Re:Wherever oil goes, the stock market goes
by logfromblammo on Monday February 15, 2016 @01:50PM
(#11105130)
So if you can't find a better return, you just drop everything into physical possession of precious metals, as the "inflation" there is limited to the amount of additional metal that mining can extract from the Earth. Paper money inflation is limited only by the number of bytes you can fit in your central banks' computers.
You still lose purchasing power in a relative sense over time, but limited to about a -1.5% per year for inflation-adjusted gold.
But really, it isn't that difficult to find an inflation-adjusted return better than -1.5%. Even a local family-owned restaurant could probably manage to eke out +0.1% or better just by hiring a part-time professional food-service manager to overhaul the formerly ad-hoc business strategy of mom and pop.
The problem is that many large investors don't even want to bother with thousands of small businesses, because you need to invest in a lot to average out their risk factors, and each of them would require a lot of individual attention to become more profitable. Large-scale investors don't even want to deal with just a single chain restaurant brand like Olive Garden or KFC, so they buy Darden or Yum! instead, because food service is such a low-margin sector overall that you literally need thousands of restaurants in your portfolio in order to be a worthwhile investment to someone that is hands-off.
Small business discovers it is more difficult to find investors with both the money to burn and the time to spend babysitting a relatively small investment. VCs don't want to invest $100k in a small business, restructure it, and then get $200k of value back; they want to invest $10M in a small business, restructure it, and get $100M back. Even if you could somehow bundle up all the locally owned single-location restaurants in the US, divide them up into grades and classes, and resell to investors, it would still be an unpopular place to park money. But if you could instead convince all those restaurants to take out small business loans, and you resell those, you're suddenly rolling in money. Lending is just a better, safer business to invest in than small-time food service.
You still lose purchasing power in a relative sense over time, but limited to about a -1.5% per year for inflation-adjusted gold.
But really, it isn't that difficult to find an inflation-adjusted return better than -1.5%. Even a local family-owned restaurant could probably manage to eke out +0.1% or better just by hiring a part-time professional food-service manager to overhaul the formerly ad-hoc business strategy of mom and pop.
The problem is that many large investors don't even want to bother with thousands of small businesses, because you need to invest in a lot to average out their risk factors, and each of them would require a lot of individual attention to become more profitable. Large-scale investors don't even want to deal with just a single chain restaurant brand like Olive Garden or KFC, so they buy Darden or Yum! instead, because food service is such a low-margin sector overall that you literally need thousands of restaurants in your portfolio in order to be a worthwhile investment to someone that is hands-off.
Small business discovers it is more difficult to find investors with both the money to burn and the time to spend babysitting a relatively small investment. VCs don't want to invest $100k in a small business, restructure it, and then get $200k of value back; they want to invest $10M in a small business, restructure it, and get $100M back. Even if you could somehow bundle up all the locally owned single-location restaurants in the US, divide them up into grades and classes, and resell to investors, it would still be an unpopular place to park money. But if you could instead convince all those restaurants to take out small business loans, and you resell those, you're suddenly rolling in money. Lending is just a better, safer business to invest in than small-time food service.