Stock & Investment

Paper Money vs. Hard Assets - Should You Have Owned Buffalos Instead?

The limit prices for purchasing 5 stocks were set almost a month ago ranging from 15% to 50% down, which seemed almost impossible to reach at the time.  It shows the level of my willingness to buy these stocks at that time, but today, I am not so sure if I am willing to buy them with the set prices.  When I finally had a chance to open up my brokerage account, it was too late.  It was almost scary to see what has happened. 3 out of 5 stocks on my buying list automatically went from “open” to “complete”.   Should I hold off or drop price on the 2 left?  I immediately thought.  My confidence level in investing in these stocks has dropped since, but why?  I am mostly a long term investor, and these are mainly solid companies with a solid balance sheet.   The companies on my wish list are what I always want to buy - the more, the better, and I have just been waiting for the right moment like a ferocious tiger.  On a day like today, my hunger is somewhat replaced by fear.

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The stock market has experienced a roller coaster ride in the last ten days.  DJIA dived to a new low of 16,058 on the 1st day of September, after plunging another 469.68 points or 2.84% since its significant fall on Aug 20, 2015to 16,991 after plummeting 358.04 points or 2.06% on that day.   You may argue your stocks or paper money (they are not even on paper at this digital age) are backed by hard assets of those companies.  On a day like today, you may feel you need something tangible that you can see and touch.  

Ted Turner, the founder of the Cable News Network (CNN), the first 24-hour cable news channel, and a pioneer and visionary in TV broadcasting, is one of the largest private landowner in the United States.  His land is mostly used for ranches to re-popularize bison meat for his Ted's Montana Grill chain, amassing the world’s largest herd. Turner Broadcasting System, Inc. merged with Time Warner, Inc. on October 10, 1996, and on January 11, 2001, Time Warner was purchased by AOL to become AOL Time Warner.  The burst of the dotcom bubble hurt the growth and profitability of AOL, which in turn dragged down the combined company's performance and stock price, where he lost his operational role as well.  It is estimated that, as Time Warner's biggest individual shareholder at the time, he lost approximately $7 billion when the stock collapsed in the wake of the merger.   It was reported that, when asked about buying back his former assets, he replied that he "can't afford them now".  Maybe he will if he manages to raise a few more buffalos on his cumulated land.

You may wonder if you should have owned buffalos instead.  Let’s not forget Warren Buffett, one of the richest men on earth, who has made his marks through the financial system that we live in today.  When you think of him, it almost makes owning the land and cows absolutely obsolete and totally 17th century.  He does own a 400-acre farm outside Omaha and a commercial building in Manhattan, but they play no significant roles in his holdings.  Let’s also not forget that shareholders of Enron almost lost everything, and even shareholders of companies like AT&T once lost a significant amount that they had never expected.  The financial guru’s advice to his trustee is to put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund, and he suggests Vanguard's.  A close friend of mine, who does not eat red meat except bison, happens to be also a believer in diversification via mutual funds. The concept of diversification still stands, at least for some of us, and you just need to find your own comfort zone of investing.  A stock owner may also consider owning a few patches of land and raising a few cows among others including mutual funds.