The Power of Private Investment Reserves

One of the tricks we've used at my company to build our net worth so quickly is to establish what we call "private reserves". As a private business, we have a lot of flexibility in terms of our structure and in all cases, the investment decisions are entirely at my discretion. Here's how it works:

Despite nearly all of our assets being actively managed by me at headquarters, we have a private reserve portfolio that consists of several carefully selected stocks. Each month, our general bank and brokerage accounts are electronically tapped to directly fund the purchase of additional shares of these businesses based upon the proven long-term success of disciplined dollar-cost averaging plans. We have the plan administrator reinvest all dividends, and keep costs as low as possible. We think of these drafts not as money we are saving but bills that have to be paid - sort of a corporate equivalent of pay yourself first. In no time, these accounts have grown in value far more rapidly than any of us could have anticipated. In fact, while some of our active funds have experienced much greater volatility (that's fine - I've managed to beat the markets substantially over time thanks to a deep value investing approach so we aren't concerned with fluctuations in price but rather "permanent" capital impairment - something we define as an investment going bankrupt or falling to a price that is not likely to reach our cost within a three to five year time period due to some change in the underlying business or our calculation of intrinsic value), the private investment reserves have continued to compound nicely, plowing forward as these boring, and stable, businesses throw off cash to owners.

There's no hassle, the work is all automated, and the plan would be great for the average family trying to build up investments but who aren't sure exactly what to do. Unlike traditional brokerage accounts, we pay only $1 or $2 per monthly automated investment, making the costs as a percentage of our capital commitments a virtual rounding error. It may sound counterintuitive, but the very fact that these shares are purchased on a regular basis, and the reports show up in the mail the old fashioned way, it's much easier to think of them as a real business than it is if they are just parked in a brokerage account as electronic blips on a computer screen that can be bought or sold in a few fractions of a second. You might want to consider the feasibility of such a plan for your own family.