Energy is the master economic resource.
That’s what Tom Dyson shared with our investment membership on our monthly call last week. The idea struck me as quite insightful. And it’s obvious if we stop and think about it… most of us just don’t.
The key is – nothing happens in our world without energy. That’s true on all levels.
We all need to consume food to produce the energy required for life. Same goes for animals. Then we need energy to power our homes, our businesses, and anything else that happens in the modern world.
Energy drives everything.
So, Tom’s view is that we have two choices. We can own energy… or we can own currency. And if we understand that the purchasing power of the world’s currencies is always falling, owning energy is the smart choice.
But that doesn’t mean we should only buy energy stocks and call it a day. Publicly traded companies are exposed to many different forces. They aren’t always a direct play on productive energy.
Plus, many of us like to invest for passive income. So let’s talk about three ways we can generate passive income by owning energy…
The first thing we can do is build a crowdlending portfolio. We’ve talked about this before.
Crowdlending is an alternative to traditional bank financing. It allows investors to become the bank and lend money to borrowers for a specific purpose. Debt consolidation, home improvement, and medical expenses are three of the most common purposes.
This is done through a crowdlending platform. The platform sets the interest rate for each loan and then collects the borrower’s payment every month. Each investor then receives their cut of the loan payment.
If done correctly, participating in crowdlending is a way to turn $500 into $50,000 by becoming the bank.
But wait, what does this have to do with energy?
When we help fund a loan, that loan becomes an asset for us. We own it. But what we really own is a claim on the borrower’s future income. And however they may earn their income, it requires them to exert energy in some capacity. That’s the energy we own if we build a crowdlending portfolio.
Now, I know this may sound callous on the surface. Is it right to profit from work that someone else will do in the future?
Well, this very dynamic is the crux of our entire economy. When we engage in voluntary transactions, we are each exchanging our energy with one another in some manner.
And that means when we help fund a loan, we are exchanging our realized energy for the borrower’s future energy. It’s just a trade-off based on time preferences.
Okay, the second way to generate passive income by owning energy is to own rental properties. I prefer single family rentals.
If we think about it, a house is realized energy.
A lot of energy went into building the house. And it requires a lot of energy to maintain a house. That’s both in terms of power production and in terms of human energy.
So when we own a house, what we really own is both realized and future energy. And if we rent the house out to generate passive income, we also own a future claim on the human energy required to maintain and manage the property.
Again, we’re trading our realized energy for a claim on future energy. That’s the beauty of this holistic perspective.
Alright – the third way to generate passive income by owning energy is to write insurance contracts on great publicly traded companies. This includes energy companies.
We can write a contract that insures an investor against the possibility of a stock that investor owns falling in value. The investor will pay us a premium up front for this insurance. That’s cold hard cash that flows right into our brokerage account.
By the way, this is something anybody with a brokerage account can do. The activity we just described is selling put options on great stocks.
The catch is our insurance contract stipulates that we must buy the stock at a specified strike price if it falls in value. That’s how we are providing insurance to other investors. And it’s why they are willing to pay us a premium up front. As such, we should only sell puts on stocks we would like to own at the designated price anyway.
But here’s the thing – most of the time it won’t come to this.
Most option contracts expire worthless. That means we won’t often need to buy the stock we are insuring when we sell put options. And when the option contract does expire, we can sell another put option to collect even more premium. We can do this over and over again to generate passive income.
To sum up, the name of the game is to own energy. But that doesn’t have to be a static or boring endeavor. We can use these three strategies to generate passive income on the energy we own.
-Joe Withrow
P.S. I know we glossed over the three passive income strategies we discussed today. These are strategies that we provide comprehensive training on within our investment membership The Phoenician League.
If any of this stuff tickles your fancy, I’d like to invite you to sign up for our membership’s waiting list. You can do so right here: The Phoenician League Waiting List
Up to this point we’ve only opened our doors to new members on two occasions. We do this because we always take the time to onboard everybody individually. This includes personalized attention for those who would like it.
That said, we’ll be opening our doors for a third time very soon. And we’ll give everybody on our official wait list advanced notice and attention.’ll give everybody on our official wait list advanced notice and attention.