Safe Is Risk

 

The world these days seems uncertain, but your investments here have performed like gangbusters.  Congratulations on staying exactly with the plan we put together which makes you a great investor (and one with higher wealth to go along with it).

That result makes everyone happy but, as you know, we are numbers guys and think long term.  We want to make sure you’re next 20 plus years are good ones.  Many folks are these days looking for safety, and if you look at market flows (i.e. where does the money go) many investors are seeking it in bonds or other solely fixed income assets such as CD’s.  They are afraid the market will go down and don’t want to relive the terror of the 2007-2009 collapse.  Emotionally that makes sense, but intellectually it leads to bad decisions.  That fear drives them to seek ‘yield’ and so they are buying 10-30 year bonds EXACTLY (in our humble opinion) at the WORST time.

We insert here a quote that I think is apropos. It comes from a former President of these United States;

“The great enemy of the truth is very often not the lie, deliberate, contrived and dishonest, but the myth, persistent, persuasive and unrealistic.”
John F. Kennedy

Therefore we ask; “What is that enemy of (financial stability) truth?”  What is the greatest risk to that positive long term outcome that we seek for you as my client?  The correct answer is inflation, not this asset class or that one, but inflation; steady, relentless, pernicious inflation.  Your portfolio is structured not to take on any more risk than you need, but on the other hand, NO LESS then you need to be protected and successful.  Strip out all the fear about speculation / bear markets / bull markets, and sooner rather than later you will come to the reality you must own the greatest companies in the world.  Why?  Because companies adapt, they see new economic conditions and change to meet them.  Most importantly, your long term rate of return is capped not by any fixed interest rate, but only by their ingenuity and creativity.  History would say not only is that a pretty good bet, but arguments can be easily made it is the only rational long term bet.

To be fair in disclosure and education, inflation protection is also possible using currency related investments as the primary alternatives to corporate ownership for investors; that means Government securities and  / or metals / collectibles.  On the former, let’s just say I’m a tad more concerned these days about the Sovereign Debt of countries around the world than I am about the debt of Exxon or Microsoft.  On the second category, the fear of economic collapse causes many investors to rush toward the haven of gold.  In his recent and always infamous annual Letter to Shareholders, Warren Buffett shares a perspective painted on the gold landscape this year;

“Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobil’s (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?”

Wellspring will continue to invest your tailored portfolio with the primary emphasis being the right balance of risk and return.  You will always own the best companies in the world, and will always be structured to beat the pain on inflation.  But, we will not speculate.  We will invest.  And, God willing and the creek don’t rise, you’ll have many more dollars left at the end then you currently can imagine.

That’s what’s working, has been demonstrated in the past, and what we’ll work together to capture with steady confidence.