Shh! It's the investment of a lifetime!

Imagine you just found the world’s best investment. It’s the kind of fat pitch Uncle Warren told you to wait for. Can’t lose. Let’s call it Parfait Corp., because everybody likes a parfait.

You stumble upon this company because you were searching for dessert recipes. But you can’t believe what you see. The balance sheet is rock solid. The business is generating prodigious cash flows, which are being used to pay a fat dividend and buy back shares. As far as you can reasonably tell, the company faces little to no threat of disruption, and possesses advantages over competitors that should endure for at least next decade. 

To top it all off, it’s trading at a very low multiple. Nobody, it seems, has heard of it. No analyst coverage. A Google news search turns up nothing. It’s just sitting there, making shareholders rich. 

So you sell your other stocks, and buy shares. You borrow against your home, and buy more shares. You reinvest your dividends into even more shares. Every spare dollar goes into buying more of this absolutely amazing investment. Quarter after quarter, management delivers stellar results that consistently exceed expectations. 

You can’t believe your luck. 

Now here’s the question - do you tell anyone else about Parfait Corp? Or do you keep it to yourself? 

For every buyer, there’s a seller

If this is such a great company, who is selling you all these shares? 

It could be someone who doesn’t agree with your opinion on this company’s future (not everyone is as smart as you are).

Maybe they are just financially illiterate and can’t read the financial statements. 

Perhaps they need to raise money to buy a boat or fund a divorce settlement. 

Maybe it’s an estate being liquidated for distribution.

Whatever the reason, it doesn’t really matter. All that matters is that someone is willing to sell you these shares for far less than they are worth. 

You want to keep it that way, right?

Can you keep a secret?

There will come a day when you’re ready to sell your shares of Parfait Corp. But that’s not today. Why would you? Why would anyone? It’s hard to think of a better use of your investment capital right now. 

You’re not buying it to sell it, you’re buying it to accumulate it. If you end up owning the whole company, so be it. 

So why would you screw up a good thing? 

Someone is selling you the shares, cheap. 

And there is very little competition in the marketplace - nobody else is interested in buying the shares that go up for sale. 

This is a perfect setup for long-term wealth creation. And the way to keep it going is to keep your big mouth zipped and not tell anyone else about Parfait Corp. 

Why would you do anything different? 

Ponzi economics

Before we continue with the story of Parfait Corp, a brief pivot to discuss the important issue of sardines (trust me, this is going somewhere). 

In Margin of Safety, Seth Klarman made famous a story told in the 1986 Sequoia Fund Annual Report: 

There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, "You don't understand. These are not eating sardines, they are trading sardines."

Trading sardines are not for eating! It doesn’t matter what’s in the tin. As long as enough other people want to buy cans of sardines, you’re going to make money buying and flipping those cans. 

It’s in your interest, as a sardine trader, to ensure that interest in sardines remains high. Tell your friends! Tell your neighbours! Tell your in-laws! 

One can imagine a high profile CEO pivoting his whole company around buying up sardines. Perhaps that same CEO will spend all day on Twitter and CNBC telling people "The only use of time is to buy more sardines. Take all the money and buy more sardines... take all your time to figure out what you can sell to buy more sardines… and go mortgage your house and buy sardines with it, and if you’ve got a business, finance it and convert the proceeds into sardines.” 

Interest in sardines cannot be allowed to wane, because then your cans of rotten sardines will be worthless. It is imperative for you to spread the gospel of sardines. “This is real wealth,” you will tell people. “Sardine cans are outside the purview of governments and central banks. Sardine cans are real money.” 

Parfait or sardines?

You don’t want anyone to know about how good an investment Parfait Corp is. Parfait is going to do amazingly well for you, no matter what other people think of the investment. In fact, the longer it remains undiscovered, the more of it you can own. 

On the other hand, you need everyone to be convinced that sardines are the future. And the only way you escape with a profit is to sell your sardines to people at the same time you’re telling them how great sardines are and how they have to hold onto those fish for the long term. 

Which asset would you rather own? 

This isn’t about sardines

As you’ve probably guessed by now, this has nothing to do with sardines. 

In other news, last week the SEC approved ETFs based on spot Bitcoin prices.