Wisdom From the Back of a Taxicab

In the race to keep ahead of the herd, taxi drivers are the speculator’s best friend.

Taxi drivers talk to people in every walk of life. Drivers who cover the airport route have an unbeatable perspective. If you want to know the true economic condition of a place, ask a cabdriver.

The taxi driver that picked me up in Baltimore last week was a fountain of knowledge.

This man spent 23 years running an import/export business in New Jersey.

When someone tells me they’re in the “import/export business,” I immediately assume they’re a smuggler of some sort – dealing in illegal goods or evading taxes.

Truth be told, that makes me more interested... criminals are often the sharpest entrepreneurs on the block and I love hearing their stories.

Mr. Gupta dealt in consumer electronics. He acted as a middleman between wholesalers in several different countries. From his small warehouse, he’d receive and make shipments from all over the world.

In the beginning, the money came easy. He could make $1,000 on a $50,000 shipment; he’d try to make two shipments a week. There was little competition.

He told me about good times in the 1980s – how he’d sell Japanese-made products back to the Japanese!

Exchange rates made this racket possible. Between 1984 and 1986, the yen moved from 270 to 120. It happened so fast that suddenly American retailers could get a better price for their Japanese-made goods by selling them back to Japan.

Mr. Gupta used the example of a cordless phone made by Panasonic. What Panasonic sold to Radio Shack for $100 a unit in 1984, could be re-sold back to the Japanese consumer for $350 in 1986. If Radio Shack had any unsold units of this phone in inventory, why would it sell them for $120 to a customer in America, when a Japanese consumer would pay $350?

So that’s what Gupta did. He bought all the Japanese equipment he could from US wholesalers and sold it in Japan. He said the margin was big enough that five middlemen could take a cut, and the end consumer in Japan would still get a cheap phone.

He started his business with just $10,000. At its peak, his business was worth over a million dollars and he owned a $400,000 house in the New Jersey countryside.

Then disaster struck... it happened four years ago... he got screwed by a customer. He’d shipped $250,000 worth of merchandise to a guy in Belgium. He’d been dealing with him for over eight years.

Gupta sunk all his free cash flow into this deal. He never got anything back. No merchandise, no money. The guy simply vanished.

"In today’s market, the house would sell for around $700,000," he said.

His wife suffered a stroke, as a direct result of his financial belly flop... and she’s still very sick. They moved to Baltimore, where rent’s cheaper. He took a job as a cab driver. Now he works 18 hours a day, 7 days a week in his cab to meet the bills.

He blamed increased competition for his bankruptcy. He’d been forced to take bigger risks to make the bacon – like making shipments on credit.

I wanted to know what a man with his experience thought of the current economy.

"The economy is bad at the moment," he told me. Business is hard. Three years ago, his cab would make $600 or $700 a weekend. Now it’s more like $400. No one goes out anymore.

"It’s not just the cab business either," he said. He thought about starting a business in the fast food industry. But he has friends in the restaurant business. “They are struggling to make ends meet,” he sighed. “It used to be easy but nobody’s spending anymore.”

I challenged him. I pointed out that the papers and the stock market tell a different situation... that things are improving, that times are better.

“Bulls**t.” He said.

Is Gupta’s depressing view of the economy correct? Or should we all invest with robust employment numbers and retail sales guiding us?

As usual, the right answer is probably somewhere in between.

Good investing,

Tom Dyson