So, I was sitting in the Plaza De Los Coches in Cartagena, Colombia. It was past midnight, but still 95 degrees with an asphyxiating humidity that I have yet to experience in Miami. Fortunately, I had a cold beer in hand and was surrounded by good friends. In any case, I was transfixed by the parade of drunken tourists, prostitutes and the awkwardly comical pollination of the two. Yes, for over four centuries, despite revolutions, plagues, endemic crime, pirate induced destruction and a whole host of other calamities, Cartagena has carried on in much the same way—pure spectacle—travelers and prostitutes, money and drugs, all passing through its prized port. Hong Kong is the gateway to China and before the Panama Canal; Cartagena was the gateway to most of South America with its gold, silver and other riches. There is indeed a reason why the Spanish built the largest fort in the Americas overlooking Cartagena.
As always, my focus was on the opportunity here. While Pablo Escobar’s ghost lingers over all of Colombia, my friends and I continually spoke about the peace dividend and the re-birth of Colombia—but what did that really mean? Sure there was opportunity. All around us, we saw signs of construction and rebuilding, but this was still Latin America—the spirit of mañana encompasses everything—including my ability to get served another beer.
“So Kuppy, name me one product pioneered in South America—one South American company that dominates its field globally?”
I took a deep sip of my beer and realized I needed a whole lot more time. Sure, the boys at 3G Capital have created huge conglomerates, but that’s just cost cutting and financial engineering. There are massive banks and retailers, but they mostly copy US models. There are plenty of commodity exporters, but that’s not exactly innovative. Was there not one company that I admired, from a continent of nearly 400 million people? It was late at night, but even with the help of the internet, I remained stumped. Why were there so few innovators on this continent?
In the end, we all agreed that the most innovative businesses in South America were involved in the production and export of narcotics to North America. Think about it, South America didn’t invent the iPhone or Amazon—instead; the best and brightest are focused on inventing long-distance submarines using supplies from a Home Depot. Why should they focus on anything else? Throughout history, the most entrepreneurial have focused on what makes the most money. South America was settled by thugs who wanted to steal Inca gold—now their progeny focus on selling plant extracts to Americans.
So that brings me back to the opportunities in Colombia. Despite flying there to attend a conference on investing in Colombia, my take-away was that Colombia is very much like the rest of South America—in a perpetual sine curve. There are good and bad decades, but minimal progress. The nicest buildings in Cartagena were built centuries ago and you can still see kids playing in raw sewage a mile or two from the tourist district. I’m sure that in a few centuries, not much will change—it hasn’t changed much in the last few centuries.
However, that doesn’t mean that there isn’t opportunity. In particular, it was obvious that a decade-long rush of money entered the country to focus on mining and oil. Now, the economy was hopelessly dependent on high commodity prices. One only needs to look at the Colombian Peso, which dropped a few percent each day I was in Colombia, to realize that something was going horribly wrong.
The joke about Argentina is that they seem to have a crisis every ten years and it lasts about a decade. Despite the clarity elucidated within, there have been some great windows to buy Argentine assets on the cheap and make many times your money when the economy normalizes between crises. The rest of South America isn’t too different. Substitute revolution, socialism, currency crisis, commodity crisis, expropriation of foreign assets, coup, civil war, indigenous rebellion or any combination of the above and you can re-live almost every crisis in South America for the past two centuries. In two centuries, these will remain the facts—only the dates and countries will change. Fortunes can be made by buying the crisis and selling into that rare moment when they can induce foreigners to believe that “this time is truly different.”
On that note, it does seem as though Colombia is a few years past the top and a few years from some sort of bottom. The Colombians are committed to maintaining the peace dividend and tourists will eventually flock to the country. It is beautiful, the food is great, the people are friendly, it’s stunningly cheap and it’s less than 3 hours from Miami. This tourist boom will eventually offset the fall-off in commodity investment and certain commodities are primed to come roaring back in price. Until then, for the adventuresome, it’s time to start exploring for bargains. I’d personally be focused on buying up old buildings in Cartagena as the sustained peace dividend will eventually bring huge numbers of cruise ships with their cargo of American shoppers. Additionally, it doesn’t hurt that property prices just dropped by over 60% with the Peso.
Then again, I’d rather focus my energy on countries with real futures. Colombia is nice to visit. Economically, it will rise and fall repeatedly—much like it has over the past few centuries. Those paying close attention will do well there, but it’s unlikely that I’ll do anything investment related unless prices take a much more substantial tumble.