THE CURRENCY CONUNDRUM: ARE YOU INVESTING ENOUGH IN PRODUCTIVE ASSETS?
"Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola. People will forever exchange what they produce for what others produce.”
- Warren Buffett
Indian currency has been 'talk of the country' thanks to government's demonetization move. All of us witnessed a and historic rare moment on 8th November 2016 when a government announcement instantaneously changed the perceived value of the instrument that has been for long considered the undisputed ultimate store of value - 'currency note'. Many of us might even have wondered where that value came from and where it went. There were even some jokes floating in the social media about whether one should consider 'cash in hand' as an asset or a liability! So, what really happened? How the value changed overnight by the stroke of a pen? Any thoughts? Brings me to the real and only basic question in investing: What is an asset and how to determine whether it is valuable or not? As explained elaborately by legendary investor Warren Buffet in his 2011 letter to shareholder's of Berkshire Hathaway, there are three kinds of 'assets'.
1) Currency Denominated 'Assets': For example money-market funds, bonds, bank deposits, etc. Most of these currency-based investments are thought of as 'safe'. In truth they are among the most dangerous of assets!
2) Assets that will never produce anything: For example Gold, Art etc. These assets don't produce anything but are still purchased in the buyer’s hope that someone else will pay more for them in the future!
3) Productive Assets: For example Businesses, Farms, Real Estate etc. These assets have an ability in inflationary times to deliver output that will retain its purchasing-power value. What type of assets you end up owning will determine how much wealth you are ultimately able to create!
Inertia helps you to do just that - creating wealth by investing in the valuable productive assets. When you invest with Inertia, you become a shareholder and part owner of solid companies delivering output in the real world. These companies produce goods and services that people need and consume everyday and that will be required for a long time to come...
So which category of assets you want to maximize in your investment portfolio?