Dynastic Wealth

Described as "monetary inheritance that is passed on to generations that didn't earn it," dynastic wealth gets a bad rap. It is so "burdensome" that most billionaires feel compelled to increase it and disperse it via a number of nonprofits controlled by their heirs to maintain it without having to "pay their fair share." Please. Let's be honest, dynastic wealth is an enviable goal and one which most investors strive to obtain, if not fully in their lives, then at least in the lives of their children and grandchildren.

Dynastic wealth, in terms of monetary abundance, offers many significant advantages to poverty; better access to health care, education, safety, etc. It has, and will always be, one of the primary goals of our species. It is fundamentally Darwinian. In many ways, dynastic wealth is the American Dream; an increasingly better quality of life for generations to come with the ability to pursue one's own happiness.

Those who wish to Invest Like A Farmer are particularly well-suited to accomplishing this goal. It is a worthy goal and one that is obtainable. Here are the basic elements that I have seen succeed:

1) Longevity is key as both time and health are vital assets to establishing dynastic wealth.

2) Self-Discipline to repeatedly contributing to compounding investments, rarely taking distributions.

3) Financial Savvy; a lifetime hunger for knowledge about investing in a number of asset classes.

That's the quick 3-step process; there are undoubtedly thousands of ways to become wealthy. But mastering the above elements are always a significant part of the equation when establishing initial education, income, passive income, starting a business, owning equity, leveraging equity, tax-advantaged investing, developing multiple cash flow streams, strategically passing along assets to heirs, and ultimately establishing dynastic wealth.

Very few of us (suspiciously enough, probably around 1%) have privileged connections. And although that definitely matters, particularly the influence which can be wielded by those connections, almost anyone can lay the seeds for dynastic wealth in his or her own generation. 

There is an old adage of "From shirt sleeves to shirt sleeves in three generations," implying that many a family struggles, builds a some wealth, and it is subsequently lost by the third generation. There is a flip side to that coin though, dynastic wealth creation that is lasting. Strive for the latter.

Privileged Access

For those traveling home for the holidays and busy shopping, it was probably quite possible to miss a fabulous article in the Wall Street Journal on November 26th, page D6 entitled "The Bruiser and the Billionaire."

If you are new to investing, download it, print it, and keep it handy. For those old hands who have mastered the fundamentals, download it, print it, and keep it handy. It details one of the most important life lessons; the higher you ascend in life, the higher circles of access you can obtain. Football player Ndamukong Sun is taking advantage of this wholeheartedly, and so should every individual who hopes to Invest Like A Farmer; leverage your contact base and increase your knowledge exponentially.

Very few of us have direct access to Warren Buffet, Elon Musk, Tony Robbins, Mark Cuban or any of a number of gurus; this is not to say, however, that you cannot learn from them indirectly via their direct writings, interviews, and commentary. Barring a direct line, for the 99.9% of "average people" the best method is going to be getting your hands on derivative works.

Along those lines, some of the best financial books on the market now include: Berkshire Hathaway Letters to Shareholders, Money Master the Game, and Rich Dad Poor Dad.

Don't let anyone fool you, even in America it is difficult to transcend your economic class. Difficult, but not impossible; although economic mobility in this country has remained the the same (about 50% of Americans born into the lowest economic spectrum stay there for life), there are definite steps that one can take which make a significant difference.

Privileged Access is indeed one of them, but one which many of us can take advantage of at least indirectly via building our own resource rich knowledge base. I encourage readers of this blog to pick up copies of the above-mentioned books and read about the techniques and learn the core thought process of how, what, and why investment decisions are made.

Happy Thanksgiving

"Our harvest being gotten in, our governor sent four men on fowling, that so we might after a special manner rejoice together after we had gathered the fruit of our labors. They four in one day killed as much fowl as, with a little help beside, served the company almost a week. At which time, amongst other recreations, we exercised our arms, many of the Indians coming amongst us, and among the rest their greatest king Massasoit, with some ninety men, whom for three days we entertained and feasted, and they went out and killed five deer, which they brought to the plantation and bestowed on our governor, and upon the captain and others. And although it be not always so plentiful as it was at this time with us, yet by the goodness of God, we are so far from want that we often wish you partakers of our plenty."

Nibble, Don't Bite

My advice for beginning investors and those that come into random fortunes is the same; nibble, don't bite. For those individuals who ultimately wish to Invest Like A Farmer, it is prudent to deploy capital strategically, thoughtfully, and over time. Dollar cost averaging works, especially if you are entering the market for the first time or putting a significant sum of capital to work and plan, in both cases, to be in the market for some time.

It is nearly impossible to perfectly time the market; there are obviously better times to buy than others (nearly every correction or depression has proven to be an excellent time to buy for long-term holders), while some peaks has been good, and some not so good. (Imagine "selling on the high" in January 1982, 1983, etc. The bull market ran almost unabashedly higher for nearly 20 years!)

Nibbling offers superior advantages, in my view, to going "all-in" or "all-out" on any particular day, trade, or philosophy. It allows investors to test the water, build positions over time, and gradually construct a meaningful portfolio while still having plenty of seed capital in reserve.

Stock Market Roller Coaster

For those faint of heart, the past couple weeks have not been kind; up, down, spin around, back up, only to fall down again. Yikes!

What's an investor to do who wants to Invest Like A Farmer? Keep the plough steady and keep your eyes level on the horizon that's what!

The fact of the matter is that the volatility index has been particularly quiet through the summer and just as the classic entry into autumn begins the VIX is at it again moving up hundreds of points one day and just as much (or more) down the following day.

In spite of these often drastic movements, dividend flows have remained consistent (and rising.) Positions of monopolistic companies often improve during chaos as the most damage is typically inflicted on small capitalization companies (if you want to see something really scary, take a look at the Russell 2000 Small Cap Index.)

Framing all of this is the concern of a major economic slowdown in Europe (probably true) which will spread to the United States (probably true) that will ultimately derail the recovery and impact the real estate market (maybe true, especially in regards to the real estate market which looks poised to triple dip.)

Blue chips here look REALLY appealing as well as select names in the tech and biotech sectors. It's tough to get bullish on small caps in the face of a slowing economy. With the Fed most likely remaining dovish for the foreseeable future real estate should muddle along, except in a dozen areas where it clearly has extend itself. Pockets of wealth, affluence, and creativity will continue to bloom, get funding, and launch exciting new products and services; that roadmap has been in place for quite some time.

For those who wish to Invest Like A Farmer, keeping the plough steady and your eyes level on the horizon should pay off once again in the months to come.

Be Prepared

For opportunity at hand, it is best always to be prepared. The Boy Scouts have it 100% correct, and their motto should be adopted, practiced, and preached by those who wish to Invest Like A Farmer; Be Prepared. The opportunity of a lifetime usually surfaces about once a month, and having ready cash as a resource can greatly improve your linear rate of return.

A great example was the recent selloff in bonds triggered by the departure of a famous portfolio manager. More money was made over the past 10 days buying on that dip than the annual return for many funds over the course OF A YEAR!

Eagle-eyed investors with cash at hand may be criticized for "wasting their funds" by not being fully invested at all times, but having ready cash--and by ready I mean ready to purchase in an account fully set-up already--can be a massive advantage. 

In my experience, a sharp sell-off in a security is most intense the first day, continues to fall the second day, and on the third day a capitulation point is reached. This should serve as a good model for those trying to time either a "dead cat bounce" or build a position in a quality piece of equity over several days.

Be prepared.

The Rule of 72

The Rule of 72 is an essential concept for investors to master who wish to Invest Like a Farmer; it is one of the, if not THE, most important proverbial "rules of thumb" that can be used on nearly every investment opportunity you'll encounter.

Simply stated, The Rule of 72 approximates your investment's doubling time. It accomplishes this by a rough (yet oddly accurate) approximation of factoring compounding interest which is a logarithmic function by using a relatively simple linear calculation. What? OK, basically if you know your interest rate or rate of return, divide 72 by that number and it will give you an approximate time to double your investment.

Why is this important? As financial farmers we want to know our projected yield ahead of time; it allows us to allocate capital, plan for land expansion, and a variety of other tasks and goals. The "double time" is also important because it helps separate the wheat from the chaff; all things being equal, a faster double time is better (we want the return of principle as soon as possible, with the resulting yield or growth then becoming a matter of self-sustainment.)

Besides "Buy Assets," the next most important tool in your financial farmer work shed is "The Rule of 72"; it quickly and accurately gives a financial farmer a quick idea of the viability of an investment.

Ebola's Impact? If we're Lucky, Only 1% of GDP

Readers of this blog, all five of you, were alerted to the potential dangers of inbound Ebola on September 17th's post. As any financial farmer well knows, there are plagues and pestilence that strike every farmer's fields. The frustrating part of this unwelcome news that hit across the wires yesterday was that it was completely preventible; why this country is receiving flights from West Africa is beyond me.

From a portfolio perspective, 2 weeks ago was a great time to hedge out entire portfolios via either selling covered calls or buying puts. For now though, investors unhedged are in a bind; hedge out after 250 points, 500 points on the Dow? I suspect this will have ripple effects throughout the economy, particularly alarming is the seemingly uncoordinated response from the CDC and more importantly our political leaders.

My thoughts? Dig in, we're probably headed lower, and probably going to sustain across the board damage to the economy. Sectors which offer protection; not many, but your addictive, necessary, branded monopolies most likely offer the LEAST damage. Small Caps? Watch out, they are the most vulnerable with weaker balance sheets and dependent, traditionally, on discretionary spending. Upside? Not the airlines, travel industry, or restaurants. MAYBE niche pharmaceutical companies, especially those that can secure federal funding.

Dig in fellow financial farmers, I think this is the long-(un)awaited correction. The question on this one, though, in a Brave New World, what's the recovery timeline going to look like? For the time being, a full-hedged portfolio with plenty of cash on the sidelines is king.

Let's hope things don't deteriorate from here, but I'm not particularly impressed with our leadership's response or (lack of) planned path forward.