“Getting in on the ground floor” may sound enticing. We humans like to be first, best, and on top of things. But just remember that the view is usually better from higher up.
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competition
The View from the Top
In movies and popular media, there are certain images associated with investors. One of the character tropes is the well-to-do friend racing around in their fancy sports car.
Picture it with us. The car, bright and shiny, has a vanity license plate: it notes the ticker symbol for the holding that made them rich. If the story gives away any more information, it’s that the friend benefitted from a hot tip about a tiny tech company on the brink of striking it big.
Outside of Hollywood, it’s true that some of the most successful investors have done something like this. They happened upon that one hot investment that more than made up for all the mediocre ones. (The bad ones, too, for that matter.) They happened to get in, early.
Clients, we’re seeing newer industries with many possible pathways to growth over the next 7, 14, and 21 years. It’s exciting, but within each of these sectors, there might be dozens of public companies vying to become the next big thing. They all want their ticker on the license plate. The problem is, there is no way to tell—in the moment—which single company it will be.
If a growing industry is going to prove to be important, there’s no harm in waiting for the field to narrow. Time will tell, and so will experience, performance, management, debt, and competition. The companies that aren’t built to last? They’ll be winnowed out soon enough.
The car, the license plate, those aren’t the goal: we believe in investing because it’s getting a piece of the action. It’s providing capital to endeavors we can get behind.
So while getting in on the ground floor sounds enticing, there’s no promise that the building will ever be built—and it’s hard to beat the view from the top.
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Play the audio version of this post below:
The View from the Top – 228Main.com Presents: The Best of Leibman Financial Services
This text is available at https://www.228Main.com/.
In It Together
We subscribe to the theory that the better off you are, the better off we will be. More broadly, we believe the greater the wellbeing of our community and society, the greater our own wellbeing.
Our experience suggests we are on the right track.
And it stands to reason. Every retiree needs healthy, productive workers to pay Social Security taxes on good earnings. Every business endeavor needs customers with money. Every level of government from the village to the nation requires taxes from productive workers and businesses to offer its basic functions.
America has perhaps been the place where the highest fraction of the people could unlock the greatest part of their own potential. We think this explains our prosperity relative to nearly all other countries.
Here’s a thought experiment. How would things be different if left-handed people were no longer permitted to engage in any occupation which required tools, even a computer?
If you are left-handed, this would clearly be a bad thing. A household with two different adults—a left-hander and right-hander—would have a tougher time financially than they would otherwise. (Right-handed people would have “less competition” for better jobs, but would they be any better off overall?)
When you think about it, a system that discouraged or limited a tenth of the population would hurt us all. To carry on with our example, consider how our world has been enriched in many ways by unique talents of left-handers: Leonardo, Einstein, Helen Keller, Marie Curie, Jimi Hendrix… even Oprah and Lady Gaga!
And all those less-famous lefties going about their lives, doing ordinary things to make their own lives more extraordinary, have been responsible for untold wealth and progress.
Certainly, our nation and our world would be poorer, with lower total income distributed more unevenly.
This is why our surest path to the brightest future includes working to expand opportunity to the whole of our people—letting everyone on the ladder, with a fair shot at the next rung.
Discrimination in access or pay or opportunity makes us all poorer. Inclusion makes us richer, and yes, even when left-handers have a fair shake. And women. And people of color. And anyone else you can think of.
America’s historic source of strength and prosperity—being the place where people can unlock their own potential—can be made more true for more of us. And it will be to the benefit of all of us.
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All or Nothing
We keep hearing reasons why financial advisors should have 100% of every client’s invested assets, instead of some fraction. This theory is popular with… financial advisors.
You might guess we have a contrarian opinion on this subject, like most subjects. Our theory is that we end up with all the business we deserve. Since you who own the money are the judge of that, we are relieved of the burden of worrying about it. We don’t want any money in our shop that doesn’t want to be here, after all.
There are sound reasons to consolidate assets in one place – including lower costs through volume discounts. But some may prefer not to do that, for whatever reason.
Our investment approach is different than most. Rather than use the standard pie chart approach of owning a little bit of everything, or outsourcing investment management to some third party somewhere, we do hands-on research and our own thinking, using individual securities as appropriate. So our work is a useful diversification, something different, from run-of-the-mill conventional portfolio management using investment products instead of stocks and bonds.
When somebody wants to allocate a fraction of their wealth to our care, it is fine by us. We already know how much business we will ultimately end up with: all that we deserve.
It turns out that remembering whose money it is not only respects the people who engage with us, but also reduces our stress.
Clients, if you would like to talk about this or anything else, please email us or call.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Amazing But True
The twin pillars of American prosperity have been relative freedom for each person to make the most of what they have to work with, and a generally competitive marketplace for goods and services. Count us among the fans. But this essay is about one of the worst features of modern American capitalism.
Some of the world’s largest corporations often receive incentives from governments at various levels to encourage them to bring their businesses. These incentives are paid by tax dollars from the rest of us that are not fortunate enough to receive them.
Local governments are currently engaged in a bidding war to lure a headquarters of a major retail giant. Newark, New Jersey has supposedly offered $7 billion and other locales are also bidding billions.1
It is not hard to imagine that Newark contains storekeepers and shop owners who compete with the company Newark is trying to woo. These people and other citizens ultimately are the ones who pony up the money to subsidize this powerful competitor. Other enterprises are taxed by the government so one enterprise can obtain huge favors from that government.
The Fourteenth Amendment to the Constitution of the United States guarantees us equal treatment under the law by state and local governments. We believe it isn’t happening in this case.
Local governments struggle to find money to pay teachers adequately, keep roads and bridges in good repair, and provide amenities like parks and transportation systems. It isn’t as if money grows on trees.
The justification made by economic development bureaucrats is that the incentives paid to large companies will be repaid with jobs and economic growth. But that conveniently ignores the underlying fundamental fact. Every facility of every type needed by every for-profit enterprise will get built somewhere, whether there are incentives or not.
Imagine if the U.S. government or court system adopted the protections of equal treatment under the law to this economic arena. Local governments could still compete for new facilities. But they could do so on the basis on the quality of the schools and workforce and infrastructure and public amenities.
The equal treatment approach to economic development could strengthen and build our communities as leaders seek to make the most attractive locale with the best-educated workforce. Contrast that with the current mess: taxes on the little guy are given to the large and powerful, at the expense of public necessities and amenities.
Clients, if you would like to talk more about this or anything else, please email us or call.
1Bloomberg, Christie Backs Newark’s Amazon Bid With $7 Billion in Tax Breaks. October 16, 2017.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The opinions expressed in this material do not necessarily reflect the views of LPL Financial.
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