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Branzan Advisors Commentary | June, 2021

June 18, 2021

Investing is never easy. And when it seems like it is, we should all be concerned. We can’t help but think back to day traders of stocks in the late 90s or the home flippers of 2005-2007. Easy money was made for a while, but ultimately it blew up.  What we are seeing today is eerily reminiscent of those times. Artificially low interest rates, excessive liquidity and a fear of missing out (FOMO) are driving investors into riskier and riskier asset classes. Many of the people investing in these asset classes (for example: SPACs, cryptocurrencies, NFTs and MEME stocks) are not long-term investors. Most are traders, or gamblers, looking to get in today and sell tomorrow to someone at a higher price. We try our best to block out the daily market noise (it isn’t easy) and focus on the long-term prospects of an investment.

It bears repeating how we assess investments.  First and foremost, we focus on risk. When we are evaluating a potential investment, our discussion centers around how we might lose money. Once we believe we have identified those risks, we work to mitigate them. It’s not possible to mitigate 100% of the risk, but we believe our process has stood the test of time. This commitment to managing downside risk leads us to invest in assets that have real, tangible value (real estate, precious metals, minerals, commodities) or assets that generate consistent income. While we can certainly still lose money in those types of investments, we believe the hard asset nature and cash flow do a lot to cushion any downturns. Branzan principals and employees, as a group, remains the largest investor in each of our funds and we hate to lose money.

One of the biggest questions in the markets today surrounds inflation. Investors are concerned that the recent increase in prices across many good and services is an indication of further inflation. In this week’s meeting, the Fed acknowledged that it may raise rates sooner than anticipated earlier this year. If higher inflation does return, we expect the investments in which Branzan invests should hold up relatively well. As we mentioned in our last letter, in an inflationary environment, we are concerned about protecting our partners’ purchasing power. We believe that can be done through our allocation to real assets. Our 19 year history bears out the real asset advantage.  We believe the real asset advantage will continue for some time. We still see compelling opportunities in real assets, but very few in publicly-traded securities.

Non-exchange traded investments, especially smaller opportunities, are often not priced competitively.  This presents a significant advantage for Branzan.  We have a network of real estate developers, oil and gas land managers, lawyers, bankruptcy trustees and business brokers who refer opportunities to us, sometimes exclusively.

We have never been a fan of bonds, only well-secured debt with generous interest rates, now only available privately.  On the other side, we eschew debt in Branzan.  Where an underlying investment, such as real estate, relies on debt, we encourage the sponsor to limit the amount of debt to a reasonable amount, interest rate and term.

Overall, we are encouraged the economy continues to open up and gather steam. Consumers in the U.S. have significant pent-up demand which is driving spending and powering the economy. While there is a risk the economy overheats, we believe there is significant slack in the labor market(especially with a number of states stopping the excess unemployment payments)which should help mitigate high inflation. Regardless, we remain cognizant of the risk and continue to allocate to investments that should preserve their value in an inflationary environment.

If you would like to learn more about our investment strategies and how they might fit within your investment portfolio, please feel free to contact me. The Branzan Alternative Investment Fund will open for new investments and additions to existing investments on July 1, 2021.  

Thank you for placing your trust in Branzan.

Very truly yours,

Branzan Investment Advisors, Inc.  


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