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.