Tyler and my sister, Kelsey, are now legally married! We are all thrilled because, as my mom and I were discussing when we got a minute to talk alone in private earlier today, we just fundamentally adore Tyler; his demeanor, his character, his values. There is no one else in the entire world that we…
I hardly ever talk about the portfolios I manage (the last time was when I added Campbell Soup to the blue chip reserve portfolio in Some Changes In the Portfolio), mostly because investment ideas are rare. Still, I write about it to the same extent I would be willing to discuss something over coffee with fellow investors so here are some thoughts about what has been going on at Kennon Green Enterprises lately.
The shares of the sugar refiner I had one of my businesses buy only 3 months ago are already up 15.40%, giving a fantastic annualized return. I’m thinking about selling them but need to go back through the financial statements one more time before I make a decision.
What I really want for Christmas is for General Electric to break $20 per share because if that happens, Joshua Kennon, my friends, is going to break out the champagne. We started buying it at $6 at the height of the recession and it is already up to $15 to $16 but I have a substantial block of call options through one of my retirement plans that expire in January using a strategy that is not appropriate for anyone reading this. At this point, every $1 change in share price means a massive gain in our position value.
Phase I of our secret project and my third quarter goals are both going really well, even though I’m spending an inordinate amount of time on the manuscript for my next book, which is a guide to calculating intrinsic value of stocks, bonds, real estate, and other assets.
Everything Merging Under the Kennon & Company Brand
Remember the $31,000 we spent on the paid search advertising pilot program last September? Yeah, part of that involved testing various keywords to determine if we were better off running our retail companies as separate domains or under one, parent brand. I didn’t tell you that at the time because there was no reason to do so.
The results of that test helped us confirm our belief that we can grow even faster by consolidating everything under a single brand name and online store and unleashing all of our advertising dollars, search optimization efforts, and time on that one luxury “superstore”. The search engines and shopping engines, which serve as a major source of new customers, are now sophisticated enough they don’t require individual domains for various product lines.
Thus, as part of the launch of Cherrywood Capital Group, we successfully divested JustBabyGifts.com and the WonderfulWeddingFavors.com, leaving us with a pile of cash to focus our attention on building a retail holding structure that mirrors our sporting goods businesses all under the Kennon & Company brand. (My guess is, those two sites will be shut down later this week and absorbed into the new business that owns them.)
Don’t misunderstand me … we will still be in the baby and wedding gift businesses, but they will be departments within the larger Kennon & Company family, giving us access to far more prestigious product lines that require physical retail locations and economies of scale when it comes to purchasing and banking relationships.
Among the thousands of emails and messages I receive regularly, I came across one today that was sent to me on May 17th by Cale P. Here is the question that was posed:
I’m a pretty talented IT professional with great salary and a standard quality of living. I’ve known that I won’t be in IT for my whole career, at least I hoped. I have a natural ability to invent and I really would love to own private business(es) to see my decisions in a company flourish.
However, I’m unsure of how or when I will be able to reach my goal. I’m busy investing my savings to build my portfolio now. This includes dabbling in the stock market as of right now instead of full on investing. Mostly, I’ve just been saving bulk amounts of cash other than my investment in my home.
How should I, being someone who has a great deal of common sense but no college education in business, pursue owning a company? I could go into much more explanation like my career vs business but I would like to see if I can start the conversation before I write more. 🙂
The Rich Diversity of Cash-Generating Assets
It doesn’t necessarily require a formal education to become successful, but it does help. Something north of 90% of self-made millionaires are college graduates, but that still means 1 out of every 10 have no college education.
That said, when we talk about “cash-generating assets” we aren’t just talking about businesses or stocks. The world is full of things that make your richer just by owning them because they throw off cash. The perfect cash-generating asset is one that produces a stream of money for you and your family to spend or reinvest and that increases its value every year to maintain pace with inflation. There are members of my own extended family that made money by owning car washes and storage units but no stocks. Still others invested everything in stocks and bonds. All ended up wealthy, but they chose different paths due to their own individual talents, experience, and risk tolerance.
There are countless asset types that can produce passive income. As you learned in the article on the Capitalist Class that I wrote for About.com, a division of The New York Times, to be a member of this economic rank requires at least $35,000 per month in passive income. It doesn’t matter if those earnings come from stocks, bonds, hotels, movie theaters, ice cream stands, song copyrights, book copyrights, patent licenses, sales commissions from a networking business model such as Avon or Mary Kay, or shares of a privately held family business.
In my own case, I start by asking one very, very important question …
How My Grandpa Dennis Could Have Turned His Pepsi Habit Into a 7-Figure Estate I’ve written in the past about how nearly every American alive today has been confronted with perhaps a dozen different companies that they knew first hand because they enjoyed using the firm’s products for years (in some cases, their whole life)…
The mail just arrived. I have the new Sears Holdings 10K, the Union Pacific 10K, the Panera Bread 10K, the Charles Schwab annual report, and a host of others. How on earth am I supposed to write now? I want to read!
We are expanding our shaving section at a retail business we own and one of the things I’ve been testing is the Truefitt & Hill line of shaving creams, shaving lotions, aftershave, colognes, and other products. It is toward the higher end of the price point when it comes to luxury shaving sets for men (a bottle of aftershave, shaving cream, cologne, and shaving oil would retail for $202.00) but after using it, I don’t think I could ever go back to the products I used for most of my life.
Truefitt and Hill is the company that has been making shaving creams and personal fragrance products for the British royal family and aristocracy for centuries. In fact, they crafted a $2,000+ sterling silver shaving set that is available via special order and is purportedly used by the House of Windsor. The company history is magnificent and it is clear to see why when you experience the products themselves.
The fragrances of the Trueffitt and Hill shaving set family are unique – you aren’t likely to find anything comparable among the other shaving set companies. You are also going to find that they become personal. Once you find the one that pleases you most (or your spouse, depending upon who has the stronger opinion), you aren’t likely to deviate. We have customers that specifically stop by to refill on their fragrance of shaving cream when they are in need of a new box.
I mentioned yesterday in the article on Dairy Queen franchise owners that after graduating from college, Aaron and I had looked into putting capital to work by opening several franchises in the town where we grew up.
We thought it would be a good place to invest the money we were earning from our other businesses without having to be involved on a day-to-day basis. In other cases, we thought it might be a good way to structure companies so that our immediate family members could make an investment alongside us and, in some cases, run the companies as managers / minority-owners.
One of the companies we researched was Cinnabon, the maker of (what I consider) to be the world’s best cinnamon rolls. The company’s owner, Focus Brands, sent us a franchise disclosure document and I began working my way through it. I love the Cinnabon brand and the idea of owning a local Cinnabon franchise is appealing because it would mean I could grab a cup of coffee each morning from my own business. It obviously wouldn’t be a large part of our holdings, but it would have a certain emotional appeal and bring jobs to the local community.
Here are our thoughts …
Over the years, I’ve written a lot about dividends on the Investing for Beginners site at About.com. In fact, over the past few years it has been one of my absolute favorite topics to cover because through the Great Recession of 2007-2009, those who owned a collection of high quality dividends stocks were better able to ignore market fluctuations and avoid selling their ownership to pay their household bills.
It isn’t an infrequent thing I’ll hear people opine, “yeah, but who has money sitting around to invest enough to matter?” It’s then that I realize the wisdom of Solomon when he said, “Do not despise the day of small beginnings.” Most people don’t even try to begin collecting assets because the dividend checks start out at only a few dollars each quarter. But money is like a farmer growing a crop. It only takes a few seasons for the seeds you planted to begin to throw off enough seeds of their own for you to drastically increase your yield per acre.
Hard Work Isn’t Enough – You Need to Own Cash Generating Assets
It is almost exhausting reiterating this point, but let’s imagine that you owned $2,000,000 worth of Campbell Soup Company common stock. Regardless of what the stock price did, you would receive $64,000 a year in cash dividends mailed to your home or office, or directly deposited into your bank account depending upon your preference. That works out to $5,333 per month. Dividends are taxed at 15%, meaning you would only pay $800 to the government, resulting in $4,533 per month in cash income.
This money should come as long as Campbell’s products are still popular and generating profits, even if you don’t get out of bed in the morning. It is your reward for not spending the money and instead investing it in companies that create jobs and grow the economy. (After all, you could have taken the whole investment and gone to Vegas, or redecorated your kitchen, or bought new cars, installed a swimming pool, etc.)
Since We Know That Most Wealth Isn’t Inherited, How Do You Get the Money to Invest?
We know, from virtually every study ever done on wealth in the United States, that 90% of American millionaires did not inherit their money. They are first generation rich, with a vast majority coming from the middle class or lower class. Most put themselves through college, and most are married. Since they all started out exactly like you, how did they get the money to buy the $2,000,000 worth of Campbell stock? It isn’t like the tooth fairy just showed up and dumped a pile of cash on their doorstep.
One of the Things That Helped Me …
From time to time, you may come across reference to my “stupidity” insurance or my “reserve” fund. I’ve had a bunch of readers write me over the years and ask about various comments I’ve made so I thought it might be useful to explain it. My parents, siblings, and Aunt Donna have always known about my investing but virtually no one else did when I was a child (by the time I got into high school, though, it was all I talked about so hiding it was no longer an option).
For those of you who are older than 14, this isn’t going to do any good unless you have children or grandchildren that may benefit from some personalized version of it (which is why I’ve never written about it). By the time I was older, we had put almost all of my siblings on a modified system that helped to guarantee they would enjoy the same outcome in their own retirements. This plan has some resemblance to the dividend trust program I described in an article on student loan debt.