Sunday, September 29, 2013

A Tip of the Hat to Breaking Bad

A Tip of the Hat to Breaking Bad (and International Coffee Day!)

With our government on the verge of its 18th potential shutdown since 1976, I thought our time today would be better spent discussing something, anything, rather than the precarious position our political leaders have put this country in once again.

So with a tip of my hat to Breaking Bad, arguably the best drama series ever, I wanted to talk today about one of the greatest products ever successfully “farmed” out of the field; caffeine.

Invest Like A Farmer likes to take a unique approach to looking at macro-economic trends. What we often see, is that great wealth often comes from the soil. Let me repeat that, great wealth often comes from the soil. More than virtually anything else, land seems to drive the creation of wealth from farming, to manufacturing, to the location of educational hubs. But in the case of caffeine, many great empires (think of your leading coffee retailers and carbonated beverage manufacturers) have been built around what is commonly found in the coffee bean and kola nut; that’s right, the “cola” nut!

Take a look at the S&P 500 members and just make a mental note how many are really, in at least some form, caffeine delivery companies; like Walter White from Breaking Bad says, “I want to be in the empire business.” These companies, worth billions, are all in the empire business.

How does this relate to investing like a farmer? Almost perfectly in fact, as one of the core portfolio construction strategies of Invest Like A Farmer is security selection. Indeed, the very first general guideline is:

  1. Boring is undervalued. Look for companies with established brands. If they are exclusive, finite, hard-to-get, vital, addictive, and/or monopolistic, so much the better.

While you’re enjoying a “FREE” cup of coffee today from one of the retailers participating in International Coffee Day, think about the process of wealth being created simply by harvesting beans and nuts; and specifically how transformative that process has been over the years on our collective appetites and ultimately society. Pretty powerful!