I often have people ask me: “Why do you stress tangibles investing, Mr. Rawles?” In my estimation, tangibles always trump intangibles. I have three primary reasons why I distrust intangibles::
First: Nearly all intangible investments are denominated in fiat currencies. Because of this there is an underlying currency inflation, revaluation, or repudiation risk. Even when buying stock in the safest, most secure and impeccably-managed company it still has some risk when the investment is denominated in Dollars. Ditto for Dollar-denominated bonds. Ditto for redeemable life insurance policies and annuities. Ditto for business investments. Ditto for money market funds. Ditto for certificates of deposit (CDs). Whenever you have any investment that is denominated in a fiat currency, there is the risk of degradation of the currency unit itself. It is only tangibles that have innate, intrinsic, and intuitively obvious value that is not vulnerable to the whims of international currency markets, interest rate changes, or government insolvency.
The second reason is that most intangible investments represent a debt taken on by someone else. When your deposit funds in a financial institution, nearly all of it is loaned to a private party, a company, or a government. So your investment’s security is dependent on someone or some entity having the willingness and ability to earn a profit and consistently pay down that debt. In essence, the vast majority of investments are buying someone else’s liability. But a personally-held tangible is something of substance that has true intrinsic value, in and of itself. That rock solid value is not dependent on the action or inaction of any individual, corporation, or government.
The third reason is that they are outside of one’s personal control. Your very best intentions have little or no influence on the bad intentions of others. The news headlines are replete with tales of how people have their investments wiped out: Bad corporate management, government ineptitude, corruption, pilfering, swindling, embezzling, “official” confiscation, and wholesale larceny. We also live in the electronic age, so many investments are mere digits in computers. Thus, they are vulnerable to hacking, EMP, solar flares, and various other risks to the power grids. In contrast, a tangible that you keep at home in your personal control is only subject to your own failings. Granted, there are vulnerabilities to rust, mold, and theft. But each of those can be mitigated with proper planning, secure storage, and some concealment. (And in the modern context, I would add: Concealment of the paper trail of your acquisition of a tangible. I recommend that you pay in cash or cryptocurrency for most of your investment tangibles. This will minimize the risk of confiscation by thieves with badges.)
Continue reading“A 21st Century Tangibles Investing Rationale”
