1/ In a world where everyone seems to want to invest nearly all of their funds into tech, I thought it would be worthwhile to take a moment to reflect on the role of non-tech stocks in an investment portfolio and the advantage they bring to long-term wealth creation.
2/ The advantage of tech stocks is well known. Scalability with intangible goods can take you from 0 to 1,000,000 (or higher) in a matter of time. Successful full video games are one of the best examples of this - a couple of guys create code, pick a platform, and
3/ then can earn theoretically limited sales without encountering the limiting factors of property, equipment, labor, and the proportionality that characterizes most of the "real world." While this approach can support rapid growth, the prospect of going to zero always looms.
4/ After all, if you can easily create something on a computer and sell it, your potential competitor can do the same. Someone creates a slightly better video game or intangible good than you, and your results can be wiped out.
5/ The tangible world is a bit more durable. If you own an aging 2500 square foot house, the fact that someone buys the property next to you and builds a mansion doesn't pose a wipeout risk to you. You can still rent the property out for thousands per month.
6/ Land, and certain tangible goods tied with intellectual property, have an etch of permanence that intangible goods do not. They can generate income on, and on, and on.
7/ This matters when you try to put a collection of assets together. It may not be clear to you why someone owns an asset like Pepsi $PEP and reinvests the dividends every year. The answer is certainty, permanence, and durability.
8/ Each share of Pepsi has turned $1 of stock into $4 in value over the past ten years. By the time the next dividend rolls around, someone who reinvested in Pepsi will be collecting a 10% yield-on-cost on the amount of money they put into Pepsi a decade ago.
9/ The wisdom of owning a stock like Pepsi is that it has two dozen brands with $1 billion in annual sales. Those brands rarely experience more than one or two percentage points in market share change per year.
10/ The profits from the same tangible goods flow to the shareholder. Forever and ever. It just keeps going on and growing and growing. This means that your labor becomes a permanent source of business ownership value.
11/ When you generate a surplus from your labor, you want to grow your leftover funds. You invest, and must choose a balance between certainty and growth.
12/ Tech stocks are great for the growth. But you also need to own assets where you can sit back, take the dividend, and know that you will own a cash generator that will send you cash every 90 days for the rest of your life.
13/ At least once per year, you need to add a Pepsi-type holding to your investment collection because the growing cash infusions will be forever. And that is the ultimate reward for your labor. Right now, the mood is all about growth. I say, save some room for certainty, too.
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