D. Murali

Chennai: The earliest investment vehicle known to mankind was probably gold, says Shailendra Kumar in ‘Gold: God’s Own Currency’ from Spirit of India Books. “The first investments in gold were in the shape of ornaments. Gold’s unmatchable virtues of malleability, ductility, and resistance to corrosion made it an ideal metal for jewellery.”

There have been ups and downs in the popularity of gold as an investment avenue, but Mr Midas Metal is back into the ring, the author observes. “The main driver for gold as an investment right now lies in its appeal as an alternative asset.”

According to Kumar investors are increasingly realising that common investments like stocks, bonds, mutual funds, hedge funds, private equity, real estate, currencies, and art, are all correlated – if one asset class goes up, the other follows, and vice versa – and thus are risky for a portfolio. A well-balanced portfolio requires inclusion of some asset class like gold which is not correlated to the remaining, he argues.

Investment demand, led by instruments like ETFs (exchange traded funds), is to a great extent responsible for jump in gold’s price in the recent past, but the real story is yet to unfold, says Kumar. “Really large institutional funds are still watching and waiting until ETF gold holding increases to the level which brings in the liquidity to move in and out of the market without causing a cyclone…”

Recommended addition to the gold-watchers’ shelf.

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Ownership models

How can the level of company ownership be increased among everyday people? There are many ways. “For example, in Jamaica they developed related enterprise share ownership plans (RESOPs) that allowed employees not only to acquire shares in their small enterprises (which are notoriously unstable) but also in their suppliers and distributors (which could allow them to gain shares in larger firms),” write Darcy Hitchcock and Marsha Willard in ‘The Business Guide to Sustainability’ (www.vivagroupindia.com), citing the work of Jeff Gates. “Under programmes like this, even migrant farm workers can build a portfolio so their wealth is not just based on the number of hours of back-breaking work they can do.”

Similarly, CSOPs (customer stock ownership plans) allow customers to gain shares in such organisations as local utilities. “Alaska’s oil fund, which pays money to all residents annually, is another example where the benefits of a natural resource are shared by the community.”

Local, barter-based currencies also tend to favour small, local enterprises, the authors observe. “Perhaps the best-known example of this is in Ithaca, New York. There citizens created their own local currency called Ithaca Hours. These pay for everything from groceries to professional services but can only be redeemed at local businesses.”

The book echoes questions of significance that Gates tosses: Such as, why do most of the growth benefits go to institutional investors instead of employees? Why not offer preferential tax treatment to employee-owned ventures including cooperatives, which are used extensively in Costa Rica?

Imperatives that are impossible to ignore.

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Zeroing in

Hallucinations result from playing mental games. Including those about possible sources of competitive advantage for which there are currently no corporate examples, writes George Stalk in ‘5 Future Strategies You Need Right Now’ (www.tatamcgrawhill.com). A common hallucination is ‘zero cost of capital,’ Stalk mentions. “More and more senior executives are complaining about the challenge of competing with companies that behave as if their capital were free and unlimited,” he reports. The real issue, though, may not be the cost of capital at all, Stalk argues. “Instead, zero cost of capital is perhaps another way of saying that the competitor’s investment return horizon is much longer than your own.” If two competitors have the same cost of capital but one has a return horizon of a year and the other ten years, the ten-year competitor will seem to be behaving as if its cost of capital were zero, he reasons.

The book speaks of proven ways to lower a company’s cost of capital, as for example, ‘increasing debt and reducing dividends to fund growth, de-averaging the capital structure to match division structures by competitor, financing the company on certain stock exchanges, ensuring that capital productivity is very much higher than that of competitors by enhancing asset productivity, deconstructing the business to outsource the capital-intensive portions, and dramatically improved expense productivity.’

Distilled wisdom.

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