By William Patalon III
"The Prince" has targeted China's booming hotel sector.
If you're a confirmed Contrarian, like me, or are merely an avid investor, you already know that I'm talking about Saudi Prince Alwaleed bin Talal Alsaud, the shrewdest and most-successful investor to come out of the Middle East. Prince Alwaleed is best known for the $590 million he invested in Citicorp back in early 1991, an outlay that saved the struggling U.S. banking giant – and that netted the prince a fortune.
Prince Alwaleed's subsequent financial triumphs are too numerous to list here, but suffice it to say he's become an investing legend. And now he's back in action again: The prince is searching for investment bargains in China's burgeoning hotel sector and has a $1 billion kitty to help finance this latest foray, according the latest issue of Forbes.com.
The Three Pathways to Profits
If someone offered to tell you how you could profit with virtually every investment you make, would you listen? While I can't quite make that claim, I can offer several bits of wisdom that will tip the odds well into your favor. And the story about Prince Alwaleed's latest business venture reminded me of most of them.
To be the very best investor you can be:
- Follow the money, and not the crowd.
- Watch the moves the "real" experts are making.
- And whenever possible, go global.
If you think that these snippets of wisdom are overly simplistic, you'll one day discover that the best profit strategies usually are. Let's start by studying why it's dangerous to follow the crowd;
What Goes Up Can Also Come Down;
While researching my book Contrarian Investing back in the middle 1990s, my co-author and I made an interesting discovery: Probability research demonstrated that, as a group, stocks that have run up a very long way are more likely to decline than to continue their run. Conversely, stocks that – again as a group – have fallen a long way are more likely to reverse course and -rise. If you take a moment to really think that through, the concept makes a ton of intuitive sense.
Indeed, that's really the entire philosophical basis for the discipline of Contrarian Investing. Members of "the crowd" are more likely to buy the stocks that everyone else is buying – the ones that are soaring right now. And the investing masses are just as likely to avoid the ones that have fallen. But it's the stocks that have fallen that offer the biggest profit potential, while the shares that are trading at stratospheric levels are the riskiest ones to own. Simply put, the high-priced shares are the most prone to a big decline.
If you follow one of our other key strategies and search out newly developing money-flow trends, you can spotlight investments that either haven't risen yet, or are just starting to rise. And you'll pocket the biggest share of the profits when those shares take off, with the accelerating money flows acting as the fuel.
Watch the "Real" Experts
If you have a tough time using this kind of analysis to ferret out such opportunities, take the next best approach and watch what the acknowledged experts are doing. As an avowed Contrarian, I tend to favor value-oriented investors, including such folks as:
- Warren Buffett, the so-called "Oracle of Omaha (If you want to read a terrific book that really illustrates how this super-investor operates, and is also a fascinating biography, take a look at Roger Lowenstein's: Buffett: The Making of an American Capitalist.
- Bill Miller, manager of the Legg Mason Value Trust mutual fund, and a fascinating and genuinely decent guy who I interviewed many times during my business journalist days (though I was never able to persuade him that Eastman Kodak Co. was a misguided play. Still, any investor who's a genius, but is still a regular guy who enjoys shooting the breeze at a cocktail party, is aces in my book).
- Jim Rogers, TV personality, world adventurer, author of such best-sellers as Investment Biker, and a noted Contrarian who was kind enough to allow my co-author and me to adapt one of his terrific essays for the "forward" for our Contrarian Investing book. Check out the piece I wrote about Rogers just last month, and make note of he has coming out late this year.
- Prince Alwaleed, whose career I've followed since he purchased those Citicorp (NYSE: C) shares at a split-adjusted price in the $1.50 to $1.75 range. His timing was so perfect, and his windfall so massive, that I used his Citicorp investment as a key case study in the Contrarian Investing book. The shares of the largest U.S. financial-services firm closed yesterday (Wednesday) at $49.49 each.
There are others, as well, but I was merely trying to provide a representative overview. You might well have in mind other investors whose style or philosophy is more in tune with your own approach. That's actually a smart way to go: If you're not comfortable with a strategy, you won't stick with it. And changing horses in mid-stream can only lead to you taking an unwanted soaking.
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If you only take one lesson away from this report, make sure it's this: International investments are no longer a nice bit of diversification, or a way to "spice up" your portfolio. They're a necessity. You go global – or you get left behind.
Best-selling author and famed Wharton Business School Professor Jeremy Siegel recently pronounced that the long-held conventional wisdom on international investing should be thrown out the window. For decades, we've heard over and over how international investments should comprise 5%, 10% or at most 15% of our portfolio's total value. Any more than that is foolhardy and risky, we were programmed to believe.
But according to Siegel, the truly foolhardy act is to limit our international exposure that much. In other words, the biggest risk we now face isn't just the possibility of losses incurred when some foreign market plunges. The real risk now is the possibility U.S. investors face – getting left behind financially because most of the major global growth that will come in the decades ahead will be generated outside U.S. borders – by such countries as China, Japan, Taiwan, Korea and Brazil. We'll even eventually start to see growth from such countries as Vietnam.
Investment advisors who stick with the old asset-allocation model are actually doing their clients a huge disservice, Siegel says.
Siegel now believes that international investments should comprise about 40% of your total holdings. Most individual investors know Siegel for his best-selling book, Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies. The book first came out in 1994, and is considered one of a handful of "must-read' titles in investing finance. But when the fourth edition appears in December, there will be something new to look at: This edition will include a long addition addressing the international arena, and how investors must adapt their strategies to the new realities of globalization.
And Siegel isn't alone in this assertion that global growth is a huge investment opportunity. From 2005 to 2010 alone, the worldwide value of all financial assets – stocks, bonds, CDs and other investments – will soar from $118 trillion to $200 trillion, according to projections made by the McKinsey Global Institute in a just-released report.
That's an increase of $82 trillion, or 69%Â – and in only five years. And a big portion of that increase will be realized outside U.S. borders. The longer-term projections are even more sobering for investors who have traditionally held themselves to a "U.S.-only" investment strategy. Consider some statistics recently released by the World Bank and several other researchers.
Right now, Asia and the United States each account for about 28% of the worldwide economy. Forecasters say that the U.S. share of the global marketplace will slip a bit, dropping back to 24% by 2030.
But Asia's share of the worldwide market will double during that same stretch, reaching a staggering 55% by 2030. Think about it this way: The Asia of tomorrow will be twice as powerful as the United States is today.
It's a transition that's too powerful to stop. But the next best thing we can do to protect our futures and to advance this country's standard of living is to personally profit from these trends. It's the greatest wealth-producing opportunity most of us will ever see. Climb aboard. Or get left at the station.
The nation's wealthy already really understand what's at stake and are already profiting from these trends – and in a big way. According to a study by the Spectrem Group, 40% of affluent U.S. households are continuing to invest internationally, while a full third are actually planning to invest more. Their chief country of choice when it comes to investing abroad: China.
With the $1 billion he reportedly has earmarked for the purchase of hotels in China, Prince Alwaleed has essentially been kind enough to make my case for me. And please note that this isn't a standalone foray: It's just the latest piece of a broad strategy in which he's positioning himself to profit from the newly capitalist markets emerging around the world.
According to the Forbes.com report, Prince Alwaleed is aiming to buy 10-15 hotels in some of China's small- or even medium-sized cities over the next three to five years. The investments will be managed by his hotel-investment operation, Kingdom Hotel Investments, which is listed in both London and Dubai.
Forbes.com based its report on a story that ran in this week's Shanghai Securities News, which interviewed Sarmad Zok, the CEO of KHI.
KHI is looking to acquire "mature" properties in China's second- and third-tier cities, where growth rates will even exceed the quick pace of the already-soaring national economy, Zok was reported to have said.
Forbes lists Prince Alwaleed as the world's 13th-richest billionaire, with a net worth of $20.3 billion. He has an affinity for the hotel business: He recently announced that he and Microsoft Corp. (Nasdaq: MSFT) founder Bill gates would take the famed Four Seasons Hotels private for $3.8 billion.
Forbes.com also noted that Prince Alwaleed's recent foray into China's hotel market follows a profit windfall reaped from a series of Chinese IPOs. Indeed, the magazine said the princein these deals, including the public offerings of China Merchant Bank, Industrial and Commercial Bank of China and China Communications Construction
And if you go back to my three central investing rules, Prince Alwaleed is clearly telling us that China is a market with such immense long-term potential that U.S investors can't afford to avoid.
William (Bill) Patalon III is the Managing Editor and Senior Research Analyst for Money Morning, and is also the Managing Editorfor The Money Map Report. A published author, Patalon is an award-winning journalist with 22 years experience that included stints with Gannett Co. Inc. and The Baltimore Sun. He has an MBA in finance from the Rochester Institute of Technology.