Post on 16-Apr-2017
Back to Basics
It’s time to face the facts. In the past thirtyyears, traditional investments such as stocks,
bonds, mutual funds and ETFs have been seen asthe primary building block of a lucrative
portfolio. Yet, all good things must come to anend, and it seems that these types of
investments are doing just that. In fact,according to Steve Diggle of Vulpes Investment
Management, “ …$10 trillion worth of bondsright now that [sic] are giving negative yields.”
Interest rates are at historic lows and thereturns, predictably so, are just not there. So,
where do we turn if traditional investments areno longer the way to build long-term sustainable
wealth?
Alternative alternatives. Put moresimply, basic businesses. Businessessuch as farms, water-access rights
and sand mines are beingincreasingly looked to as a way to
responsibly manage risk whileearning a strong return, even if saidreturn is a bit lower than the stocksand bonds of the past. The chancesthat stocks and bonds will result in
desirable risk-adjusted returns overthe next thirty years is low, to say
the least. Areas such as farming, onthe other hand, are good inflation
hedges and since the crash of 2007,are proving themselves a more viable
option than the current negativeyield of bonds. In addition to
reducing a portfolio’s risk profile,these alternative investments alsooffer investors a more active role in
their possible returns.
Sean O’Shea of private equity firm Sienna Capital Partnersclaims “If something goes bad, you are held at the whim of howthat asset performs. We have physical assets that you can feel
and touch, and there is something you can do to increase itsvalue. You help to support that value if you’re actively
involved.” By emphasizing the tangible nature of these assets,O’Shea is able to feel he is taking on a significant role in their
performance.
When something goes wrong, he can pick up the phone, speakto who is responsible for managing the situation, and see what
he can do to either help out or mitigate potentialrepercussions. At the very least, this sort of physical contactprovides solace to some extent in the event that assets do not
do as well as they should. Basic businesses offer whattraditional investments cannot: a sense of control.
Of course, not all equity firms agree that such a hands-on approach is advisable. In fact, Jack Hon (a founder
of recently created Wide Growth) prefers to not beactively involved in the management of such physical
assets, and chooses instead to only invest in areaswhere he is less familiar with community happenings.He feels that investing in an area he knows well is toinspire bias, and it is for this reason that he instead
chooses to invest in firms such as a mining company inAustralia (his firm is based out of Singapore). This way,he is able to remain more objective in managing assets.Of course, not all equity firms agree that such a hands-on approach is advisable. In fact, Jack Hon (a founder
of recently created Wide Growth) prefers to not beactively involved in the management of such physical
assets, and chooses instead to only invest in areaswhere he is less familiar with community happenings.He feels that investing in an area he knows well is toinspire bias, and it is for this reason that he instead
chooses to invest in firms such as a mining company inAustralia (his firm is based out of Singapore). This way,he is able to remain more objective in managing assets.
This all said, the more tangiblenature of a basic business and the
relatively low-risk profile is not theonly reason investors are
increasingly interested. Indeed,basic businesses and the
opportunity they pose fordiversification are as attractive as
anything else. In the very recentpast, it was popular belief that
stocks and bond prices tended tomove independently of one another.Now, not so much. In the wake of the
2008 crash, correlations betweenstocks and bonds have significantly
increased, thus makingdiversification between the two less
advisable. Basic businesses lieoutside of this correlation and are
consequently less vulnerable tofluctuation.
As we look to our fiscal future,it seems the past is our bestindicator. By exploring
“alternative alternatives,” weare actually reverting to the
most traditional form ofinvestment, property and basicbusinesses. At the Opes Group,
we help a lot of new (andsometimes established)
businesses to gain traction.Many are investment
opportunities that you maywant to consider before yournext mutual fund investment.Traditional investments offerliquidity, yes, but at what cost?Please feel to contact me if
you would like to learn aboutthe superior returns offered bysome of our ground-breaking
entrepreneurs.