Some time ago, when I started my project on disproving Cassandras, a reader suggested I should do a post on investing for immortals. This was triggered by the prediction of one futurist that by 2030, nanobots will help humans become immortal. I doubt that humans will become immortal by then, but the question is an interesting one to ponder. So here we go.
Aug 16, 2023·edited Aug 16, 2023Liked by Joachim Klement
Dumb question probably, but why not real estate? Maybe I’m misunderstanding or missing a nuance, but it feels like another, well proven, asset class (land at least, maybe office blocks have a lot less history …).
Yes, real estate is a well proven asset class and I very much like it. But I decided against it because I think it is entirely possible that at some point in the future we will no longer need land and houses to live in. Probably not in the next 100 years but at some point
Given the Copernican Principle we would expect for houses to stay around the longest. No real estate because "it is entirely possible that at some point in the future we will no longer need land and houses to live in" seems like a line of argumentation of a Cassandra.
I had a go at setting a portfolio based on the current mix of all investable stuff in the world (including all property - incl redidential, farmland
forests - as investable). The idea being that this represents the total market of all capital. Lots of equity, including emerging markets and some private equity. Lots of real estate. Rather more govt bonds than i would like. A smaller slice of gold, other raw materials, cash, fine art, crypto.
If i then adjust quite a bit, for some investments having inflated demand (govt bonds are in demand for pension annuities), or poor returns (cash), and maybe for faddy demand (art, crypto) or illiquidity, or risk of theft, loss, or high taxation, i end up with something that should work.
Similar to your mix but with more equity, some property, a bit in bonds, cash, and gold. 50-25-15-5-5 at a guess, depending on the adjustments .
Very interesting post. I am not immortal but I am trying to build up some wealth. And if I don't spend it all I'd like to pass it on (with some simple rules} to my children.
1) Investing in business is not sharing the results of the business. Investing in business is volunteering to be the bag holder if the business fails. Same as insurance company is bag holder if insured for event occurs. Like insurance companies, equity owners get paid a risk premium for putting themselves in the first loss position. That risk premium is dependent on current psychological state of investors, their risk tolerance, which can vary over time. Results of business success, by and large, are captured by active managers of the business. There is no need to give these results to investors. Investors merely need to be paid the equity risk premium. In the short run, in a single stock investment, yes, investors may reap benefits of business success, but not in long run over many stocks.
2) Anglo Saxon culture is such that landowners in those countries are specially privileged and this will persist for many centuries. Thus investment in farm and timber land is by far the most secure investment in those countries. Risk premium for farm and timber land is usually less than equity risk premium, but not by much. And equity risk premium does not capture risk of change in culture, which is possible in Anglo Saxon counties, to massively increase taxes on corporate profits and this erase huge share of equity value. Like i said, Anglo Saxon culture extremely unlikely to ever hit land profits this way.
3) USA/Canada is an impregnable fortress, whose only real risk are Yellowstone volcano, asteroid hits and similar natural disasters. Australia also a fortress, though not nearly so impregnable, but on opposite side of world from North America. So substantial land holding in both fortresses highly advised.
4) Connections in government, especially security service, are extremely valuable. Highly advisable to encourage one son/daughter to have career in government (FBI, military officer, attorney generals, etc). By encourage, i mean offer to heavily subsidize children who enter government service at a high level, versus children who go into higher paying private sector jobs.
Although I largely agree with the approach of investing in equities, I think the argument against bonds is not entirely waterproof. Bonds issued by the governments of countries like Germany and Britain have been consistently and reliably serviced, and they are likely to remain viable even when many of the companies we would invest in have ceased to exist.
Dumb question probably, but why not real estate? Maybe I’m misunderstanding or missing a nuance, but it feels like another, well proven, asset class (land at least, maybe office blocks have a lot less history …).
Thanks for the thinking.
Yes, real estate is a well proven asset class and I very much like it. But I decided against it because I think it is entirely possible that at some point in the future we will no longer need land and houses to live in. Probably not in the next 100 years but at some point
Given the Copernican Principle we would expect for houses to stay around the longest. No real estate because "it is entirely possible that at some point in the future we will no longer need land and houses to live in" seems like a line of argumentation of a Cassandra.
Do you like the “quality” style?
Yes, I do
About timing in the market: https://www.visualcapitalist.com/chart-timing-the-market/
Interesting topic.
I had a go at setting a portfolio based on the current mix of all investable stuff in the world (including all property - incl redidential, farmland
forests - as investable). The idea being that this represents the total market of all capital. Lots of equity, including emerging markets and some private equity. Lots of real estate. Rather more govt bonds than i would like. A smaller slice of gold, other raw materials, cash, fine art, crypto.
If i then adjust quite a bit, for some investments having inflated demand (govt bonds are in demand for pension annuities), or poor returns (cash), and maybe for faddy demand (art, crypto) or illiquidity, or risk of theft, loss, or high taxation, i end up with something that should work.
Similar to your mix but with more equity, some property, a bit in bonds, cash, and gold. 50-25-15-5-5 at a guess, depending on the adjustments .
Very interesting post. I am not immortal but I am trying to build up some wealth. And if I don't spend it all I'd like to pass it on (with some simple rules} to my children.
1) Investing in business is not sharing the results of the business. Investing in business is volunteering to be the bag holder if the business fails. Same as insurance company is bag holder if insured for event occurs. Like insurance companies, equity owners get paid a risk premium for putting themselves in the first loss position. That risk premium is dependent on current psychological state of investors, their risk tolerance, which can vary over time. Results of business success, by and large, are captured by active managers of the business. There is no need to give these results to investors. Investors merely need to be paid the equity risk premium. In the short run, in a single stock investment, yes, investors may reap benefits of business success, but not in long run over many stocks.
2) Anglo Saxon culture is such that landowners in those countries are specially privileged and this will persist for many centuries. Thus investment in farm and timber land is by far the most secure investment in those countries. Risk premium for farm and timber land is usually less than equity risk premium, but not by much. And equity risk premium does not capture risk of change in culture, which is possible in Anglo Saxon counties, to massively increase taxes on corporate profits and this erase huge share of equity value. Like i said, Anglo Saxon culture extremely unlikely to ever hit land profits this way.
3) USA/Canada is an impregnable fortress, whose only real risk are Yellowstone volcano, asteroid hits and similar natural disasters. Australia also a fortress, though not nearly so impregnable, but on opposite side of world from North America. So substantial land holding in both fortresses highly advised.
4) Connections in government, especially security service, are extremely valuable. Highly advisable to encourage one son/daughter to have career in government (FBI, military officer, attorney generals, etc). By encourage, i mean offer to heavily subsidize children who enter government service at a high level, versus children who go into higher paying private sector jobs.
Surely having 1/3 in “cash” means toe portfolio will get eaten by inflation? What am I missing? Thank you for the helpful article.
Although I largely agree with the approach of investing in equities, I think the argument against bonds is not entirely waterproof. Bonds issued by the governments of countries like Germany and Britain have been consistently and reliably serviced, and they are likely to remain viable even when many of the companies we would invest in have ceased to exist.