Q: Which places are you looking for investments?
A: The only place where I bought shares in the past year or so has been China. I have got Sri Lanka on my mind. One of the things that I have learnt is that if you get to a country after a long and bitter war, you usually will find that things are very cheap, you will find a lack of capital, there is low morale, and everything is despondent, and there are usually great opportunities. So, Sri Lanka is on my list as a place where that sort of thing is happening, but there are not many, not these days.
Q: How do you size up a country? What are you looking for?
A: Two things. I am looking for them to be cheap, for whatever reason: War is a good reason. Cheap and change, where there is some kind of positive change taking place. Sri Lanka is cheap, because it has had a 30-year war and if I am right there is positive change because the war is over now. So, there is going to be peace and so the country can spend a lot of its time, energy and money on pursuing peaceful pursuits.
Q: The way your method works is. You look at the dustbins; you look where people are bearish because that is where you find the bargains?
A: Frequently, I do try to find things that are cheap. Normally if something is cheap, it is because it is in the dustbin; people are not looking at it. If everybody is looking at something or if everybody is investing in something, you know as well as I do, it is not cheap.
Q: More certainty equals less profit?
A: Exactly.
Q: A good lesson in investing is learning the laws of supply and demand. Can you explain that to us?
A: It is very simple. I came to the conclusion at the end of the ‘90s that the commodities had been in a bear market for about 20 years because there had been excess supply in the ‘70s, people found oil and a lot of things happened, huge inventories of food buildup. But then by the end of the ‘90s, I came to the conclusion that nobody built a drilling rig for 20 years and nobody had been discovering oil, farming had been a terrible business, farmers were going bankrupt all over the world. So, I realised that is going to mean there is less supply.
I had driven around the world a couple of times as you know, and I could see that demand was booming. I mean Asia was exploding. The difference in Asia in 1998 and in 1978 was very dramatic. So, I could see that demand was going up for 20 years, and supply going down and that had to mean that the bear market in commodities was going to come to an end. So, I started buying commodities for the first time in the last 15-20 years at that time.
Q: That works every time, the law of supply and demand. No dictator, no monetary authority has ever been able to change that?
A: They all try. Not just dictators, democracies try. I mean the Indian government, the American government. They all try to abolish the laws of supply and demand, think that they are smarter than anybody else. Periodically, governments put price controls on to food. Recently, the Filipinos put price controls on rice. Now if you were a farmer, you are not going to go into the field over 12 hours a day in the hot sun to raise rice if the government says you can only sell it for 2 pesos. You are just not going to do it.
Q: So the black market price is a good indicator of government policies?
A: Yes. You will need to find that there is a black market price with a very high premium or you’ll find that there is no supply at any price depending on how draconian the government is. If they execute you for selling something on the black market, there is usually nothing at any price. The government’s can sit there and yell all day long. Evil capitalists or evil speculators. Listen, you set the price too low, nobody is going to produce and you will have nothing.
Q: Whenever you hear the word new era or this time it is different, what are the lessons that you learn and are you seeing anywhere that people are talking?
A: Anybody who has read anything to do with financial history knows that every time there is a new era or that it is different this time, or that there is a new economy, those are signals. You hear a bell ring; you know that something is wrong. Some of the most dangerous words are, it is different this time, because it is not different this time. The laws of supply and demand, the laws of greed and fear, the laws of economics just don’t change.
Q: But markets can remain irrational for long periods of time?
A: Oh yes. It was Keynes who said that, “The market can stay irrational longer than you can stay solvent”. I would sell something short, only to see it go higher and higher. I’ve learned the difficult way. Some of the things right now, right now everybody seems to be convinced that government bonds are going to go through the roof and that government bonds are a safe investment. Everybody seems to be convinced that there is deflation in the world. Long-term government bonds are yielding nothing.
Q: The perceived safety?
A: They perceive safety and they perceive – you don’t have to worry about inflation, deflation is here. So, you can buy long-term government bonds. In my view that is one of the next great bubbles, which is developing. I am not short bonds at the moment. I have them but I cover. That is a huge bubble. Apparently if you look at the market, most people don’t think inflation is coming – if government bond yields are any indication – nobody thinks that inflation would ever come back. So, I am afraid, I think that that is probably the next bubble developing.
Q: Let’s talk about something that you have been bullish on, the dustbin of history: Airline stocks?
A: Yes, I have been, they are not doing much good right now. I think I see that the supply demand – I mean nobody has been building airplanes. All the airlines have lost huge amounts of money over the past nine years now. It is a terrible place to be. Many of them went bankrupt. Normally, when I see a lot of companies in an industry going bankrupt, it is a good sign that we are near a bottom, which is what initially attracted me to the airlines this time around. So, I have been buying international airline stocks. Most of them are down from where I bought them, fortunately not down a whole lot.
I am still convinced because I don’t see anybody building a lot of planes. I don’t think we are all going to take boats to London again, or New York. I think we are probably going to continue to fly.
Q: It is almost an irreplaceable business?
A: It seems to me. We also know that throughout history many people who have managed airlines haven’t done a horrible job of managing airlines, which again means that if you don’t have enough seats eventually we’re probably all going to fly on planes and eventually they are going to make money. So, I am convinced this is one of the places that will come out of this, if we have to come out of this in a good way.
Q: Economics and markets are two different things. Can you explain that?
A: Yes. Let’s look at China. The Chinese economy has boomed for quite some time. But between 2001 and 2005, the Chinese stock market went down every year for four years in a row, even though the economy was going through the roof. So, just because an economy is strong doesn’t mean you can have a good stock market, and just because an economy is weak – they don’t necessarily go together. In the long-term of course there is some correlation. But don’t think that good news means good stock market.
Q: Philosophy and history are important subjects to learn? Why is it important in investing?
A: In my view, yes. Philosophy teaches you how to think. It teaches you to be sceptical. It teaches you to think. Like if you hear something from somebody it makes you stop and think. Now, could that possibly be true? Merrill Lynch says it, Morgan Stanley says it then it must be true. I don’t know if it was the philosophy that I studied or what but I have learnt that when you hear all that kind of stuff, when everybody is thinking the same way, somebody is probably not thinking and so you better do your scepticism. History teaches you that the world is always changing. Pick any decade, 15 or 20 years later the world is dramatically different.
Q: There are lessons that you interrelate to the market with this, in terms of Asian or the American century?
A: Again, whatever you see now is not going to be true if somebody comes to you and says that this company is a great growth stock and in 15 years they are going to own the world. Rarely has that been the case. Remember the projections that were made about dotcom companies, only 10 years ago. Well if those projections had been true, the whole world would be one big dotcom. Dotcom has come a long way but it not one big dotcom world.
Q: The best advice that you said in the book that you could give anyone was learn Mandarin. Why?
A: If I am right in the 21st century then China is going to be the great country of the 21st century. The 19th century was the century of the UK. The 20th century was the century of the US. The 21st century is going to be the century of China. In my view, China is the one that is going to dominate this century and Mandarin is going to be the most important language.
Q: What would be the best piece of investment advice that you ever got?
A: Buy low and sell high. No, the real one is do your homework. Do not listen to what other people tell you.
Q: Attention to detail?
A: Be very attentive to detail. Cover all the bases; most people don’t cover the bases. If you read an annual report for a company on Wall Street, you would have done more than 98% of the people on Wall Street. If you just do simple things like reading the annual report, you’re way ahead of everybody else, but that does not mean you are going to be successful. I promise you. But if you’ve learnt to cover all the bases, if you cover attention to detail, and you are sceptical, chances are that you’ll be a successful investor.
Q: You also said stock traders should learn how to drive tractors? That is where the money is, the next decade?
A: What I said was, the last 30 years has been an era in the developed world where finance has been the centre. The ‘80s, ‘90s and this decade, people in Wall Street, the City of London, once you had all the money and the influence. We’ve had many periods like that in history but we have also had many periods in history when it is the people who produce real things, whether it is miners or farmers or whatever, where they have been the centre. In my view, we are in a historic shift now away from the financial centres to the people who produce real goods.
Farming has been one of the worst professions, the worst jobs for the past 30 years. I am telling you that in my view, farming is going to be one of the great professions in the next 30 years. All these people who were stockbrokers should turn in their degrees and go down and learn how to drive a tractor. They will be a lot better off. Atleast they will be working for rich farmers if nothing else and if they are smart they will become the rich farmer themselves.
A: The only place where I bought shares in the past year or so has been China. I have got Sri Lanka on my mind. One of the things that I have learnt is that if you get to a country after a long and bitter war, you usually will find that things are very cheap, you will find a lack of capital, there is low morale, and everything is despondent, and there are usually great opportunities. So, Sri Lanka is on my list as a place where that sort of thing is happening, but there are not many, not these days.
Q: How do you size up a country? What are you looking for?
A: Two things. I am looking for them to be cheap, for whatever reason: War is a good reason. Cheap and change, where there is some kind of positive change taking place. Sri Lanka is cheap, because it has had a 30-year war and if I am right there is positive change because the war is over now. So, there is going to be peace and so the country can spend a lot of its time, energy and money on pursuing peaceful pursuits.
Q: The way your method works is. You look at the dustbins; you look where people are bearish because that is where you find the bargains?
A: Frequently, I do try to find things that are cheap. Normally if something is cheap, it is because it is in the dustbin; people are not looking at it. If everybody is looking at something or if everybody is investing in something, you know as well as I do, it is not cheap.
Q: More certainty equals less profit?
A: Exactly.
Q: A good lesson in investing is learning the laws of supply and demand. Can you explain that to us?
A: It is very simple. I came to the conclusion at the end of the ‘90s that the commodities had been in a bear market for about 20 years because there had been excess supply in the ‘70s, people found oil and a lot of things happened, huge inventories of food buildup. But then by the end of the ‘90s, I came to the conclusion that nobody built a drilling rig for 20 years and nobody had been discovering oil, farming had been a terrible business, farmers were going bankrupt all over the world. So, I realised that is going to mean there is less supply.
I had driven around the world a couple of times as you know, and I could see that demand was booming. I mean Asia was exploding. The difference in Asia in 1998 and in 1978 was very dramatic. So, I could see that demand was going up for 20 years, and supply going down and that had to mean that the bear market in commodities was going to come to an end. So, I started buying commodities for the first time in the last 15-20 years at that time.
Q: That works every time, the law of supply and demand. No dictator, no monetary authority has ever been able to change that?
A: They all try. Not just dictators, democracies try. I mean the Indian government, the American government. They all try to abolish the laws of supply and demand, think that they are smarter than anybody else. Periodically, governments put price controls on to food. Recently, the Filipinos put price controls on rice. Now if you were a farmer, you are not going to go into the field over 12 hours a day in the hot sun to raise rice if the government says you can only sell it for 2 pesos. You are just not going to do it.
Q: So the black market price is a good indicator of government policies?
A: Yes. You will need to find that there is a black market price with a very high premium or you’ll find that there is no supply at any price depending on how draconian the government is. If they execute you for selling something on the black market, there is usually nothing at any price. The government’s can sit there and yell all day long. Evil capitalists or evil speculators. Listen, you set the price too low, nobody is going to produce and you will have nothing.
Q: Whenever you hear the word new era or this time it is different, what are the lessons that you learn and are you seeing anywhere that people are talking?
A: Anybody who has read anything to do with financial history knows that every time there is a new era or that it is different this time, or that there is a new economy, those are signals. You hear a bell ring; you know that something is wrong. Some of the most dangerous words are, it is different this time, because it is not different this time. The laws of supply and demand, the laws of greed and fear, the laws of economics just don’t change.
Q: But markets can remain irrational for long periods of time?
A: Oh yes. It was Keynes who said that, “The market can stay irrational longer than you can stay solvent”. I would sell something short, only to see it go higher and higher. I’ve learned the difficult way. Some of the things right now, right now everybody seems to be convinced that government bonds are going to go through the roof and that government bonds are a safe investment. Everybody seems to be convinced that there is deflation in the world. Long-term government bonds are yielding nothing.
Q: The perceived safety?
A: They perceive safety and they perceive – you don’t have to worry about inflation, deflation is here. So, you can buy long-term government bonds. In my view that is one of the next great bubbles, which is developing. I am not short bonds at the moment. I have them but I cover. That is a huge bubble. Apparently if you look at the market, most people don’t think inflation is coming – if government bond yields are any indication – nobody thinks that inflation would ever come back. So, I am afraid, I think that that is probably the next bubble developing.
Q: Let’s talk about something that you have been bullish on, the dustbin of history: Airline stocks?
A: Yes, I have been, they are not doing much good right now. I think I see that the supply demand – I mean nobody has been building airplanes. All the airlines have lost huge amounts of money over the past nine years now. It is a terrible place to be. Many of them went bankrupt. Normally, when I see a lot of companies in an industry going bankrupt, it is a good sign that we are near a bottom, which is what initially attracted me to the airlines this time around. So, I have been buying international airline stocks. Most of them are down from where I bought them, fortunately not down a whole lot.
I am still convinced because I don’t see anybody building a lot of planes. I don’t think we are all going to take boats to London again, or New York. I think we are probably going to continue to fly.
Q: It is almost an irreplaceable business?
A: It seems to me. We also know that throughout history many people who have managed airlines haven’t done a horrible job of managing airlines, which again means that if you don’t have enough seats eventually we’re probably all going to fly on planes and eventually they are going to make money. So, I am convinced this is one of the places that will come out of this, if we have to come out of this in a good way.
Q: Economics and markets are two different things. Can you explain that?
A: Yes. Let’s look at China. The Chinese economy has boomed for quite some time. But between 2001 and 2005, the Chinese stock market went down every year for four years in a row, even though the economy was going through the roof. So, just because an economy is strong doesn’t mean you can have a good stock market, and just because an economy is weak – they don’t necessarily go together. In the long-term of course there is some correlation. But don’t think that good news means good stock market.
Q: Philosophy and history are important subjects to learn? Why is it important in investing?
A: In my view, yes. Philosophy teaches you how to think. It teaches you to be sceptical. It teaches you to think. Like if you hear something from somebody it makes you stop and think. Now, could that possibly be true? Merrill Lynch says it, Morgan Stanley says it then it must be true. I don’t know if it was the philosophy that I studied or what but I have learnt that when you hear all that kind of stuff, when everybody is thinking the same way, somebody is probably not thinking and so you better do your scepticism. History teaches you that the world is always changing. Pick any decade, 15 or 20 years later the world is dramatically different.
Q: There are lessons that you interrelate to the market with this, in terms of Asian or the American century?
A: Again, whatever you see now is not going to be true if somebody comes to you and says that this company is a great growth stock and in 15 years they are going to own the world. Rarely has that been the case. Remember the projections that were made about dotcom companies, only 10 years ago. Well if those projections had been true, the whole world would be one big dotcom. Dotcom has come a long way but it not one big dotcom world.
Q: The best advice that you said in the book that you could give anyone was learn Mandarin. Why?
A: If I am right in the 21st century then China is going to be the great country of the 21st century. The 19th century was the century of the UK. The 20th century was the century of the US. The 21st century is going to be the century of China. In my view, China is the one that is going to dominate this century and Mandarin is going to be the most important language.
Q: What would be the best piece of investment advice that you ever got?
A: Buy low and sell high. No, the real one is do your homework. Do not listen to what other people tell you.
Q: Attention to detail?
A: Be very attentive to detail. Cover all the bases; most people don’t cover the bases. If you read an annual report for a company on Wall Street, you would have done more than 98% of the people on Wall Street. If you just do simple things like reading the annual report, you’re way ahead of everybody else, but that does not mean you are going to be successful. I promise you. But if you’ve learnt to cover all the bases, if you cover attention to detail, and you are sceptical, chances are that you’ll be a successful investor.
Q: You also said stock traders should learn how to drive tractors? That is where the money is, the next decade?
A: What I said was, the last 30 years has been an era in the developed world where finance has been the centre. The ‘80s, ‘90s and this decade, people in Wall Street, the City of London, once you had all the money and the influence. We’ve had many periods like that in history but we have also had many periods in history when it is the people who produce real things, whether it is miners or farmers or whatever, where they have been the centre. In my view, we are in a historic shift now away from the financial centres to the people who produce real goods.
Farming has been one of the worst professions, the worst jobs for the past 30 years. I am telling you that in my view, farming is going to be one of the great professions in the next 30 years. All these people who were stockbrokers should turn in their degrees and go down and learn how to drive a tractor. They will be a lot better off. Atleast they will be working for rich farmers if nothing else and if they are smart they will become the rich farmer themselves.
