The Goose and Gander of Investing
Is it true that – when it comes to private vs public Wall Street investing – what’s good for the goose is good for the gander? From the centuries old the metaphor, we’re to understand what’s good for one, should be good for both in equal inputs, measures and outcomes.
Sadly, the reality is when it comes to investment “what’s good for the gander is far better for the goose”.
It’s a question that’s played us and many in the investment community for a long time, and what we’re seeing is a sea change.
Why? If you took a cross section of our investors, you’d find they’re from all walks of life and a pretty good representation of ‘average’ America.
We’re proud of the relationship we have with our investors. They’re our greatest strength and differentiator all at once as together, we’ve created the most elegant way of investing privately.
Let’s sit back for a minute and remember the majority of us – if not almost everyone – was raised thinking Wall Street as ‘the way’.
We’ve never questioned the well-diversified portfolios of stocks and bonds, mutual funds managed by professionals, or the how investing is far bigger than Wall Street paper assets.
While Wall Street is the proverbial gander, private investing is the golden goose, so what’s good for the gander is far better for the goose.
If the gander represents Wall Street, handing your money over as a young fledgling is akin to putting your investment in, and over time, using cost dollar to average in Wall Street.
In this investment strategy, all we can do is pray to the good lord of geese that Wall Street paper assets go up in value over time.
We’re relying on faith and trust in a casino riding on luck rather than true investment, but still believe – over time – these will be worth more than then their original purchase price.
Year after year we give our surplus investment dollars to Wall Street and wait for the gander to get very fat.
Perhaps after five years this gander will be twice as fat or twice the price from when we paid for the gander, but the leather-bound investment book or annual report looks fantastic on the shelf at home. But what if we feed our goose in a completely different way, and raise it differently?
For us, the goose represents private investing specifically in real assets, like real estate. We put the same amount of money into the goose investment as we did into the gander investment at the beginning. Each year, we collect rent from an end-user who is enjoying our real asset for their own benefit.
Renters are happy to pay us a fee at a rate higher than the debt we used to buy the goose, and all related expenses.
The difference is – is net income – and as each year goes by, the goose grows at a similar pace to the gander.
Five years passed and we have clearly seen how the goose has grown and – hopefully –doubled in value from the price we paid. To maximize their value, we’re sell them in the marketplace to the highest bidder, just as Wall Street does, and everyone profits. Right?
The big difference between these two types of investing isn’t obvious at first until you look at the numbers.
The goose was far more valuable than the gander, so wrote the same check to buy the goose but added leverage, or debt, to make up the difference. The gander was purchased at full value, but the amount wrote the check for $20,000 was the same for each. This means we paid $20,000 for our gander investment in Wall Street. We also paid $20,000 down payment for a goose investment of $100,000.
After five years both have doubled in value from their original purchase price. The goose went up to $200,000, and the gander went up to $40,000. In this scenario you could say both of our investments went up by 100 percent and you would be right. However, our returns are different.
The goose was sold for $200,000; we repaid $80,000 in debt. Of course, our interest had been paid each year by our renter, so we still owe the full principal amount and we now returned $100,000 profit. Our gander was sold for $40,000 which created a $20,000 profit. In addition, each year our goose gave us golden eggs which we ate and only had mild, if any, tax exposure because of the annual tax incentives provided to goose owners.
Both investments grew by 100 percent, but the owner of the goose experienced five times more wealth than the gander owner. Ultimately, should the metaphor today be that private investing is truly the goose gifting golden eggs.