Notes From The Bullion Trading Desk

Notes From The Bullion Trading Desk

“Production, Capital Growth and Trading”

Investing in today’s world can be a tricky business.

In a typical day around the Anglo Far-East office we get to speak to many and see a lot. From financial advisors, investment clubs & seminars, clients (many times that have been burned) to traveling salesman, there are many programs, schemes and strategies out there that are promoted as “investments”.

It has been our view that investment strategies and models must be tried & tested over the long-term. For example what we have called the “Generationally Wealthy Investment Model” as an investment regime have not only preserved, but greatly increased the wealth of those who have applied it, over many generations, despite booms, busts, holocaust, famine, market and social disturbances and natural disasters.

So what is a true investment? According to “Wall Street Words; An A to Z Guide To Investment Terms Dictionary”, the word “INVESTMENT” means;

1) An Asset acquired for the purpose of producing income for its owner.

2) Expenditures made for income-producing assets.

PRODUCTION
Notice the key word above is “Producing” or “Production”. Therefore a TRUE INVESTMENT in the real sense would be an asset that PRODUCES something which brings a “CASH FLOW” return back to the investor!, e.g. An oil well that produces barrels of oil, a farm that yields crops, a mine that produces a metal such as gold or similar. Often these type of assets can also be classified as “tangible assets”!

CAPITAL GROWTH
Capital Growth is an increase in the market price of an asset. In the case of Residential Real-Estate of late this has been the scenario. But is it a TRUE INVESTMENT? Even though the underlying asset has grown in value it still does not produce anything.

I meet and speak with individuals all the time who are asset wealthy, yet are still struggling to meet the daily cost of living, in exactly the same way as those who have no assets at all!

Further, “Capital Growth” can be very misleading. In most cases capital growth is made in paper currency that is inflating (and losing purchasing power) the whole time the asset is being held, giving a FALSE perception of capital growth when the asset is eventually sold.

TRADING
To “Trade” is to engage in buying and selling for profit, OR to make an “exchange” of one thing for another at a profit. To buy low in the anticipation of selling high for profit (whether it be commodities, stocks, real-estate, shares, options, futures, currencies or goods) is “TRADING” and should not be confused with “INVESTMENT” in the real sense.

TRUE INVESTMENT
If one is to take a true look at his investment portfolio and break their investments into the 3 categories of PRODUCTION, CAPITAL GROWTH & TRADING we soon have a realistic view of whether our investment portfolios could offer us support on a day to day basis from a residual or “cash flow” perspective.

Even though CAPITAL GROWTH can look good on paper, it still does not PRODUCE anything! It is the cash flow PRODUCING asset that fits the TRUE definition of INVESTMENT! 

by Simon Heapes
2005