Psychology Of A Turnaround

August 6, 2010 3:19 PM


I am writing from somewhere over the US as I fly home from a very productive three week trip. I spent time canoeing with my dad, witnessed a close friend get married and visited a whole lot of companies along the way. Normally, when the last flight out of Toronto is three hours late, you can expect to miss your connecting flight. A better run airline probably would have had me sleeping on the floor in Charlotte—but not US Air. Like clockwork, my connecting flight is five hours late. I may be arriving in Miami at 4 am, but at least I will be arriving. God bless systematic corporate incompetence.

During this trip, I have been able to visit with a number of fascinating businesses. I am always amazed at the psychology of the public CEO. After surviving the debacle in 2008, these men struggled to hold their businesses together. Now, when it is obvious that things are turning, when the best investor opportunities are to be had, they are the least optimistic publicly. After having witnessed the same manic cycle multiple times—from euphoria, to depression to outright gloom, I have learned to read the telltale signs. I think a quick character sketch is in order as this phenomenon often leads to the best investment opportunities.

Let’s start at the beginning. Life is good and business is growing. The share price is moving up and everyone is happy. The CEO is confident and also very popular. He is verbose on conference calls. He moderates industry conferences and has shareholder dinners. He is accessible and enjoys the notoriety. His best friends are the Wall Street analysts who continually congratulate him with upgrades. Life is good. In fact, he has gotten so carried away that he misses the signs that his business is faltering.

Making Dough

Suddenly, business is not doing too well. Our CEO claims it’s a short term blip. As the shares begin to slowly slide, he becomes even more active publicly. He is defiant and sometimes combative. He acts as if sheer force of will can hold the share price up. “Be patient. All is well. This is a buying opportunity”

Eventually, reality sets in. Hard decisions must be made. Costs get cut and the business is right-sized. This always involves one time charges which inevitable reoccur for a few quarters. Investors become skeptical and the CEO becomes defensive. Why are my former admirers so hostile?The CEO tries to keep a stiff upper lip. "Next quarter we will see progress. This is the bottom."

You can only call the bottom so many times. Eventually, you lose all credibility. On conference calls, analysts mock you. Large shareholders dump shares after publicly berating you. All your friends who once were rich with your stock refuse to talk to you. You become a pariah. You retreat into your business and ignore the outside world. “If they all hate me, I will ignore them until I can prove them wrong. Let them sell. I will be right in the end”

Eventually, the real bottom is hit a few quarters after the CEO has predicted it. However, there is no rejoicing. Hardly anyone goes on the conference calls any more. Your Wall Street analyst buddies no longer call you because they dropped coverage months ago. In fact, after embarrassing yourself so many times by calling the bottom, you keep silent. In fact, you begin to doubt the recovery. You are so beaten down by investors that you mostly ignore the market for your shares.

Zoloft

Slowly, the business begins to recover. The shares bounce a bit from the nadir and then stagnate. Trading volume is anemic. The world has simply lost interest. Month after month, business get better. However, you doubt yourself. Past upticks had proven to be false. You feel bad for those who lost money on your past prophesies and you refuse to offer positive guidance. Gone are the halcyon days when you would press release every new victory. Now you mostly ignore the wins and dwell on the negatives. Your few public utterances are reserved and subdued. You do not want to lead anyone astray. Your lack of interaction with public shareholders begins to impact your shares. After a short-lived bounce, they begin to droop again on no volume. No one is really selling shares any more, but no one cares to buy.

Ironically, at this moment, just when investors should be buying, just when a CEO should be telling the world what a great investment his company is, just when the shares are most appealing, no one says a word. Analysts have dropped coverage, other shareholders mostly just want to sell the first bounce and the CEO is too ashamed to even bother. I understand why this happens. Ironically, the lack of publicity actually means that the shares get cheaper. This is the perfect time to buy. Even more importantly, it is one of the few situations when you can get non-biased and honest answers from a CEO. Most CEOs will tell you the truth, but it will always be the most optimistic truth. At this special moment, just when the business is turning, you will get the most down to earth and honest assessment of the business. The CEO may wonder why you even want to buy shares. It creates a perfect investment set up. You can hear all the negatives and you can buy a company on the mend at a silly price.

Opportunities

Amazingly, most investors wait until things have improved substantially, not just at the business, but in the CEOs presentation of that business. Eventually, the CEO can no longer hold out. It is obvious that business is recovering. The shares start to climb—people begin calling to hear the story. The CEO gets his confidence up and goes out to conferences again. The share price starts another multi-year cycle. You can own the shares until something doesn’t feel right. Hubris takes over and you have to trust your gut.

I’ve gotten to know some of these CEOs over multiple cycles. It’s the same thing always—I don’t even know if they realize they’re doing it. You literally see a company go from 5 press releases and a road-show each quarter, to not even bothering with a conference call after earnings. It’s a bit manic really.

Of course, there are false dawns. Sometimes it’s darkest right before it goes completely black. You need to judge the business along with the CEO. However, I do find it repeatedly ironic that just when you want to be buying shares in a business—that’s the only time the CEO doesn’t want to tell you the story about why you should be buying those shares. Look out for these moments as investors. Especially look out for the first burst of optimism from a company. After months of silence, the first time the CEO is confident enough to tell the story again, it probably means that things are going real well. It is a strange process, but CEOs are human just like everyone else.

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Escape From Finance Thinking

August 1, 2010 6:39 PM


I just spent a week canoeing with my father. When you share a canoe, you get to talk about all sorts of things. I always try to keep my father involved in my investment thinking. He’s a great resource because he has good business sense, yet has never been involved in the investment world.

He once told me a great story about when he was in residency to become an oral surgeon. The chief resident told him to visit a trauma patient in the ICU. His job was to examine the patient and report on his findings. He spent 15 minutes reporting on his findings before they cut him off.  My dad had been so focused on his specialty (the mouth), that he had completely ignored the big picture.  His patient had been dead. That was the only correct diagnosis. Nothing else mattered because there was nothing more to be done. The whole exam had been a test—can you take in the big picture?

I sometimes find myself so focused on some specific detail of an investment that I completely lose track of the big picture—do I actually understand what makes this business work? What are the real economics here? What are the competitive advantages? What should worry me?

hedgehog

I like to sit down with friends and a few beers and try to piece a thought out. Unfortunately, most of my friends are in the world of finance. They look at problems the same way I do. They look at the numbers; they try to figure out the returns on capital. They usually have preconceived notions about what the business is supposed to do. Our analysis is always too focused on numbers—not the reason for them. I find many people in the investment world can analyze a company’s capital structure, but fail to really understand the business itself. They are great at analyzing past numbers to come to conclusions, and sometimes they completely ignore the obvious. Is the patient dead?

I often joke about the difference between the real world and the finance world. In the real world, you need a deep understanding of your business and the ability to constantly reinvent yourself. That’s what builds real businesses. Then you have the financial world, where the solution to every problem seems to be using more leverage. How do you increase your return on equity? Leverage up. How do you increase earnings per share? Leverage up and buy back stock. It really is a binary thought process. It is the reason that I spend so much time on the road visiting with real businesses and trying to understand them. Otherwise, I’d be sucked into the vortex of finance guy thinking. It seems so deceptively simple to just play with a spreadsheet, but life never actually works that way. I have hundreds of old spreadsheets where I was off by so many orders of magnitude that I have simply stopped using them. I now focus more on the big picture—if I can’t get that right, I won’t get the little stuff right either.

I enjoy running investment ideas over with my father. He cannot tell me if the numbers work, but he usually knows if I have the concept right. That’s more important anyway. I’m not trying to make a quick gain on something by guessing at next quarter’s earnings—I’m trying to own companies for the long term which can go up five-fold or more. I think it’s time that everyone in finance finds someone from outside the world of finance to bounce ideas off. There is just too much group think in our industry. One of the most important lessons I’ve learned over the years is that it’s not so much what you don’t know that matters, it’s what you know that just isn’t so that can cause a fatal flaw in your thinking. Everyone needs someone to look over their investment ideas—I’m fortunate to have quite a few smart friends whose judgment I trust. Most are in finance, but some of the best insight comes from those from the real world. Every time I have the family canoe trip, I realize just how important real world thinking is.

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Flugtag

July 13, 2010 11:36 AM


On Saturday, I went to the Red Bull Flugtag in Miami. This is an event where teams construct powerless planes and then try to ‘fly’ them off a ramp into the bay. Like most things in Miami, the planes are big on flair and short on actual substance—engineering or otherwise. Let’s just say that most of the planes flopped over the side of the ramp and immediately fell into the ocean breaking into dozens of pieces. That’s just as well—I was there for the crashes—so were nearly a hundred thousand other spectators.

Flugtag1

Was it enjoyable? Sure—even if it was over 100 humid Miami degrees. Would I go next time? Probably. Will I drink more Red Bull because of it? Unlikely. If I have one in a month—it’s been a very long month. Will I forever associate Red Bull with irreverent and silly fun? Absolutely.  Was the money spent by Red Bull on this event a good return on capital? It depends on how you think about it.

While waiting for planes to ‘launch’ I drank my weight in fluids—or tried to. While waiting in line for slow beverage service—it is Miami of course—I did the numbers. If each booth sold 5 Red Bulls a minute, they’ve sold 300 an hour and 1,500 for the event. At a $2 profit, they made $3,000. There were about a half dozen booths. Maybe they made $20,000 on Red Bull sales and probably about the same in beer sales for the event. There’s no way they could have possibly made money on the event. They spent more than that each day for a month on advertising. How much did it cost to rent Bayfront Park? What about the police? The event staff? The Red Bull girls? They clearly lost money on this event. They likely lost millions on it. They weren’t trying to earn a profit. The event was a very classy form of advertising. If I ever fly a cardboard plane off a pier, I’ll be thinking Red Bull and be praying for my ‘wiiings.’

Flugtag2

If Red Bull were public, the company would be focused on maximizing quarterly earnings. Employee stock options aren’t worth the same unless you can beat earnings estimate by a penny. How can you justify to shareholders that you missed earnings because you wanted to drink beer and crash fake planes? Is that a pro-forma expense to be ignored? No—it is very real. It is the cost of building a real brand. I cannot tell you why Red Bull outsells Monster energy or why they stopped making Surge. They all taste about the same to me. However, somewhere in the Flugtags and eclectic skate board challenges, Red Bull found that magic formula.

This is incidentally the reason that I like smaller companies so much better than large corporate ones. Small companies don’t try to beat earnings by a penny. In a lot of cases, there aren’t even earnings estimates to beat. Managements are focused on building a real business because they have a big stake in them. They make long term decisions and ignore what they do to quarterly earnings. That is how a business should be run.

Red Bull is a private company, but I guarantee you that Flugtag does not show up anywhere on the balance sheet. Millions were spent and the money is gone. There is no asset named Flugtag. However, it is there—you just cannot see it. Corporate branding is a powerful tool. It has value.  As investors, we tend to ignore it too often. We tend to ignore a lot of things that don’t show up on the balance sheet or income statement.

Flugtag3

I think it is time that investors focus more on the ephemeral and less time on the strictly tangible. It is time that we focus more on ‘economic earnings’ and less on GAAP earnings. GAAP earnings are too easily manipulated by aggressive management teams. My experience is that at times, GAAP measures have little bearing on real growth in corporate value. It’s the nuance that matters. Let’s look at an example that I have spoken about before.

Energold (EGD: Canada) operates drilling rigs for mining companies. In the most recent quarter, the company reported a loss. The stock was punished for this loss. When you analyze things a bit, you realize that all of that loss and then some was the result of an increase in demand. When a rig is not being used, the crews are sent home and the rig is stored. When a contract comes in, the crews have to be re-hired and moved to the job-site with the rig. Normally, this is a recurring process over time as rigs are constantly being mobilized. There is an expense of $50,000-$100,000 a rig for mobilization—it’s built into the total cost of a drilling contract—however the loss portion is realized first, before the revenue is. Normally, you cannot see the mobilization cost in the income statement. Each quarter, only so many rigs are mobilized and there’s plenty of revenue from operating rigs to drown out the mobilization costs. However, when you go from half utilization to nearly full utilization, this expense shows up. This is exactly what happened in Q1 of 2010. It is proof that demand is finally returning. Stunningly, the shares were hit as investors only paid attention to the loss—not the reason why. Business is returning—the shares should have gone up.

Accounting is very pliable. Let’s say you sign a drilling contract for a year. I’m sure you can create a book entry called capitalized mobilization cost. Then you can amortize that cost over the twelve months of the contract. It would do a lot to smooth earnings. It’s the way a lot of larger businesses keep their books—they do anything possible to smooth things out and defer expenses. There is no ‘correct’ way to treat expenses. It is the reason that accounting is so varied even amongst companies in the same industry. Energold chose to do it this way—a way that penalized them. In effect, a bunch of little flutags showed up in the income statement this quarter. It’s an expense today to build real earnings in the next few quarters.

Flugtag4

You see the same thing over and over in small cap land. Management teams have no desire to confound investors with fancy accounting, so they tell you how it is and let you figure out how to account for it. They’re building real businesses rather than stock promotion machines. You need to appreciate this before understanding little companies. The earnings are far more volatile. The businesses are more unpredictable to begin with—then you need to add in the fact that earnings are not smoothed out. Finally, the reported GAAP earnings often understate the true ‘economic earnings’ of the business. You don’t value the flugtag on the balance sheet. You likely even penalize the company on the earnings statement for the added expense of a flugtag. However, there’s a positive value—it’s there—it’s the reason that Red Bull outsells all other energy drinks.

Is Red Bull getting full value for their flugtag? They wouldn’t keep doing it if they didn’t think so. They’re private—they don’t have to care about how this impacts their earnings multiple. They can focus on the long term and ignore this short term expense. I guarantee you, when the business is eventually sold or IPO’d, they’ll put some lipstick on things and the flugtag will be cancelled that year. It’s truly a shame. It will slow the growth of the business. That’s not the way things should be—yet investors will gladly pay more for a business that the bankers have decided to slow.   

As investors we need to be more patient. We need to ignore the fluctuations and expenses involved in growing a business. We need to focus more on the business itself. We have to stop penalizing a company for a bad quarter. Does it make sense that a company can miss earning by a few percent and then have the stock drop in value by five times the magnitude of the earnings miss? A company’s fair value just doesn’t change that rapidly—nor should it be that dependant on a single quarter worth of earnings.  It takes time to properly analyze a business. You cannot just eyeball some spreadsheet compiled by Bloomberg. The actual numbers often don’t matter as much as the reason why.  It takes time to figure out why things are doing what they are. Investing isn’t supposed to be easy. It takes hard work. Too many people penalize a company like Energold for growing fast and then they give a free pass to a boring mature business trying to maximize this quarter’s earnings at the cost of long term shareholder value. If they cancel the flugtag so that earnings increase one year—is the business worth more or less in the long run? It’s long term growth in ‘economic earnings’ that matter—not the next data point on the way. Stop focusing on the short term.

Flugtag5

 

Disclosure: My partnership owns shares of Energold. We may buy or sell them without further notice.

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Volatility!!!

May 28, 2010 5:05 AM


I’m writing to you from a plane somewhere over the Nullarbor in Western Australia. The original plan was to meander our way from Sydney to Adelaide, then north to Uluru (Ayers Rock) with stops along the way at points of interest. Then we were going to back track southwards and finally cut west through the emptiness of the Outback to my meetings in Perth. It seemed good on paper. My brother told me it made no sense. Every Australian laughed at my plan. Even the most hard core truckers thought I was insane. Finally, in Coober Pedy, I reconsidered. When the crazy people, hardened from living underground thought my plan was crazy, maybe it indeed was crazy. So, I’ve dropped off the car in Alice Springs and hopped on a flight to Perth, I’m thankful to be done driving for a while. 4,600 km in a week is enough. As I stare down at the ground from the plane, I realize why it’s called the Nullarbor. There are no trees—hence the name. There’s nothing. No civilization—as far as the eye can see.

The more time I spend in Australia, the more I like it. I also realize just how big it is. The drive from Coober Pedy to Uluru is seven hours. From Uluru to Alice Springs is another five hours. You shouldn’t drive both parts in a single day—we did. Fortunately, my girlfriend likes to drive while I get some reading done. She did a good job dodging sheep, cattle and kangaroos at 140 km/hr until she damn near totaled a camel. Let’s just say that neither of us anticipated camels—until they darted across the road. Some follow-up research implies that while native to Asia, Australia now has the only wild camel herd in the world. Go figure. They were imported for their stamina on the arid mail routes and a few escaped to rapidly populate the Outback. I wish someone had warned us before we set off into the bush. Camels are bigger than our rental car.

Twelve hours in a car gives you plenty of time to think. I wonder about the volatility. This has become a market where thousands of prop desks and hedge funds all trade various products with the similar strategies and copious leverage. These strategies are almost always trend following in nature. They buy when something is going up, sell when it’s going down and keep very tight stops. If it goes against them by more than a few percent they all exit the trade. It’s a giant herd of computer programs. This used to only impact the equity markets. Now, no markets are immune. In the past two weeks, the Aussie dollar traded in a 15% range. Palladium dropped 25% in a six day period. Copper routinely moves around 3% a day, so does crude oil. How is a business supposed to cope?

Roller Coaster

Can you handle the volatility?

When I started trading over a decade ago, a 2% currency move took weeks to play out. Now it happens faster than you can brew coffee. This volatility may help hedge funds, but it slowly grinds away the productive economy. A businessman fights hard for every basis point of margin. He tries to undercut competitors by mere pennies to gain business. In a world of roughly constant prices, if you work to cut costs, you will win the business. What about now? You might be the low cost provider, but if your competitor locked in his copper yesterday, he can undercut you by 3%. If you locked in your Aussie dollars last week, you cannot compete with him. How do you run a business like this? Does a small businessman need a whole prop desk working full time to lock in his costs? Is this why most large businesses are increasingly looking like hedge funds with widget subsidiaries? I can name dozens of large companies that have made the majority of their profits over the past few years from currency gains. At some point, it makes you wonder why they even bother with their supposed ‘core businesses.’

Traders have been active in markets since markets were created. However, in the past, traders mainly served to provide liquidity. The floor trader stood there to take the other side of orders and make a spread on the bid and ask differential. Prop desks at large banks served to match up even larger transactions and take a small piece of the spread for themselves. These processes served to dampen volatility. They matched buyers and sellers at roughly the going price in the market.

There have always been players actively speculating on the direction of various markets. These individuals serve a clear purpose. They slowly push a market towards equilibrium. This is all beneficial. However, until a decade or two ago, these speculators were a tiny piece of daily volume and an even smaller piece of the open interest. They helped the process—they weren’t the process. Now, there are thousands of hedge funds involved in these markets. Every large bank feels compelled to participate in the melee. These speculators now are the market—not the actual buyers and sellers of the various products. This creates anarchy. When it’s going up, everyone piles in to get a piece of the action. When it goes the other direction, everyone runs for an exit. The businessman is left to guess about the direction of various markets that are vital to his business. Skill and luck in locking in inputs is more important than intelligently running your business.

Speculators

In the past, unless there was a crisis, most markets barely moved. When they made moves, those moves took weeks to play out. It gave people time to adjust their contracts and pricing. Now it is all so sudden. A computer program decides it’s time to move, and everyone jumps in on the action. Volatility is never good for a business. This sort of volatility is maddening.

There is clearly a problem here. You do not want the financial economy to overtake the real productive economy. Nor do you want the financial world to act as a tax on the productive economy by grinding bits of profit off it on these moves. I am all for free markets. I do not think we need a solution to this process. Rather, I think that as investors, we need to be aware of it. You can no longer just watch an industry’s margins and spot the low cost player. Often, the low cost producer is not actually the low cost player—he just got lucky at locking in his inputs. This is usually not a sustainable advantage. Sometimes, one firm is repeatedly better at locking in their costs. Should you attribute value to that? If they get it wrong one year, and they lock things in disadvantageously, how do you value that? These are all questions that we need to be aware of. Volatility creates winners and losers. How do you judge that process by just looking at the income statement? Should all businesses just become hedge funds? If you have a net margin of 5% and your inputs swing around that much each week, do you have any choice? As investors, analyzing a business just got even more difficult.

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Escaping The Next Data Point...

May 16, 2010 5:45 PM


I am writing from Sydney Australia. Sometimes you need to just get away from it all and take some time to think things through. I’m an investor—not a trader. I am not trying to capture the next 3% move. Let someone else figure that out. PPI figures, CPI numbers, employment (or unemployment), bailouts and wild market gyrations, what does it all mean? Should I even care? These erratic moves scare investors out of the right positions—they throw you off the scent of a winner. I don’t mind having my convictions tested—but sometimes I just want to get away from the noise and think it through. I am looking for big picture trends. That’s why I’m in Australia. Over the next few weeks I intend to see the whole country by car. I am driving from Sydney to Perth and making plenty of stops along the way.

Sydney Opera House

I believe that the way to make money is to find the bull markets and play them. Australia barely even felt the economic downturn last year. While Europe is collapsing and the US is just coming out of recession, Australia is booming. The Australian central bank continues to RAISE rates. Things are good here. I want to learn more. Prosperity brings opportunity. There will be small company winners. I have meetings planned. As I drive, I am sure I will learn of other great businesses that I didn’t even know existed. Mainly, I’m here to drive and let my mind wander. A lot has happened to the world, even in the past few weeks.  I need a roadmap going forward.

These are the big picture trends as I see them.

1.    The economies of the Western World are overleveraged and that deleveraging will take years to work its way out. Along the way, there will be lots of mini-panics.  I don’t mind volatility, but most of these companies are valued for prosperity—I don’t have such a rosy view of things. There aren’t many bargains.

2.    The governments of the Western World are stuck in a Keynsian nightmare. They’ve stimulated, and are on the verge of insolvency—yet they cannot arrest the forces of the existing leverage and malinvestment. They should step aside and let things clear, but they won’t. They will increasingly pursue erratic and counter-productive policies to keep themselves in power and win votes.

3.   Western Governments have massive unfunded entitlement programs and other off balance sheet liabilities. As baby boomers age, these liabilities are going to start needing to be funded. I see no politically expedient way to fix this problem. Get ready for money printing. Paper currencies as we know them will never again be trusted.

4.   In particular, the Euro is in the early stages of collapse. The Pound and Dollar aren’t far behind. Governments with a printing press do not default—rather; they add zeros to their currency. Get ready for epic levels of inflation before this is all over. Got gold?

5.    Asia, South America, Australia and New Zealand are largely unaffected by the Western World’s woes. Sure, there are property bubbles. There are huge swathes of malinvestment. However, there aren’t the same debt levels. There aren’t the same levels of government interference in business. Moreover, the demographic trends are much friendlier towards economic growth.

The Trend Is Your Friend

I like to find sectors that will do well given my world-view, and where I will still make money even if I totally bungle the macro. With that in mind, here are a few secular investment trends that I find very attractive now.

1.       Commodity prices will continue to go higher. The worldwide population will continue to grow and 4 billion people in the third world will increasingly live at a first world standard of living. Ignore warehouse stocks and pessimists at brokerage offices. Forget about short term swings in price. Demand will continue to increase. There will be violent shake-outs along the way, but until the world invests hundreds of billions in new production (which isn’t happening), prices will continue to go higher.  This goes for metals, energy products and everything else. There has been massive underinvestment in new production. It will take decades to catch up—yet demand continues to grow. This is a recipe for higher prices—even before increased inflation exerts its own forces.

Commodities

2.       Mining is an awful business. I rarely ever invest in it any more. Miners have all depleted their resources for decades. They all need to spend more on exploration. You could have said the same thing a decade ago. What’s changed now is that with higher metal prices, miners have a whole lot of excess cash flow for the first time in years. Even more importantly, junior miners are raising sizable levels of capital. The correlations aren’t exact, but over time, those have been the two largest contributors to increased exploration spending. Get ready for a tidal wave of exploration expenditures. If you have a business that helps companies find ore bodies, you are now in the sweet spot.

Energold Drill Rig

3.       Demand for protein will continue to increase. Studies always show that as people gain wealth, they eat more calories and protein becomes a larger percentage of their caloric intake. In the past decade, two thirds of the world’s population have begun the long trek towards first world living and eating standards. Population levels world-wide continue to grow. Protein consumption will begin to rapidly increase from here. Unlike many commodity prices that are up many times in the last few years, protein has barely budged. It is the cheapest sector of the commodity index. How do you play this? I intend to find out while in Australia.

Beef

4.       Get ready for South America to catch up with the rest of the world. The days of coups and socialism are over. Look at Colombia, Brazil, Chile and Peru. They were basket cases for decades. They are now rapidly modernizing. Once they’ve shaken off the occult of socialism, they will never go back. There are too many people who want to be rich. The rest of Latin America will follow behind at varying degrees. Assets aren’t cheap here, but wait for panics to buy small growing businesses.

5.       Specialized niche businesses will always triumph over any headwinds. I have my eyes open for the next winners.

These are the big trends that I want to invest in. There are plenty of other trends. However, I don’t know how to play them—or I refuse to play them. I don’t want to invest where government policies can trump good logic. Many trends like the aging of first world societies are widely recognized, priced for perfection and difficult to make money in. If you want to buy shares of an old folk’s home, good luck. Hope they don’t change the reimbursement regime overnight.

While I’m on the road, I always think of new ideas to invest in--new sectors that interest me. I also want to test my thinking on the big picture. Can the Euro survive? What if they toss out Greece? What if governments gain religion and actually work to restrain spending? What happens in an inflationary crisis? Are there any real winners? Do I own enough gold? Where will the opportunities develop after this crisis abates?

There are always great opportunities. You need to keep your mind open. Sometimes you need to let your mind wander. You need to escape the daily data points. You need to think creatively. I intend to do all of that in the next few weeks.

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