“The world is on the brink of catastrophic warming”, a recent U.N. climate change report said in the Washington Post article I recently distributed. This article is important because it reinforces the urgency for countries to make a dramatic change in their energy consumption to avoid temperature rising to unlivable levels. Here is the link to the article https://wapo.st/3FDpMoB.

Perhaps, if countries with large populations were able to abandon burning fossil fuels to generate their necessary power there might be a justification for paying 20+ times current annual earnings to own company stocks. However, if it is more likely that there will be international chaos due to continued steep rises in energy prices, receiving a percentage of companies’ revenues daily, monthly, or quarterly is a preferable alternative.

The objective of investment is to profit. In the case of buying stock in a company, the investor is hoping that at some point in the future the market price of a stock will be higher than its cost. This increase in value can be a result of the company’s earnings performance or investor enthusiasm, or a compounding combination of both. But why should investors be eager to own stocks in the face of bleak economic prospects? It will also be more difficult for companies to operate profitability in the predicted environment of economic hardship. For as long as commercial activity continues, there will be company revenues from which royalties can be extracted. It is also likely that inflation will accompany the pain of increased global warming and that revenues will grow, even if profits are diminished.

Of course, if by some miracle our global climate remains stable, the revenues of many companies will continue to grow, and royalty investors will continue to be rewarded. Royalties are simply a better way of investing, especially by fiduciaries who have the responsibility of investing for others.

 

Arthur Lipper, Chairman                          arthurlipper@gmail.com
British Far East Ho\dings Ltd