• Geoff Wells

Back to Basics – How We Invest

News headlines are dominated by the financial topics of the day. Recent topics garnering a lot of attention have included the following: SPACs. NFTs. Bitcoin, and other crypto currencies. With all the new financial subject matters, we want to get back to basics and explain how and why BPC Advisors chooses investable assets for our clients and why some of these new products do not fit with our investment approach.


Before we begin, it is helpful to have some definitions of recent headlines:

  • Special Purpose Acquisition Company (SPAC)

  • A shell company that is traded on a stock exchange with the purpose to acquire a private company. SPACs provide an alternative to an Initial Public Offering (IPO) for private companies looking to become publicly traded.

  • Blockchain

  • A system for digital record keeping which stores transaction history online across many computers/networks. Information is stored in “blocks” of data which makes it difficult/impossible to modify historical information. This is the foundation for Non-Fungible Tokens (NFTs) and Cryptocurrencies.

  • Non-Fungible Token (NFT)

  • A unit of data that certifies a digital asset is unique and not fungible or interchangeable. Stored on a blockchain, NFTs provide ownership for digital artifacts including art, music, video, and photos.

  • Cryptocurrency

  • A digital asset that is meant to be used as a medium of exchange. Cryptography and blockchain technologies are employed to keep the assets secure. Bitcoin and Ethereum are the two largest cryptocurrencies in the market.


How We Evaluate Investable Assets for Our Clients

An important decision we make as financial advisors is the appropriateness of investments to hold for our clients. This runs in tandem with the asset allocation decision and directly affects the selecting funds to implement an investment portfolio. Clearly delineating what is investable allows us to have a screen for all future investment decisions.

Below are three criteria that all our client investments must meet:

  • Can Be Fundamentally Valued – All assets we invest in generate or are expected to generate cash flows. A value/price can be calculated by analyzing the expected cash flows and discounting them to a present value.

  • Publicly Traded – An investment that is traded on a public exchange.

  • Liquidity – A asset that can be bought or sold easily at any time.


By applying our investment filters to the new “products” in the news, we can determine if they should be added to client portfolios. Below are several asset classes we exclude from our investment portfolios and why:

  • Currencies/Cryptocurrencies

  • Currency trading, whether traditional currencies or cryptocurrencies is speculative in nature and the long-term valuation of these products is yet to be determined. To earn money, a bet must be made that one currency is going to outperform another. Currencies themselves do not generate cashflows and their valuation is a function of what someone in the future will pay for them.

  • Collectibles (Art, Wine, NFTs, Watches, Sports Cards, Diamonds)

  • Collectibles also do not meet the cash flow generation test and the markets in which they trade tend to be limited. The value of the items is subjective to personal opinions and change over time. Their valuations tend to be determined in limited marketplaces and can have significant liquidity risk.

  • Special Purpose Acquisition Companies (SPAC)

  • SPACs are excluded from our consideration since a definitive cash flow cannot be determined. As a holding company, SPACs can and do pivot from purchasing one private company to another which can drastically change their risk/expected return and cashflow characteristics.

  • Private Equity

  • Private equity investments, or investments in companies that are not traded on public exchanges, are excluded from our investable portfolios as they are not liquid or easily saleable.

  • Commodities (gold/oil/wheat)

  • Commodities trade do not in themselves generate cash flows. Commodities are often a reflection of long-term inflation, but their pricing in the short-term can be volatile and may differ significantly from inflation.


Our Portfolio Construction Process

While not always the “topic of the day”, we believe the best method to grow wealth is through a globally diversified, market-tracking portfolio tailored to a client’s goals and risk tolerance. We view assets that do not meet our investment filters as speculative in nature since they do not exhibit an attractive “risk/expected return” relationship. Therefore, we continue to believe our approach of using globally diversified portfolios comprised liquid investable assets, along with comprehensive financial planning, to be the best foundation for long-term goal attainment.