Being direct
On planting a garden, the meeting in Davos, and what asset allocation counts most right now
Money managers often like to use terms like “asset allocation” because they come with a veneer of specialist knowledge, as though one needs to be a member of a certain priesthood in order to use magical words. But not only is asset allocation not exotic, it’s one of the most familiar activities in all human history.
■ Does a person go to school or go to work? That’s an allocation of time (an asset, to be sure). Should a farmer plant corn or squash? Sowing seeds is asset allocation. Deposit cash in a bank account or put it in a jar beside the bed? Asset allocation is everywhere.
■ The impression one might gather from the World Economic Forum is that it’s time for a serious rebalancing. World trade is under distinct threat, a whole mountain of unproductive military spending is going to start competing with other activity in the market, and artificial intelligence is being served up head-first as the ultimate workplace transformation tool).
■ The stock market is rather openly overpriced and over-concentrated, unprecedented political pressure is being exerted to get low interest rates (generally bad for financial instruments like bonds, and real estate is riddled with uncertainties.
■ This may well turn out to be one of the most rewarding times to have direct ownership in one or more businesses. Assuming that the business has at least some pricing power (so it can raise prices to keep up with inflation), isn’t unduly burdened by debt (so that it can weather any coming hiccups in the real economy), and is at least moderately safe from obsolescence (due to technological change or other factors), then it’s probably among the very best places for one’s assets to be.
■ That’s doubly the case if good management can identify favorable reinvestment opportunities. Circumstances can change, sometimes abruptly, but the general mass of trends weighs in favor of holding on to direct business ownership -- the opposite of the “silver tsunami” being seen in business now.