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Thanks for the great article Rusty! You mentioned in Investing with Icarus that broadly you are thinking real assets are a key to future investing and recently Ben mentioned real assets again in the Narrative Giveth. I’m sure you both will expand on your thoughts and my guess is it’s related to the inflation story picking up steam if we get a hot inflation print number.
I’m just struggling with how that will work with the “traditional” private real assets; timberland, farm land, and infrastructure. I saw WSJ article saying that infrastructure funds are breaking records raising capital this year after breaking them last year. I saw another WSJ article about how we have an overabundance of pine trees in the South due to huge tree farms planting trees 20 years ago and now we don’t have any mills so it’s killing timber prices. And I haven’t looked but can’t imagine farm land is doing too well given the targeted Chinese tariffs. Maybe it’s a buy the blood situation but it seems like there are huge amounts of money already being poured into these areas by institutional investors, depressing future returns. Just curious if you had any preliminary thoughts you could share.
Thanks again for the article and gladly joined the pack today.
Briefly … I have a very expansive view of what constitutes a real asset (for example, I would include intellectual property as a real asset), but I am a stickler for cash flow. So I’m less keen on farmland and timber (meager to nonexistent cash flows) as “real assets” than I am on widely licensed intellectual property (strong cash flows) as a “real asset”. The sweet spot for me would be strong cash-flowing infrastructure assets … a bit “realer” than IP, but less commodity-like than land or timber. As with all things in an inflationary or deflationary environment, the three most important attribute of any asset, cash-flowing or not, is pricing power, pricing power, and pricing power.
Ben, what is your view on expropriation when it comes to real assets? Your thesis relies on the assumption that the rule of law will hold and that those laws will not change to suit those in power to your detriment.
I believe that one of the themes in your writing is breakdown in personal integrity within the society as it polarises. It will get worse as those who chose to live what they preach walk away (those that stay are not the same) - that leaves law making and implementation to those who want to get one over the others and to those with relaxed moral compasses.
Look at the emerging markets where the inflation never stopped and in some cases is getting really bad - real assets which should perform get taken away by raiders paying off the courts or by the governments. This can take many forms but result is the same - the asset stops performing or you lose the claim to your asset despite all the necessary conditions being in place.
I agree that on the margin real is better than leveraged zombie if we are going where you say but at the limit they both go to the same outcome just with different trajectories. Unless, that is, you consider that performance of the asset is also a function of who is holding that asset. For the insignificant investor I can’t help feeling that it will still come down to timing - I know it makes you guys cringe - I hope I don’t get banned for heresy on my first post.
P.S. I still can’t figure out how I feel about all ET pack missionaries having “team elite” background. On one hand, I think positive discrimination hurts any organisation. On the other hand, are you comfortable that you have adequately broad horizons and perspectives to cater for the hungry pack?
I get very nervous about “owning” real assets that are outside my home country. Expropriation is definitely a thing, and it’s a thing that is ignored until it is EVERYTHING. Politics always trumps economics. And yes, pun intended.
On “team elite” background … I think that Team Elite membership, like membership in any cult, is a state of mind thing, not a where-did-you-go-to-school thing.
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