Emma’s Note: For this weekend’s guest edition, we hand the reins to Bill’s friend and colleague Tom Dyson. Longtime readers will recognize Tom’s name. He’s the man who, in 2018, went nearly “all in” on Bill’s Dow-to-Gold trade. Below, Tom shares a new take on Bill’s trade. It’s one that, like the Dow-to-Gold ratio, we believe you’ll want to watch closely in the months and years ahead…
In the late 1970s, my grandmother made me a “coffee can”…
The idea is, you take something precious, like coins, stamps, bonds, or stock certificates, then you bury them inside a coffee can and hope that many decades later, it’s worth a fortune.
I was born in 1976. Over the next few years, my grandmother put my coffee can together, without my knowledge. Then she must’ve given it to my mother to look after.
(Actually, it wasn’t a coffee can. It was a plastic bag. And she didn’t bury it. The plastic bag was tucked away in my mother’s attic. I found it while tidying up. But anyway…)
So how did my coffee can do over the next 40 years?
More below. But first…
London Adventures
Greetings from London…
My family and I came here through chance (my mother died). And we have been (somewhat) forced to stay here through chance (the administration of my mother’s property… plus COVID-19 restrictions on travel… will keep us here through the end of the year).
While we’re in London, we’re having an adventure, as we always try to do when we go somewhere.
We’re seeing as many exhibitions of art, history, sports, and architecture as we can. The kids are doing extracurricular activities. And Kate and I are making as many new friends and rekindling as many old friendships as we can.
This week, the kids are attending theatre camp. They are singing and dancing all day.
“Dad, I counted,” Dusty said. “There are 18 girls and only four boys in our class.”
“Some would say you’re very fortunate,” I answered.
“It’s terrible.”
“Did you make any new friends yet or even talk to any of the other kids?”
“No.”
Back to the buried treasure I discovered in the attic…
What I Found Inside My “Coffee Can”
Inside the plastic bag, I found a note from my grandmother dated 1978. It said:
“I hope that one day this complete set of the British Commonwealth stamps issued to commemorate the silver jubilee of her majesty Queen Elizabeth II will be enjoyed by you and should you need or want to sell it, I hope it will prove a good investment.”
With the note, I found brown envelopes full of stamps from places like Antigua, Barbados, Granada, Tanzania, the Seychelles, and others.
I also found a dozen silver and gold coins in their original packaging. They commemorate events like the Queen’s Jubilee and the wedding between Prince Charles and Lady Diana.
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The “coffee can” my grandmother made me in the ’70s
I haven’t had time to appraise what this treasure is worth yet. It will take me some time to look each item up on eBay. Once I do, I’ll write about it in my Postcards. [Note: You can sign up for Tom’s free Postcards From the Fringe e-letter right here.]
In the meantime, I wonder… What would I put in it, if I were burying a coffee can today for the next 40 years?
A Coffee Can Portfolio for the Next 40 Years
Easy answer. And it’s not gold…
Instead, it’s what I call “corporate aristocrats.” These are high-quality, dividend-paying companies.
There is no greater passive investment on the planet than stock in a company that can compound returns on equity over 10% a year for many years or even decades in a row.
No other investment vehicle comes close to this.
($1 compounded at 10% a year turns into $45 over 40 years. Compounded at 15% a year it turns into $268. And compounded at 20% a year, $1 turns into $1,470 over 40 years.)
The trouble is finding the company that will compound returns like this over the next 40 years. I can’t see into the future… And I can’t make adjustments while the coffee can is buried.
So if I had to bury a coffee can today, I’d get around these problems by buying stock in Berkshire Hathaway, Warren Buffett’s company.
The guys who run Berkshire Hathaway and its subsidiaries understand the power of compound returns over the long term better than anyone.
And because Berkshire holds a portfolio of compounders, I wouldn’t have to worry about it becoming obsolete in the next 40 years.
Luckily, I’m not restricted to burying coffee cans. So what’s my strategy today?
We Can Do Better With This Strategy
Right now, the stock market is the most overvalued it’s ever been.
And investing in Berkshire Hathaway’s Class A shares would set you back roughly $420,000 per share. That’s up more than 20% from the pre-pandemic high.
And it’s the same story for Berkshire’s cheaper Class B shares. At $284 a share, they’re up 24% from their pre-pandemic high.
That’s probably not that important if you’re going to hold for over 40 years, no matter what. (The power of compound returns is so strong over decades, it almost makes the purchase price irrelevant.)
But in our situation, I think we can do far better by holding gold, silver, and some high-yield shipping stocks while we wait for the great compounders to go on sale. They always do sooner or later when valuations are this high.
To this end, I am watching the Dow-to-Gold ratio closely. It tracks the Dow Jones stock index in terms of gold.
I’ve also started watching the Berkshire Hathaway-to-Gold ratio closely, which tracks Berkshire Hathaway shares relative to gold.
When the ratio is high, it means Berkshire Hathaway shares are expensive relative to gold. When the ratio is low, it means Berkshire Hathaway shares are cheap relative to gold.
Here’s what the Berkshire Hathaway-to-Gold ratio looks like over the last 20 years, using Berkshire’s Class A shares…
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It’s at 242 now. If it were to get down to 120, I’d probably start converting some of our gold into compounders.
And if it ever got to 60, I’d go all-in and start burying coffee cans all over the place for my kids and grandkids.
Regards
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Tom Dyson
Editor, Postcards From the Fringe
Emma’s Note: Some dear readers may know Tom as a contributor to Bill’s Bonner-Denning Letter. In the Letter, Bill and his coauthor Dan Denning – along with insights from Tom – uncover the biggest threats to your wealth and your freedom.
In their latest report, they issued an urgent warning about a crisis most Americans haven’t caught on to yet. And they shared actionable steps you can take today to protect your wealth – beyond your portfolio. As Dan puts it, “There are some months which can challenge even the most stoic of dispositions. This is one of them.” For more details, find out how to sign up for The Bonner-Denning Letter right here.
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