On Risk, Reward, and Trust

Given the Dow Jones rollercoaster of the last few weeks, it seems like a relevant time to write a blog post about risk and reward. It comes up a lot (as it should!) so we thought we’d share our thoughts on risk as it relates to the Maker’s Common DPO.

There are two different perspectives from which to look at risk: one is financial in the microeconomic sense, and the other is more broad, as in how investing in a business like Maker’s Common relates to macroeconomics and local economies.

Let’s start on the microeconomic side, let’s compare the reward of this investment with the Dow Jones index. Over the last seven years (to the end of June 2015…before the correction), the DJI earned an average of 6.5% per year. The seven years before that, it gained an average of 1.1% per year. Cumulatively, over the last two seven-year periods, the average annual gain was just below 4.0%, or slightly less than you would earn by investing in Maker’s Common. This doesn’t include any management fees or trading fees that you would have incurred along the way, which can easily add up to more than 1%; and this doesn’t take into account the recent correction (~7%). So in the simplistic view of comparing returns, a successful Maker’s Common is quite likely a more profitable long-term investment than the average portfolio of Wall Street stocks.

On the risk side of the comparison, one could argue that there is less catastrophic financial risk in the stock market, as rarely do public companies go completely belly up, and it is possible that a local eatery, even a well-managed delicious one, could fail. This is a worthy consideration, as Maker’s Common is offering unsecured loans. There is a simple question that gets to this and it is “Am I willing to bear this risk in order to earn 4X the interest of the best US savings account and 1.9X the interest of the 7-year US Treasury bond?” If these returns seem attractive in comparison (as of course they do), then it really comes down to trust in the concept and in the team. If you are reading this, you are probably already interested in the concept. As for the team, what is really required to succeed in this industry is experience, real dedication, and the ability to learn and adapt. After 4.5 years of running Mission Cheese very successfully, we’re pretty damn confident that we possess these traits.

To summarize, what an investor gets with Maker’s Common is a long term return comparable to that of the Dow Jones index, while also getting protection from key causes and effects of national and global recessions and corrections. Turning the risk conversation around, we know that $5,000 invested in Maker’s Common doesn’t turn into $4,000 when the stock market drops 20%…it is still $5,000.

We’re not suggesting that you take your entire net worth and invest it all in local companies, but as a 5-10% component of an investment portfolio, local investments offer a true hedge against the volatility of national and global markets. An investment in Maker’s Common diversifies your portfolio, builds local economic resilience, strengthens your sense of place in your community, and supports an economy of local, organic, small production, delicious food. All investments are an evaluation of risk, reward, and trust, but with most investments, you are placing your trust in someone you don’t know. Wouldn’t you rather put your trust in something you can see? Or even better, in something you can taste?