When investing, it’s essential to understand if what you’re buying is a productive asset.

What does that mean? Well, these assets produce profits or cash, which you can spend or reinvest.

We could analyze any given collection; dolls, glassware, coins, stamps, travel memorabilia. For me, it was baseball cards. As a kid, I spent countless hours watching baseball and loved collecting cards. As it turns out, this was a predecessor to an investing career. I’d try to figure out which players would prove themselves in the major leagues and push their card prices higher. It’s like investing, as we’re trying to pay bargain prices for the great companies of tomorrow.

In this pursuit, I’d spend a few dollars of hard-earned money on packs of cards at the local Five & Dime Store. Many collectors entered the hobby during the 1980s, and card companies responded by printing billions.

Now, as much as I enjoyed looking at the cards, they didn’t do anything. I wasn’t planning on selling them. Their worth was only defined by how much I enjoyed them or what someone would be willing to pay if I decided to sell. Baseball cards are not productive assets.

Fast forward to today—I’ve since donated many of the cards to charity and only kept a few for sentimental reasons. They’re not worth much since I don’t look at them very often, and no one wants to buy them.

Why does this matter? Well, let’s say I spent $1,000 as a kid on this hobby. The value of the collection today would be lucky to top $100. Those cards didn’t do anything except sit in a shoebox for many, many years.

What if I had put that same amount of money in the stock market? I’d have owned businesses that innovated new products, helped their customers, and created profits. Businesses are productive assets. Buying shares of the largest 500 companies in the United States (S&P 500) would have provided a return of over 10% a year. My $1,000 investment would have 27-folded by the end of 2019 and be worth $27,000! While an expensive lesson for me, I hope it helps you determine whether something is productive!

Let’s apply this thinking to another example that we hear about today. Clients sometimes ask whether gold is a good investment. In a nutshell, gold is not a productive asset.

There’s estimated to be 190,000 tons of gold mined in the history of the world. If we melded that all together, it would form a cube 69 feet on each side that would comfortably fit within a baseball infield. Warren Buffett described gold this way, too, in Berkshire’s 2011 annual report. You can take selfies with it and hug it, but it just sits there collecting dust—not productive!

Instead of that gold cube, you could own all the shares of 95% of the companies in the S&P 500. Those companies produce about $750 BILLION PER YEAR of profit [FactSet financial data and analytics]. Now that’s productive! Which would you rather own?

Adam Sweet

Adam Sweet, CFA, CFP® Senior Portfolio Manager, Partner Adam always wanted to help grow an investment business with partners of integrity, intelligence, and initiative, and is grateful to have found that at Jacobson & Schmitt Advisors. The opportunity to invest using a long-term approach, to think and act as business owners, and then to share those outcomes alongside clients was a great fit. Adam followed his passion for investing after a career in engineering. The data-driven decision making, analytical skills, and focus on process enhancement honed as an engineer have helped improve client’s investment results. He most recently served as a Portfolio Manager at Madison Investment Advisors, co-managing $2 billion of client assets as part of the U.S. Equity Team. Adam is a Chartered Financial Analyst (CFA) Charterholder and earned his MBA specializing in investing from the University of Wisconsin-Madison. Adam and his wife live in Fitchburg with their two children. He also serves as a board member of The Road Home, helping homeless children and their families to achieve affordable, stable housing. In his free time, Adam enjoys playing racquetball and tennis, fishing, and spending time with family and friends.

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