Long-Short

Long-Short

The hottest hedge fund strategy in the world right now is a Long-Short equity approach popularized by AQR Capital Management (AQR) which has managed to vacuum up some $100B+ in assets under management.

The Long-Short strategy is seductively simple, and when executed correctly, can validate the fees being charged. Simply put, a Long-Short strategy seeks overall total portfolio growth. How it accomplishes this though is very interesting.

Investors, predominantly higher-net-worth and/or those with concentrated stock positions, either deploy capital in the form of new cash or inject existing equity positions into the strategy. To fully benefit from a Long-Short equity strategy assets are typically non-qualified (read as non-IRA, 401k, Roth, etc.) Typically these are assets are subject to the standard tax code.

Using a Long-Short strategy a Portfolio Manager is simultaneously LONG (ie owning the position outright) and SHORT (selling a position he does NOT own.) This can be confusing. Most people understand the LONG leg of the strategy. It means you are betting on the future appreciation of a stock for example. A SHORT position is just the opposite; you are betting on the future DEPRECIATION of a stock.

For better or worse, modern finance has "evolved" via the use of derivatives to allow for short selling and also purchasing of options contracts like CALLS and PUTS which give the buyer the OPTION (but not the requirement) to either BUY or SELL a stock. Additionally, this strategy also uses one of the three "Ls" railed against by Charlie Munger: Leverage.

By combining several traditional investing methods with several modern financial tools portfolio managers can successfully produce BOTH absolute alpha (growth) in a portfolio AND throw off LOSSES which can be harvested to off-set gains elsewhere. Tax rates can effectively be reduced to zero.

We can thank "an erudite dandy" who drank scotch with Hemingway in his youth while overlooking the Spanish Civil War for the origin of this strategy.

What a man named Alfred Winslow Jones theorized, then put into practice, in 1949 was essentially the first hedge fund. Pooling together $100,000 (a princely sum at the time, $40,000 of which was his) Jones created the first known example of a "hedged fund," ie he was simultaneously LONG some equites and SHORT others.

Jones published a finding of his research in the March 1949 issue of Fortune magazine titled "Fashions in Forecasting." While not a Harvard MBA, this magazine can be purchased on eBay for $20. Like most "fringe ideas" it was only initially noticed by the very observant looking for an edge wanting to break into the financial world.

Warren Buffett took notice. In 1956 Buffett started Buffett Associates with $105,000 and a 50% (you read that correctly) management fee on any return GREATER than 4%. A classic Balzacian outcome ensued, ie: "The secret of a great fortune for which you can find no cause is a clean crime, because it was cleanly done."

Carol Loomis reported on Jones's results on April 1st, 1966, some 17 years after Jones had launched A. W. Jones & Company, in her seminal article in Fortune magazine titled: "The Jones Nobody Keeps up With" 

This article sparked further imitation by nascent wealth managers including George Soros and his Quantum Fund as well as Michael Steinhardt's Steinhardt Partners. Soon hedge funds became the preferred investment vehicle of limited partnerships.

The Limited Partners (LP) strategy to investing got so hot in fact, Buffett closed down Buffett Partnership Ltd. at the end of 1969. He told his partners something to the effect that there was little future opportunity in a company he had just purchased called Berkshire Hathaway. Why deal with pesky limited partners? 

Fast forward some 50 years and AQR founder Cliff Asness, along with a host of other firms, are raking in serious assets by offering a classic Long-Short hedge fund strategy...with a twist: A big selling point is that the 2.0 version STRATEGICALLY THROWS OFF LOSSES. 

Why in the world would savvy investors want LOSSES? ILAF readers know we are all about growth. Why would sophisticated, wealthy, and smart investors want to LOSE money? Ahhh...read on dear farmers...as they say "timing is everything."

To a rich man losses are as valuable, if not more, than taxable gains. Indeed, the best time to take a gain may be never. The reason for this is the way the tax code is structured. Although a Long-Short strategy's OVERALL goal may be to pursue growth, it has a very, very interesting feature of throwing off significant losses.

These losses can be harvested just like ripe fruit my dear fellow farmers. Succulent, aromatic, peach juice dripping down your elbow oh delicious losses! And like any good harvest, you can can those peaches baby! Losses can be carried over from year-to-year-to-year.

Think of it like this: You have a farm with dozens of crops. Every year many of those crops grow and do extremely well. Some, however, fail. The current tax code allows you to harvest that loss, and keep it on your books INDEFINITELY. 

Sooner or later you *might* need to take a gain, for whatever reason; ie you are in need of a 2nd, 3rd, 4th home or your G550 needs engine work. Fear not. That carried loss can now be applied to your large gain.

As Apple, Facebook, Google, OpenAI, Anthropic, Microsoft, Amazon, SpaceX, etc. engineers occasionally leave their offices Wealth Managers are waiting for them in the parking lots ready to offer them this fantastic opportunity. Investors? Could be you!

This Long-Short 2.0 strategy has been increasingly proactive in the crystallization of the "K-shaped" economy where the (financial) winners are predominantly young(er) engineers or employees with significant equity stakes AND Baby Boomers at the highest echelons with considerable net worth.

Consider, there are almost a MILLION Americans with OVER $10M. Over 100,000 have $50M+. And some 10,000 have over $100M. A lot, probably 80-95%, of that wealth is in UNREALIZED gains that will not be taxed until it is realized. Even in death there is a significant tax break in terms of the cost basis being RESET to fair market value.

So if you're a financial farmer plowing the fields, earning a good living, and saving for the future it behooves you to consider allocating a good portion of your liquid net worth to a Long-Short equity approach. Just make sure it is tailored to your specific needs, risk tolerance, and time horizon.

Sovereign Wealth

Sovereign Wealth

At $2.3T, Norway's Sovereign Wealth Fund (SWF) owns ~1.5% of ALL global equities in its portfolio, providing Norway's 5.67M citizens a notional account value of over $400,000 USD for every man, woman, and child in Norway.

This SWF derived from Norway's collection of a 78% profit tax on oil production. Keep in mind, Norway is only 12th in the world in total annual oil production.

Given that the United States is the LARGEST net oil exporter in the world, producing some 13.5 million barrels per day as of 2025, it begs the question where is OUR Sovereign Wealth Fund?

The United States operates under an antiquated 1920s 12.5% Mineral Leasing Act, earning a reported "$8B last year."

Yet 2025 crude oil production in the United States was as previously mentioned 13.5M barrels per day totaling some ~5 billion barrels for the entire year. With an average market price of $65 USD per barrel that equates to roughly $325B in total US crude production revenue.

I'm no Albert Einstein, but there seems to be some SERIOUS "leakage." 12.5% of $325B is NOT $8B. Where is the other $33B going? Hint: Probably NOT to YOU the taxpayer.

Imagine if the United States government was not beholden to Big Oil, but rather it had the integrity and foresight to establish a sovereign wealth fund like Norway and charge an equitable royalty rate (after all, these ARE all citizen taxpayer public lands) of say 50%.

The oil majors would all still be wildly profitable, and within 10 years the United States would have well over $1T in a SWF. In a generation the earnings of this fund could wholly replace Social Security (and the economic break-pedal of its onerous wage tax.)

Imagine if instead of a National Debt of ~$40T or about $115,000 for every man, woman, and child in the United States we too had early positions in Apple, Amazon, Dell, Google, Microsoft, Nvidia, SpaceX, and Tesla like Norway?

The United States is the EPICENTER of innovation. Citizens should be reaping the rewards alongside this innovation.

Let's utilize royalties from national natural resources from public lands to invest in the future productivity and innovation in this country for all citizens to benefit and wean ourselves off of wasteful employment taxation.

Within 10 years the United States Sovereign Wealth Fund (USSWF) could and should totally replace the need for Social Security or the Social Security Administration. 

The Boomers would be the LAST generation to receive benefits under Social Security, while GenX and beyond would receive proportional income shares in the new USSWF.

T. H RAPKO & COMPANY, LLC would be proud to manage the USSWF on behalf of all Americans. If we are going to "Drill, baby, drill" in this country, we should also "Invest, baby, invest."

Exit Liquidity

Exit Liquidity

SpaceX has proven to be a busted IPO less than a month after it launched. It used retail investor cash to fuel its exit liquidity. Investment banks like lead underwriter Goldman Sachs were only too eager to promote this issue, along with the usual suspects (Morgan Stanley, UBS, Bank of America, etc.) Those high fees to issue, paid by shareholders to the tune of $500M, could not be ignored. 

Ground Control to Major Tom, this should be a FLASHING RED PANEL to all retail investors. 

Big Tech is in cahoots with Big Banking looking to score more lucre. Coming down the pipeline with Trillion-Dollar Valuations include Anthropic and OpenAI. Retail investors need to take pause and consider what happened with SpaceX, as the gameplan Big Tech used with Big Banking is now transparent.

Traditionally the term "Escape Velocity" pertained to the speed at which something, a rocket or spaceship for example, needed to break free of the Earth's gravitational pull. For Earth that speed is 25,000 mph. "Exit Liquidity" is somewhat of a similar term in which at what price point can Big Banking, directed by Big Tech, unload a company on the retail investment world.

The goal here is obvious: founders, early employees, and especially venture capitalists are playing a very calculated game of brinkmanship trying to determine what pricing they can shear from the sheeple. All these Gulfstream 650s aren't paying for themselves. Nor is the absolute BOOM in San Francisco real estate (the epicenter of AI) a coincidence.

Here at ILAF we like new tech and game-changing advances just as much as the next robot, but the shell game being played at the "investment" houses is pretty transparent, especially after the busted SpaceX IPO. Retail investors should be very, very leery of new issues that are simply Exit Liquidity strategies pumped by Big Banking enriching themselves, VC firms, and wildly over-compensated founders.

To date, the biggest retail winners of the SpaceX IPO have been short sellers.

Escalator Yo-Yo

 Escalator Yo-Yo

One of the best analogies of the stock market is that it is a man riding an escalator up with a yo-yo in his hand spooling up and down constantly.

Now the escalator itself might represent inflation or productivity over time, perhaps both, while the yo-yo spinning up and down constantly represents the inherent day-to-day volatility of the stock market dipping down and bobbing up.

Short-term, from the man's perspective, the stock market is demonstrating extreme swings in movement, yet all the while the escalator is slowly, methodically, moving higher and higher raising the relative baseline. 

Yet as we have all experienced, an escalator can and does stall or break. That is rarely for long. Mechanics come and "fix it" (read Federal Reserve) and it is off to chugging along again, day-after-day.

What makes this analogy so interesting is the combination of both economic and physical law truisms; namely inflation acts as ever-increasing entropy, while man constantly seeks technological solutions to life's challenges.

Coupled together, inflation and productivity push markets higher in both notional and real values, while the day-to-day swings offer prices points for entry and exit to millions of market participants.

One of the inherent functions of a market is timing. Timing in the purchase and sale of assets relative to their perceived value at that price point in time.

As we have seen on a nearly every-other-day basis this summer, traders are actively probing entry and exit points for equities. In spite of high(er) oil prices, two global conflicts, and daily (re)evaluations of tech pricing the markets have continue to rally higher.

So while short-term traders are watching the Yo-Yo, readers of this blog who desire to Invest Like A Farmer (ILAF) are using sell-off timing to their advantage and riding the escalator higher and higher while being prudent not to find themselves the "exit liquidity" many VCs and Investment Banks so cravenly need.

QSBS & Chill

QSBS & Chill

Stop getting raked over the taxation coals every year. On the heels of Tax Day many of us are feeling like we paid far more than "our fair share." The types and forms of taxation in America are now legion, often leaving smart, hard-working business owners in the lurch as Tax Day approaches to round up taxes due, taxes to withhold, and taxes to anticipate. Fear not faithful readers of ILAF, we have a solution for you: Set your family up for generational wealth by harnessing QSBS!

Colloquially known as Qualified Small Business Stock (abbreviated QSBS) is rocket fuel for creating dynastic family wealth. QSBS allows founders and investors to exclude up to 100% of federal capital gains tax up to $15M or 10X basis, whatever is larger, of said stock held for over five years.

Ever wonder why the PayPal Mafia, and their descendants like Sam Altman and Dario & Daniela Amodei plus a host of others live so well with seemingly endless buckets of cash, the best real estate, the best medical care, the finest luxuries, and fly private wherever the go? Life is very sweet indeed when you do not pay taxes on massive capital gains.

Now QSBS is different than the Peter Thiel strategy of putting founders shares in a Roth IRA at $0.0001 each, ie putting 20,000,000 shares of Facebook (now Meta) in an account for $2000. That also works, obviously, but requires some specialized access along with lack of control of said company.

Qualifying for QSBS riches is relatively easy, and probably the greatest way to create dynastic family wealth that ever existed. As of July 4th, 2025 to qualify for QSBS the issuer (ie the company you invest in or start)  must be a domestic C-Corp with less than $75M in gross assets and the shares must be acquired at original issuance (ie not on a secondary market.)

Now there are some key requirements to keep in mind, and it would behoove you to meet with a tax professional to line up your ducks.  A couple initial considerations include the holding period, which is 5 years for the full 100% federal tax exemption, although there is a sliding scale for less than 5 years. 

As discussed above, the shares need to be obtained directly from the company and not via a secondary market. Also, the "asset test" as of July 4th, 2025 under the "Big Beautiful Bill" was upped from $50M to $75M, which should be plenty large for almost any "small" business.

One of the most tricky parts of the QSBS is the actual "Q"...what qualifies as a "Qualified Business?" As you can imagine this section of the tax code (Section 12002) was written for and by the previously mentioned PayPay Mafia types for themselves. Why does that matter? Well there are some very, very valuable businesses that are explicitly excluded. Business and professions that are extremely useful to humanity including health, law, and financial SERVICES. Banking, Farming, Mining and Hospitality are also specifically EXCLUDED.

This kind of leads us to ask the question, "What businesses then actually ARE included in the QSBS carve-out?" Answer: "Those businesses that create value through products or inventory rather than primarily providing services based on employee expertise."

A little foggy? You betcha! Think along the lines of manufacturing, but both physical AND software goods (yes of course AI Agents are included...who do you think wrote this tax language? Hahaha)

Specific examples of QBs include: Technology & SaaS, Manufacturing, Manufacturing & Consumer Goods, Technology-Enabled Services, Retail/Wholesale, Research & Development.

Some complexity aside, creating the right structure and business model can potentially result in massive tax savings as many business owners with QSBS "stack" this stock amongst family members, trusts, and friends as the $15M capital gains exclusion is PER PERSON. So just when you think things can't get any better under an ideal QSBS scenario, the founder(s) stack company stock with their spouse, children, and trust(s) and things do indeed get better!

If you are tired of being jerked around by a fickle tax code and seeing your tax dollars squandered away by government agencies left and right while you are grinding out hour after hour of work, consider taking advantage of Section 1202 and set your family up for generational wealth via massive tax savings.

Legitimate Income

Legitimate Income

Legitimate income is expensive. Successful earners lose more than half of every dollar they earn. Learn how to legally keep more of what you earn. Play by the rules, but control the terms.

Much of what is earned as income comes from the creation of value, with more value created typically resulting in higher income derived. Insanely great value creation can generate insanely high income. That is generally pitched as the "American Dream" or at the least the goal...to EARN a high income. The reality as you quickly learn along the way to high income is that at first some, then more, then most of that income is taken from you. It is "redistributed" via progressive taxation.

The tax code is what it is; attempting to skirt or even worse deliberately running afoul of it has serious consequences. Yes there are thousands of people out there that never file tax returns and never pay income taxes. Many will never be caught. But the risks are severe, especially if you value your freedom.

Sadly, every American is born into serfdom as an indentured servant now, one way or another, with a Federal Deficit of nearly $40 Trillion Dollars as of April 2026. It is what it is; prior generations have overspent and saddled the next generation with even more debt. The debt compounds. The value of the dollar decreases. Taxation increases. This is the hand modern earners and investors have been dealt.

We have two choices: Feed the beast and relinquish more and more of your earnings, wealth, and soul to government that only grows in size and scope yearly OR become resilient. Keep reading if you would like to become resilient.

After decades of earning, building, and paying taxes (routinely to the point of extinction) some truths have become self-evident. First, to earn a decent living you need to create some level of value on a recurring basis, whether that is a service or physical good or a hybrid therein does not matter. Second, there are generally barriers to entry for the higher income professions; some are academic, some are skill, and some are family connections. To ascend the "value chain" of potential earnings and wealth one needs to leverage their own particular ambitions and skill sets. These first two variables we all have in common. The third variable is a conscious decision to become resilient.

Generally speaking, the greatest way, and by that it is meant the surest, fastest, safest way, to lasting wealth creation is to embrace a value creation and ownership mindset that is singularly focused on creating extreme value to sell, regardless of profession or industry. HOW that value is sold is critical.

To preserve and grow wealth it is vital not to LOSE some 50% of it each year to taxation. Taxation takes many forms; for our purposes it specifically relates to the Federal Income Tax, State Income Tax, Local & Municipal Taxes, Self-Employment Tax (as applicable), Social Security Tax, Sales Tax, Real Estate Taxes, Affordable Care Act Tax, and the additional associated costs of Medical Insurance & Education which most high earners pay out of pocket which act as additional taxes. All those taxes provide significant drag to advancement in life...like running a marathon with a parachute on your back that grows larger with each mile run!

Here at ILAF we like to tell it to you straight. If you want to achieve markedly higher wealth, consider implementing the following strategy ASAP: However you decide to create extreme value and sell it, consider doing it within your own company. Extract the minimum income needed to pay for your living expenses outside the business. Some would advise earning enough to contribute to a 401k, SEP, IRA, etc. The upside is you are creating tax-free or tax-deferred retirement savings, but you are also creating "tax bombs" that will be large liabilities down the road (except for your tax-free Roths.) Conventional wisdom suggests paying out value in the terms of income and then using a chunk of that income to build retirement savings. A more recent approach pioneered by the authors of the largest tax break in existence is to SELL your business every 5 years under the QSBS rules.

In every time and every generation in America there is a profession that has preferential status; ie the tax code bends its knee to that sector. For the first 150 years of America it was the farmer, rancher, and miner. Next came the oil man and manufacturer. Then we saw the rise of the professional class; lawyers, doctors, and engineers. Now the country is lopsided to the service sector and corporate behemoths. Most recently though, the rise of AI has resulted in small teams creating vast wealth (for themselves and early investors) via the promise of creating insanely great value.

We all need to press our respective EDGE. Not everyone is an AI vibe-coder, but every profession and career has its distinct advantages and disadvantages. Almost all forms of work offer a "best case" scenario where you can harness the power of the tax code to your advantage. Consider your skill sets and value proposition in the creation your own personal "Edge Fund."

It is hard to get ahead and create wealth when that yearly nut gets nibbled on by every tax squirrel in the forest. Look to store and secure your nuts. Take what you need to survive, but consider strategically selling your stash only when needed...and when advantageous to you and your family. Play by the rules, but control the terms.

Tax Day

Tax Day

"Tax Day," typically the 15th of April every year since 1955, is the day where that most odorous of civic duties compels citizens, residents, and even those Americans living far abroad to offer "their fair share" of taxation to the municipal, state, and federal governments.

For those who pay, I salute you. The annual redistribution of income, wealth, and labor should be recognized as the blight it has become on the growth of this nation; economically, socially and morally by the establishment of a National Holiday.

The flag should be flown at half staff on Tax Day to recognize the continuing sacrifice millions of taxpayers make to their government(s) annually. Sadly, this sacrifice is largely wasted by that very government. Fraud, waste, and abuse have been well-documented at every level of government and continue largely unabated daily. By some estimates, nearly 80 cents of every dollar is wasted.

The Founding Fathers were geniuses...they knew government would ultimately grow to become both uncontrollable...and unaccountable. The U.S. Constitution was specially written NOT to have income taxes. Indeed, an argument can be made America was born of resistance to taxation. Yet there is no creature more oft-maligned than your everyday taxpayer.

The everyday taxpayer goes to the back of the line, every time. Some 250 years ago this country began with NO income taxes at any level and seemed to do just fine, but government itself was hungry for the wealth and power the people had accumulated and so the cycle began again...this time cloaked under "fairness."

In 1913 everything started unraveling with the passage of the 16th Amendment which was an answer to the lowering of tariffs. Prior to this legislation, America ran on tariffs. Goods were taxed and consumers ultimately paid these taxes based on their consumption of said goods. Nobody was forced to buy certain goods or services, like say healthcare.

The 16th Amendment, however, changed everything; now a person would be taxed on BOTH their consumption of goods (tariffs did not go away completely) AND how much INCOME they derived on an annual basis.

"Progressive" Democrats at the time sold this to their constituents as perhaps the first instance of "tax the rich." It would not be the last, and it ultimately failed as every other attempt has, but not before the 16th Amendment shackled millions of Americans to a new form of economic slavery.

Initially pitched as "only 1% of people will be affected," the new income tax spread like wildfire from the Federal level, to the State level, ultimately to the municipal level. This obscene cash gusher was the beginning of the end for low-friction growth. Insidious like a cancer, and just as malignant, the income tax spread both horizontally and vertically across every part of the body of society.

In 1913 the original plan was to apply a 1% federal tax on all incomes over $3K (or $4K married.) A graduated scale rose to a maximum marginal tax of 7% on incomes overs $500K. There were no State taxes at this point. And taxes were paid annually. Consider what this has become over the next 100+ years.

First, vertical layers of taxation were added: local/municipal taxes, State taxes, and Federal taxes. Next taxation expanded horizontally like a locust plague...licenses, sales tax, usage tax, gas tax, water tax, etc. ad infinitum. Of course the brackets themselves expanded to capture nearly everyone. Remember, $3,000 in income in 1913 is equivalent to $300,000 today. So imagine everyone today making $300,000 (or $400,000 married) having ZERO income tax at either the Federal or State level!

Finally, the SPEED of taxation increased to zero. Zero? Correct! What once was paid annually in arrears, is now paid instantly at the point of sale. Who says the government is not efficient? They have compressed time to zero! That is just how far we have "progressed."

And the rates themselves? 1% is long gone. The lowest rate is now 10%. That's right, 10X the original lowest RATE! The moment someone starts to make a little bit more money their silent partner is also making a LOT more. The Federal Tax rate now peaks at 37% for those making over $626,000 (married.) Then add in State taxes, with California topping out at 13%. Add in local/muni taxes, sales taxes, gas taxes, etc. and high earners can easily drop 60% of their income to taxation.

What does all of this taxation support? Sadly, larger and larger government that wastes more and more of your money. The problem is that the taxpayer does not have a champion. Congress is tasked with SPENDING our money so it is pointless to approach them. The Executive Branch is the beneficiary of the spending and the Judicial Branch enforces the spending via "interpretation" (read Obamacare.) 

What can the average taxpayer do? Nothing. What can the savvy taxpayer do? Become an expert on the tax code to maximize your situation. There is a reason why the rich hire teams of CPAs. You may not need a team, but becoming knowledgeable on the tax code, geography, and strategy can help immensely.

For most, the "shakedown" will continue for a lifetime, and beyond if you do really well. Careful planning and execution can help sharpen the blade so the various immortal government entities cut off only what they are legally entitled to and not an ounce more. Sadly, after 250 years we have become a nation of taxation without representation. Happy Tax Day.

Happy 50th Birthday Apple!

Happy 50th Birthday Apple!

Happy 50th Birthday Apple! 50 years ago today (no joke!) Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne. Apple seed capital was largely raised from Jobs selling his VW Bus and Woz selling his HP-65 calculator. With those proceeds they built a prototype of the Apple I.

The Apple I "computer" consisted of a motherboard with CPU, Radom Access Memory (4 KB), and textual-video chips. No monitor was included. There was a wooden box to hold the system. This product was first demo'd at a local computer club. Who would have thought that from that initial product launch that not even the sky was the limit?

Over the next 50 years via legendary innovation, design, and marketing Apple became the world's most valuable consumer electronics company. In many respects, Apple redefined society, work and leisure became one. Mobile work has become ubiquitous. Jobs succeeded in his goal of "putting a dent in the universe." And Apple investors? Well $10,000 invested in the company's IPO in 1982 would be worth roughly $33,000,000 today.   

Catching Knives

Catching Knives

Catching falling knives (buying distressed assets) is tricky business, even the most seasoned investors get cut badly. The task seems relatively easy, yet perfect execution is a rarity. The challenge of buying on the low revolves around having almost perfect information. That is highly elusive, sometimes illegal, and in a multi-variable world with intense competition vying for any edge, almost impossible.

Investors hoping to scoop up additional alpha should leave the knife catching to the circus. Outfits like Ringling Bros perfected "the spinning wheel of death" so retail investors do not have to literally reinvent the wheel!

Rather, retail investors should consider playing to THEIR advantages over "professional money" like hedge funds, family offices, and AI-trading algo bots. Consider instead a boring, dollar-cost-averaging approach to building a portfolio over a LIFETIME with incremental purchases occurring multiple times a month.

By implementation of a dollar-cost-averaging approach, investors are constantly buying equites (and bonds) over a period of time that will have both highs and lows, and by default, greater position size will be purchased during selloffs and lower position sizes at the highs.

These DCA plans are relatively easy to set-up, and now virtually "free" with zero commissions. The rub of course, is always portfolio allocation...what exactly to buy? Portfolio allocation is critical to success.

Trepidation occurs when a portfolio has been built over some time and perhaps is no longer being built (ie inbound flows have stopped) and the portfolio is now in a "depletion phase," primarily used to pay for cost of living expenses.

The larger and older a portfolio gets, the more it is subject to short-term market forces, and also the temptation to make significant rash moves...this is exactly why this blog is a proponent of building a portfolio like a farm. 

Investors should have multiple "crops" ie baskets of equities whose cash flow can and should weather a financial storm(s). Ultimately most investing boils down to cash flow, so how are you building your cash flow? Do you have a repeatable process in place? Is your cash flow compounding? What companies are consistently raising their dividends? What are the best moats? What is the caliber of leadership in place? Can your portfolio take advantage of a higher Vix?

As previously mentioned, all these factors must be weighed because portfolio allocation is critical to success. This is why putting an emphasis on timing rather than process is dangerous; it skews the thought process from investing to gambling, and there is a significant difference between the two. Investors have odds in their favor, gamblers do not.

Catching knives is tricky business. For investors sitting on ready cash though it is deliciously tempting to go "all-in" after the market stumbles, and even more appealing after a tumble. Indeed, many great fortunes have been made in this manner (ie Rothschild family wealth was built off of perfect information.) If so compelled, have a playbook ready; know what assets you want to buy, at what price, and with what margin of safety this impacts your total portfolio.

AI Agents & Humanoids

AI Agents & Humanoids

The pace of AI Agent and humanoid advancement has accelerated to the point where human worker replacement can now be based simply on a payback cycle.  Many companies are activity "augmenting" their workforces with both AI Agents and humanoids. They are achieving sub-10 week payback cycles according to Rob Garlick, a tech analyst with decades of spotting definitive tech inflection points.

Stacked microprocessors, 3D printing, and battery innovations have all led to AI Agent and humanoid solutions. At this point, both AI Agents and humanoids can handle mundane tasks for hours, but given the exponential growth rate in development, increasingly more complex tasks are right around the corner.

If we look at the current workspace and ask "where are there shortages?" and "what is the remedy?" AI Agents and humanoids are increasingly the answer to both questions...humanoids can do many warehouse functions now, with increasing ability to assemble items. In short order, assembly should lead to construction / destruction activities like shoveling snow, mowing lawns, planting trees, harvesting crops, and building homes for example. AI Agents can already act as full travel agents, salesman, and diagnostic techs. Humanoids are coming online slower...albeit with greater potential impact for physical work.

Obviously there is a form/function relationship that doesn't necessarily dictate that all humanoids strictly resemble mirror images of humans...in fact, task specific robots currently performing niche duties most likely will retain their shapes, but have the added advantage of complex data storage, retrieval, and implementation functionality (think da Vinci surgical robots.)

It is hard to believe humanoid workers will help human workers for long before replacing them though, similar to how many Americans were forced to train their replacements in manufacturing offshoring. With labor costs accounting for the highest cost for most corporations, "hiring' humanoids makes smart corporate economic sense. Plus there is no need for health insurance, vacation, sick leave or the most dreadful of all...discrimination lawsuits which have morphed into a "mansion industry" (for both the attorneys and plaintiffs.)

Now companies can "hire" with assurance that their workers will show up on time, sober, fully qualified, and ready to work without complaint (essentially until they need a recharge or break.)

What industries are most suited to harnessing the power of humanoids? This author would argue that initially positions that require LESS dexterity and more DANGER are ripe for replacement. Along those lines, the global agricultural industry seems ideal for disruption.

Concurrent with the LESS dexterity and more DANGER filters for humanoid replacement of workers, AI should be able to successfully replace workers in positions with limited to no PHYSICAL activity like LAW, MEDICINE, and FINANCE. The one saving grace on these industries is "the human element." 

"The human element," or what Citrini Research describes as "friction with a friendly face," should provide a buffer for some (limited) time against the total replacement of a human worker by either a humanoid or AI Agent, especially if the product or service is humanistic...ie requiring human empathy, lineage, or connection to successfully deliver such services or products.

Without strong human relationships, though, the value proposition of whether an implied result is more important than a relationship will be at the forefront of the buyer, consumer, or patient. And to a lesser extent, the seller, producer or provider. How valuable is that "friction" versus getting the best price, service, or result?

Purchasing Power

Purchasing Power

Arguably the biggest casualty of the Vietnam War was on August 15th, 1971 when Nixon ended the direct convertibility of the dollar to gold. Since the United States abandoned the Gold Standard in 1971, the United States Dollar has lost 98% of its purchasing power. So after 55 years, for every dollar indexed to 1971, the American citizen is left with 2 cents. Hopefully, the United States never removes the penny from circulation...what would be the purchasing power of the dollar then?

Here at Invest Like A Farmer we have long been champions of owning gold, indeed we were among the first to suggest investors consider buying their own gold mines (in the form of gold mining claims.) Why is that? Investing ultimately boils down to cash flow. Cash flow implicitly implies a certain standard of living or purchasing power. Purchasing power over time is paramount, and gold is one of the best stores of wealth (toil) of any asset class. You do not want to have to earn your money twice!

Alan Greenspan once quipped that: "I can guarantee the amount of future Social Security benefits and for how long, but not their purchasing power." That is a very salient comment. At some point, cash flow needs to be tethered to reality, and that reality is purchasing power. Gold is elemental in its ability to store value.

For many Americans outside of the Baby Boomer generation the American Dream remains elusive, if not completely out of reach. It is out of reach because assets of high quality (read real estate) are in high demand with frequent hoarding by both generational wealth and corporations now. The world is awash in cheap goods and services labeled as "free" which collectively siphon off trillions of zinc pennies at a time, but those assets of true value (real estate, education, healthcare to name a few) are very dear indeed.

Assets of true value are almost unobtainable for younger generations because: 1) there is an artificial shortage of housing (lack of supply for several reasons), 2) there has been virtually zero real wage growth in 50 years, 3) there has been an utter collapse in the purchasing power of the USD.

Since time immemorial governments have debased currency in the attempt to spend more than the currency can afford; some of the earliest known tricks were to make coins of lower grade gold or silver, make coins smaller, cut edges off, change from gold and silver to silver and copper, change from metals to paper that was redeemable for gold or silver, paper that was redeemable for nothing, and most recently electronic money which can have an infinite supply and perfect traceability.

Much of the reason why America grew so quickly was an abundance of land and the California Gold Rush of 1849. The Gold Rush triggered one of the greatest migrations in human history. That also added in today's dollars TRILLIONS in "God's money" aka gold to the financial system. Gold is so powerful FDR actually criminalized the ownership of gold in 1933 via Executive Order 6102!

There has rarely been a better time to purchase or stake a gold mining claim in the United States. With gold trading at $5,000 oz-t. mineral rights on these claims can be worth millions of dollars in gold. Of course one must have sufficient knowledge, capital, and the willingness to work; but the average high school student properly trained, duly equipped and unleashed in gold country stands to make more in a week than an entire summer flipping burgers or mowing lawns.

As the Age of AI dawns upon us, many layers of work will disappear. Vast segments of labor will no longer exist. Promises of utopian society have begun to emerge with Universal Basic Income solving humanity's woes. The reality, however, almost always reverts to basic human nature of self-preservation and survival. Our bet at ILAF is that gold will have a central role in that future of protecting purchasing power, stock up.

$1T Land Deal

$1T Land Deal

As President Trump departs for Davos, it is becoming increasingly likely that the United States may purchase Greenland from Denmark with a price tag rumored at $1T. This land deal would mark the largest of the land deals ever completed for the United States.

The two largest previous deals being The Louisiana Purchase in 1803 from France for $15,000,000 (yes the same price in nominal dollars as a flashy Beverly Hills home today) and The Alaska Purchase from the Russian Empire in 1867 for $7.2M which was termed "Seward's Folly" under the belief the United States overpaid for a vast frozen tundra.

Greenland offers the United States, and indeed both Europe and Canada, the opportunity for increased defense against potential adversaries capable of launching intercontinental missiles that would fly over the Article Circle on the shortest flight path into the United States. Contrary to popular belief, this is not the first time the United States has attempted to negotiate for the purchase of Greenland. It is just the latest salvo, this time very public, of the United States trying to shore up its northern defense.

Indeed, the United States has tried to purchase Greenland on three successive occasions before; in 1867 by Seward, in 1910, and most recently in 1946 after World War II. All previous attempts had been rebuffed, with the latest after World War II cementing Denmark's control of a landmass FIFTY (50X) times its size, but 1/120th its population. 1946 was a missed opportunity, especially as the United States aptly entered the Cold War.

Interestingly over the past weekend, 8 NATO countries deployed troops to Greenland on the concern of President Trump's desire to buy Greenland. Yet these same countries for some odd reason have not deployed a single trop to Ukraine for an intense land battle with Russia which is entering its 4th year. Millions injured, hundreds of thousands killed, and complete societal change in Ukraine yet seemingly only Poland has stepped up to the plate.

The dynamics of the European mind are mysterious. Denmark acts like a domain squatter who has allowed use of a war prize from the 1300s to the United States to benefit it and Europe, while refusing to let the protector of Europe (USA) to develop this asset for global security.

Time will tell how the chips fall, but Denmark has the opportunity to cash in on an asset they have long done nothing with and provide the United States, Canada, and Europe with additional defensive resources.

Making Mistakes

Making Mistakes

One of the most unheralded advantages of hiring a professional is that you are paying for mistakes they have ALREADY made, and more importantly, hopefully have learned from...which is kinda disconcerting when professions like medicine and law are termed "practices."

Obviously the financial world is also a practice, one in which when you hire a professional, whether you realize it or not, you are also paying for their past mistakes...mistakes that SHOULD be very lucrative for you to profit from in the future.

Much of the "hustle" of modern retail investing has been a colossal marketing effort, well int the billions, to convince the investing public that: 1) Anyone can invest on their own, and 2) As long as you Index with Low Cost you can "beat the market."

Just like "free" may be the most expensive word in the English language, "Low Cost" has its problems too. Big Problems. But the former point deserves just as much, if not more attention. The combination of "anyone" and "low cost" has created a windfall for behemoth financial institutions like BlackRock (iShares), Vanguard (S&P 500 Index), and Fidelity (Mutual Funds) 

The unkown unknowns. Those are what new investors should be concerned with, along with the known unknowns of course. But what "big money" does not provide for the average retail investor, and what a seasoned professional in finance DOES, are answers and strategies for both of those scenarios.

There is a reason why 100% of large-scale dynastic wealth is professionally managed, and not typically by the heirs themselves with "low cost" solutions. Although paying a higher fee may not garner a higher return, it should most assuredly include "lessons learned" from said advisor(s).

One of the most important questions an investor should ask a portfolio manager he is thinking of hiring is: "What mistakes have you made investing?" Pay attention to that answer, and especially how that PM has learned from those lessons in running the practice.

Execution

 Execution

Execution is everything. For the vast majority of us, even a very successful life and career will be largely lived in obscurity, invisible to the larger world. It will involve grinding out small wins, the proverbial base hits for decades. In time, home runs and even the grand slams will happen, but mastering the craft and even getting on the field, will be paramount for stepping up to those at-bats and swinging at the ball.

The search for excellence, whether in investing, a relationship, or a career also is closely tied to execution. Excellence is found in repeated successful execution of tasks, muscle movements, and ultimately choices. Excellence is a process, a repeatable system with frequent feedback. In the business world, much of that process can be bought via something called marketing.

Marketing helps companies, and increasingly individuals, build their products and brands in the public eye thus helping achieve brand awareness that in the past was accomplished by repeated successful execution and word-of-mouth. The marketing cycle has increasingly been compressed into seconds with short video reels on platforms like TikTok, YouTube, or....Reels.

Andy Warhol once quipped that "...in the future, everyone will be famous for 15 minutes." Not only was he 100% correct, but the time element of viral fame is now as compact as 15 seconds. This leads to the question of whether attention to detail and successful execution even matter in a low-attention society. The answer of course is yes, and the following is why.

One of the best quotes on the subject of execution is: "Watch your thoughts for they become your words, watch your words for they become your actions, watch your actions for they become your character, watch your character for it becomes your destiny." 

Billions of humans are thinking trillions of thoughts and speaking a corresponding number of words, taking a subsequent number of actions, and becoming certain types of people. Not all seek excellence, but as Adam Smith famously theorized, we are all motivated by our own self-interest. This is what drives economic activity and humanity itself.

As we kick off the New Year and resolutions abound, it is important to remind ourselves of the value of owning our actions, mastering our craft, and focusing on successful execution...whether those wins are on the athletic fields, board rooms, or in the living room execution is everything.