Start small… think big

Investment’s a funny old game – tantamount to gambling in the eyes of some eager risk-takers and the product of extensive study and trend-spotting to others. But, undeniably – and perhaps more so than in any other area of business – to be a wise investment is to learn from the wisdom of others, both those who have lost their millions and those that have invested their way to an early and comfortable retirement.

Hoping to learn a few things about making a pretty buck or at least to get sneaky tip-off, FST invited investment guru Marc Faber, editor of the Gloom Boom & Doom Report and author of the best selling “Tomorrow’s Gold” to share his expertise. But can we extract any positive advice from a man widely nicknamed ‘Dr Doom’ by the media? We certainly think so....

FST. So Marc, in your experience, is it case of ‘who dares wins’? Do you have to take big risks to make big money?

MF. I’m not sure that high risk-taking necessarily leads to potential large rewards. In fact, I have found that low risk investments occasionally yield huge rewards. When prices of stocks or any other asset such as real estate, bonds, commodities and art are depressed, the price risk can be low, but the risk resides in how long it will take for a bull market to get under way. Therefore, large subsequent gains can be achieved. As an example, commodity prices were extremely depressed in the late 1990s compared to all other asset classes and since commodities never decline to zero or go bankrupt, the price risk was low. The risk was that, because commodity prices had declined since the 1970s, it was unknown at what point a bull market would get under way. As it happened, the bull market began in 2001 and since then prices have risen sharply. Today, however, the price risk in commodities is much higher because of the bull market we had over the last few years.

FST. How important then are metrics and in-depth analysis in deciding where and how much to invest? To what extent do they take priority over following a ‘hot tip’ or a ‘good feeling’ about something?

MF. I do occasionally listen to tips, but would never invest purely based on them. Sound analysis of a multiple of different factors, both on the micro and macro level, increases the probability of investment success. Naturally, if all factors were thoroughly analysed and the findings were overwhelming positive, a good feeling may arise. But without thorough analysis of a variety of different investment criteria, simply to have a ‘good feeling’ may be very deceptive.

FST. Have people evolved much as investors – how are we in the 21st century better or worse than our predecessors and what tools do we have to assist us?

MF. I’m not a believer that mankind in the 21st century is any smarter than it was one hundred or so years ago – just look at the present US administration. As investors, we may have more knowledge than in the past, but the nature of investment markets has also become vastly more complex and the competition among professional investment managers to achieve high returns has increased. But if we look at the world over time, the one constant has been the wealth pyramid in societies, with many poor people at the bottom and very few rich people at the top. So, in every age, to become rich someone had to do something very special, travelling his own road in business and the investment world rather than simply following the masses.

FST. Who or what company inspires you in the financial world today and why?

There are many economists, academics, money managers, traders, analysts and strategists who I admire and from whose knowledge I have greatly benefited and leaned over the years, and still do so today. The US Federal Reserve has greatly inspired me. I wished I could print as much money as the Fed does! Therefore, I am a believer that the purchasing power of the US dollar will continue to decline, which will favour precious metals in the long run.

FST. And in the past? Who has set a great example of how to be financially astute? On the flipside, who provides a good model of how not to do things?

MF. I suppose people like Bill Gates and Warren Buffett were astute investors. Bill Gates by investing in his own business and Warren Buffett by investing wisely in other people’s businesses, achieved very high returns. There are many roads that lead to Rome and so there are many ways that investment successes can be realized. Some investors made their money as traders or as outstanding industry or accounting analysts while others found their fortunes by identifying long-term investment themes.

FST. As a European living in Asia, what’s your view of US financial institutions/investors? How do they compare to the rest of the world when it comes to their gusto and readiness to invest?

MF. In general, I think that there is a huge brainpower among hedge fund and also some traditional fund managers in the US. Individual investors are naturally far less knowledgeable about foreign markets, but this applies to all investors worldwide. The problem I see is that there are far too many smart treasure-hunters in the world and only a limited number of treasures. So there is an intense competition among very smart people, which makes it hard to achieve high returns in a traditional way.

FST. And as an environment for SMEs and larger organisations to grow and develop, how does the US compare? Do you have any general predictions about the likely direction that money will flow in the future?

MF. The US domestic market is very large and therefore, for any company, offers a very significant potential for growth. However, foreign economies such as China, India and Vietnam are now growing much faster and so offer a very favourable macro-economic background. Moreover, these economies markets have not yet reached saturation, thus the potential for companies to grow is favorable.

FST. Finally, do you have an investment philosophy you can share with me? How do I make money, fast and with minimal risk!?

MF. I think you better ask this question to someone else. Personally, I have no recipe for making money fast and with little risk. Investments require a lot of hard analytical work and patience. My philosophy remains to acquire assets that are neglected and overlooked by the investment community and to pay attention to factors that nobody or only very few people look at.