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Most investors that I talk to know they want to protect and grow
their wealth. They are looking for an investment that will help them
do that. Should they buy an annuity or a mutual fund? But they are
missing the Big Picture and, in doing so, are putting their
financial future at peril.
Do you remember the 1970’s? The oil crisis, gas lines, high
unemployment? Inflation caused wealth to deteriorate. High interest
rates brought the economy to a crawl. Most people fought to maintain
the wealth they had worked years to accumulate only to see it
shrink. Some, though, understood the Big Picture and dramatically
increased their wealth.
I believe it is vital that investors stop and look at the Big
Picture today. Ignore it and you may see your wealth (and your
lifestyle) evaporate. See and understand it and you may prosper.
Looking at the Big Picture means taking a step back and determining
what you think will happen over the next 10-20 years. What will the
world be like? What changes do you think will happen? What trends do
you see developing?
What you see when you stand back may frighten you. It shouldn’t.
It’s about recognizing potential dangers so you can protect
yourself. And it’s about spotting opportunity so you can grow your
wealth. Your view of the big picture can then guide where and how
you invest.
For instance, let’s say I’m a farmer trying to determine what I
should plant. I see the big push for ethanol right now and that it’s
caused the price of corn to sky rocket. So should I plant corn
instead of soybeans?
That’s the decision most of us would probably make. And that’s the
point. The ability to spot opportunity not only involves what we
believe, but also what we think everyone else believes. Think about
it. If all the other farmers see the same thing I do, and I would
plant corn, then it’s very likely that most of them will, too.
If a lot of farmers stop planting soybeans and plant corn instead,
what’s going to happen? There will be more corn and fewer soybeans.
What if too much corn floods the market and corn prices drop? What
will happen to soybean prices if there is less supply?
Doing what everyone else does is only going to result in the same
returns as everyone else. If we can spot opportunities that others
are missing, we have the ability to have greater returns. As a
farmer, I can play the trend (plant corn), play the counter trend
(plant soybeans), or hedge my bets and plant both.
As an investor, we can further analyze this situation to find ways
we can profit from it. The amount of ethanol that can be produced
per bushel of corn depends on the starch content in each kernel. If
a way could be found to increase the starch content in corn, that
high-starch content corn will be more valuable than the rest.
We’ve all heard that the person who made the most off of the gold
rush was the person selling shovels. In the same way, it may be the
companies that produce the genetically modified seed that prosper
from the ethanol craze. Or the companies that produce the
fertilizers and insecticides that will be needed.
Monsanto (MON) is a company that specializes in producing
genetically modified seed. They are ‘selling shovels’. As a result,
their profits and the value of their stock have soared. A $10,000
investment in Monsanto at the beginning of 2004 is worth over
$40,000 today. It’s up almost 30% in the first 6 months of this
year.
If farmers are planting corn, there isn’t going to be as much feed
for livestock. That means that the price of meat, milk, chicken and
eggs and other groceries will rise, causing higher inflation
throughout the economy. If I don’t recognize that and take steps to
protect myself, I could see the purchasing power of my wealth
shrink.
This is just an example. So, what do you think are the major trends
that might occur in the next 10-20 years? If you’re right, what
should you do to protect and grow your wealth? These are issues I’ll
be discussing in the next few articles.
Nationally-syndicated financial columnist and Certified Financial
Planner® Jeffrey Voudrie provides personal, in-depth money
management services and advice to select private clients throughout
the USA. He’ll answer your financial question – FREE at
www.guardingyourwealth.com. |
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