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It's All About the Starting PointBy
Monday, April 16, 2018
We're about to land a King Air private plane in the jungles of Misiones, Argentina...
It's June 2004. I'm sitting across from a brilliant young woman who works for one of Argentina's greatest-ever businessmen. I'm representing a billion-dollar hedge fund. And we're headed into the trees below.
She's talking to me... But honestly, I'm struggling. The plane is bouncing around in the sky, and the engine noise is loud inside the plane. I'm feeling queasy.
"How the heck did I end up right here, right now?" I said to myself.
Oh yeah, this was my idea...
I thought of an investment idea, and I shared it with two friends – one of Argentina's richest men, and a man in New York who (at the time) ran a billion-dollar hedge fund.
We needed both men to make it work... the hedge-fund manager for the money, and the Argentina connection for the local knowledge.
The critical thing here as investors was our starting point.
As an investor you need to understand this:
It's all about the starting point. That's how you make the most money – by buying cheap assets at the right time.
To understand our starting point back then, let me explain what Argentina looked like in the early 2000s...
We were going to Argentina because the country had just experienced a massive economic crisis that ended in 2002.
I'm not talking about a crisis like the real estate bust in the U.S. a decade ago. I'm talking about something far worse...
As one example, the Argentine government announced a "bank holiday" – which was as far from a "holiday" as you can imagine...
One day the banks were open. The next day, they closed – indefinitely ("on holiday"). Seriously...
Argentina's government ordered the indefinite closure of the country's banks in order to prevent the collapse of Argentina's currency. And cash withdrawals were limited to $500 a month. (Not $500 a day. $500 a month!)
If you were "rich," but your money was in the bank, then you were now broke. You truly had no access to your money.
Many locals thought they might be safe from Argentina's problems because their money in the bank was in U.S. dollars instead of pesos. Someday when the banks reopened, locals thought, they'd get their money.
It turned out, even these folks were not safe...
When the banks finally reopened, no one could get their dollars out. The government had converted the dollars to pesos. And in 2002, Argentina's currency lost three quarters of its value against the U.S. dollar over six months.
So if you had $100,000 in U.S. dollars in the bank at the end of 2001, you now had $25,000 worth of pesos in mid-2002.
So when I tell you that people were scared of putting their money into Argentina back in the early 2000s, hopefully you can see why.
Money (like a loan) was incredibly hard to come by in Argentina.
By the bottom of the crisis in 2002, Argentina's economy had shrunk by more than 25%. By June that year, Argentina's benchmark stock index (the Merval) had fallen 90% from its highs in U.S. dollar terms.
Nobody wanted to invest. There was no money or credit available. And the stock market was down 90%.
It was a terrible time for Argentina. But it created a great starting point for investors...
The local businessman we teamed up with ended up investing in the timberland we visited. He bought thousands of "useless" acres that he turned into "economic" acres by planting trees.
And Argentina in general made a spectacular turnaround after the fantastic starting point I witnessed firsthand.
Argentina's stock market soared by 600% in less than four years (in U.S. dollar terms) from the bottom of the crisis in 2002.
Anyone who invested in Argentina after the crisis bottomed should have made a fortune in a short period of time.
For investors, it's all about the starting point.
So where are we right now in the U.S.? What's our starting point here, today, in 2018?
I'll answer those questions, including the script I plan to follow in the years to come, in tomorrow's DailyWealth.
Good investing,
Steve
Further Reading:
"In investing, you will never dramatically outperform if what you're doing isn't dramatically different from your peers," Steve says. Learn how to give yourself the best odds right here: My Biggest Investing Edge: 'Variant Perception.'
"Momentum works in the short run," Steve writes. "Value works in the long run." These two investing strategies can help you trade wisely – if you understand what they're telling us today. Read more here: How to 'Call' the Markets Correctly.
Market NotesNEW HIGHS OF NOTE LAST WEEK
Abercrombie & Fitch (ANF)... "bad to less bad" in retail
American Eagle Outfitters (AEO)... "bad to less bad" in retail
Urban Outfitters (URBN)... "bad to less bad" in retail
Tailored Brands (TLRD)... men's apparel
Columbia Sportswear (COLM)... outdoor apparel and products
Lululemon Athletica (LULU)... innovative apparel
Callaway Golf (ELY)... golf equipment
Five Below (FIVE)... discount retailer
Ollie's Bargain Outlet (OLLI)... discount retailer
Etsy (ETSY)... online marketplace
Denny's (DENN)... a chain restaurant goes online
Boston Beer (SAM)... beer
Medifast (MED)... weight-loss products
AMN Healthcare Services (AMN)... health care staffing
AstraZeneca (AZN)... Big Pharma
Ecolab (ECL)... sanitation technology
Hess (HES)... oil and gas
Total (TOT)... oil and gas
ConocoPhillips (COP)... oil and gas
Anadarko Petroleum (APC)... oil and gas
HollyFrontier (HFC)... oil refiner
Valero Energy (VLO)... oil refiner
Rayonier (RYN)... timberland
Monsanto (MON)... seeds and pesticides
Southern Copper (SCCO)... copper
NEW LOWS OF NOTE LAST WEEK
Prestige Brands (PBH)... health and cleaning products
Tupperware Brands (TUP)... household goods
Bed Bath & Beyond (BBBY)... home goods
U.S. Concrete (USCR)... concrete
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