up with a figure around 7 – 8%.

If we could find a single product that could give us 7 – 8% return with small risks year after year, it should mean that all other investments really became uninteresting except to have as some spice in an investment portfolio as a lottery ticket.

Take, for example, a portfolio of dividend paying shares, what can it reasonably generate over time? The yield from the dividends can probably reach up to 4, 5 or 6%, but is it worth the price risk?

At Untie, we today produced a very interesting chart showing the return on Untie Lending’s Preference Share compared to the Swedish stock exchange that we represented with the index OMXS30.

Looking at the chart, one can almost believe that we have plotted a linear regression as the OMX curve bounces back and forth around this fixed rate of return from the Preference Shares.

Over the past 12 months, the stock market has vibrated up and down since August having climbed up over 20% in return. Everything was then erased in just one week and the stock market’s return is now at 6.11%. Anyone who has invested in an index fund that reflects the OMXS30 has thus had to endure a huge roller coaster in order to ultimately arrive at a return that is inferior to the fixed 7% generated by the Preference Shares without any stomach ulcer!

The chart from Untie can be viewed below.

I don’t want to be remembered as a profit optimiser

I always start with the Why? Why am I doing what I am doing? Why have I been working day and night for 20 years? From where do I get fuel to do this day in and day out?

What drives me is leaving a legacy when I am done of having made something better for society. 20 years ago, I thought that I emerged myself in the financial markets to produce profits for myself and my family so that we could be financially free.

It turns out that this was only a piece of the puzzle and not the whole story. I like to think that some subconscious plan drove me to this and forced me to learn everything about the financial markets and how everything worked behind the scenes. This has given me and my team the knowledge to master all the required technology to create, launch and manage basically any financial product known to man.

By building and analysing trading systems I learned how to compare apples to apples and with a few simple data points quickly understand what a good product is and what is a bad product.

I have learned the hard way how important it is to select the right partners and investors while being able to control the decisions that are going to be made for the future. Before sharing control, the creation must be mature enough and the culture you stand for firmly established in the DNA of the company so it can survive.

For the past 20 years I have probably made every mistake in the book, but I could always count on my own drive, motivation and relentless hard work to pull me through.

To have the opportunity to create a better financial future for people I have decided to do stuff that I classify as “a means to an end“. Let me illustrate this with some real world examples.

My main vision is to create a financial hub for families where they also can manage their small businesses. Sometimes I call this “Spotify for finance” because then people usually understand in broad terms what I mean šŸ™‚

In 2009 I envisioned that the time would come when people consumed numerous financial services at the same time and would have to log on to multiple places to manage these services. If these services offered API’s we could build a master app that could manage them all I thought.

The problem was that none of these services offered any API’s and the big banks did not want to play either. I thought that this would change eventually when consumers would demand this, but I could not base the viability of my idea on the big financial institutions turning around and becoming “open”.

So, I decided to start Bricknode where the idea was to build a cloud based software platform that financial institutions could use to manage their financial products and their customers. It would have a complete API to enable other applications to interact with it and do everything that the software platform itself could do. When building this we needed to understand everything that goes on behind the curtains for most financial products in the world.

To gain this insight we onboarded customers in various segments, some of them offered bad products and some of them good ones. This was one example of a “means to an end” where we “enabled” these bad products, but it was in the interest of gaining knowledge and the future greater good that could come out of it.

The next example is our lending operation in Untie Group. As I touched upon earlier, my belief is that a true financial hub cannot be built by the involvement of traditional financial institutions because mostly they are out to optimise their own profits instead of the financial lives of their customers. My belief is that you should first focus on bettering the financial lives of your customers and then your own profits will follow as you create value and then you should invest those profits to create even more value.

Another reason why the financial hub is a very long-term project is trust. Why should anyone trust that the companies that I and my colleagues  have created are out to do any good? Well, the only way to build that trust is to prove it and that will take time, but we will do it incrementally. If we succeed all of us will be better off in the end!

For us to be long-term, sustainable and independent we have our own financial products that create the required cash flow. Among other things, we have been issuing unsecured loans since 2011, the vision has always been to create better and more transparent products year by year than what is currently on the market.

The annual interest rate level for unsecured loans in Sweden is generally between 6 ā€“ 30 % depending on duration, fees and other terms together with the risk profile of the customer. There is a misunderstanding among the general public that only shady basement operations offer these types of loans, but this is not the truth. There are established companies such as Ikano Bank, ICA Banken, Norwegian and the successful company Klarna to name a few.

Our vision for lending is to be able to offer the best possible products based on the risk we take. This is a very important part of our business as it gives us the freedom to think long-term with our investments.

The year 2020 will be an interesting one for us, Bricknode is ready to scale up and start growing its revenues after 10 years of development and learning. The same is true for Untie Group where we are finally ready to get the financial hub up and running with our early version at Untie.se.

Both companies will raise some capital during the early part of the year, and we are looking forward to finding some good long term partners! Please get in touch if you think that you are one of them!

According to Kleiner Perkins we are in the sweet spot!

A very encouraging article was published today by Forbes regarding FinTech trends for 2020.

In the article Desai Weiss says that people will not be able to keep track of their finances in 10 different apps, that is music to my ears! I have been saying that this would happen since I started Untie Group and Bricknode in 2010!

Desai continues to say that there should be some kind of “super app” coming along that will keep track of it all for us šŸ™‚

This is exactly why we have spent more than 10 years building our “engines” for Untie.se which is now in beta mode and coming along nicely with frequent releases.

The third trend concerns infrastructure investments where companies that will help manage compliance, fraud and other building blocks should see money going their way. This is right up the alley of Bricknode where we have built what I call an operating system for financial services!

It is great fun to see what is happening within our industry and I hope that both Untie Group and Bricknode will get some traction from investors during 2020 so that we can start expanding our marketing and sales efforts. No matter how good your product is you still have to fight like crazy to get your name out there!