Protecting Your Assets

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Privacy in the Internet Age is an oxymoron.

Privacy anywhere is hard to find these days, but on the Internet, it simply doesn’t exist unless you really put a lot of time, money and effort into it. In an age of interconnected devices, your every step and action is being tracked and monitored whether you think so or not. Your cellphone tags your location every second of every minute of every day.

Your cellphone tags your location every second of every minute of every day. Your Google search log records your private thoughts, interests, and impulses. Your text messages and social media postings capture every detail of your life, often in perpetuity and not often in the best light. Once released from your fingertips, your data is out there forever, whether you erase it on your end or not.

Ask any celebrity who has posted or texted an ill-advised message or photo. And it doesn’t end there. Your store purchases produce records of your spending habits. Even your photos are embedded with data like time and location. Everything you do and everywhere you go, you leave a digital footprint that reveals everything about you and your life. And all this information is valuable to governments, corporations, and hackers, all keen on profiting in one way or another from your personal information.

Not only is your personal data vulnerable to exploitation but your very livelihood and financial assets are at stake and if they fall into the wrong hands, your world could change in an instant. In order to protect your assets, you can no longer hide behind walls. What you need to do is eliminate the trail. A wall of privacy is no longer adequate. If recent memory and hacks should teach us anything, it’s that walls will be breached no matter how big the corporation or government or how deep the pockets that erected these walls. The key isn’t to hide behind walls but to eliminate the trail of ownership. If nobody knows what you have, and where you have it, they can’t find it. And if they can’t find it, they can’t seize it.

Today, with a simple click of the mouse, all your financial accounts can be located with little difficulty, including bank account, credit cards, mortgages, etc.. All you have to do is Google ‘locate bank accounts’ and you’ll find online subscription services and other sites willing to locate and identify a person’s physical and financial assets including a list of cars, boats, financial accounts, land and real estate. The more you own, the bigger target you are for those seeking an easy payday. If you’re a business owner or professional, your exposure to risk is even greater. The more assets you have, the more information you’ll have floating out there in the ether (i.e., the “Cloud”) and the more you’ll have to lose financially.

While the methods to your locate financial accounts may be unethical, and perhaps even illegal, many unscrupulous individuals and organizations are always looking to rig the ‘system’ for a big payday. Case in point: In today’s litigious society, it doesn’t take much for someone to aggressively go after your assets. The last thing you want to do is to allow ambulance chasers to put your hard earned assets in their crosshairs. That is one of the reasons I’ve always been drawn to alternative investments – the privacy it affords. Some investments in this sector cannot be easily found. It would be a challenge for an asset searcher to find assets you hold through anonymous entities with diversified holdings in private debt or equity, real estate, precious metals, or other assets in the alternative class. Potential hackers, creditors, and attorneys typically look for assets which are easily identifiable and obtainable. The ownership of alternative investments, if structured properly would not fall into the category of easily identifiable and attainable assets.

Privacy in the Internet Age is an oxymoron.

One of the most vulnerable areas of exposure to asset seizure is personal injury. You get into a car accident that “injures” someone else. If you have deep pockets, you can be guaranteed that personal injury attorneys will pursue damages beyond the insurance policy limits. If you were in a Ferrari at the time of the accident, you might as well walk around with a shirt with a big target on your back. That’s because, these attorneys are looking for deep pockets in the form of cash, investment accounts, unencumbered cars/boats or personal real estate within the state of the claim that they can seize on behalf of their clients and charge their 50% commission. These assets are the easiest to identify and obtain.

Asset protection is where the value of alternative assets comes in. Holding alternative investments through domestic or offshore anonymous business entities provides layers of protection difficult to peel, track and connect for finding seizable assets. That’s why many savvy investors and businesses hold domestic alternative assets through offshore business companies or corporations in jurisdictions like Nevis or Belize whose governments and courts are keen on protecting foreign investors by ignoring the laws and courts of the seizing jurisdiction. Alternative investments, unlike registered stock brokerage and financial accounts, can be taken off the grid and protected from unscrupulous actors. That is why at Four Peaks, our investment focus is entirely on alternative investments, specifically in the real estate sector. It affords our investors an additional layer of peace of mind.

Alternative assets are not only valuable tools for protection from potential seizure but also for protection from the volatility of Wall Street. We’re drawn to the alternative asset class not only for its asset protection advantages but also because it’s uncorrelated to Wall Street. If the history of stock market crashes has taught us anything, it’s that humans are irrational and anything can cause a stock market crash. Scott Nations, author of “The History of the United States in Five Crashes,” delved into five major modern-day stock market crashes and found that they all had the following in common:

  • An overvalued market;
  • A type of financial contraption; and
  • An external catalyst, frequently unrelated to the stock market

The second and third factors can attribute to human irrationality. And when you’re dealing with human irrationality, you’re talking about volatility. Focusing on the second factor, what are examples of financial contraptions? First of all, financial contraptions are basically overvalued financial instruments inflated by irrational expectations and unsound economics. Scott Nations gave as examples of financial contraptions, the dotcoms that fueled the boom of the early 2000’s and the mortgage-backed securities that fueled the boom of the mid 2000’s.

They were contraptions because they were basically created in the Wall Street lab and pushed by the market’s mad scientists and were lapped up by the gullible public hungry for the next big thing. We all know how both those booms ended, but they both started with artificial inflation fueled by irrational behavior and expectations, with neither one backed by any sound financial principles. They were created and pumped by Wall Street on a large scale. The same could be said of cryptocurrencies that are devoid of any intrinsic value.

The third factor – an external catalyst unrelated to Wall Street – once again highlights the vulnerability of Wall Street to human irrationality. Markets closed for 6 days following the 9/11 attacks in 2001. On the first trading day after the attacks, the market fell 684 points, or 7.1%, for the largest one-day loss in the history of the stock market. Other crashes can similarly be linked to disasters. The 1907 stock market crash was set off by the catastrophic San Francisco earthquake of 1906, and the 1987 Black Monday crash was partially impacted by the Iran War. None of these disasters really had anything to do with the broader economy. The stock market crashes brought on by these disasters demonstrate the general skittishness of investors and the general vulnerability of Wall Street to volatility and fear. Did you know that Wall Street even has a gauge for general investor skittishness to track potential drops and booms? It’s called the Fear & Greed Index. You can see it here:

http://money.cnn.com/investing/about-fear-greed-tool/index.html

The Fear & Greed Index is based on the premise that investors are driven by two emotions: fear and greed. Too much fear can sink stocks well below where they should be. When investors get greedy, they can bid up stock prices way too far. The index attempts to gauge whether fear or greed is the current driving emotion to predict whether the market will go up or down. The following indicators are used in factoring the Fear & Greed Index:

  • Stock Price Momentum: The S&P 500 (SPX) versus its 125-day moving average
  • Stock Price Strength: The number of stocks hitting 52-week highs and lows on the New York Stock Exchange
  • Stock Price Breadth: The volume of shares trading in stocks on the rise versus those declining.
  • Put and Call Options: The put/call ratio, which compares the trading volume of bullish call options relative to the trading volume of bearish put options.
  • Junk Bond Demand: The spread between yields on investment grade bonds and junk bonds
  • Market Volatility: The VIX (VIX), which measures volatility.
  • Safe Haven Demand: The difference in returns for stocks versus Treasuries.

The research by Scott Nations and the Fear & Greed Index reinforce what we at Four Peaks have known all along – that humans are irrational and this irrationality contributes to Wall Street volatility. Wall Street analysts have been and are still constantly seeking ways and methodologies for predicting stock market upturns and crashes, but the only true constant they’ve discovered is that the stock market is volatile and unpredictable. History has taught us that anything can wipe out wealth tied to Wall Street in an instant. A natural disaster, any hint of global conflict, etc. could result in you losing your hard-earned wealth in one day.

At Four Peaks, we embrace an asset class that is completely immune to the unrest in the world because it’s uncorrelated to Wall Street. The dynamic changes on Wall Street will never affect our returns or valuations. It was our intention from the beginning that the asset class we chose to pursue met this minimum criterion that it not be tied to Wall Street volatility. That is why we invest in the real estate subsector of mobile home communities (“MHC’s”).

MHC’s are not only uncorrelated to Wall Street but have proven to move in the opposite direction of the rest of the economy in a recession with more people seeking affordable housing in challenging financial times.

So, how is the health of your portfolio?

How correlated is it to Wall Street?

How much is affected by the media?

How much is affected by the fear or paranoia of the masses or military threats between countries?

Are you over-exposed?

If so, look at choosing an asset class that has a low correlation value to Wall Street and the headlines. Look for alternative assets. Within alternative asset classes, look to real estate. And within real estate, look at mobile home communities.

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