- Know thyself
- It's so high, you won't believe it
- My favorite unemployment investment
Today's letter has very little to do with an explicit commodities opportunity, but it has everything to do with how you should be investing today.
If I could condense my investment thesis into a single sentence, it would be "Boil down the markets into the simplest possible terms, and invest accordingly."
It's a strategy cribbed from the world's best investors such as Peter Lynch, Warren Buffett and Jim Rogers. But that's not why I keep it simple. I keep it simple because it cuts down on the amount of time I would waste researching unnecessarily complicated investments.
For instance, I know very little about the prescription drug business. Johnson and Johnson (NYSE: JNJ) might have the greatest pipeline of revolutionary life-extending drugs in the world, but I'm not a student of bio-chemistry. It would just take too much time for me to do the research on each of their drugs, let alone the standard balance sheet due diligence.
Couple that kind of extensive research together with the uncertainty of Obamacare's unknown variables, and I don't know how anyone can come to a salient conclusion about a single company in the healthcare sector.
It would take me too long to boil these uncertainties down into something even approaching an accurate investment strategy, in other words.
But some sectors are much simpler to understand, and therefore, act on.
Labor is one of, if not the biggest, cost factor for any given business. It's vital to understand the labor markets - and until all companies are run by robots and computers, it will remain important to look at employment numbers. You need to understand how labor fits into the equation for any investment you make. Just like oil, labor is one of those factors that you ignore at the peril of your investment success.
So when I see the Bureau of Labor and Statistics telling me that unemployment is currently at about 9.5%, I've always wondered: what about the people who aren't looking for jobs?
I want to boil those two numbers together, because for me, the real unemployment number is, by definition, the proportion of working-age adults who aren't employed. But the BLS has a unique and somewhat self-serving way of defining unemployment:
"People with jobs are employed.
People who are jobless, looking for jobs, and available for work are unemployed.
People who are neither employed nor unemployed are not in the labor force."
You're considered "not in the labor force" if you don't want a job, and you haven't been looking for a year.
Frankly, the distinction is utter nonsense. If you're not employed, you're unemployed - it's just that simple.
The reason I care to make this distinction is because it's vital to understand what's going on in the labor markets if you're going to be a responsible investor and make rational decisions based on accurate numbers.
To say that we have 9.5% unemployment is simply a lie. That's just 14 million people out of work. Unemployment, by any sane, rational definition is currently much, much higher than the government would have you believe.
According to a recent story in the Wall Street Journal, the real employment number, otherwise known as the civilian employment-population ratio, is currently at about 59% - which means that the unemployment number is about 41% - which accounts for an additional 82 million people.
That's right, about 41% of working age adults in the United States currently are not working.
They're "not-employed" to coin a new phrase.
So, now that we've condensed these numbers into something we can understand...what are the investment implications?
First, I'd like to disabuse any devil's advocates of the notion that some portion of these people aren't looking for jobs because they're independently wealthy.
There's no line in the monthly adjusted BLS employment report that denotes such a population of people, but there is a category which denotes that there are currently 699,000 people not in the labor force for "other" reasons, which includes a "small number for which reason for nonparticipation was not ascertained."
Let's assume, for the sake of argument, that 349,500 of those people are independently wealthy, and are not working because they simply don't need to.
That's still a total of about 97.5 million people that are currently not working.
If that number doesn't scare you, I don't know what will. 41% of this country's population is in seriously dire straits. When I look at these numbers, I get the inclination to invest in firearms manufacturers.
My favorite gun company is Sturm and Ruger (NYSE: RGR). I currently own and regularly shoot one of this company's most popular firearms. This gun is also one of the most popular firearms for self-defense: the .357 magnum revolver.
For years, this gun was the staple service revolver for law enforcement. It's been usurped by semi-automatic pistols like the Glock 9mm. In a pinch, you can use this gun to hunt with as well. Elmer Keith, an Idaho rancher, gun enthusiast and hunter claimed that this gun could take down any animal in North America.
Today, you can buy shares of Sturm and Ruger for just under nine times earnings. The company also pays a fair-sized dividend yield of 3%. The company has a 20 year history of paying dividends.
I'd suggest buying this company as long as it's selling for under $14 a share. That lets you buy this company at less than 10-times earnings, which is statistically a very conservative buy-price for most sectors of the stock market.