True value investing

Tuesday, 31 October 2023 — Gold Coast, Australia

[10 min read]

Dear Reader,

Today is my final contribution to Daily Reckoning Australia.

On 1 December 2023, retirement beckons.

Thoughts of ‘what would this final article be about’, have occupied my mind for the past week.

Markets? Economy? Cryptos?

There is plenty to discuss on all fronts.

Wall Street may have ‘rebounded’ overnight, but don’t be fooled.

This was a ‘dead cat’ bounce.

Global share markets are in for a torrid time ahead.

Bitcoin has rallied. Again, don’t be fooled.

In a fiat world, monetary metals (gold and silver) are the only true stores of wealth.

However, it was a chance meeting with an out-of-State friend that made me decide to finish where I started with Fat Tail Investment Research (formerly Port Phillip Publishing)…

The value of family

As often happens when there’s been a period of absence with friends, you ask ‘how’s such and such going?’

Some are well. Some not so well.

And, then there’s the unexpected.

Our friend volunteered information on a once glamorous ‘most likely to succeed’ girl we knew in our younger years.

‘She is very bitter with how her life has turned out. At age 61 she never thought she’d be in the position she finds herself in.’

Two failed marriages. Two estranged adult children. Living from week to week in rented accommodation. The recent photo indicated that time has not been kind to her.

Our friend continued, ‘Her and her first husband peaked in their Twenties. Both good looking. Both had the world at their feet. But they took it for granted and squandered it.’

My response was ‘No good blaming others. Her choices have led her to where she is today. Our lives are a sum total of the decisions we make.’

Our friend wholeheartedly agreed…‘she’s made a lot of bad choices.’

We make choices all the time…some carry more importance than others.

Cumulatively, they all add up to where we find ourselves today.

Our relationship/s.

Who we associate with.

The advice we accept or reject.

How we spend our spare time…with family; at the golf course; down the pub.

What we eat and drink.

The amount of exercise we do.

Invest or not invest.

Save or spend.

Personal hygiene.

On so many levels, we’re moving — consciously and unconsciously — towards certain outcomes…good and bad.

And, this is why it’s so important to have clearly defined goals and values.

You consciously move in the direction of the vision you have for yourself and your family.

Without the internal compass and a steady hand on the decision rudder, you get blown every which way by whatever puff of wind that comes along. This is what’s happened to the lady who now laments the direction her life has taken.

Establishing those goals and values on an individual and family level is not hard.

All it requires is the time and effort to search for the answers to this statement…

‘This is who we are, this is what we do and this is why we do it’

Who are you as an individual and as a family?

Honest? Trustworthy? Reliable? Inquisitive? Resolute? Determined? Personally responsible?

What do I and we stand for…our principles, values, morals, ethics?

What do I and we do and why do we do it?

What value do we add to ourselves, family members and the broader community?

Why is adding value important?

These are just some starting points.

When you do this exercise individually, with your spouse/partner and your family, it takes on its own life force.

Questions and answers beget more questions and answers.

Every family has a culture…good or bad

Knowing who you are, what you do and why you do it, provides great clarity to your life.

And, there’s tremendous power in that.

Armed with this knowledge, anytime you need to make a choice of consequence, you ask yourself ‘is this taking me to or from my vision?’

It’s such a simple, yet extremely powerful question to ask prior to deciding ‘yay’ or ‘nay’.
I’ve lost count of the number of times this simple evaluation tool has been instrumental in our lives. And, you can only ask yourself this question when you know where you’re headed.

Knowing what you stand for can assist in stopping you from falling for distractions, time wasters and exercises in futility that leave you — mentally, emotionally and/or financially — poorer.

Our choices are what creates the family culture…values are taught and caught.

Every family has a culture.

For some, it’s a culture of negativity, suspicion, abuse and playing the victim.
For others, it can be far more constructive and uplifting…love, respect, nurturing, personal endeavour.

James Forbes, founder of Forbes Legacy Advisors — a US firm that specialises in multi-generational wealth — firmly believes in the power of family culture (emphasis is mine)…

‘We strongly believe that the most important factor in maintaining multi-generational connections within your family is a focus on your family culture.’

Family culture, not money, is the most important factor in maintaining multi-generational connections.

Knowing that culture is such a crucial link in the Family Wealth chain, it’s incumbent upon all of us to do all we can to maintain its strength.

That requires a commitment by us to live lives consistent with our values and to maintain regular communication with family members to subtly (and sometimes, not-so-subtly) reinforce, guide, encourage and remind them to move in the direction of ‘who we are, what we do and why we do it.’

Family culture is not a ‘set and forget’ exercise.

Tick. Done. Filed away.

As James Forbes says…

‘Your family’s culture is a living, breathing entity. It’s made up of shared common values, spiritual beliefs, economic and social norms, affiliations, activities, geography, climate, landscape, and many other factors.

‘These common elements shared among family members creates a sense of belonging, loyalty and pride that builds resilience. Family folklore, traditions and activities socialise the youth and incorporate the adopted, the step-children and the in-laws.

‘Cultures are built, sustained and informed by each family member, your nuclear family, your extended family, the community where you live, and the broader society. And because aspects of your family’s culture will shift over time, it’s important to steward those shifts.’

When children are younger, it’s up to the parents to build and maintain the culture. As they grow older, it becomes a real team effort.

Their input should not only be encouraged, but welcomed.

When you’re living life on your terms and in accordance with your values, then you have…
Happiness.

And, as any parent knows, a genuinely happy family is…

True Family Wealth

By happiness, I don’t mean having a permanent smile and sunny disposition.

There are going to be tough times.

Challenges. Frustrations. Disappointments. Setbacks. Grief.

Empowering our family with the ability to know they have the confidence, strength, ability and support to cope with life’s adversities, provides a great deal of comfort.

And it’s this deep-seated sense of well-being — that no matter what comes my way I have the mechanism to make informed choices — which leads to an inner contentment…happiness.

Our erstwhile friend’s unhappiness is a result of her failing to live life on her terms.

Why did this happen?

Because she had no ‘terms’…she didn’t know what it was she truly wanted.

Allowing things to happen or avoiding saying anything to a husband with ‘his head in the clouds’ or opting to spend time on the social circuit instead of with your children…these are decisions that all have consequences.

Had she taken the time to identify…‘this is who we are, this is what we do and this is why we do it’…her life may well have turned out differently.

We’ll never know.

The choice between happiness or bitterness is one confronting all of us.

Choosing the former means making a conscious decision to find out who we are, what we do and why we do it.

The answers you ask of yourself are to be found internally, not externally…

‘People look for retreats for themselves, in the country, by the coast, or in the hills . . . There is nowhere that a person can find a more peaceful and trouble-free retreat than in his own mind…So constantly give yourself this retreat, and renew yourself.’

- Marcus Aurelius

Thank you for all your support and feedback over the past decade.
It has been very much appreciated.

Now it is time for me to retreat and spend time with my family.

Regards,

Vern Gowdie,
Editor, The Daily Reckoning Australia

Dear Reader,

Today is a holiday in Ireland. We celebrate the dead saints.

Thank God for our Dear Readers. We learn from them. Especially the critics. We’ve been writing daily since 1998. Sometimes right, sometimes wrong…always in doubt. Generally, reader and writer are of one mind. But once in a while, we are at odds — especially when ‘politics’ are involved.

There have been three major waves of dissension, dissatisfaction, and disenchantment among our readers. Each time, the incoming mail was so emphatic…so riled up and outraged…it made us wonder. Had we let the saints down?

The first came just as we were getting the hang of it. In the late ‘90s, there was a bubble in ‘dot.com’ stocks. Information, it was said, greatly reduced the need for real capital investment. Now available for free on the internet, information was supposed to usher in a period of faster GDP growth and widespread prosperity. Dot.com stocks themselves, concentrated in the Nasdaq, couldn’t be over-priced, said the True Believers, because they were ‘infinitely valuable’.

The River of No Returns

There was a lot of loose talk at the time, and a mood of such optimism that it made us suspicious. The Nasdaq shot up 85% in a single year — 1999 — more than any US index ever had. And the Dow, in terms of gold, rose to an all-time high. In 1999, you could trade the 30 Dow stocks for 40 ounces of gold (for reference, in 1980, the ratio was nearly 1 to 1).

This looked like a bubble to us. And we said so, warning readers to avoid the dot.com stocks, including Amazon.com. Which just shows how you can be right and wrong at the same time. We were right; the dot.com bubble was about to burst. And we were right to label AMZN the ‘river of no returns;’ its core retail business never made a decent return on capital. But that didn’t mean it wasn’t a success. The stock soared and made millionaires out of thousands of people!

The surprising thing was that many readers didn’t merely think we were wrong…they acted as though we, by calling into question the dot.com bubble, were committing some kind of sin. They cursed us…telling us what idiots we were…and cancelling their subscriptions. And it was a free service back then!

We might be wrong; we often are…but why be so upset about it? Nobody knows the future. We just try to connect the dots and guess about what comes next. But, for many people, the dot.com bubble had become very personal…and very emotional…We still don’t know exactly why, but we have a hypothesis. By 1999, America was at the top of its game. Wall Street boomed. The federal budget was balanced. We were not at war; after the demise of the Soviet Union, we faced no serious enemy.

And yet, the typical American had not had a significant raise for a quarter of a century. The rich, on both coasts, were getting richer and richer. But throughout the ‘heartland,’ men lost good-paying jobs in manufacturing and were now locked in a cycle of despair, drugs, unemployment or low-pay service sector jobs. Something was going wrong.

And so, when the Information Revolution came…it seemed like a prison door had suddenly been kicked open. What followed was the great escape. Investors gave each other high fives…and bought Webvan…Global Crossing…or pets.com. This was the big breakout they were waiting for!

Avoiding the Big Loss

Alas, the inmates didn’t appreciate it when we told them they would soon have to return to their cells. They reacted bitterly.

What did it mean? Why get so worked up about a financial forecast?

Whatever else it signalled, it told us that there might be an even bigger sell-off than we anticipated. In the event, after rising 800% from 1995 to March, 2000, the Nasdaq turned down. Two years later, it was almost back to where it started. By 2004, more than half the dot.coms had disappeared. Fred Wilson, whose venture capital firm funded many of the start-ups, lost 90% of his fortune.

We had urged readers to buy gold and sit out the bear market. The idea was not to make money…but simply not to lose it. Most people make their money from incremental savings and investments built up over the course of their careers. Then, the worst thing that can happen to them financially is to take the Big Loss. After a certain age, it is very hard to recover. Then, as now, our main goal was to avoid the Big Loss.

The next big source of discontent among readers came only a couple years later. The US invaded Iraq. We thought it was a mistake, and said so.

In the book of life, the future is always the chapter we haven’t read yet. But life follows patterns. Great nations have their days in the sun. What usually brings the darkness is a combination of over-stretching (war) and overspending (expressed as inflation or default). Americans would do better, we said bluntly, to mind our own business and balance our own budget.

For many readers, this was tantamount to treason. Readers left us by the thousands.

Here, the ground beneath our feet was less solid. This was not finance or economics we were commenting on. What qualified us to have an opinion?

But we were connecting the dots. And they were beginning to show how money and power can come together in a disastrous way. It was beginning to look like America had peaked out after 1999…that its elite had been corrupted by unearned wealth and unbridled power…and its common people had been addled by its propaganda media, fake money and (later) stimmie checks.

The Real Cost

The feds said the war against Iraq would cost $75 billion. Here’s the news item from 2003:

‘WASHINGTON (CNN) -- President Bush gave key lawmakers Monday the administration's first estimate of the cost of war with Iraq -- about $75 billion, according to members of Congress who attended a White House briefing.’

This estimate turned out to be about as close to the truth as the ‘weapons of mass destruction’ allegation. We estimated $1 trillion…and people said we were crazy. But guess what. In 2020, Boston University researchers put the total cost at nearly $2 trillion. And after the 20-year debacle in Afghanistan, Brown University put the final tab for the War on Terror at $8 trillion…with nearly a million people dead.

This was no longer a ‘political’ matter. This was no longer just foreign policy. With the dead saints hanging their heads in pity, the US was headed down that long, lonely road towards inflation and war — and the biggest loss in history. Spending was needed because it was how the elite got rich. War was needed to justify spending. Money was ‘printed’ to cover the spending.

America did not have $8 trillion lying around. So, grosso modo, it ‘printed’ the extra money. The Treasury issued bonds; the Fed bought them with printed-up money. Not entirely coincidentally, the Fed’s balance sheet (its holding of US bonds) increased from 1999 to 2021 by…about $8 trillion.

As early as 2006, in our book ‘Empire of Debt,’ written with Addison Wiggin, we looked ahead:

‘At some point, America’s debts will probably be incinerated by inflation. When the howls from consumers and voters grow loud enough, the Fed will panic.’

That is what happened three years later.

More to come…

Regards,

Bill Bonner,
For The Daily Reckoning Australia