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I had an interesting discussion with a friend today and want to see if any of the creative investors on this Board have thought about this or have any unique insights/ideas.

 

My friend works at a large family office that is pretty forward thinking, and with the equity and bond markets both priced quite richly, they have had a few discussions about what types of non-stock/bond market investments they could be making that would offer strong risk-adjusted returns. They have done this successfully in the past, and are eager to find new opportunities where they can put capital to work. Importantly, their capital is long term, and they are not held back by fear of a bad reputation or making career-limiting moves--in fact they eagerly pursue ideas precisely because they might be considered less institutional.

 

As an example, they were large scale investors in foreclosed homes very soon after local banks began to have a significant amount of their capital tied in owned real estate. Soon after that, though, they realized the real liquidity vacuum was in lending to real estate investors, and between 2009-2012 they had been able to source very well-collateralized loans to all sorts of real estate investors and developers at double digit interest rates. While the absolute return of mid-teens are not astounding to many investors on this board, in the context of their portfolio, it was a great source of return considering the extremely low risk--I think they never lent out money beyond 50-60% a loan-to-value. Further, they were able to put lots of capital to work in this theme.

 

Anyways, as the returns in that area have now become significantly less attractive, they are looking for new areas of opportunity where they can again either fill a liquidity void or be an early institutional investor in industries or asset classes that are not yet institutionalized, or where temporary dislocation or structural issues have caused institutional capital to be scarce. Basically, if its obvious or clean enough for a typical institutional investment firm to be involved, they are not really interested....Anyone have any creative ideas?

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traded life interests?

 

Ugh, such a scummy business.

 

Yes, not sure of the reputation for this in Holland, but in the US it's a gutter business.  Someone who runs a local strip club is going to garner more respect than someone doing traded life interests.

 

There's also some question as to the legality of this in the US.

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Investing in LEGOs? I don't know if anyone has any experience in that field, but it can turn out well if you know what you are doing. Since the market for those doesn't really operate on a fully rational basis, there might be some ways to make money here.

 

Funny you mentioned this, I think selective investing in the Series 10 Collector series does offer quite compelling returns. Especially the early Star Wars sets such as the Star Destroyer and Millenium Falcon were worth your while back in the days. Nowadays I focus on series that are known to have a very limited production line or that have an exclusive history (like for instance the co-operation with Maersk, which together with Lego are the two richest families in Denmark). I think around 2.5% of my portfolio is invested in Lego boxes.

 

Of course my personal downside is limited as I do not mind building the sets instead of selling them :D

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Why not hire some small hedge fund to run some money. For example Corner Market Capital Corporation.

You only pay them if they preform and no pesky labor laws and stuff for staff managing family money.

And the upside is that if they loose big they are whipped out as well.

Not being mean here just saying like Munger says 95% of the population don't understand incentives enough. 

Off course family adviser might not like that idea :D 

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traded life interests?

 

Ugh, such a scummy business.

 

Yes, not sure of the reputation for this in Holland, but in the US it's a gutter business.  Someone who runs a local strip club is going to garner more respect than someone doing traded life interests.

 

There's also some question as to the legality of this in the US.

 

The person running the local strip club is like a pillar of the community compared to someone in the life settlements business.  If I had to choose who would watch my kids (assuming a gun was put to my head and I had to choose) between the 2, I'd take the strip club guy over the life settlements guy.

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Thanks for the postings so far. Looks like the main ideas so far have been:

 

Traded Life Interests: I don't know too much about this area, but my understanding is that it actually is quite an institutionalized market, with several publicly-traded firms that participate. I've always thought about traded life interests as similar to reverse mortgages, as offered in so many daytime TV commercials--essentially the reverse mortgage provider gets the house's equity upon death of the senior citizens who reside there. No doubt that both businesses employ some shady characters, and there's probably some historical alpha associated with the non-desirability of owning (or being associated with) them such as with "sin" stocks but without knowing too much about it, I think the main concern is that its already simple for institutions to access the market.

 

Helium: T-bone1, any specific reasons why helium might fit the profile they are looking for?

 

Legos: To my knowledge, this would definitely put them on the frontier of a new asset class. But, unfortunately, assuming they were willing to become (or hire) experts in the Lego field, I imagine it is nearly impossible to put tens of millions to work in Lego boxes and not completely move the market.

 

Any other interesting ideas? I know at one point they considered buying royalty streams from the estates of dead artists. Another interesting area my friend mentioned was that they looked into financing recovery expeditions of old ships that were believed to have sunk with significant valuables.

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In cold climates, air source heat pump can generate about 20% ROI. They could offer to own the heat pumps at the customer's sites and the customers would pay in instalments. Since the savings would outweight the payments the customers would gain as well.

 

BeerBaron

 

 

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I have friends who have bought shares in fine violins.ie,strads. The violin is lent to a deserving player, who cares for the violin and worldwide insurance is not a problem.

The long term play is that all fine instruments are going to Asia. China graduates 3 mm violinists a year. In contrast, there are 600 Strads in the world, of which 300 perhaps are in playable condition.

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After writing this, maybe this should go into the Investment Ideas board...

 

LEGO is a cool company. Despite being privately held they release financial reports (2012 AR attached), which seems odd to me (anyone know why? For the LEGO foundation maybe?). Just looking at some of the stats for the last five years shows they have a solid business.

 

Ratios (%)                      2012      2011      2010      2009      2008

Gross margin                  71.1        70.5        72.4        70.3        66.8

Operating margin            34.0        30.2        31.1        24.9        22.0

Net profit margin            24.0        22.2        23.2        18.9        14.2

ROE                                66.7        66.8        84.8      82.3        72.2

ROIC                              140.2      133.4      161.2      139.5      101.8

 

LEGO has a few competitors that do blocks. Mega Brands, CoCo and Best-Lock Construction Toys. LEGO has sued all of them and only won against CoCo. Maybe that's why they been expanding into more branded lines (Star Wars, Harry Potter, etc) rather than their own designs.

 

Other relatively similar building toy competitors are K'nex, Erector, and those marble track toys. They're pretty different than LEGO, but are still fun toys for kids. I know my friends and I all had some of them, but overwhelmingly we had LEGOs.

 

From what I know about playing with LEGOs as a kid (the other brands weren't as good) and looking at the current line up of big name products, they seem to have a solid hold on this market. I wonder how long it will last? Big margins and high returns will attract other entrants. What is LEGOs defense? A combination of patents/lawsuits and licensing deals with the hottest new brands? This seems to have worked on CoCo, but not with Mega Brands or Best-Lock Construction Toys.

 

In 100 years I would be very surprised if kids no longer played with LEGOs. Also, I'd be surprised if LEGO doesn't grow hugely all over the world.

 

What do you guys think of LEGOs? I wonder if Buffett would buy this company for the next hundred years?

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I think at some point, competition will eat into their margins. I don't think the LEGO brand is all that important...especially for parents who don't want to pony up for "premium plastic blocks".

 

I think their only defense of their castle is the licensing deals with popular brands.

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I think at some point, competition will eat into their margins. I don't think the LEGO brand is all that important...especially for parents who don't want to pony up for "premium plastic blocks".

 

I think their only defense of their castle is the licensing deals with popular brands.

 

That incredible long term ROIC is a result of a moat. It's not "premium plastic blocks"...

 

 

 

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traded life interests?

 

Ugh, such a scummy business.

 

Yes, not sure of the reputation for this in Holland, but in the US it's a gutter business.  Someone who runs a local strip club is going to garner more respect than someone doing traded life interests.

 

There's also some question as to the legality of this in the US.

I don't think the business exists in The Netherlands, never heard about it anyway. Guess the market in the US might already be too institutionalized for the topic starter, but don't think it's very liquid anymore post 2008. I do own some traded life interests through a publicly traded fund (TLI.L) and they often have comments in this direction in the MD&A.

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Legos: To my knowledge, this would definitely put them on the frontier of a new asset class. But, unfortunately, assuming they were willing to become (or hire) experts in the Lego field, I imagine it is nearly impossible to put tens of millions to work in Lego boxes and not completely move the market.

 

 

Lego's U.S. sales in 2012 totaled to 1.32 billion dollars. So maybe not tens of millions, but a million could potentially be possible given a long enough time period. Worldwide sales were around 4.2 billion dollars. It's not quite a new frontier of asset class, but it could potentially be the first time an institution has looked at them seriously as an asset, collectors have often turned into speculators, websites like http://www.brickpicker.com and bricklink have led to collectors to turn into speculators of sort.

 

Since most legos are consumed in the sense that children tend to lose them, it doesn't really act like gold, but more like oil (not quite as inelastic but you get the idea). There may be a concern that the lego market will turn out to be like the baseball card market did, and implode due to ever expanding supply combined with a depreciation in quality. This seems unlikely however, given that the vast majority of legos are not bought to be saved in mint condition like baseball cards were, but rather to be consumed, reducing the likely hood of supply exploding.

 

Now whether a particular lego set holds value relates primarily to the scale of the set, the rarity of the pieces and the quality of the brand (starwars, harry potter...). A quality brand tends to grow in value rather than just retain it, Star Wars is probably the best out there as far as retaining value goes, Prince of Persia would be one that destroyed the Lego's value by essentially being bad at retaining or growing fans. The quality of the brand associated with the set matters a lot more than the set itself.

 

As per the scale of the set, large sets geared towards collectors have historically done well, but I'm concerned that this might backfire, as people nowadays are more likely to preserve their set's value than previously. Mid range sets probably make more sense, as it is more likely to attract both collectors and Lego's intended customers.

 

Rarity of pieces and quality of the set are also pretty important. I think if there was a way to analyze or even estimate sales trends per set then finding the right mix of sets would be quite possible.

 

Then again given storage and everything this might not be feasible, or even safe to do with a million dollars, not too sure about that.

 

I have experienced the Lego market first hand recently.  My son plays with the Duplos (very large Legos) and loves them, he has a number of sets.  He has a train set and in the instruction guide there is a picture of a bridge set, he's asked for it a few times.  Lego apparently releases a batch of sets, then a year later you can't buy them anymore, this bridge was one of those sets.  The original set was maybe $40 original cost, now it costs $200 on Amazon or eBay.

 

It got me thinking, how much are other Legos worth?  When I was a kid I loved playing with those things, and my parents kept them all and gave them to us for our boys.  I started to Google this, I was searching random sets that we have and some are very expensive now.  I have a train car set that goes for over $150 on ebay, a simple train car. 

 

Now the issue with these is we never kept them in mint condition, we played with them, the pieces are faded at times and in other sets pieces are missing.

 

I don't plan on investing in Legos, but after looking at eBay my wife and I have repeatedly said to each other "we're not throwing these things away!"

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That brickpicker site is incredibly cool thanks

 

http://www.brickpicker.com/forum/index.php/blog/4/entry-268-maersk-branded-sets-consistent-performers/

 

There goes my alpha :D

 

Wow, people seem pretty intense on there, in the comments I see them talking about buying boxes and never opening them.  It seems like the trick is buying a rare set, however you define that. 

 

To whomever was saying Lego's margins will fall, I'm not sure they will.  They have an effective monopoly on this, their moat is huge.  The competitors blocks appear cheap in comparison to Lego, and the kids want the Lego brand, not the value block with the giant tag line on the box "Works with other major block brand."

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Wow, people seem pretty intense on there, in the comments I see them talking about buying boxes and never opening them.  It seems like the trick is buying a rare set, however you define that. 

 

To whomever was saying Lego's margins will fall, I'm not sure they will.  They have an effective monopoly on this, their moat is huge.  The competitors blocks appear cheap in comparison to Lego, and the kids want the Lego brand, not the value block with the giant tag line on the box "Works with other major block brand."

 

Yeah I have successfully made money on lego boxes and still invest part of my money in them (although it's probably a zero sum game as I typically keep one of the 3-5 pieces that I buy of a certain set)

 

I also made money in investing in the right type of Jordan shoes.

 

Actually, come to think of it I think I have around 5k locked up in Legos (70%) and Jordan shoes :D

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Hey all:

 

I've had a few non-stock investments...

 

Back when i had a warehouse and a forklift to move things about, I invested in PENNIES!

 

Pennies minted before 1982 are 95% copper.  Thus, the pennies have MORE than a pennies worth of copper in them.  Today (10.17.13), they have about $2.2/cents worth of copper per penny.

 

I had a special machine called a "Ryedale" that would sort copper pennies from zinc pennies.  We would get a few hundred dollars of pennies twice a week and would feed them through the machine, and then return the zincs.  We had a standing order with our bank to have extra pennies delivered  ;) At the time, there was almost $.03/penny worth of copper in them.

 

Of course, you can't legally melt them down.  Not now...but I suspect that will change in the future.

 

I managed to accumulate a couple of pallets of copper pennies.  Now they are in storage locker...but a great way to get copper on the cheap if you willing to be patient.

 

I've heard stories of people owning TONS & TONS & TONS of copper this way....I've seen a video of guy who keeps 4 of the machines going all day long....

 

I also got boxes of "wheat" pennies, which are easily worth $.03 to $40(my best penny!), also a couple of handfuls of older "Indian" pennies.

 

If I get the time, space, and capital, I would get this up & running again.  It is only a matter of time before copper pennies exit circulation.

 

It is also a great hedge against inflation and collapse of the dollar.  What if in 10 years copper goes to $7 or $8 a pound?  Those pennies could contain $.07 or $.08 worth of copper! 

 

It is also an almost "no lose" proposition.  Those pennies will NEVER be worth less than $.01.

 

Your only expense is time, effort & storage and a minimal cost for machines...I calculated that I was getting just over $20/hour in value running one machine...A great hobby!

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Hey all:

 

I've had a few non-stock investments...

 

Back when i had a warehouse and a forklift to move things about, I invested in PENNIES!

 

Pennies minted before 1982 are 95% copper.  Thus, the pennies have MORE than a pennies worth of copper in them.  Today (10.17.13), they have about $2.2/cents worth of copper per penny.

 

I had a special machine called a "Ryedale" that would sort copper pennies from zinc pennies.  We would get a few hundred dollars of pennies twice a week and would feed them through the machine, and then return the zincs.  We had a standing order with our bank to have extra pennies delivered  ;) At the time, there was almost $.03/penny worth of copper in them.

 

Of course, you can't legally melt them down.  Not now...but I suspect that will change in the future.

 

I managed to accumulate a couple of pallets of copper pennies.  Now they are in storage locker...but a great way to get copper on the cheap if you willing to be patient.

 

I've heard stories of people owning TONS & TONS & TONS of copper this way....I've seen a video of guy who keeps 4 of the machines going all day long....

 

I also got boxes of "wheat" pennies, which are easily worth $.03 to $40(my best penny!), also a couple of handfuls of older "Indian" pennies.

 

If I get the time, space, and capital, I would get this up & running again.  It is only a matter of time before copper pennies exit circulation.

 

It is also a great hedge against inflation and collapse of the dollar.  What if in 10 years copper goes to $7 or $8 a pound?  Those pennies could contain $.07 or $.08 worth of copper! 

 

It is also an almost "no lose" proposition.  Those pennies will NEVER be worth less than $.01.

 

Your only expense is time, effort & storage and a minimal cost for machines...I calculated that I was getting just over $20/hour in value running one machine...A great hobby!

 

+1!

 

Did you get one of those machines that sorts them based on the sound they make when they bounce?  What did the banks that you returned the post 1982 pennies to think of you?  Have you ever looked into nickels?

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Did you get one of those machines that sorts them based on the sound they make when they bounce?  What did the banks that you returned the post 1982 pennies to think of you?  Have you ever looked into nickels?

 

I am not an engineer, so I don't understand the mechanics fully...but NO it does sort based on sound.  It is rather noisy, as there is a hopper feeding into the sorting mechanism.

 

It is my understanding that the copper pennies have a different electrical conductivity than zinc pennies.  The machine sorts them based off of this.

 

One of the problems was returning the zincs.  We took them to a couple of different banks.  It was a hassle, especially at first.  However, we had business accounts with them, so they allowed it.  I've heard stories of people dumping them in Coinstar machines and getting Amazon gift cards.  At the time, there was no service fee for doing that, so that was an easy to get rid of the reject pennies if you didn't have things set up with the banks.

 

I've looked into nickels, especially Canadian ones, but the premium is not big enough for me.  At best, I think nickels were worth $.06/nickel.  Pennies were worth $.03/penny.  Of course, that is how Kyle Bass got his nickname.  He bought $1,000,000 worth of nickels and took physical delivery of them!  I would have LOVED to be in line behind him at the teller....

 

TELLER: "Can I help you?"

 

Kyle "Nickels" Bass:  "Yes, I would like some nickels please."

 

TELLER: "OK, how many would you like?"

 

Kyle "Nickels" Bass: "I would like $1,000,000 worth!"

 

TELLER: "WTF ?!"

 

ME:  hahahahaha

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