We define investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid – in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date. The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the reasoned probability of an investment causing its owner a loss of purchasing power over its contemplated holding period.
There are only three major categories of investments:
1. Currency based investments
2. Investments in assets that will never produce anything
3. Investments in productive assets
Currency based investments are investments dominated in a given currency including money-markets, bonds, and bank deposits. They are generally thought of as “safe”, but they are among the most dangerous because of their low yield relative to inflation and taxes. US treasuries reported only 5.7% growth over the last 50 years. Taxes take 1.7% off of that number and inflation takes another 4% off leaving investors with no net gain.
The second major category of investments involves assets that will never produce anything. This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe that the buying pool will expand still further. A major asset in this category is gold. What motivates most gold purchasers is their belief that the ranks of the fearful will grow. As “bandwagon” investors join any party, they create their own truth – for a while.
We prefer investments in productive assets, specifically investments in Midwestern multifamily real estate. Our apartment complexes will continue to efficiently provide housing that will always be in demand. Their value will be determined not by the medium of exchange, but rather by their capacity to deliver consistent cash flow. CVC’s goal is to increase its ownership of this category of investing as it will be by far the safest choice in the long run.