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- Liquidity has you on a leash
Liquidity has you on a leash
The wealthy cut it. That’s how compounding really works.
Hi ,
The first time wiring money into an illiquid investment is scary. We work hard for our cash, and handing it to someone else requires enormous trust. Trust in both the thesis and in the team’s ability to execute.
For me, the leap into illiquid investments was easier than most because I was used to reinvesting into my own business acquisitions. I’d already learned that cash fuels execution (“running the ball”) and that’s where outsized returns come from. Illiquidity is powerful.
But over time, a deeper lesson emerged. Liquidity doesn’t equal safety. It equals volatility. The average retail investor underperforms the S&P by ~4% every year, not because they picked the wrong index, but because liquidity tempts them to panic-sell and performance-chase. Wall Street calls it safety. I call it the leash.
I started by buying and operating companies. I couldn’t liquidate these investments quickly (even if there were moments when I wanted to!) My comfort with having cash locked up grew as I invested in growing my company acquisitions and experienced the outsized returns that came with it.
As a result, I began stacking private equity, real estate, and private credit. From these illiquid investments I saw the same pattern again and again: pro-level teams, collateral, income, and the ability to weather storms without being repriced every 24 hours.
Being over-allocated in the stock market during multiple peaks meant watching years of my life evaporate as the market tumbled. That’s when it clicked. Liquidity wasn’t my shield. It was my leash.
Liquidity keeps most investors reacting, tinkering, and interrupting compounding. Illiquidity is the cost of entry into the private markets and making that leap is often the one step holding people back from letting their money work as hard as they do. Illiquidity fuels time lock compounding.
This week, we’re pulling back the curtain on The Power of Illiquidity. Showing you why the wealthy don’t just tolerate lock-ups, they require them as the fundamental nature of outsized returns.
Inside this issue:
Stack Shift: How illiquidity separates those who look rich from those who stay rich.
Case Study: Buffett’s “Forever” mindset, and why mid-term lock-ups are the Wealth Stack version of permanent capital.
UHNWI Playbook: How the top 0.1% build portfolios with “Collateralized Asymmetry.”
By the end of this issue, you’ll see illiquidity differently. Not as something to fear, but as something to embrace.
Ready to take the leap?
SHIFT YOUR STACK
The Freedom of Being Locked Up
Let’s talk about the one word that makes most investors break into a cold sweat: illiquidity.
We’ve been trained to chase liquidity like it’s the Holy Grail of investing because Wall Street told us that if you can’t exit fast, you’re trapped. But here’s the truth: liquidity doesn’t build wealth. Discipline and durability do.
Liquidity feels like control. But in reality, it fuels volatility. It turns every headline into a decision point. Inviting panic and knee-jerk reactions. And I’ve watched this play out again and again, not just with investors, but with business owners who let short-term noise derail long-term value creation. When I started deploying my own capital into private funds, I realized the real power of lock-ups: they protected me not just from markets, but from myself.
It’s not just your discipline at stake—it’s everyone else’s too.
The markets compound on networked emotion. Speculative optimism creates bubbles and herd fear results in over-corrections wiping out our gains.
Take the U.S. stock market. It’s theoretically the world's longest-standing compounding machine reporting ~8–10% annualized over the decades. But here’s the catch: you only see those results if you stay fully invested. Panic-sell in 2009 and you would have missed the recovery period that doubled someone else’s portfolio.
And panic is what happens in a crisis. In both 2008 and 2020, during COVID, public markets cratered in days because liquidity gave capital an instant escape hatch. Meanwhile, private markets? Well they stayed steady and calm—not because they’re immune to risk, but because they’re designed to ignore the noise and focus on execution.
It’s why during the “lost decade” (2000–2009), the S&P 500 delivered -- 0.95% annualized, even as the world’s strongest innovators (Apple, Amazon, Google) were transforming the global economy. Liquidity didn’t protect, it punished.
Enter the illiquidity premium—extra yield for giving up short-term access to capital.
CAIA (2024): Private equity outperformed public markets by ~4.8% annually between 2000 and 2023.
Barclays (2022): Buyouts earn a 2–4% premium; VC earns 3–5%
Iliquidity doesn’t just protect you from short-term noise—it pays you for staying the course.
The premium shows up as:
Higher yields
Access to asymmetric opportunities
Tax benefits through long-term holds and structured vehicles
Insulation from the destructive behavior of other investors
That’s what we call time-lock compounding inside the Wealth Stack framework: a diversified allocation across private markets—credit, real estate, equity, energy, and yes, even owning and operating a private business—designed to capture illiquidity premiums while compounding wealth off Wall Street’s leash.
Think of it like Monopoly. You don’t win by flipping properties. You win by holding them and letting the rent compound over time.
Take the fine art market. No other asset class is associated with both the ultra wealthy AND illiquidity. The global Artprice100® index, a hypothetical model of blue-chip artwork, compounded at roughly 8% annually since 2000, outperforming the S&P 500 during long stretches. Collectors accept the friction of buying and selling—months of negotiations, opaque pricing—because they know they’re being compensated with an illiquidity premium. And the bragging rights ;)
The leap to illiquidity is perhaps the fundamental feature that separates investors who look rich from those who stay rich.
And if you’re sitting on $1–5M and want to make the leap to $20M+ public markets can’t get you there simply because you won’t live long enough. Owning cash-flowing, appreciating assets will.
So how do the top 0.1% actually structure their illiquidity stack? In our case study, we look at one of the most iconic investors.
But first, if you want a deeper dive into what the empirical evidence tells us, download our Report on The Power of Illiquidity
CASE STUDY
Buffet’s “Forever” Mindset is His Illiquidity Advantage
Warren Buffett once said his favorite holding period is “forever.” And while Berkshire Hathaway isn’t shy about trading (selling airlines in 2020, trimming billions from Apple in 2024) the Berkshire empire was built on a handful of decades-long stakes. He’s held Coca-Cola since 1988 and American Express since the early 1990s — positions that have compounded quietly for more than 30 years. But Buffet’s genius doesn’t lie in picking the right stocks. It’s structural. A structure gave him the freedom to hold and holding is what unlocked compounding. Coca-Cola is the classic example: the $1.3B purchase in 1988 has grown into more than $25B today.
Buffett had the structural advantage of permanent capital. He didn’t need to mark-to-market every day, and he wasn’t forced to exit under pressure. That discipline — whether by philosophy or structure — is what turned a few big bets into generational wealth.
For the rest of us, liquidity is a leash. Illiquidity is how we create our own Buffett style discipline. Lock-ups are the Wealth Stack version of permanent capital — they force time-lock compounding without requiring a $900B conglomerate to make it possible.
Check out the Playbook for lessons on how you can design your own Buffett-style lock-ups without Berkshire’s float.
THE PLAYBOOK
If illiquidity builds wealth, then how do the ultra-wealthy use it?
The answer: they build their portfolios around it.
Take Yale’s endowment model—arguably the most influential wealth playbook of the last 30 years. While most retail investors stay 60/40 in stocks and bonds, Yale has kept over 70% of its capital in illiquid assets: private equity, venture capital, and private real estate. By choosing lock-ups, they’ve harvested premiums that public markets can’t match.
Family offices follow the same rhythm. According to the UBS Global Family Office Report, UHNWIs now allocate 45–60% of their portfolios to private markets. Private equity leads the way, followed by real estate, private credit, and alternatives like energy and infrastructure.
I’ve mirrored the same approach in my own portfolio and with many of my investors. The moment we start deliberately tilting toward illiquid deals—real estate syndications, credit funds, energy partnerships—you feel the difference. Less noise. More clarity. And the discipline of staying invested became a tailwind instead of a daily battle.
So what’s the unifying principle? We call it Collateralized Asymmetry:
Real-world backing (land, equipment, energy rights)
Predictable income streams
Downside protection with upside optionality
Wealth isn’t built by preserving liquidity. It’s built by stacking illiquid assets that anchor in fundamentals and tilt toward asymmetric payoff.
Here’s how UHNWIs put Collateralized Asymmetry to work inside this stack:
Collateralized Private Credit – Earn like a bank. These semi-liquid deals sit at the top of the capital stack, get paid first, and are often backed by hard assets—think equipment, real estate, or receivables. Low correlation to public markets. High control. Limited downside.
Private Equity & Growth Funds – The growth engine of the Illiquid Core. These aren’t collateralized in the same way as real assets—but they’re backed by operational leverage: disciplined operators, value-creation playbooks, and long-term hold periods. Historically, private equity has outperformed public markets by ~4–5% annually over the last two decades. This is where asymmetric upside lives.
Energy Royalties and Oil & Gas – This isn’t the Wild West. If you buy into Institutional-quality royalties, working interests, and mineral rights backed by top operators and real production you lock in massive tax advantages, cash flow and appreciation.
Real Estate – Still the gold standard of asset-backed investing. While most investors think of real estate as flipping small units, UHNWIs tilt toward fractional LP stakes in institutional-quality, income-producing, commercial or mixed-use assets that are tax-advantaged, inflation-protected, and designed for generational hold.
Together, these are the bedrock positions that allow wealthy investors to compound quietly in the background while public markets swing around sentiment.
STACK MOVE OF THE WEEK: The Illiquidity Ladder
Now pause and look at your own portfolio: what percentage sits
in your Illiquid Core vs. your Liquid Edge? If you’re still weighted to liquidity, you’re playing the wrong game.
Identify one piece of your portfolio you could move from Liquid Edge → Semi-Liquid Layer, or Semi-Liquid Layer → Illiquid Core. This doesn’t have to be radical — even a 5–10% shift moves you closer to time-lock compounding.
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THE WEALTH REBELLION
Cut the Leash
"Liquidity is a concern of the short‑term investor and a minor matter for the long‑term investor." Peter Bernstein
Wall Street preaches liquidity as freedom. But the truth is, liquidity is a leash. It keeps you reacting to headlines, second-guessing your plan, and playing someone else’s game.
The wealthy know better. They don’t avoid illiquidity — they require it. Because illiquidity does two things that liquidity never will: it forces discipline, and it pays you a premium for staying the course.
This is the rebellion: stop worshiping liquidity. Start building time-lock compounding into your portfolio. Anchor your capital in assets that can’t be sold tomorrow, and you’ll give compounding the runway it needs to prove itself.
The mindset shift is simple but rare: liquidity is dry powder but illiquidity builds wealth.
