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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Bruce Langer
February - March 2010

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Quit waiting! Invest like an entrepreneur

Few business owners to have any faith in an economic recovery and generally lack the confidence to make investments either in their own business or the public market.

How deep is the malaise? Take the case of a successful entrepreneur and his partners who went so far as to terminate their defined benefit plan because it required a 5 percent annual return.  Why?  Because they felt in light of recent events and future expectations that minimum return requirement was going to be too hard to hit, and they did not want to be on the hook for funding the plan for any performance shortfall.

A 5 percent return was once considered a risk-free rate.

The bounce from March of 2009 was a great time for owners of publicly traded securities,  a once-in-a-market-cycle buying opportunity, as it became apparent that the financial system would avoid complete meltdown. However, it seems that today many non-professional investors, some of them sophisticated entrepreneurs and business people,  feel as if nothing is really working and nothing can work from this point forward. With no increase in jobs, they seem to believe, how could anything work?

But I think they should stop being paralyzed. Job growth has always been a lagging economic indicator, and since when does an entrepreneur care what “the market” does?

Always growth somewhere

Successful entrepreneurs carve out a niche. They find opportunity in any economic environment. Sure, the economy affects us all, but there’s no reason to accept the overall conditions or the results of the market.  Instead, I urge entrepreneurs to invest like an entrepreneur. How?

• Look for opportunity regardless of sector or geography. We live in a complex world with complex economies:  there’s always growth somewhere, often in companies and sectors that are new or unfamiliar to most of us.

• Not all economies move in tandem. The economies of many nations are expanding or have outstanding potential.  Entrepreneurial investors seek out these often very specific opportunities, dedicate a meaningful sum of money, and then wait for their commitment to play out.

• Refuse to accept stagflation and the headwinds large companies face. Some business models will not be as profitable as they were in the past. There is no reason to accept exposure to these businesses just because they are part of the market.

• Do not let the perfect be the enemy of the good. If you are waiting until everything feels right, then you will be waiting a long time. Investing involves risk, but with some critical thinking and due diligence a margin of safety can be built.

Admittedly, there are macro issues and obvious insanities that can’t be ignored. Interest rates can really only move in one direction, and the national debt and deficit spending will eventually lead to inflation, higher taxes and a weaker dollar. Increased regulation will dampen profits and innovation in certain industries.

But waiting for the economy to return to the good old days of the 1990s is simply foolish. We are in a period of creative destruction; the key is to be exposed to the creation and avoid the destruction.

Remember your defense

Any intelligent investment strategy must begin with a conversation about asset allocation.  Evaluate which assets are available for offense, which are for defense. Cash reserves also should be categorized as either offensive or defensive.

Do not touch defensive cash until its stated purpose arrives, but in the meantime it needs to be positioned that way – defensively.  A high-quality fixed income portfolio that keeps maturities very near-term is the best way to protect against loss of principle and rising interest rates.

You may feel as if you are not earning a meaningful return, but being patient and exposure to hard assets such as energy, metals and materials.

Seek global demand

Cash available for offense needs to be poised and ready to take advantage of opportunities as they present themselves. The opportunity may be to make a further investment in your entrepreneurial endeavor. Beyond that, in the public market look for unique opportunities, strong balance sheets and global demand.

There are many attractive business models available if you are willing to look hard enough, dig deep enough and be patient enough.  The SEC prevents me from providing any specific examples but the general theme should be: meaningful exposure to non-U.S. markets, a producer or benefactor of innovation related to technology and/or energy, low debt structures with high free-cash-flows and an appetite for smaller to mid-sized companies.

Historically, over a period of 10 years equities outperform bonds more than 80 percent of the time.  We all know that the past decade fell into the 20 percent category with the S&P 500 Index delivering a -0.97 percent annualized return, turning $1 of invested capital into 90 cents.

With meaningful exposure to small and mid-sized domestic equities and international companies an investor likely fared a bit better but realized nowhere near the returns of the previous two decades. The expectation is that an exposure to equities will be rewarded over the long term and with a dedicated approach results may be enhanced.

The lesson you should take away from this? Don’t accept a conventional, industrial approach to investing your capital. You are an entrepreneur and know that wealth is created by taking informed risks and owning your decisions.

There will always be opportunity and strategies to reach your goals; just never forget the investment tenets of diversification and appropriate asset allocation. Invest like the entrepreneur you are.

Bruce Langer,
Tealwood Asset
Management:
612.767.1979
blanger@tealwood.com
www.tealwood.com