Greedy When Fearful

My Investing Wall Of Fame

As Warren Buffett recently mentioned, the current value of the entire world’s gold is 7 trillion. The current value of all the farmland in the US is 2.5 trillion. What would you rather have, all the gold in the world or all the available land in the US with  4.5 trillion of spending money? This is a no-brainer for me as I could care less about shiny things.  Though, my one year old son seems to prefer shiny things over farm land.

The problem with buying land is it’s very expensive, and I’m still “a million dollars short of being a millionaire!” (R.I.P. John Candy). Thankfully, you don’t have to be a millionaire to own land. REITs are investing vehicles that allow you to own a portion of real estate for the cost of going out to dinner. The beauty of REITs is they have to pay out at least 90% of their earnings to shareholders as dividends. So, not only do you get stake in a piece of land, you immediately get the earnings it generates.

I have a fanatical interest in amusement parks and would buy one if I had the cash. So, when I learned (thanks Cramer!) that Cedar Fair (owner of eleven amusement parks) basically works like a REIT (it’s a Master Limited Partnership which is incredibly close) and is currently yielding a massive 13% I jumped for joy! I can own land with rides and waterslides on it? YES! Here are 3 reasons why I think an investment in FUN is better than investment in gold.

1)      Gold is a luxury. Land is a necessity. This is why I will always purchase land over gold.

2)      With FUN’s historical and current massive yield, the investment will double every 6 to 8 years even if the stock is flat. Over a 30 year period, I’m betting FUN will increase 5 fold. I don’t think gold will hit $8,000/ounce by 2050. Going back to 1933 using Global Financial Data’s numbers, gold has averaged a 4.7% annual return and has been 20% riskier than stocks as a whole. Going by those historical numbers, that means gold will only triple in 30 years (putting it around $4800 an ounce).

3)      Amusement parks have two huge “moats.” The first being their land and when they purchased it. Amusement parks typically start out on inexpensive, unwanted farm land. If the park succeeds, the land around it becomes very valuable. When Walt Disney just announced the development of Disney World in Florida, real-estate values practically tripled over night. The second is they are extremely immune to becoming obsolete from technological competition. It’s going to take Matrix-like, jack-the-brain in virtual reality technology to get the amusement park experience at home and make them obsolete. Kinnect Disneyland Adventures is incredible, but it’s still not preventing me from going to Disneyland next year. If anything, it’s making me want to go there more. Like an incredibly immersive commercial.

Parks run on discretionary spending.  If America and Canada go bankrupt obviously gold will be the better investment. But, I’m betting that’s not going to happen. Wait, did I say Canada?

Started in 1987, Cedar Fair owns eleven amusement parks, six outdoor water parks, one indoor water park and five hotels. Owns thousands of acres of land. The amusement parks include: Cedar Point, located on Lake Erie between Cleveland and Toledo in Sandusky, Ohio; Kings Island near Cincinnati, Ohio; Canada’s Wonderland near Toronto, Canada; Dorney Park & Wildwater Kingdom (“Dorney Park”), located near Allentown in South Whitehall Township, Pennsylvania; Valleyfair, located near Minneapolis/St. Paul in Shakopee, Minnesota; Michigan’s Adventure located near Muskegon, Michigan; Kings Dominion near Richmond, Virginia; Carowinds in Charlotte, North Carolina; Worlds of Fun located in Kansas City, Missouri; Knott’s Berry Farm, located near Los Angeles in Buena Park, California; and California’s Great America (“Great America”) located in Santa Clara, California. Additionally, the Partnership has a management contract for Gilroy Gardens Family Theme Park in Gilroy, California.

Not only is the geographic diversity here amazing, Cedar Fair has also been paying a dividend since 1988 that typically ranged from 6-13% depending on the earnings power that year.  It was cut in 2010 but is now back with a massive 13% yield. Management expects to keep the dividend around 9%. If you want to see an investment absolutely kill the market and grow massive wealth, take a 6-13% yielder and reinvest those dividends for 30 years in a tax deferred account like a Roth IRA or ESA. That’s what I’m doing with Cedar Fair. Ever just make the minimum payment on a credit card and wonder why the balance always stays the same? Be on the other side of that card. I get the benefits of credit card like interest rates with the fun of learning and following the amusement park business.

I also am starting a new tradition with my son. Basically, every time we buy a stock (he owns FUN along with Disney in his ESA), an item representing the investment goes up on a cork board (as seen above). This is a reminder that these aren’t just pieces of paper, these are actual slices of ownership in a living and breathing company. Buy enough slices and you can own the whole pizza!

Monty