I’m always in search of the next great investment idea. I’m always trawling through unloved sectors that have hit rock bottom and should be due for a turn higher. You never know when you can find an opportunity. Baron Rothschild’s oft repeated remark about buying when there’s “blood in the streets” sure has stuck in my mind. In November of 2007, I literally went looking for blood in the streets.
I’ve always been an optimist. I believe that humans will persevere despite hardships. I also believe that at some point in my lifetime, Africa will finally figure it out and become a great place to invest. Following independence from France, the Ivory Coast was a great place to invest. It is rich in minerals and is the world’s largest producer of cocoa. The capital of Abidjan became a banking hub for Western Africa with a regional stock exchange. Ivory Coast became something of a success story in Africa. Then civil war struck.
The details are not important, but coup and counter coups were launched against a president who was seen as an agent of renewed French imperialism. Villages were bombed. The French intervened to protect their candidate, but were only caught in the cross-fire. Eventually an uneasy truce was declared where the rebels owned the majority of the country and the French backed government ruled little more than the capital city of Abidjan. After five years of on and off fighting, it looked like things had settled down. On March 4, 2007 a power-sharing deal was signed between the French backed president and the rebel leader who became prime minister. I’m not going to say things were peaceful there, but that’s what created the opportunity. If a lasting peace broke out, there was money to be made.
There weren’t a lot of companies still traded on the exchange there, but the few that traded sure seemed cheap. In particular, there was a rubber plantation in the rebel zone that traded for three times earnings, had a 25% dividend yield and traded for a miniscule percentage of the replacement value of equipment. Amazingly, throughout the whole civil war, they had somehow been able to bring their rubber through the front lines, into the French controlled port of Abidjan and sell it to foreign consumers. Even more amazingly, they had continued to pay their dividend throughout the whole war. Who knew if the accounting was clean? Who knew how they managed to even continue the business during a civil war? All I know is that dividends do not lie. They were still paying the dividends. If the peace would hold, I’m sure that business would improve. This could be a 10-bagger or more. There were half a dozen similarly cheap companies. Would the peace hold? I intended to find out.
When our plane landed, I suddenly realized that this was game time. My three analysts and myself were the only ones not armed to the teeth. A Nigerian guy I befriended on the plane kicked open a door at customs and returned a few minutes later with my luggage. On the cab ride from the airport to the hotel, there were two Mazda pickup trucks in front of us. In the back of each truck was an anti-tank gun bolted to the floor with a half dozen soldiers with bandoliers of ammo. These did not look like guys you would mess with.
(Unfortunately, I was too scared to take these pictures).
Abidjan is an interesting city. It looks like a Mad Max version of a modern American city. There were twenty story bank buildings that had seen better days. There were a few fancy hotels that were fortified. There were other sky-scrapers with neon lighting and windows missing. There was shattered glass and sandbags everywhere. It’s a bit surreal. At least no one was shooting. I’ve been to a lot of hotels in my life. This is the only one that was sand-bagged with a cage at the entrance. We ran our luggage through a metal detector. Soldiers with machine guns were milling around the lobby. I went to the bar and met a World Bank official who told me he never left the hotel. He just made up reports and sent them to World Bank officials who probably never read them before disbursing more aid to the country. I sure wouldn’t vacation in Abidjan, but I was there to work.
I’m always amazed at who you can meet if you just make the effort. Before going to Abidjan, we started emailing business leaders. Many were willing to meet with us. A typical meeting was the one I had with the country head of a large multi-national bank. It started with a car that picked us up at the hotel and literally drove us across the street. As we got out of the car, the driver told us to get into the building fast. The bank building was at least a dozen stories high with neon logos. Most of the windows were missing and covered over with garbage bags. We went through two rounds of metal detectors and were frisked a few times. Finally, security led us through empty cubicles, into a basement and up an elevator. The president was bewildered. “Why are you here? There’s nothing to invest in. This country sucks.” I explained my story. I had read that things were getting better in Ivory Coast and I wanted his opinion. Then he explained; the last president had died under unusual circumstances. The current bank president once had a cushy job in France until he made a mistake that cost the company millions. They told him to take over in Ivory Coast or he’d be fired. He had been in the country for only six months and had sent his family home to France. He never left his bomb shelter of a house. He had no idea how things were. He spent most of his time chain smoking in his office waiting for any business to show up. There were hardly any employees left.
I figured I would get some local color. I went to meet with the head of the largest local bank. The CEO was born in Ivory Coast, but went to college in the US. He had made a fortune working for an American bank and had decided to return home and start his own bank. I felt he’d have a good handle on the economy. He assured me that since the peace treaty, things were getting better. Then we talked a bit more and I asked him about politics. He told me that on the weekends, he took of his Armani suit, put on camouflage, and went to bring food to the rebels. If one of the wealthiest businessmen in the French zone didn’t support the French, the current government certainly was doomed. That wasn’t encouraging.
After a few more meetings, I went to meet with one of the largest stock brokers in the country (there weren't many to chose from). Naturally he was upbeat on business. Things were improving. Peace was at hand. Shares were cheap. We talked about a few companies. He offered to introduce me to a few less jaded CEOs. We went to lunch in what can best be described as a colonial mansion surrounded by a bomb shelter. Two tanks blocked off the streets and dozens of soldiers ran back and forth protecting the leading generals, a stock broker and some crazy Americans who wanted to invest in this chaos. Seeing all the generals there, I deduced that it was either the safest place in the city, or about to get bombed.
Armed with investment literature, I headed back to the hotel and tried to think it all through. The companies seemed cheap. If there was a lasting peace, we’d make a fortune. Could there be peace? Was this country just another terminal African country? I had a few beers, chatted with my analysts and decided it was time to take the pulse of the ‘man on the street.’ I wanted to see what the locals thought. We were going to the rebel zone. I wasn’t quite sure how I was going to do this, but I’m resourceful. That night, we went out to a local casino. With all the UN jeeps parked next to armored vehicles, I figured it was safe enough.
After the casino, we let our guard down. We got into a cab we didn’t know. Instead of taking us back to our hotel, he took us north—away from Abidjan. On an abandoned stretch of highway, there was an obstruction guarded by a half dozen boy soldiers with machine guns. Their commander wore a pink polo shirt and cammo pants. He asked me for paperwork. I don’t speak French. The commander got more and more angry demanding documents. I gave him my Florida driver’s license. He had no sense of humor. He got us out of the car and lined us up like he was going to kill us. His boy soldiers looked nervous. They kept pointing their AK-47’s at us and yelling. It all happened so fast. I couldn’t communicate. It was a language thing and they were angry. Finally, I reached into my pants, and gave my casino winnings to my friend Babak.—he’s a pro at greasing club bouncers. “Make sure to choose the right guy.” Ten seconds later, they started counting the money and we ran into the car and told the driver to move it. I don’t speak French, but I could clearly understand the commander yelling at his soldier for letting us go. “They’re Americans! They have much more than that!!” I gave him a stack of bills that was worth about $60 USD.
We were all scared. We got home that night and celebrated like I’ve never celebrated before. We celebrated life. That morning, I paid top dollar and took the next flight out of that crazy country. I’m sure there’s money to be made in Ivory Coast. Let someone else make it. There’s a moral here. No investment is worth dying for. If you compound your money at a reasonable rate for a lifetime, you’ll be very wealthy. If you die trying to have a slightly better return, you are still dead. I intend to invest for decades to come. It’s stupid to die because of an investment. When you invest, some investments are just too hard to figure out. Ivory Coast was too hard to figure out—at least for me.