Yes, again, old fuddy-duddies like Bogle and Buffett have told you that you should stick to the simple stuff and just buy broad indexes, especially when the prices are low by historical metrics, and hold onto them as long as you can. Yes, that has proved to be a fairly decent strategy.
But is it good enough for Yale? Is it good enough for Harvard? Is it good enough for the many billionaire families in this world? No. That means it’s not good enough for you, bro.
How do the Ivies and Stanford endowments and the Rockefellers invest? They don’t just go to Vanguard or Fidelity and buy the indexes. That is for sure. They don’t just go to Merrill Lynch and buy an ETF of all Taiwanese stocks above a certain size.
No. They have far more sophisticated strategies. They buy immense plots of forestland and wait for the value of the land to rise as forest resources and property gets more valuable. Land! After all, they’re not making any more of it. In fact, with global warming raising the level of the oceans and swamping some low-lying areas, land is becoming ever scarcer. Scarcity means an increase in price.
Plus, everyone wants wood. You can build homes with it. You can build boats with it. You can lay railroad ties with it or put up telephone poles. So that’s why you should own forests. Forests. It is almost too basic. That’s what you should do. Go buy a few acres of forestland near your home, sit on it, and forget it.
Yes, it’s true that in recent years as the housing collapse has taken hold in the United States, many fewer homes are being built. That generally means less wood is being used. And, yes, as fewer homes are being built, there is less demand for forest products generally. But that’s only temporary. That will only last a decade or so. In the meantime, you should own forestland.
How does the Gates Foundation invest? They sure as hell don’t just go down to their broker and buy GM. They don’t buy a share of Apple (although I am sure they wish they had bought a lot of those shares in late 2008). They sign up with private-equity firms that use immense amounts of leverage to buy whole companies, rip, strip, and flip them, or else just patiently rebuild them.
For example, they might buy the Ben Stein Corporation. Then they issue bonds and pay themselves a huge special dividend with the proceeds. Then they lay off some workers to build up cash flow so they can pay the interest on the bonds for a while. It might even work, and with really great management the company might flourish.
If they buy a company with 10 percent down and it goes up in value by 5 times, they have made something on the order of 50 times their money (minus commissions and slices for the agents but not adding in special dividends).
That sounds about right. You can do the same thing. Find a beaten-down small bakery or convenience store or motel in your town. Buy it mostly with borrowed money. Put your whole heart and soul into fixing it up, making it shine. . . and then try selling it.
Of course you may have to take some time out of your day job and your time with your family to make this work, but so what? We are talking about making some real serious money here.
Once you have that motel shining, go to the bank and refinance it to as high a level as you can. Use that money to party hearty. Then try to make the motel so profitable that you can pay off the loan. If it doesn’t work, too bad for the bank. The folks there will take it like sports and just pat you on the back and wish you better luck next time.
Better yet, mortgage your home to the hilt, and use that as the down payment to buy several small motels. Fix them up. Put color TVs and microwaves in every room. Spray the beds with insecticide to keep down the bedbugs. Then, when they get to be profitable, borrow more against them and buy some more motels and build them up, and soon you are a living, breathing Conrad Hilton.
Sell them and start thinking about what kind of jet you want. Don’t worry at all about the possibility that you won’t be able to sell them at a profit or even at break-even, and your loan will be called and you’ll lose your house. That is not what happens to success stories like you. You will sell them for a huge gain and bask in your glory.
That is how the big boys play the game, and you want to wear the big-boy pants, don’t you?
The big guys also take down huge positions in whole good-sized companies and then go to the board of directors of those companies and demand big changes or else they will vote against management and make management’s life miserable.
Often, management will pay these raiders off or else have a special dividend to make the billionaire raiders go away.
That’s what you should do, too. You should find a local bank, let’s say, and buy some stock in it. Then go down to the office of the bank and demand changes to make the bank more successful.
Look, I know what you’re thinking. You are thinking, “Well, that all sounds great, but I have a job and a family. I don’t really have time to do all of those things and I don’t really know much about real estate or private equity.”
Fine. That’s your problem. But I did tell you how to make it all happen, didn’t I? If you don’t want to pay attention, if you’re too stuck in your little cautious world, then don’t come crying to me when Yale’s endowment is up 20 or 30 percent in a year.
Maybe you’re just not cool enough for some of these strategies. Don’t feel bad. It happens to lots of guys.