September 18, 2015
Sovereign Valley Farm, Chile
It’s a big holiday today in Chile, what they call Fiestas Patrias.
It’s sort of like their 4th of July or Canada Day. And it’s a big deal here… easily as important a holiday as Christmas or New Year’s.
At the end of October, the value investor Mohnish Pabrai gave a presentation and took part in a Q&A session at Boston College and Harvard Business School on the Uber Cannibal Investor Framework, which he has developed over the past decade. Uber Cannibals are the businesses “eating themselves by buying back their stock,” the value Read More
Down here at the farm, all the dozens of workers have the holiday off, and I tended to the chores myself this morning.
The strawberries are already starting to bear fruit, a sign of another good year.
Unfortunately our free-roaming chickens have been invading my garden and helping themselves to the fruit.
So to thwart this criminal behavior I’ve decided to build a wall around the strawberries… and make the chickens pay for it.
In all candor, though, it’s amazing to be able to grow my own food.
Out here I know that the whims of central bankers are completely irrelevant. These trees and soil are going to keep pumping out organic food.
It’s seriously profitable, too. If you had bought Apple stock at its IPO in 1980, you’d be up over 200x your money. And that is truly phenomenal performance.
But had you instead planted an apple tree back in 1980, that investment of roughly $1 would have yielded you THOUSANDS of dollars over the last 35 years.
This is one of the things that makes agriculture one of my favorite investments. With a little bit of care, patience, and maintenance, nature can provide an extremely high return on investment.
And no matter what, people need to eat, regardless of what happens in any economy, there will always be a market for food.
This is one of the things that makes productive land a great investment in both inflation and deflation.
Right now central bankers around the world are terrified of deflation; this is one of the reasons why the Fed left interest rates at 0% in their meeting yesterday.
In deflation, cash is king. It gains value against everything else… so the best thing to own is either a big pile of cash, or an asset that can generate cash.
Productive farmland certainly fits that bill: it’s a cash-producing asset.
But in an inflationary environment, you want to own a real asset– something that can hold its value against mindless central bank policies.
Again, agricultural real estate is a great option… one of the realest of assets.
As a real asset that produces cash, it fits well in either scenario, including if we get BOTH inflation AND deflation at the same time.
Another asset that ticks these boxes is a productive business.
And I’m not talking about stocks.
I mean privately held, profitable businesses. You’re far better off owning a profitable lemonade stand than shares of Netflix (currently trading at over 200x earnings).
If Janet Yellen wakes up tomorrow and decides to raise interest rates, Netflix stock is going to tank. But this won’t affect the profits of your lemonade business at all.
Granted, investing in stocks is certainly easier. That’s why so many people do it.
Owning a piece of a profitable private business is harder. It means you either have to start one from scratch, or you have to find a credible entrepreneur who will sell you a share of his/her business.
But these deals are out there.
I have a friend in the fitness industry, for example, who bought a boot camp fitness franchise for about $70,000. It makes about $10,000. Per month.
No, I’m not suggesting that you go out and start a boot camp franchise. Or even buy a few acres of farmland.
The larger point is that conventional investments are no longer the safest place to put your money, nor are they the only option.
Stocks are heavily manipulated by central banks, commercial banks, and politicians. One person opens his/her mouth and it can rock the market 5% in a day.
Banks are no better. Most banking systems in the west are dangerously illiquid and have undercapitalized reserves.
Yet holding your money in a bank might even cost you interest in Europe. And in the US, you’re looking at a whopping 1% for a 1-year CD.
Conversely, you can make 4% now on a 1-year investment through a peer-to-peer lending platform where your money is backed at a 2:1 ratio by GOLD.
In other words you invest $10,000 and receive 4% interest in one year, with your money backed by $20,000 worth of gold.
That’s seriously low risk, in exchange for receiving a return that’s 4x higher than a typical CD rate at your bank.
There are much better options than there ever used to be. It just takes some unconventional thinking, the right kind of education, and the courage to ignore the crowd.