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.

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.

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.

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.

Over the past seventy years, Walgreens stock has been an extreme compounded. Russ Gremel is a Chicago, IL native that actually got to participate in that growth. The media recently caught hold of his investment success as he has publicly disclosed that he is donating $2 million in Walgreens stock to open up a four-hundred acre wildlife refuge. As a personal matter, I like that he made a local donation and chose to take care of the community that created him rather than hunt for what one social scientist dubbed “exotic poverty” to describe philanthropy by individuals trying to impress their friends on social media. 

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.

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.

These Alibaba executives induced foreign investment by creating a complicated contract scheme to get around China’s harsh laws restricting foreign investment. If you buy stock in Alibaba, you are really making an investment into a Cayman Islands holding company that owns a company that has contracts with the Alibaba operating business that entitle it to dividends, capital appreciation, and voting rights. Your “ownership” isn’t based on being an owner, but rather, is a contract right where you contract away your money while the Alibaba operating business contracts away dividends, capital appreciation, and voting rights.

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.