Risk Investing from Myanmar to Florida

“Why don’t you move to Myanmar for six or eight months,” a friend suggested a few months back. “Seriously. You go down there, get a feel for the place, buy a bunch of beachfront real estate and wait for the military junta to collapse. It’s a long term play, sure, and it’s pretty speculative. But it’s not as crazy as it sounds, really.

“Vietnam and Thailand have long been exposed to the region’s tourism industry,” he continued. “They’re already developed, more or less. But the real bargain in that part of the world has got to be Myanmar. It has an enormous coastline and, unlike Vietnam and Thailand, dynamite fishing hasn’t destroyed the coral reef there.

“There are literally hundreds and hundreds of miles of pristine, untouched beaches. It’s truly paradisaical…and paradises usually don’t stay untouched forever. Someone eventually comes in and makes good for the place. Then prices really go through the roof. Play it right and you could end up sitting on the next Phuket, the next Nha Trang. An entrepreneurial individual could really clean up. Think about it.”

We recalled this advice yesterday, while talking to another mate here in Vancouver. Our Vancouver friend was telling us about a real estate bargain in another risky part of the world: Florida.

“Four blocks from the beach…in Delray…three bedrooms…$75k,” he told us. “And there are plenty of others just like it.”

“Sounds like a bargain,” we replied. “But do you really want to dive into the US real estate market? Now?”

“In all honesty, I think we could see another ten, maybe fifteen percent drop in housing. But in places like Florida, like Nevada and Arizona, where prices have already come down so far, a drop of that magnitude isn’t going to break the bank.”

Good point. Depressed real estate in certain key parts of the US might offer a pretty attractive risk profile for property speculators. How far can a $75k house fall, after all? Provided you’re not loaded to the hilt with debt, provided you can cover up front expenses, settle in cash, a little bottom fishing might be a reasonable idea. Who knows?

But what do Burmese beachfront lots and Floridian vacation homes have to do with investing, you’re wondering? Quite a bit, actually. In many ways, it cuts right to the heart of this year’s conference theme – Fight or Flight: Your Capital at Risk. Do you stick it out at home, dig in your heals and “fight.” Or do you pack up your belongings and head for some exotic, dynamite-free zone abroad? Where’s the risk…and where’s the opportunity?

“I’m from The People’s Republic of California,” announced Rick Rule, perennial favorite at the Agora Financial Investment Symposium, from the podium yesterday. “You think there’s no political risk there? Or how about Australia, where they’ve decided that companies that invest decades of time and capital into bringing resources to market, often during periods of marginal profitability, must now pay windfall profits taxes for the privilege of doing business there. And that’s on top of all the usual taxes and bribes they must already pay there.”

Rick was making the simple but important point that risk profiles change over time. Places that were previously thought of as “safe bets,” as “market friendly,” may not be as safe and friendly as they first appear. These places would include Australia, much of the US and, as Rick put it, “Albertastan” here in Canada. Conversely, many frontier markets offer opportunities most people will never take the time to investigate.

Doug Clayton, managing partner at Leopard Capital, echoed Rick’s point. Doug looks for opportunities in markets few people bother considering. He offered four “sunrise” economies in his presentation. All have attractive demographic trends, boast robust national resource profiles and offer cheap labor. And they’re all growing at about two or three times the pace of the world’s “developed” nations.

Doug made the case for, wait for it…Bangladesh, Haiti, Cambodia, and Ethiopia. Sound crazy? Good, Doug says. Who wants to buy into a popular market anyway? Isn’t that the whole point of investing, going were most fear to tread, getting in early and then cashing out when the herd arrives? Food for thought…

“So you’d spend a few months of the year in Delray?” we asked our mate.

“That would be the idea, yeah. We’re just looking at the moment, but there really are some attractive deals. We’ll see, I guess.”

“Worst case scenario,” added his wife, “we’ve got a vacation home in Florida, right by the beach.”

“Not terrible,” your editor agreed. “But tell me, have you thought about Myanmar?”

Joel Bowman
for The Daily Reckoning

The Daily Reckoning