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Tangible Assets That Sweat

By Tom Dyson, publisher, The Palm Beach Letter
Thursday, June 1, 2006

The investment world can be divided into two broad categories: paper and tangibles.

Under paper, we put stocks and shares, bonds, currency and cash.

Under tangibles, we find hard assets like land, gold coins, factories and oil tankers.

Hard assets have intrinsic value. You get what you pay for. When you drop a silver bar on your toe, it hurts. Paper is just paper. It may represent a claim on an asset or a share of cash flow, but it has no tangible value. That’s why they attach an interest rate or a dividend to paper investments. The return compensates investors for their trust.

There are periods in which investors prefer paper investments. These are in times of prosperity and good faith. Investors have confidence in the financial system and expect no trouble from their creditors. The prices of stocks and bonds go up. Interest rates fall as investors accept less compensation for holding paper investments.

At other times, investors lose their faith in paper when hard assets perform better. Interest rates rise, dividends rise and paper gets cheaper.

These cycles tend to last around seventeen years. For example, the 1980s and the 1990s were paper years. The late 60s and 70s were hard asset years. The post-war years from mid-1940s to mid-1960s were paper years.






1914 – 1930




1930 – 1947




1947 - 1965




1965 - 1981




1981 - 1999




1999 - 2016




Data source: the CRB Index and the S&P 500 Index, from

* Data starts in 1914, so we don’t have 17 years of data 
** While stocks had a small positive return for 1965-1981, if you adjusted the number for inflation, it would be negative.

The pattern appears to follow a generational cycle. Sure, the statistics are a little flimsy, but if you think about it, the generational idea does make sense: After a market crash, it takes a generation to clean out the skeptics and usher in a new class of bullish investors. As legendary investor Jeremy Grantham explains...

“It is absolutely no coincidence the great speculative bull markets of the 20th century occurred [when they did: 1929, the late 1960s, and 2000]. The fell exactly where you’d expect they would.”

“Why? Let me describe the nature of a [stock market] bubble: First a real bubble needs above all to get rid of the old fogies. So you can’t have a bubble five years after a bust... A bubble needs to rotate serious investment professionals out of their jobs...”

Yesterday, I explained the generational cycle to an investment club in London and suggested the next decade would favor hard assets.

The thing was, many of the people I presented to were approaching retirement age. Several people told me they agreed with the idea in principle, but they couldn’t wait a generation for their hard asset investments to pay off. They wanted income instead. As I explained earlier, income is more closely associated with paper assets.

There is a solution. My old friend Chris Mayer calls them "tangible assets that sweat."

A factory is a tangible asset that sweats. So is a piece of property – if you can find someone to rent it. You don’t want to own these assets. They take too much time and expertise to manage.

You can buy tangible assets that sweat through the stock market instead. This way you get the capital gain from owning a hard asset at the right time in the cycle, plus you get the income benefit of a paper investment.

Westshore Terminals [TSX:WTE.UN] is my favorite. Located in the ports just south of Vancouver, Westshore is one of the simplest businesses I have ever come across. They unload coal from trains, pile it up on the dock and then reload it onto ships. The coalmines pay Westshore for this service, based on the price of coal.

So as the price of coal rises – as I expect it will for the rest of this decade – Westshore makes more money.

There is no way for Westshore to expand. So after they’ve covered their expenses, they pay all profits back to shareholders. Using the most recent figures, Westshore currently pays an 11% return to shareholders.

I’ll try to uncover more “tangible assets that sweat” over the next weeks and months. If you need income from your investments but want to avoid paper, watch this space...

Good investing,


Market Notes


According to Morningstar, the U.S. Global Gold Shares Fund (USERX) is the best performing mutual fund in the world right now…

That’s why the True Wealth Gold & Collectibles audience paid close attention when U.S. Global’s CEO Frank Holmes revealed his favorite gold investments yesterday.

Out of fairness to the folks at the conference, DailyWealth can’t mention Frank’s favorite small cap plays. But we can mention his gold fund’s largest position… Goldcorp (GG). The fund has over 10% of its money in the Canadian producer.

To paraphrase Frank… if you see the recent sell-off in precious metals as a long-term buying opportunity, Goldcorp should be in your shopping cart.

Goldcorp takes a 25% drubbing and goes on sale? (2006 chart):

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