The Wonderful World of Intellectual Compounders
Exercising Your Right to Make Money
Dear Reader,
From all of us here at Porter & Co., Happy Independence Day!
This week, we’re taking a break from our Parallel Processing Revolution series (you can get caught up here) to spend time with our families and friends. (And indulge in some first-rate BBQ at Porter’s farm.)
In between fireworks and feasting, we’ll be reflecting on the ongoing history of the United States of America. For all the uncertainty surrounding the future of America, it’s still a fantastic place to build generational wealth.
To honor this, we’ve put together a special report for you this weekend… perhaps the most distinctively American piece we’ve ever written.
It’s our manifesto Man’s Right to Wealth… your right to wealth.
To pursue it, create it, keep it, compound it, and pass it on to your children and grandchildren.
It’s a fundamental human right… some might even say, a God-given mandate… that no political party or media campaign can take away.
We’ll show you how the right to wealth has been built into America’s founding ideals, starting years before Thomas Jefferson put quill to parchment and wrote the Declaration of Independence.
And we’ll show you how this basic, natural right leads to a powerful wealth-building opportunity… in a special group of companies we call Intellectual Compounders.
For our paid-up Big Secret subscribers, we’ve collected seven of these companies together in a single, convenient report. Six of them are recommendations that we have featured in past issues of The Big Secret, but one is a biotech recommendation that you likely haven’t seen before. If you are not already a subscriber to The Big Secret on Wall Street, click here.
And for everyone, you can read our Right to Wealth Manifesto… and our introduction to Intellectual Compounders and how they work… below.
Happy Fourth of July.
Please continue to cherish the most valuable thing you own… your freedom.
We’ll see you next Friday.
The Right to Wealth Manifesto
One careless tap of a tobacco pipe. One tiny spark falling on the hay.
No one knows what set the stables in Newmarket ablaze – and ultimately, burned down the whole English country town – on a windy night in March 1683.
But we know that 66 thatched-roof buildings went up in flames, and that merry King Charles II (who loved the Newmarket horse races, and a Newmarket wench named Nell Gwynn) fled the smoldering hamlet in a right hurry.
He left a week ahead of his official schedule, and arrived back in London before anyone at his court expected him home… and before the Green Ribbon Club had a chance to put an arrow through his eye.
A secretive group of anti-monarchists who wore “bobs” of green ribbon as an identifying badge, the club had spent months planning the King’s murder (while tippling at the King’s Head Tavern in London, no less).
The plot hinged on Charles’ homeward route from Newmarket past a certain lonely castle in Hertfordshire. But the assassins hadn’t bargained on a fire changing the King’s travel plans.
Or on what happened next.
In a fascinating series of “butterfly effects,” the spark that lit the Newmarket fire brought us the Declaration of Independence… and, ultimately, America as we know it…
It was the uneasy aftermath of the 1642-1651 English Civil War – a conflict between the “parliamentarians,” who wanted a republic, and the “royalists,” who wanted to stick with the monarchy. (Long story short: eventually, they met in the middle and formed a parliamentary monarchy.)
But in the meantime, there was bloodshed. King Charles I lost his head, and his son, Charles II, fled to France at the end of the war. Dour puritan Oliver Cromwell (“Lord Protector”) took over the country and ran a rocky proto-republic for 11 years. After Cromwell died, young King Charles returned from exile and resumed the reins of government in 1660 – a period called the “Restoration.”
Charles loved feasts, fun, and frolicking with ladies – and was quick to re-institute horse racing as a national pastime. (Cromwell had outlawed it on the grounds of its not being a “useful” sport.) Charles’ friend Lord Rochester (while sharing mistresses with him) lampooned him in a good-natured poem:
Restless he rolls about from whore to whore,
A merry monarch, scandalous and poor.
A large faction of the British, however, weren’t happy with the Merry Monarch. The parliamentarians – who became known as Whigs – were still determined to end the monarchy once and for all and reboot the republic. Exiling the heir to the throne hadn’t worked, so in 1681, a radical Whig faction (the Green Ribbons) decided to kill him.
The Green Ribbons planned to lie in wait, with ammunition, at the Rye House, a solitary, moated castle that commanded a perfect view of Charles’ return route from Newmarket. A contemporary account noted the site’s fortress-like attributes: “Towards the garden it has high walls, so that twenty men might easily defend it against five hundred.”
Charles was scheduled to return from Newmarket on April 1. His younger brother James was with him at the races, so the conspirators could shoot two royal birds (code-named Blackbird and Goldfinch) with one crossbow.
But due to the fire killing his fun, Charles rode past the Rye House a week early, before the assassins even arrived. The ambush didn’t take place. The British monarchy remained intact (and still does to this day).
And a month or two later, Josiah Keeling, one of the minor players in the Rye House conspiracy, snitched on his fellow Green Ribbons.
That’s where John Locke… and, ultimately, the Declaration of Independence… came in.
Natural Rights, And Where We Get Them
The crackdown came swiftly. Keeling, who’d turned King’s evidence, escaped with his neck – but many of the other Green Ribbons weren’t so fortunate.
Eight conspirators were hanged, drawn, and quartered; four were beheaded or hanged; 11 were imprisoned, one tortured, and one cut his own throat while awaiting trial in the Tower of London.
Not surprisingly, a number of others fled England altogether… Among the refugees: Enlightenment writer, philosopher, and freedom-lover John Locke.
Locke is the father of what we call classical liberalism – not to be confused with the American “liberalism” of today. It’s the belief that humans have God-given rights – to life, freedom, religious expression, possessions, and self-defense – and that no earthly ruler can give or take these rights away. This fundamental liberty – not any sort of authoritarian, governmental control – is the basis for a functioning society. (If this sounds a lot like libertarianism to you, you’re on the right track.)
Locke had been mulling these revolutionary ideas for years – and growing more and more dissatisfied with England’s monarchy. Not surprisingly, he eventually got mixed up with the Rye House crowd.
No one knows exactly how much John Locke had to do with the plot to kill King Charles. But he was a known republican and an associate of the Green Ribbons. He was friendly with head conspirator Robert West – enough to arrange a place for West to stay at his own Oxford lodgings – and chummy with several of the lesser group members (including one of the men who was hanged, drawn, and quartered).
Locke was in plenty deep enough to worry. So he packed up his books and writing equipment and sailed for the Netherlands.
It was there – fed up with King Charles’ excesses, and with England’s interminable class and religious warfare – that he penned his Two Treatises on Government, the seminal work that directly inspired the Declaration of Independence and much of the way the Western world thinks today about government, freedom, law, and individual rights.
Locke’s concept of “natural rights” may sound familiar:
The state of nature has a law of nature to govern it, which obliges every one: and reason, which is that law, teaches all mankind, who will but consult it, that being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions…
That’s because Thomas Jefferson – a student of Locke who often quoted directly from the great thinker’s works – drew heavily on those concepts a little less than a century later in 1776, as he created our nation’s founding document, the Declaration of Independence:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.—That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,—That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.
John Locke wasn’t able to dismantle the English monarchy. But he laid the groundwork for the American republic… or, maybe, we should credit the careless pipe smoker who burned down Newmarket.
Locke’s Forgotten Right
Interestingly, Locke’s fundamental “natural rights” differ slightly – but crucially – from the version we see in the Declaration of Independence…
Woven throughout Locke’s Treatises, we see three God-given rights listed: rights to life, liberty, and property. Locke’s Second Treatise on Government makes man’s right to property clear:
Though the Earth, and all inferior Creatures be common to all Men, yet every Man has a Property in his own Person. This no Body has any Right to but himself. The Labour of his Body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property.
Jefferson, following Locke, originally listed “life, liberty, and property” as the three fundamental natural rights of humankind while writing the Declaration of Independence.
But he eventually tweaked it to “life, liberty and the pursuit of happiness,” after a disagreement with Ben Franklin and John Adams – both staunch abolitionists who thought that Americans might assume “property” meant slave ownership.
Obviously, property has nothing to do with slavery, and everything to do with material wealth. Locke describes it as what comes from the work of your hands, and is thereby your own. In some ways, Locke’s – and Jefferson’s – original phrasing is even more powerful. “Happiness” isn’t concrete. “Property” is.
And (final draft or not)… the idea that we, as Americans, have a God-given “right to wealth” has been built into the very fabric of our nation from the beginning.
If you’ve read much history, you know that America was created by a select group of businessmen, who (thanks to their own hard work) were among the wealthiest people in the world. The country was never really ruled by a king. There was no “tribe” of Americans who settled here and fought to keep everyone else out of their territory. Instead, America was a nation created by an idea, an idea that drew people here from all over the world, from virtually all nations and all tribes.
The idea of America is that man was created by God and thus is equal to all other men and entitled to his liberty and therefore (as Locke and Jeffferson believed) his wealth.
That idea was carried forward by the industrial revolution that swept through both England and America from the 1750s onward, fueled by coal, which began to re- place timber as the dominant power source. Coal power, which contains 10 times more energy than timber of equal weight, led to countless innovations in machinery, engines, locomotives, and ships… and created fortunes unlike anything seen previously in human history.
The “elites” who established America were an accident of history. They were brilliant, well-educated men, who, freed from the yoke of manual labor and (mostly) protected from the depravities of the King of England by a giant ocean, built vast new global businesses. They dominated global trade in everything from apples to whale oil. They became a new kind of elite – an economic elite. And they built their country to enshrine what they perceived as every man’s right to wealth.
Of course, that America’s foundations were built on free enterprise and trade doesn’t mean that every American will automatically become wealthy. It simply means, more so than in any other country in the world, you have the right to property – the right to wealth.
Time Is Wealth – But Do You Have Enough?
Every one, as he is bound to preserve himself, and not to quit his station wilfully, so by the like reason, when his own preservation comes not in competition, ought he, as much as he can, to preserve the rest of mankind, and may not, unless it be to do justice on an offender, take away, or impair the life, or what tends to the preservation of the life, the liberty, health, limb, or goods of another. – John Locke, Second Treatise of Government
You have one, God-given lifetime to build wealth, and, as Locke emphasizes in the quote above, no one has the right to cut that time short or take it away from you unjustly.
In a very real sense, time is money. Without the fundamental natural right to use your own time as you see fit, you won’t be able to build wealth (or, as Jefferson added, pursue happiness).
You, however, only have 24 hours in a day. Even if you can exchange every working hour of your day for a handsome sum, say $500 an hour – that’s a limited and finite amount of time to create wealth.
But what if you had unlimited time? Imagine if you could work a thousand hours in a single day, all billable at $500 an hour.
That sounds silly, but historically it’s exactly what the great business owners, like the Rockefellers, Carnegies, and others, have done – they bought other people’s time. They hired the railroad workers, the factory workers, the builders, the drivers, the engineers. In effect, they extended the hours available in their own day by the hundreds and thousands. And that’s how they created vast amounts of generational wealth for themselves and their descendants.
You may not think you have the resources to buy thousands of hours’ worth of time to create more wealth. But thanks to a series of unusual investment vehicles that fly under the radar, you actually do.
In this compendium, we’ll show you a lesser-known way that America’s billionaires add years of money-making time to their lives – and it’s much simpler and cheaper than hiring teams of steelworkers and mining engineers.
The Power of Intellectual Property
Let us introduce you to the wonderful world of intellectual compounders.
These are some of our favorite – and somewhat off-the-radar – capital efficient companies at Porter & Co. In much the same way as insurance companies enjoy a vast pool of “free” capital from premium payments, intellectual compounders trade on their intellectual property to rake in a swath of low-effort royalties.
They’re licensing and franchising businesses that give other companies the right to sell their product or their name, in exchange for an upfront payment and royalties on sales.
Essentially, these companies are letting other people put their intellectual property to work for them. The other folks put in the long hours and do the legwork of marketing and production, and the licensing company sits back and reaps the benefits.
Best of all – the overall cost of buying all these people’s time is incredibly low.
With most businesses, the overhead never goes away. The owner must often continue to pay for buildings and equipment, as well as the cost of his employees’ time. But intellectual compounders primarily trade on an intangible but valuable asset: a name people trust.
Of course, a lot goes into achieving a good name in the first place. A company has to develop a stellar product that people want to buy (and any business owner will tell you how hard that can be). And beyond quality, it takes thought, creativity, and a sizeable marketing budget to turn a brand into a household word.
But once a company has that good name, it can leverage it to buy incredible amounts of man-hours… and reap huge dividends… with barely any ongoing cost. Think about McDonald’s (a capital efficient business we like a lot!), where the franchisees eagerly pay to use McDonald’s name to make money. The franchise owner provides the man-hours and pays for the equipment, and McDonald’s corporate reaps the benefit in the form of substantial licensing fees.
Or take Michael Jordan, who’s made far more money simply licensing his name and image to Nike than he ever did as a professional basketball player. In the process, he’s also catapulted Nike to stardom, with shares that have compounded investor capital at an incredible 17.5% per year since its 1980 IPO. (We like Nike, too.)
That’s why businesses that monetize intellectual property are the most capital efficient enterprises on the market. They require very little cash to operate and grow, and therefore produce excess cash that they can return to shareholders.
Of course, as an investor in these intellectual compounders, you reap the benefits of all this time and money in the easiest way possible – by buying shares and sitting back as your investment compounds.
As an investor, the whole trick lies in understanding which companies are capital efficient and have excellent long-term prospects. Once you know that, you wait until these companies’ shares become so cheap that they essentially carry very little risk.
In this compendium, we’re about to show you the details of six reports (plus one bonus) of my favorite intellectual compounders… capital efficient companies that will compound your money-making time and your wealth, and put other companies’ names and brand power to work for you.
This is one of the simplest and most efficient ways to exercise your Right to Wealth – and we’re proud to share it with you.
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