“Multi- Millionaire Grandmother’s BIG Retirement Secret… The Two Best Royalty Businesses on the Planet”

Sniffing around the "RIch Grandmother" Royalties ad for Frank Curzio's Small Stock Specialist

By Travis Johnson, Stock Gumshoe, April 3, 2013

Here’s the lead-in to the new Stansberry & Associates pitch:

“How I Got My Multi-Millionaire Grandmother To Finally ‘Spill The Beans’ On Her BIG Retirement Secret

“She went from making $17 a week… to completely retired, practically overnight. She hasn’t worked a day in over 53 years and will NEVER outlive her money.

“She’s never revealed exactly how she did it… until now.”

The ad is trying to hook subscribers for Frank Curzio’s Small Stock Specialist, and I must admit that I ignored it for a few days because I assumed it was going to be another of the dividend reinvestment/compounding spiels that this publisher has flung our way for years … but those ads have mostly been for the 12% Letter, and this one is, in fact, a little different.

I’m sure compounding is a part of the returns of the copywriter’s multi-millionaire grandma, but the spiel is really about royalties.

And as you probably know, I find it hard to resist royalties. It’s the lazy man inside me, I love the idea of making an initial discovery, investment or creation and getting an ongoing (even if small) income paid regularly, over and over and over for years and years, for that one piece of work. It’s almost enough to make me want to write a book. If I weren’t so lazy.

But are there any royalty companies we haven’t considered? The tease mentions the many royalty-type investments that have done very well over the years, and the hints about past performers imply that there’s a broad business in royalties on pharmaceuticals, pizza, hamburgers, oil and lots of other products …

… but although there are a few royalty/trademark owning businesses in fast food in Canada (Boston Pizza and A&W, for example), and plenty of drug companies who earn royalties on products they developed, among a smattering of esoteric royalty investments … for the most part the kinds of royalty-aggregating businesses that passively compound earnings without being active producers or developers and/or become big dividend payers are in natural resources.

Oil and gas royalty companies tend to be trusts in the US, and these are the best-known royalties on the market, along with a handful of base metal and coal royalties that have been available over the years. They usually own a fixed land or well share position and generate ongoing income based on what the operator sells from those assets — and they tend also to be relatively high-yielding, with most of the value to investors being in the dividends you receive, and, if they’re a trust, they don’t usually have any real employees or actively develop anything, and they’re not allowed to reinvest in new mineral properties.

With these kinds of assets, it’s especially important to keep an eye on the end of the trust or the depletion of the assets — once an asset is depleted or a trust dissolved, the shares become worthless. Usually that happens gradually over a long period of time, and often the life of an oil field can be extended with new technologies over time, but every once in a while we get to the point where investors are still being hooked in by big current dividends and too many folks remain ignorant of the impending end of a dividend stream (as with the Whiting Trust, WHX, or Great Northern Iron Ore, GNI, both of which look initially appealing based on the high current yield but should cease to exist within about two years).

But I’m getting a bit off-topic here already — it doesn’t look like this pitch, which happens to be signed by Scott Louis, a Stansberry researcher, is specifically about an energy trust… nor do they specifically talk about which of the royalties made this Grandma rich over the years, though they give a few examples of big historical winners. It looks like he’s delving into the area that has been catnip for newsletter promoters in recent years: gold royalties.<