In praise of identifying strong returns

In 1848, gold was discovered at Sutter’s Mill. Thousands learned of the possibility they might find treasure in a river and decided it was time to join the hunt. On a percentage basis, very few were successful in mining for gold, silver, copper, or any substance worth money.

Over the past 25 years, many entrepreneurs started companies. Consumer based enterprises have difficult paths to enduring. For every McDonald’s, there are probably 100 chains which never quite gain consumer acceptance.

Structural Advantage

Investors likely prefer companies that own dependable structural advantages, which can be a source of profits. Adobe sells the editing and creative tools which are mandatory for content creation. Activision is a big game publisher where shareholders have earned nice returns.

In the energy area, there are hundreds, maybe thousands of exploration and production companies. Not every well that’s drilled hits something of value, the odds are not great.

An energy integrated company that owns refining, pipeline, and marketing assets (gas stations) is a more predictable business in my opinion. The largest energy companies own all parts of the value chain, including producing wells.

Land is King

In agriculture, there are many different kinds of crops available to grow and harvest. Farming is a difficult business, and there are large distinctions between the kinds of products available.

In my opinion, the best place for profits in agriculture is owning the farmland. Land where there is a large water source is crucial for the entire agricultural value chain. Leasing good land is essentially selling picks and shovels.

In the financial world, hundreds of companies want to go public every year. The exchanges, think NASDAQ and NYSE, sell the dream in a big way.


Ring the bell, show up in New York, appear in Times Square, and your company gains exposure all over the world. You can invest in the company which owns the exchange.

The takeaway for me is this: Investors should look for companies with strong returns. In my opinion, that’s where the businesses are found.

Photo Credit: 401(K) 2012 via Flickr Creative Commons


This piece is provided as educational information only and is not intended to provide investment or other advice. This material is not to be construed as a recommendation or solicitation to buy or sell any security, financial product, instrument, or to participate in any particular trading strategy.

The discussion of any investments in this presentation is for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments identified and described do not represent all of the investments purchased or sold for client accounts. The representative investments discussed were selected based on a number of factors including non-performance based criteria. The reader should not assume that an investment identified was or will be profitable. There is no assurance that any investments identified will remain in client accounts at the time you receive this document.