The more-than doubling of the value of an extremely wealthy investor’s securities investment portfolio is of far less significance to the investor than losing a large percentage of the portfolio’s value.
The protection of assets is the most natural of objectives for those who have already acquired a truly significant asset base.
It is exciting to speculate in stock markets. However, we suggest that those with significant wealth determine the percentage of their wealth which can be subject to a 100% loss and manage this segment separately. It is possible to use a trust, which might be tax exempt, for this activity.
Some high-risk, high-loss, high-benefit assets can be investments in new companies which have the socially positive potential for providing customer and employee benefit.
It should be noted that philanthropy is a usual and wonderful focus of those who have great wealth, and this largesse can be combined with investing in entrepreneurial success, if philanthropists are so inclined.
Since rising inflation is the thieving factor attacking the value of the assets of the wealthy, this suggests that assets should be invested so that overall asset values will at least offset such losses.
Investments should therefore be made, at least in part, in publicly traded stocks. As advised in our two most recent arthurlipper.com/ blog postings, betting on the optimistic expectations for high P/E stocks is more likely to result in disappointment, than investing in extraordinarily low P/E stocks, in which the market is presuming only the worst of EPS results. Wealthy investors are also advised to be aware of the Price/Earnings to Growth (PEG) ratio, and generally avoid those stocks with a higher PEG of 1.
We believe that revenue royalties are the best way of participating in the growth of a private company’s revenues, because investors participate in a percentage of the company’s revenue growth, not in the ownership of the revenue–generating company. We have expertise in the structuring of revenue royalties and welcome the opportunity to advise both royalty issuing companies and revenue royalty investors.
Arthur Lipper, Chairman arthurlipper@gmail.com
British Far East Holdings Ltd.