This interview between investors Anthony Deden and Grant Williams took place in July 2018. We are sharing it because Deden and Williams touch upon concepts that have been revealed in prayer at Capstone Legacy Foundation.
The main three things he seeks in asset selection are 1) scarcity, 2) permanence, and 3) independence. Scarcity is the most important law in economics. He seeks what Warren Buffet called “essentiality,” companies that do things no one else can do. For example, he said there are many companies that make whiskey, and many companies that make whiskey bottles, but only one company that makes the machines that make whiskey bottles. He also focused on “irreplaceability”—taking irreplaceable capital and deploying it into irreplaceable assets.
Honest investing process needs no labels like “value” or “growth” or whatever. Overweighting or underweighting sectors is madness, it makes no more sense than if a car maker wanted x percent glass and x percent steel in a car—every component must have a purpose. Most investments are contracts, ideas, and abstractions—promises made by people who may or may not be trustworthy. And asset valuations are all based on things that happened in the PAST.
Physical assets preserve wealth only if you can resell them, but they help you avoid foolish sale decisions, making it hard to sell on whim. Financial assets are based on the expectation of future cash flows they can generate, but a company’s profitability depends on historical events. It’s difficult for an investor to think like a true owner because investors want liquidity. An owner doesn’t care about income, he cares about his balance sheet, because his balance sheet tells him if he will live or die.
Price to earnings isn’t as important as compound earnings within the company. Most business owners know that earnings estimates are nonsense. CEOs only speak of them to boost their stock price. The stock price becomes their product, and in chasing the stock price finance becomes the focus, which is foolish because long-term business success comes from doing something well, something for which others will pay. “Wealth is the compounding of earnings.”
Deden veers into eccentric (and therefore fascinating) territory in his quest to find assets that are INDEPENDENT. By that, he means independent from the world financial system, which he sees as terribly false. He seeks to avoid dependence on suppliers, or debased currencies, which create “falsity” in the economic arena. Independence is valuable and therefore costly, because independence is never free.
He had strong views about gold. In 1998 he lost faith in the stock market as Greenspan declared a new era of valuations. He became convinced the entire economic system was false, and especially worried about the future of money. “If money isn’t real anymore, what is real? He became convinced about gold after visiting a big South African mining operation in 1998 when commodities deeply unpopular. He toured the mine two miles underground and saw how expensive the equipment and the thousands of employees must be, and decided either the mine owners were crazy, or the world was crazy for ignoring gold.
He bought gold futures in force, which went from $2 to $18 per share. Then he switched to GLD for a while, and then later switched to physical holdings in Switzerland. Gold comprised 35% of his total capital at the time of the interview, and he thinks it is just as undervalued now as it was in 1998. He prefers gold to treasury bills or short-term commercial paper, or even cash for liquidity. 60% of his capital is perennially invested, 40% liquid (of that, 35% gold).
He believes in holding substantial liquid reserves for strategic and tactical operations. It’s absurd to call treasuries, bonds, and commercial paper “assets” when they are actually debt. “I don’t want my liquidity to be someone else’s debt!” Gold covers all three of his investing essentials: scarcity, permanence, and independence. “Today the nominal price of gold is cheaper than what I paid for it in 2001.”
In addition to gold for liquidity, he holds agricultural interests in fertilizer companies, poultry producers, and salmon farming. He observed the aristocratic time preference of a man with a date farm whose grandfather planted trees he now harvests while he just planted trees that will not bear marketable fruit for another forty years.