A Frontier Capitalist

I live most of the year in Uruguay these days.  It’s a fascinating place, full of interesting and intelligent people.  There is a vibrant expat community with individuals from all over the globe.  On any given weekend I’m mingling with people from Germany, Botswana, Switzerland, Canada, Mexico, Argentina, Paraguay, Russia and of course the States.  It’s a great place to live, and a great place to operate a virtual business from.

Meanwhile my partner in this endeavor is hopping all over the Pacific Rim.  As you know by now, he’s in Thailand with his family.  When he isn’t stepping on poisonous fish or downing charcoal pills after visiting the roadside food vendor, he’s running a business and educating his kids “on the road”.

It’s possible to be a frontier capitalist, make your living from the road and gain valuable experiences by interacting with other cultures.  We’re living examples of that.  A while back I wrote a post called The Tao of Dave in which I talked about my mentor.  Dave packed up in his 20’s and headed to Guam to pursue his dreams.  Along the way he made a small fortune doing what he loved, got married and traveled the world.

Today I want to introduce another capitalist road warrior, Carlos Andres.  Carlos and I are friends and we often discuss our business ventures among other things.  I wanted to chat with him and share a bit about his story with you.  I think you’ll find it inspirational and instructive.  Enjoy!

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MW:    Carlos, tell us a little bit about your background and education.  It seems you got the “international” bug early…?

CA:    Interestingly enough, I’m an inner-city kid who was fortunate or unfortunate enough to have an entrepreneurial father with big dreams.  It meant our family spent a lot of initial time in the poor house but always thinking and doing unconventional things.  I was the oldest, so I became my father’s sidekick at an early age.  This provided me with a front row seat as he gradually began to put the puzzle pieces together.  For my part, I came with some natural math and problem solving ability and was obnoxiously curious.

My mother, for her part, overdosed me with the wild notion that the world was my oyster and I could do anything.  She instilled an early love for reading, and books became both time machine and transporter.  I fell in love with literature, history, geography, science, maps, etc.  I’ve amassed a sprawling library as a result but that’s another story.

My father, never one to overlook an available resource, put me to good use.  To make a long story short, by the time I was eighteen, I was a self-taught accountant with decent business acumen managing the books and some of the business affairs of a successful family-owned real estate development company.  Grade school was a distraction thrown in to make things a little more challenging.

By the time I graduated from high school, I had delusions of grandeur.  I stayed in college for about a semester before leaving.  I worked interesting odd jobs and learned some valuable lessons about life until my parents were able to forgive me for the indiscretion of dropping out of college.  I was then pardoned and allowed to rejoin the family business.  My father and I worked well together for many years, but I was young and full of ideas… like, the world is my oyster and I can do anything.

I eventually stumbled upon an opportunity to join a boutique consulting firm that provided a variety of specialty professional services to a variety of industries.  This is where my raw abilities received formal business training.  I had the good fortune to work with people who were the best at what they did, and I gained exposure to things like financial analysis, mergers and acquisition work, due diligence, strategic planning, business workouts and turnarounds, forensic accounting, etc.  Yes, all without a college degree.  It was a perfect fit for a kid who wore many hats and didn’t need a lot of structure.  It all sort of took off for me from here.

I eventually found my way back to college along the way, where I got a degree in International Economics with an emphasis on things like monetary history, macro-economics, and geo-politics.  I spent a couple of years studying in Toulouse, France as part of it all.  I have an enduring love for these strange topics to this day.  The Euro was in the early stages of development in those days and so it was all the rage among young econ students.

So my love of learning and travel can most likely be traced to these early experiences and my own natural inclinations.

MW:    When did you realize that you were an entrepreneur and the 9-5 grind just wasn’t going to cut it for you?

CA:    My father could never be contained by a 9 to 5 and ultimately he was talented enough and fortunate enough to escape the need.  When you grow up as a witness to this kind of story and you actually experience the results of it, well, it becomes impossible for you to conceive of living any other way.  By the time I graduated high school, I was already showing signs.
As an example, I had made what seemed a small fortune one year (a few hundred bucks) when I discovered (by eavesdropping) that the school wouldn’t be able to afford my team’s football jerseys that year.  It was easy for me to recognize the opportunity.  I more or less privatized the venture, obtaining the coaches support, identifying a manufacturer, and marketing to parents.  I had a captive audience; the parents of my teammates.   They were somewhat price inelastic.  What were they going to do; let their child play football without a Jersey?

Being an entrepreneur is just another way of saying you want to be free to pursue your heart’s desire.  It’s like air… something you can’t live without.  It’s freedom of action, freedom to pursue what’s inside.  You don’t care about the risk; you just want (scratch that), need to be free.  At its foundations, that’s what being an entrepreneur is; at least in my view.

MW:    You’ve been involved with commercial real estate in your “past life”…  We talk a lot about timing your business decisions and watching for opportunity.  How did you know it was time to exit the real estate business in the U.S. and look for other opportunities?

CA:    It wasn’t hard to spot for those who were paying attention.  Banks had dropped their standards to bare minimums and were flooding the market with easy credit to anyone with a pulse.  Interest rates were plumbing lows.   Analysts were projecting rising economic growth and therefore rising rents into infinity.  They were also projecting a low interest rate environment into infinity.  As a result, banks were offering unheard of leverage (sometimes 100% financing plus rehab money).

Acquisitions analysts had switched from valuing real estate based on past performance to valuing assets based on projected performance.  This was a “been there, done that” moment for many of us who were around to witness the debacles of the 80’s and 90’s.  Most people in the business never see it coming because they don’t want to.  They are making too much money and so it doesn’t serve their sense of wellbeing to see problems on the horizon.

MW:    You’ve planted yourself in S. America now, Uruguay specifically.  What was it that attracted you to the place?

CA:    Uruguay is a peaceful place living in a time warp about 10 to 20 years behind the rest of the world.  The people here like it that way, and so do I.  It is also in the southern hemisphere and well out of the U.S.’s firing line, which seems to have decided to declare war on common sense, as well as the entire northern hemisphere.  Uruguay has modern amenities, for the most part, and yet the economy is still tied to agriculture.  A significant portion of the population still knows how to ride a horse or how to raise cattle and grow crops.  I like this combination of traits.

It also sits on the ocean, which I love.  It’s the best of both worlds; beautiful beaches and beautiful countryside.  And, if you need the vibe of a big international city from time to time, Buenos Aires is very close.  It is also centrally located for travel into the hinterlands of Argentina, Chile, Brazil, Paraguay, etc.  These places have extraordinary landscapes and tourist destinations that, for the most part, are completely off the radar of North Americans.

MW:    Frontier Markets are intriguing for many reasons.  Chris and I speak about opportunities in off the radar places quite often.  What is it that gets you excited when thinking about the frontier markets in general?

CA:    Well, if you have the ability to analyze business opportunities and to assess political risk, then you discover that certain frontier markets are not nearly as risky as many in the developed world perceive.  In fact, in some cases they are less risky than some developed world countries.  This perception of risk is typically not based on any real knowledge at all.  The fear of these markets is largely driven by the fact that people have no information and so the logical inclination is to avoid these places.  This fear is indirectly encouraged by the media, because bad news sells.  As a result, only bad news tends to get published in the media.

As a prime example, Colombia was always in the news when drug trafficking, murders, bombings, kidnappings, etc. were the order of the day.  Over the last 10 years, Colombia has cleaned up its act and become a safe and prime business destination, but it gets very little attention as a result.  Instead, the media’s attention has now shifted to Mexico, because now these same ugly events are prevalent there.

This dynamic tends to mean that promising companies in strong frontier markets are extremely undervalued, and this creates exciting opportunities.  Entrepreneurship 101 says that we must replace fear with knowledge.  I look for well-managed companies with strategic growth plans that will increase value in the short-run.  I can often buy these companies at steep discounts.   When the growth story unfolds, it then begins to get attention from the media, analysts and investors.  By having the ability to identify and take positions in such companies early, I can make many multiples of my initial investment in a reasonably short period of time.

MW:    Where do you see the most opportunity for investors looking to move some capital into frontier markets; in terms of countries and sectors?

CA:    I see tremendous opportunity in targeting overlooked and undervalued natural resource companies.  As far as countries go, I mentioned Colombia as a prime example.  There is also tremendous opportunity in selected countries in West Africa as well as South America.  I like places like Ghana, Mali, Peru, Chile, Brazil, and yes even Argentina.  There are many others to keep an eye on as well.

The world is in the midst of a commodity super-cycle that is being driven in part by dramatic demographic shifts in Asia.  China, India, and Southeast Asia are experiencing significant economic growth and urbanization.  Millions are moving out of the countryside and pursuing an improved standard of living in the cities.  Even if these folks are only able to improve their standard of living marginally, their sheer numbers are having a dramatic impact on the global demand for natural resources.  These people are moving out of huts and into apartments; off of bicycles and into cheap cars, etc.

This increasing demand is not a one-off or a fluke.  It is a permanent feature of the global economic landscape and it is creating significant opportunities in countries with rich natural resource endowments.

——–

Fascinating stuff!  I am going to continue my discussion with Carlos next week, so stay tuned.  It will just get better!  In the meanwhile, have a fabulous weekend and we’ll talk to you Tuesday.

– Mark

“Life is either a great adventure or nothing.” – Helen Keller

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The D-Man
The D-Man
10 years ago

Thank you!

This was an awesome read.

Wonder what Carlos (and you) would say to someone who for some reason or another is handcuffed to the States — what opportunities would you pursue? The contrarian in me says real estate, commercial real estate, private businesses, only because there’s been a mass exodus the last 4 years…

Thanks again.

Sid
Sid
10 years ago

Fun read!

Jonathan
Jonathan
10 years ago

Interesting commentary. I agree with Carlos in regard to the upside potential in natural resource companies. That has been my main focus for the past 6 years. In particular, I have focused on gold, silver, and oil related equities.

D Man

I would stay away from residential and commercial real estate in the US. It has much further to fall and we will never see the artificial appreciation we witnessed from the real estate bubble that popped. There is so much government intervention in real estate to prop up the prices. We will not get the real correction we need until government stops intervening and we have a long way to go until prices come down low enough for Americans to afford them. There is still such a massive supply and the next shoe to drop in real estate will bring more houses on the market. Commercial real estate is a train wreck waiting to happen.

In my opinion, the US has a very hard road ahead of us. There is so much uncertainity and higher interest rates and unemployment are in the picture. We are experiencing a stagflationary environment. The dollar will continue to erode as our economy continues to erode. This debt crisis will strangle the US for a long time unless we do what is necessary to cleanse the system and rebuild.

US companies that have the best potential will be companies that don’t rely on the US for a bulk of their sales. Companies that derive sales from Asia will be good targets. I believe that small businesses that are exceptionally managed and have great leadership and a niche in the marketplace will make it through this crisis as well. In this day and age, it is extremely risky and hard to start up a business in the US and rely on the US for the bulk of your sales. In fact, I plan on owning businesses in the future but right now I just don’t like the environment or domestic opportunities that are at hand. I’m a passionate investor and entrepreneur but I just don’t think it is the right time to invest capital into a US company right now. This is why I’m currently working for a company and focusing on saving and investing capital so that when the time is right I will be able to cease the opportunity and start a business. I just feel like it is so risky to start a business in the US right now. If I wasn’t married, I would travel to Asia and spend time learning Mandarin and building relationships. There will be alot of opportunities in Asia for an ambitious entrepreneur. Unfortunately, I will also be handcuffed in the US. I plan on doing business in Asia but when the day comes for me to start up a business, I will be starting it up on US soil.

The D-Man
The D-Man
10 years ago

Great commentary Jonathan.

Your analysis is spot on. The only thing that came to mind, is that it really depends on which state you’re in, and more importantly, what region/city.

I for one think that investing, real estate, both residential and commercial, is local. Like politics. Macroeconomic matters don’t matter all that much because local business drives the local economy, and even in the toughest times, there will be winners and big successes in your own city. Even when interest rates hit a high in the 80’s, real estate was horrible — but I imagine a few brokers in each city still moved properties because they didn’t get paralyzed with fear.

Just my thinking.

David
David
10 years ago

I look forward to more of the interview and comments. Interesting.

Jonathan
Jonathan
10 years ago

D Man

You are absolutely right. Local markets vary around the US. Arizona, Nevada, and California are seeing a much worse real estate market then Texas for instance. In regard to real estate, I believe macroeconomics does have a big role in it. There are still opportunities to make money in real estate but you have to really know the biz and settle for smaller and riskier returns. Keep in mind there are still a zillion real estate brokers trying to make money. Why focus on real estate when there are much better areas to focus on and accumulate wealth with lower risk. I don’t know much about residential and commercial real estate but I understand Austrian economics and the cause of the real estate bubble so I have no interest in focusing on this sector since I don’t see much potential for any big upside since we even had the full correction in pricing. The only real estate I would ever think might have good upside is farm land or land that hosts minerals. I know nothing about farming and I’m too late to the party for finding undervalued land in the US that hosts gas, oil, water, gold, silver, etc. I got involved in a small gold mine partnership about 4 years ago when I was like 20 and I was naive/ignorant and got screwed by my partner. When you are young and ambituous, your ignorance usually distorts the big picture that you have in your mind. My idea was right at the time but my execution and knowledge of deal making was premature. At that time, the value was good but I had a bad partner and I was ignorant. Greed can get the best of us! Hard lesson learned but I have grown from it and have become much sharper from it.

Anyway, my primary focus is in small companies with big upside potential whom are primarily geared toward natural resources. I’m just trying to build up as much capital during this crisis so that I can cease opportunities when the time is right.

I’m no expert or anything. I’m just a passionate investor and entrepreneur with a fascination of the markets and accumulating uncommon wealth. I’m not saying that you won’t make money in real estate. I just think there are far better opportunities to make money than real estate. The main thing is to find something you enjoy doing. If real estate fascinates you, educate yourself about it and learn everything you can about it. There are real estate opportunities outside of the US that I would think have much better upside potential such as in Mongolia but I would stay away from the US market for some time.

This is just food for thought!

The D-Man
The D-Man
10 years ago

Thanks Jonathan.

Those are great remarks and hope to engage in future posts on this site.

Cheers.