Investing Like You’ve Been There
“In the business world, the rearview mirror is always clearer than the windshield.” – Warren Buffett
You’ve heard it all your life: Great opportunities come with great risks. And 98 percent of the time, risks come from not knowing what you’re doing and not knowing what’s around the corner. But I’m going to show you a way to find great investing opportunities with hardly any risk at all. And – with apologies to Warren Buffett and his quote above – I’m going to do it by providing you with a windshield that is just as clear as the rearview mirror.
I do it all the time. Like a lot of my investing ideas, I learned this one when I used to do business overseas. Let me tell you how I came across it…
In the early days of my global business dealings, I sold a lot of high-tech equipment – biotech, advanced medical equipment, sophisticated machinery, etc. And I was doing pretty well. So when this businessman I knew – GJ – dropped by to show me some of the technology he was selling to the sheiks in the Middle East, I almost laughed in his face.
“This is ancient stuff,” I said. “We did this years ago in the U.S.”
He smiled. “You’re right. We went through this phase with our gasoline distribution systems back in the 1960s.”
“Let me get this straight. You’re selling decades-old technology to billionaire oil barons in the Middle East who can afford the best the world has to offer?”
His grin got wider. “Not only are we selling it… we’re getting swamped with inquiries.”
“How the heck are you getting away with that?”
He then explained to me the secret of his business success and why selling technology whose time has come and gone in the U.S. is the easiest way to make money overseas.
“Because there’s nothing they can ask me about it that I haven’t seen before – first in this country, then in Europe, then in Japan, then in Australia, and now in the Middle East. In all of these countries, the market followed basically the same script.”
“Yeah, like the script of a bad horror film,” I was thinking. I wasn’t yet sold on his unusual business philosophy.
Then he sat me down and filled me in on the history of the technology. He told me how furious oil companies had been over air-quality legislation that required them to overhaul all the gas depots and stations in the U.S. It was going to cost hundreds of millions of dollars.
And then he explained how they changed their minds a few years later when they discovered that recovering vapor from the evaporation of gasoline and pumping it back into their storage tanks was extremely profitable. For every dollar they spent on the overhaul, they got one dollar back each and every year from then on.
It sounded so promising that I invited GJ to come with me on my next trip to Asia. We decided to target China, Indonesia, and Thailand.
It was a good partnership. My people set up the meetings, and he went around telling his story. And there wasn’t any question that fazed him.
When he was asked, “Why don’t we simply wait for the next generation of equipment to come along?” he replied: “There is no next generation of equipment. The users who adopted this strategy in the U.S. and Japan merely ended up paying more for the same equipment later on. And, in the meantime, they lost customers as cars and trucks gravitated toward stations using cleaner and faster-pumping equipment.”
To the question “Why should we want to represent you and market this technology in our country?” he replied: “The market begins in the major cities. Depending on the configuration of gas stations and depots, you’ll make $15 million every year on projects costing between $15 and $20 million per major city. And for every major city you do, you’ll win projects for approximately five smaller cities.”
“And how do you know that?”
“Because that’s how the market unfolded in the U.S., Europe, and Japan.”
And on it went with GJ. He knew which technologies succeeded and which failed. He knew the profit margins. He knew how the technology spread. He knew exactly how the market was going to evolve in the countries we visited, because he’d seen it all before.
When we had our first post-trip strategy meeting, he knew exactly what we should do. For example, he told me that China’s market was huge but way too fragmented. It would take time. We needed to be patient and grab a giant company like China National Offshore Oil Corporation (CNOOC) to help us pull a few projects together.
As it turned out, we were a little early in China and a little late in Thailand. We decided to drop both of them.
But for Indonesia, our timing was just right. We decided to focus on Jakarta and Surabaya. A few trips and about 500 marketing hours later, we landed our first vapor recovery project.
From the outset of the project, we nailed everything: The blueprint of the new distribution system, the costs, the timetable, the equipment and manpower needed. GJ told me that Indonesia wasn’t so different from Saudi Arabia.
When I began to spend more time investing, I wondered: Could I recreate this amazing advantage that practically lets you see into the future? Could I use it to help me find opportunities I knew would grow and wouldn’t stab me in the back?
I didn’t see why not. Plenty of technologies besides our vapor recovery technology travel from west to east (or north to south). Markets across the globe don’t rise and fall in unison. Countries are early adopters in some markets and latecomers in others.
Sure, no two countries are exactly alike. But they don’t have to be.
One market that’s worked wonders for my portfolio is the auto industry, home to some of the worst deadbeats in the U.S. Ford, Chrysler, and GM are all taking their lumps. Back in the 1920s, 40s, and 50s, the auto industry fed on a rapidly rising middle class, growing population, and cars that became affordable to a majority of the population.
But competition from Japan and other countries proved too much to overcome. The heyday for the American car industry has come and gone. Toyota and Honda would certainly make better investments than U.S. companies, but they’ve grown so much in the past couple of years that they’re due for a pullback.
Too bad. If you had invested in Toyota back in 2003, you would have tripled your money.
And if you had invested in Ford back in the early 1980s – when its stock went for a buck – you would have made over 30 times your stake (if you got out in early 1999 when its shares peaked).
If you could invest in a young Ford or Toyota, you’d jump at the chance, wouldn’t you?
In Japan and the U.S., more than one out of every two people have a car. But I know a big country where only seven people out of 1,000 own cars. And its middle class is growing like gangbusters. Cars are fast becoming affordable in that country. As a matter of fact, there’s one company in that country that has designed a car that will cost around $2,000. Here’s what I said when I recommended that company for subscribers to ETR’s Wealth Advantage service:
“Looking at this country’s auto industry, its demographics, its growing middle class … well, it’s almost deja vu. I’ve seen American cars grow up. I’ve seen the Japanese and Korean cars grow up. I can pretty much close my eyes and also see how this company will grow up.”
There are plenty of other markets that fit this profile – the airline industry, tobacco, appliances, cellphones, snacks and drinks, big-box hypermarket retailers (like Wal-Mart), and many more.
But those markets can be volatile. So this is what I do. I find big, solid U.S. or European companies that have found a way to ride those overseas markets. Or I find very stable and reputable local companies to invest in.
By investing in what you know, you also participate in markets with exciting growth potential when you follow this strategy. Yes, it still takes some work. You have to find the right company to carry the ball for you. And you should always follow developments in the sector and country you’re invested in.
And you should realize that no investment follows a straight path up. Even Ford, on its way to 3,500 percent gains, had setbacks along the way.
Of course, you know this already. You’ve been there and seen it all before.
[Ed. Note: Let Andrew’s experience help build your portfolio with safe and profitable recommendations for investing in the U.S. and overseas. You could get a total return (dividends plus capital gains) of at least 14 percent this year with the high-dividend-paying companies you’ll find with his INCOME investment service.]