The Best Portfolio Structure Now

by | Jul 11, 2002 | Archives

Our last message showed one way to prosper in the current difficult economic conditions. See

However the best portfolio structure came to me from a reader who has moved to Ecuador when he wrote.

“Gary, Based on your last email message concerning economic cycles, I wanted to let you know that I am funding my business here in Ecuador because before I departed for here in January I COMPLETELY SOLD ALL STOCK HOLDINGS and left only a small amount in a Roth IRA. I am investing that money in a business here. I might ad however that I kept my real estate investments in the U.S. enjoying your emails…”

My reply to that reader sums up my current investment thinking.

Good thinking! I am in a similar position, just small bits of stock, more in real estate and most in my business.The best investment you can make today is in your own business. There are numerous reasons why.

The first is summed up in an article about an Avon lady in Argentina which shows how small businesses can continue to provide even in the most dire circumstances. This recently appeared in the Miami Herald.

BUENOS AIRES – For 20 years, Avon lady Maria Saenz sold makeup over coffee at friends' homes in the suburbs of Buenos Aires. Nowadays, she hawks her wares door-to-door in a search for clients.”I've never had to cold call before, but now I'm forced to,” said Saenz, 59. '”I've lost 70 percent of my business in the past six months and I desperately need new customers.”

Saenz, like many of Avon's 180,000 independent representatives in Argentina, has lost sales as the country's recession enters its fifth year. Avon says hiring more salespeople and keeping prices low will enable the cosmetics maker to recapture those sales after the economy revives, as it did when currencies in Mexico and Brazil slumped in the 1990s.

“They have been able to manage through the turmoil”, said Keith Patriquin, analyst with Loomis Sayles & Co., whose $64 billion in assets includes about 650,000 Avon shares. “They can gain market share and neutralize the impact of the slippage in the economy.”

“This year, the world's largest direct seller of makeup will earn between $10 million and $15 million in Argentina, rather than the $60 million the country would have contributed had it not been for recession and a weakening currency,” said Andrea Jung, Avon's CEO.

Sales have been hurt by a 73% decline in the Argentine peso and falling consumer spending because of record unemployment, inflation and restrictions on bank withdrawals.

“There's almost no expense for Avon to add new representatives,'' said analyst Linda Bolton Weiser, who rates Avon a ''strong buy'' and doesn't own the stock.”The message here is far beyond a buy recommendation for shares in Avon. What we can see here is that if we have our own business, there is something we can personally do about bad times.Take for example my own position. When Merri and I sold our home in Florida and parts of our business, we stuck all the cash into AAA rated short term bonds earning 6% and better and had more than enough cash to live off our investments. As those bonds mature, the story may change. Now we can only earn 2% to 3% if we want to keep our capital in the safest investments of all. So like thousands of others we ask if we want to have riskier investments that offer a higher return, do we draw on our capital to live or do we reduce our standards in our material life?

The answer that we have come to is we don't have to use any of the three compromises above. Instead we (as did the Avon lady in Argentina) simply work a little harder in our own business to increase our income. We keep our capital in safe investments, accept the lower returns and simply wait. If history repeats itself, we will soon see higher yields on safe investments.

The point of this message is that we control our own business. All of us can see what is happening in our own businesses. We have learned via Worldcom, Enron etc. that we cannot always see what is going on in the shares we might hold! and we can do something about problems and difficult times.The moral of this message is that even in the deepest economic turmoil, a great segment of the population does okay and parts of society do well. All the negative stuff we are bombarded with by the media is just useless noise! What counts is our ability to serve in our market place. This ability can help us have more success and everlasting wealth regardless of what markets or the economy does.

This is why a major part of my speaking at the upcoming course in Copenhagen – see – August 28 through September 3 will be on tips on how you can enhance your income forever in a business you enjoy!

Until next message, I wish you never-ending affluence!