Steve Sjuggerud’s note: Rick Rule is a great friend and legendary (to us, at least) investor. He consistently comes up with exceptional investment ideas in out-of-the-way places.
Rick just wrote to us from Sri Lanka, and we wanted to share his thoughts with you...
Postcards from a War Zone
by Rick Rule
October 16, 2006
Greetings from one of the prettiest beach resorts on Earth...
I’m at the Taj Hotel on the beaches of Sri Lanka. It’s a Four Seasons-style hotel, with even more staff on hand than a typical Four Seasons (labor is cheap here).
But instead of paying Four Seasons-style prices, we’re paying about US$100 per night – including breakfast and dinner. Even at that rate, the place is only about 20% full.
That might have something to do with the war. |
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“You’re vacationing in a war zone?” you ask. Why yes, I am. Actually, despite the decades-long war between the government and the Tamils in the northeast, it’s been business as usual here in the south. While on the ground in Sri Lanka, I’ve found a rapidly growing economy with plenty of food and goods on the shelves.
My wife Bonnie and I are relaxing here now... but we didn’t come to Sri Lanka to relax. I’m here for a few reasons... one of which is to invest.
As an investor, of course, I try and buy things that are cheap and ignored, in places that I think will improve. Sri Lanka qualifies.
Not trying to sound crass, the reality is, wars make places cheap. As an international investor, I find that when places are stable and firing on all cylinders, they often get worse. And when they’re firing on no cylinders, things often get better. Therefore things should get better here.
I’m not looking to invest in the stock market here, though. It’s cheap, but not quite cheap enough for my tastes.
Instead, I’m buying into a small-scale hydroelectric plant, where the cash flows should pay for our investment in three to four years. After that, it’s all gravy. (Provided all goes well, of course... and risks abound.) Three to four times cash flow, obviously, is dirt cheap by any standard.
I love this business... You take water out of a river, run it through a power station, and then you put the water back in the river. It’s a beautiful business... a perpetual revenue stream (no pun intended).
Someday, I can see a business like this trading at a premium to the oil and gas business. But right now, comparing cash flows, small hydro plants like this sell at about half the price. It doesn’t make sense. Here are three quick reasons why:
- First and foremost, the resource (water) doesn’t deplete like oil and gas. Again, it’s a perpetual revenue stream.
- Secondly, this type of business is more environmentally benign and easier to permit than oil and gas.
- And thirdly, if you can get approved for carbon credits, the same output will give you a greater cash flow than oil and gas.
It’s a beautiful business.
Another reason Bonnie and I are here is that we’re involved in a very small philanthropy operation here. Originally, we helped the children of a poor beach community with everything from starting a scholarship fund for higher education to supplying shoes and socks to the primary school. After the village was swamped by the big tsunami, our group shifted gears. We’re now building 48 homes and a community center.
I came to Sri Lanka to invest... and to visit the village... and to relax a bit. I came for one more reason as well: I just plain wanted to come. Who’s been to Sri Lanka? I was curious about the place.
For tourists, Sri Lanka has gorgeous beaches and fine, uncrowded hotels at very good prices. Visit if you can.
For investors, remember that I like to buy things that are cheap and ignored in places that I think will improve. Sri Lanka fits that bill, so I’m investing here.
Rick Rule,
for DailyWealth
Steve’s note: Rick is the founder of Global Resource Investments, one of the few U.S. firms I know of that will buy directly in foreign markets for you, without tacking on any extra charges, and place orders overnight if necessary.
You can contact Rick’s firm at 800-477-7853 or 760-943-3939.
