It is an unfortunate tendency that, during times of normal and superior economic conditions, too many people becoming entranced with the get-rich-quick type schemes and not enough interest is paid to making conservative investment decisions that will truly reveal their usefulness during the next downturn in the economy.

There are two things that are more important to investing than anything else: liquidity, and the ownership of some assets somewhere that will generate income somewhere in the most adverse of conditions.

Imagine, for a moment, that you were a farmer in the 1920s. By 1925, crop prices had risen so much that people were talking about quitting school to farm because 300-500 acres of farmland were generating profits of $20,000. For comparison, the average schoolteacher earned $3,328 per year in 1925. If the Book of Ecclesiastes is right that there is a season for everything, then this was the season for … Read the rest of this article!

In recent years, wealthy families have directly hired advisors, attorneys, tax specialists, and even business operators to purchase publicly traded businesses outright rather than, say, purchase 25,000 shares of Exxon Mobil and achieve their investment goals through passive investments in the largest, most profitable businesses in the world.

Perhaps the most recent high-profile example involved the acquisition of Panera Bread, which was bought out by JAB Holdings—the Reimann family heirs to the Benckiser fortune are in the process of adding Panera to their asset collection which features Peet’s Coffee, Caribou Coffee, and a majority interest in Keurig Green Mountain. Alongside Starbucks, they are Big Coffee. Now, the Reimann family is paying over $7 billion to buy Panera, and in the process, remove the chain from the scope of investments that are available to the public.

This development is the result of a confluence of factors.

The predominant advantage is … Read the rest of this article!

I have taken an interest in studying the operation of family farms and the difficulties that have arisen due to falling crop prices in recent years. Many farmers, who are distrustful of attorneys—can ya blame them?—refuse to meet with one and form an LLC or some other type of business entity that not only could provide some measure of protection against liability arising from a tractor accident or illness-causing crop sale, but also provide immediate tax benefits that are unique to business entities which a person acting in an individual capacity does not enjoy.

For instance, a farm owner will frequently turn to selling timberland on the property that has grown over the years as a useful one-time cash infusion to address a pressing cash-flow issue. Because of the often one-time nature of the event, some timber owners will just make arrangements to have the timber cut and sold without … Read the rest of this article!

Seventy years ago, a lawyer in Chicago named Russ Gremel invested $1,000 (the economic equivalent of $13,000 in 2017 purchasing power) to buy shares in Illinois’ pharmaceutical giant The Walgreens Co. Over that time, he collected substantial dividend checks and watched that position balloon into over $2 million in value through 11% compounding from the capital gains exclusive of the dividends.

A few thoughts:

Gremel was able to turn $1,000 into $2,000,000 over seventy years without needing to reinvest the dividends. Had he reinvested into Walgreens stock, his compounding rate would have soured to 14% annualized. That would have turned his $1,000 investment into $14 million.

Am I suggesting that he shouldn’t have spent the dividends? Of course not. As Britain’s distinguished man of letters Samuel Johnson wrote in Rambler #58: “Wealth is nothing in itself, it is not useful but when it departs from us; its value is … Read the rest of this article!

If you are familiar with the e-commerce giant Alibaba (BABA), you might wonder how you are able to purchase shares in the stock given that the government for the People’s Republic of China has substantial bans on foreign direct investment that aims to keep ownership of Chinese-originated businesses in the hands of the Chinese.

To receive capital from American investors—or investors anywhere outside China for that matter—Chinese business executives have begun to create variable interest entities (VIEs) that are designed to mimic the effects of foreign stock ownership.

But, perhaps someday unfortunately, “designed to mimic ownership” is not the same thing as “actual ownership.”

Back in 2000, a Chinese-based business called Sina Corporation split itself into three entities. When it received cash from American investors, it stuck the funds into a low-tax, offshore holding in the Cayman Islands. It then gave that holding company full ownership of a wholly foreign-owned … Read the rest of this article!