Easier said than done...
WE CANNOT remember, understand, or keep track of complicated investment tactics, writes Bill Bonner in his Diary of a Rogue Economist, reporting from Rancho Santana in Nicarague
We have to keep it simple.
In our Grand Strategic Plan, we buy stocks when they are cheap relative to gold; when they are not cheap, we keep our money in gold.
We've explained our Dow-to-gold allocation model several times. It is very effective and very safe.
But not many people have the patience for it. Sometimes, you have to wait decades before making a move...or realizing a profit.
Today, we let you in on another impractical investment plan.
"Buy when blood is running in the streets," was the advice of some ancient Rothschild. We would add that you need to make sure it's not your blood.
Which is what had us a little concerned when we arrived in Managua, the capital of Nicaragua, last week...and again yesterday when we were flying around in a helicopter.
"Do you think you can land there," we had asked the pilot. It's the windy season in Nicaragua and we had taken the little Robinson helicopter on an exploratory mission. We wanted to see what blood in the streets of Managua had wrought on the coast.
An estimated 300 people have died in demonstrations against the government here. To hear the locals tell the story, hundreds more have been "disappeared" by death squads working for President Danny Ortega.
Whether that is true or not, we don't know. And when you get in this situation, you often don't know much at all; real news is scarce while rumors run riot.
Apart from the statistics, we have our own measures to work with. Traffic at our restaurant and hotel has fallen as much as 50%. We keep the lights on – just barely.
Most of our competitors have turned them off to cut their losses. All up and down the coast, people are desperate for work...for customers...and for money.
"I just bought a nearly-new Toyota pickup," said our man on the scene. "It was about half price. So many people have these things on leases...and they can't make the payments. So, they go back to the dealers...who want to get rid of them."
When the tourists stopped coming in, so did the money.
Yesterday afternoon, we met one of the brave few who dared to come. "Doctor Fred" is a pediatrician from Boston who donates his time and skills at the local clinic. Rather than letting himself be frightened away by the political crisis, he figured that the area's children needed him more than ever.
"I love working with them...they're all so nice. And they need me," he said modestly. "I've always believed in giving back."
Our own motives were less salutary. We're giving...but hoping to take a little, too.
Since blood is now said to be running in the streets of Managua, property prices are falling all over the country. We went out in the yellow helicopter to have a look.
The idea was to land on a tiny plot on the top of a ridge, where we could have a good view, and walk down to the beach far below. But when the helicopter approached the postage-stamp cut out of the forest, a gust of wind shook it aloft and rattled three of its four passengers.
The other one, the pilot – a veteran of flying Soviet era helicopters during the Sandinista episode – was muy tranquilo.
"We better land somewhere else," was all he said.
When we finally put down, settled our stomachs, and got out to explore, we found the beach was stunning. A few years ago, it had been for sale, but the owners wanted a fantastic price. Now, they are more reasonable.
Our "buy when blood is running in the streets" rule may work for anything. We use it only for real estate...when we can apply it almost literally. But it requires an almost inhuman patience.
Our own record with the strategy is mixed. We began buying in Baltimore when blood was running in the streets – in the 1980s – and paid $1 for our first building. Today, prices are higher. But not that much higher. Now we own several buildings. And blood is still running in the streets.
Our next opportunity came right here, in Nicaragua. Almost by accident, one of our analysts found an extraordinary property that was also extraordinarily cheap...less than $100 an acre, right on the Pacific. It was so cheap, we bought without seeing it.
But buying cheap is no substitute for knowing what you are doing. Over the next 20 years, we proved that you can lose money, even with the most attractive land bought at the most attractive price.
But we didn't give up on the strategy. In Argentina, a financial crisis in the early 2000s led to some very cheap property deals.
Since we had a publishing team there, it seemed logical to take advantage of the turmoil to buy an office.
But we were a little slow on the draw. The property we got – where our office is now – was well-located, and well-priced, but no great bargain. And when we had finished with the repairs and upgrades, it was no bargain at all.
And now Argentina is in another crisis – with inflation at 40% per year...and a government that may or may not survive the next elections. Maybe we could get our money out...and maybe we couldn't. We don't want to find out.
Unbowed...and perhaps no wiser...we tried a fourth time. We took advantage of the real estate crisis in Ireland following the worldwide credit crunch of 2008.
Ireland had overdone it; it had borrowed far too much and pushed up property prices far too high. Result: Property prices crashed in 2008, some to silly levels.
It was then that we decided to make Ireland the center of our global publishing business. And after a few false starts, we found a suitable building, fixed it up, and it now serves us well.
But between making the decision to invest...and finally getting the building ready for use...at least four years had passed.
By then, the blood had coagulated. What looked like a quick, opportunistic investment turned into a long-term placement with a modest rate of return.
So, you see, dear reader, the theory is probably still correct. Buy when blood is running in the streets. But it looks easier to do than it really is.