June was a terrible month. Risk is real and you saw it this month. The important part is keeping a long-term view. Recoveries also happen.
The US economy has suffered a lot of turmoil recently. As a result, many people are stressing out and looking to hedge their exposure to the overall US economy by looking at other asset classes such as rare coins, paintings, farmland, etc. We are not going to say any of these things are bad. In fact, many people have made money from these things. We would, however, caution you to consider if those asset classes are within your circle of competence. Basically, do you understand anything about how that asset class works, how you can make money, the risks, the fees, etc.
For example, let’s examine farmland. It is an asset class that many people are looking at right now, but (be honest) how many of you know anything about it? In comparison to more traditional asset classes, the liquidity is very low and the time horizon is very high. You are not going to be able to sell that land or make money from it for a while. Also, there are the continuing time and financial costs of maintaining and managing that land. The risk of something going wrong is very high as all physical assets (farmland, collectibles, etc.) are subject to the risk of physical destruction because of things like climate, accidents, etc. There is also the risk that due to not knowing what you’re doing, the land you choose to buy is worthless.
We invest in stocks and bonds rather than other assets because it is within our circle of competence. We have some degree of understanding. We can evaluate to some degree the difference between a good investment and a bad investment. As a result of sticking to things we understand, there are many stocks we won’t invest in. We tend to stay away from high tech companies because their product and business are difficult for us to understand. We stay away from speculative companies because we don’t understand their dream well enough to buy into it. As a result, we will miss future opportunities, but we will also probably avoid future disasters. Ultimately, there is a cost to ignorance. When it comes to investing, we don’t want to pay that cost, and we recommend that you don’t pay that cost either.
If you have any questions about your investments, please call at any time. We sincerely hope you got value from this newsletter.
We appreciate your business and trust.
Dan and Eli
As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.
If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.
Questions for the comments
Did the newsletter make sense? Do you agree or disagree with what we said?