I was recently invited to dinner by an obviously successful billionaire investor. The setting on his private estate was idyllic, the service impeccable, the food superb.
I did not go prepared for the verbal jousting that the evening produced. I was expecting a fabulous dinner, some light conversation, a thank you, a goodbye, and hopefully a firm handshake.
But that’s not what I got. What I got was a question, and an important one: “How does it end?”
I guess most folks would be intimidated sitting down one-on-one with a billionaire. But beyond providing basic needs, money has never impressed me. So I was thinking more about the food than impressing the guy.
“How does it end?” he asked again.
We were sitting in some kind of pre-dinner resting area.
An impossibly gracious and delicate Thai waitress in a traditional Lanna costume served me German beer, ice cold, in an enormous glass. She fell to her knees slowly, but in a controlled way, head bowed, to pour the beer.
“How does what end?” I asked, distracted by the beautiful Asian waitress.
“It,” he said. He leaned forward, demanding attention. “The money printing. The distortion of global markets, the central banks, the currency devaluations, how does it all end?” And he kept coming back to it.
Through the exquisite sushi aperitif, the delicate and precise tomato-based shrimp soup, and the rack of New Zealand lamb, superbly seasoned, and served with English mint sauce that was flown in, special delivery, by Air France the day before, he kept coming back to the same question.
Clearly it was the subject and main idea of what was on his mind. I was invited for this question.
In return for this dinner, he wanted me to at least try to answer it. “How does it end?” He must have asked me at least six times before I finally felt I could no longer avoid the question.
“It ends in more social unrest. More instability, more conflict.”
“But how does one position for this?”
“Anything to do with defense and personal security will probably do well. Tangible assets will be one of the best places to hide.”
“I am not a gold guy. I think oil is a better investment.”
“Because they take it out of the ground and burn it. It’s a depleting asset.”
“So what does one do?”
Cash and Oil
“Right now, I think the best place to be is cash and oil.”
“How are you positioned right now?”
“About 50% commodities, oil, gas, and iron ore, and a lot of cash.”
“Because there’s nothing to buy, the market is at all-time highs and I need lower oil prices to put more capital to work in that sector. If prices don’t go lower, I’ve got enough exposure, but if oil goes sub-$40 I’ll put more in.”
Inflation or Deflation
“So do you think it ends in inflation or deflation?”
“If it’s deflation, you’ll need tangible assets to protect yourself. If it’s inflation, you’ll need tangible assets to take advantage of it.”
“So gold will be a good place to be.”
“I’m not a gold guy,” I repeated.
“I was buying gold at $250 an ounce in the mid-nineties, way below cost of production. People thought I was an idiot. Now, at over $1,000 an ounce, today’s gold buyers think they are geniuses. I’ll stick with oil at $50 a barrel.”
“So you’re saying it’s not gold, but cash and oil is the best place to be?”
“What else are you interested in?”
“Anything related to chemicals, defense and security, and anything non-dollar based. But I haven’t found anything cheap enough to invest in yet so I hold cash. I’m a patient man.”
“How big are you?”
“I’m less than a flea on the back of a Thai elephant.”
“If somebody wanted you to do something, but you had to follow instructions, would you do it?”
“I’d listen to any proposal.”
“Here. Drink this. We’ll drink it together.”
“What is it?”
“It will clean out your testicles.”
We raised glasses filled with the clear mystery liquid.
“To your testicles,” we toasted.
Investing is like that. During tough times, difficult times, or when you sense a storm coming, whether you’re a small investor, or a billionaire, it’s all about the testicles and asking the right questions.
These sector allocations discussed may or may not be reflective of those in client accounts. The reader should not assume that any sectors identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
I am a self-taught individual investor and a portfolio manager with more than 20 years of experience. I focus on deep value and special situation investing. You can read more about me and the unique way I became a portfolio manager on my own website, located below my picture.
I believe, my personal investment expertise is in creating and managing concentrated investment portfolios.
I am featured in the book The Warren Buffetts Next Door: The World's Greatest Investors You've Never Heard Of and What You Can Learn From Them by Matthew Schifrin.