Sunday, 9 December 2012

Get Real

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Real Stuff (munkee.com)
 PLAN.AHEAD: "Where have you been CONTENDER we need to get on with your training?"

 THE.CONTENDER: "THE FUTURE caught our little tribe out with the evil flu but we are back in the game now"
PLAN.AHEAD: "Right C your NEW training program is called LEARN.SOMETHING.USEFUL"
THE.CONTENDER: "Is it going to help me defeat THE FUTURE?"
PLAN.AHEAD: "Now don't get carried away. One step at a time. I have so many things you need to learn. What I need from you is Focus, Listen and Actually Understand, Take your time and let it all sink in"
THE.CONTENDER: "Yes master tell me tell me I want to know the secrets of the FINANCIAL.INDEPENDENCE.SHIELD and the HAPPINESS.PUNCH (hopefully it is alcoholic ;)

In this post a thesis that the next 30 years are going to be very different than the last 30 years (à la Chris Martinson). In particular considering investing in REAL NECESSITIES instead of passive INDEX investing.

Next post will provide a new stock screening tool that analyses up to 3000 stocks at a time AND an update to CERP - financial planning tool to incorporate an individual stock analysis dashboard as well as a 10x boost to the speed of the tool!

 
Stock analysis of debt, dividend sustainability and the dividend discount model for intrinsic value evaluation Stock screener for company quality and return on capital

Return of Capital
"It not the return on capital but the return of capital" - Jim Rodgers

 "The first rule of investing has always been don't lose money!" - Warren Buffet

For those seeking very early financial independence we need to to grow money faster than inflation and build up a passive income.

In order to do this THE.CONTENDER has looked to first understand what is money and investing (after making a few mistakes) before taking the plunge into the stock market.

Ever since our Tribe started to invest in precious metals in 2005 (a very small amount after talking to an investment banker at a party and being inspired by his outlook on investment) we have been interested in what is money? Why is it valuable? Why does it lose its value over time?

We want our savings to AT LEAST buy comparative goods in the future. $10 for a bag of potatoes today + bank account interest should cost $10 in five years time.

If we are growing our money what is the REAL return after inflation?

10 years ago you could get a loaf of bread for 0.5 monetary units,  now it costs 1.5 monetary units in only 10 years! Supposedly technology has improved so the cost of my loaf of bread should be coming down right??!!!:
  1. Transport is more efficient (we mix truck loads to get max fill / weight ratios with complex computer programs and collaboration across multiple companies)
     
  2. Energy is captured and recycled in the baking process
     
  3. Agriculture productivity is up - better machines, fertilizers and weather prediction systems....
     
  4. Waste is down due to efficient inventory management and improved sales forecasting.
     
  5. Competition is rife and profit margins are being reduced
     
  6. The USA is going to be energy independent and oil and gas prices are going to plummet!
Why Why Why has the cost of my loaf of bread trebled after all of these cost saving improvements? Why is THE.CONTENDER paying so much more for the basics of life compared to 10 years ago. Inflation has been reported as very low.....????


Real Inflation

On this point that are some major adjustments to the inflation calculations - these cannot go on forever... Please see the following for a good rundown on how official inflation numbers are massaged from Chris Duane:


Here is a Money Week article on the decline in purchasing power of the pound  "The long and tragic history of the pound"

shadowstats.com is a great resource to view the OLD inflation calculation versus the CURRENT inflation calculation. What are your conclusions?

Real Long Term Asset Investing

Back to "It is not the return on capital but the return of capital". What do people really need to survive? What will provide inflation protection? What will we prioritise if all hell breaks out; a 98" flat screen TV or a clean water source?

What has REAL value? What really matters? Those are the REAL questions that THE.CONTENDER is considering when making investment decisions.

Fads come and go; Buy a designer shirt/dress or heat the home,  
fix the boiler or buy the latest gadget,
upgrade software or build emergency savings,
build a credit rating (debt on credit card) or avoid debt and save towards financial independence. WHAT IS IMPORTANT!!!!

Looking ahead THE.CONTENDER has considered the arguments of peak oil, population overload, global warming, democracy, taxation, role of government, ethics, liberalism, sexual freedom.... Heck what is REAL what is RIGHT - who the **** am I trying to kid it is all smoke and mirrors in the western world (it shouldn't be if we stuck to real facts and figures).

Self Interest, Sustainability and Investing

We unfortunately as a species are very good, in fact amazingly good, at looking after our own interests.

This can be collective or individual - whatever gets the job done. All of the topics listed above are REAL and are in the NOW. There are lost of people out there that have it in THEIR INTEREST to deflect, lie and manipulate the REAL issues to their GAIN.

WE ALL AGREE TO WORK TOWARDS SUSTAINABILITY? A SAD FACT OF LIFE IS AS SOON AS YOU TURN YOUR BACK A LARGE NUMBER OF PEOPLE ACTUALLY EVALUATE HOW MUCH WORK THIS IS AND HOW MUCH IT COSTS THEN CARRY ON AS NORMAL :(

As the majority of society are NOT working towards sustainability we will continue to over consume the planets resources. These will become more scarce and more expensive in the long run. We will be forced to cut back and recycle the majority of goods in the future. Investing in these REAL areas is potentially a wise decision for the long run.

Companies that make gadgets, designer goods, entertainment, etc on the other hand will find it more difficult to sell their wares as people spend more of their income on essentials.

Will this really be the case, is THE.CONTENDER just pondering the future is he a doomer?

To back this up with FACTS MIT in the US created a model on the limits to growth. The original model considered demographics, disease, pollution, food production, fisheries and resources to name a few. It projected peak prosperity around 2030 then a gradual decline. It has recently been reviewed and the same date has been calculated. If that is the case consumer marketing companies will do well for the next decade before challenges start.

Click here for an article from professor D Meadows, the original author of the Limits to Growth, on our continued unsustainable approach to the planet
Click here for an article with lots of graphs from the legendary investor Jeremy Grantham on scarcity

Click here for a link to the book

18 years into the future is not a long time. We also know that the herd mentality of people changes direction very quickly. As soon as the tipping point occurs, when a large proportion of the planet realise that scarcity is becoming a problem, investment trends will change very quickly.

We need a solid long term return for 30+ years to be financially independent. We need to invest in companies and assets that will be around for the long term.

Are Diverse Index Trackers for the Long Term?

Following this line of thinking INDEX trackers of the broad market contain a diverse set of companies reducing risk in a normal market.

THE.CONTENDER would argue a large percentage of companies sell desires, dreams, ideology and false images. This is capitalism at work - CREATION OF DEMAND (and jobs) through clever SALES and MARKETING for the PROVISION OF WANTS. It has probably been the most successful and powerful system ever devised. Lifting BILLIONS of people out of poverty.

If trackers contain these companies who rely on CONSUMERISM and consumerism suffers a heart attack will trackers hold up in the long term?

LIMITS TO GROWTH

CAPITALISM with in-built SUSTAINABILITY would be something to behold!

Unfortunately consumerist capitalism is like a cruise ship very slow to change direction when it sees the iceberg. As it does not reflecting real world limits and conservation such as energy, population growth...the planet is on course to hit that iceberg!

The law of 72 dictates if you divide 72 by the growth rate you get the number of years until it doubles. Put it this way if we continue at a global 4% growth rate how long until we need a NEW PLANET? It is well documented if everyone on the planet enjoyed the lifestyle of a rich western country we would need 3 planets!

Watch and Read some Alternative Viewpoints Today

Why not read up on money today, what it is and why does it loosing its value? Do you agree with the information? Will it mean changes to the way you invest and save? Does it make you angry or do you think it is just a conspiracy \ propaganda.

On resources, population, pollution and consumerism what is your own opinion?

THE.CONTENDER has had to think long and hard about some of the topics in this post.

Critical thinking, too whose benefit? Can I really believe money is just a paper promise? Are we really running out of resources surely technology will save the day? Should some precautions be made regardless?

THE.CONTENDER has made up his own mind - diversification into assets that he thinks are there for the long run.

Videos
Money As Debt
Money As Debt II  promises unleashed
Overdose  The Next Financial Crisis
97% Owned

Books
Paper Promises - Money Debt and the New World Order (2012)
Red Alert (2011)
When Money Dies (2010)
Currency Wars (2011)
Limits to Growth (2004)

Financial Shield

THE.CONTENDER prefers investing in REAL goods and services. They are there for the long run. Companies in these areas my be boring (low beta/not volatile), low growth and un-trendy but they generally pay a dividend that grows year on year. THE.CONTENDER likes utilities, health care, energy and some mining sectors as well as agriculture and communications.

If a financial meltdown or new craze comes along they are still these to provide the necessities of life while people cut back on the indulgences.

Utilities to provide the water and heating
Heathcare for an aging society
Energy for lighting the home and transport (probably less car and more rail)
Mining the materials to build the future sustainable infrastructure 
Agriculture to feed the vast population of the world
Communications - as transport becomes more expensive more people will work from home

These investments should protect from INFLATION as they have pricing power. They have barriers to entry through water rights, infrastructure, patents, physical mines and land. They have necessity providing for sustenance, shelter and health.
"You should not worry about the economy or the direction of the market. Instead, buy a share of a company the way you would buy a house, because you know all about it..." - John Train Octogenarian
Is it not better investing in a business that will be there in 50 years time? Is a business that has a hot consumer product today, and falls behind the curve in the future, more of a speculation or risk?

Happiness Punch

THE.CONTENDER sincerely hopes he is WRONG and his little tribe's future will be better than his. The sooner politicians get their act together and actually start to make some intelligent very hard GROWN UP decisions. Short term decisions to get us on this path will be very UNPOPULAR so ALL politicians from ALL parties need to take real RESPONSIBILITY. We can then look forward to a bright future.

Will the death of consumerism be bad? Will we get more free time to spend with friends and family as we will not be working so hard? Is this actually working towards the utopia of human advancement, end of poverty, sustainability and reaching and colonizing new worlds - wouldn't that be great?

In the mean time THE.CONTENDER is GETTING REAL.

Peace and prosperity

THE.CONTENDER

Previous Posts on Building a Financial Independence Shield

4 Key Early Retirement Protections for Financial Armageddon which covers inflation, fiat money, population growth and finite resources.  
Investment Challenges - covering inflation, ethics, growth and income stocks, risk management 
Risk Versus Reward - This looked at active versus passive investing

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