e-mail: pmanning@coppernet.zm

URL: www.paul-manning.com

By submitting this paper, I affirm that this work is my own except for where the words or ideas of others are specifically acknowledged. I also affirm that this work did not exist before the beginning of the course that I am submitting this for.

PURPOSE OF THIS PAPER

This paper has been written as a summary guide to some of the opportunities identified by Jim Rogers, the Wall Street millionaire who retired to travel the world on a motorbike. The main aim of this paper is to highlight the fact that there are investment opportunities that lie beyond the ‘normal scope’ of the ‘average’ investor.

WHO WILL READ THIS PAPER

‘Average’ investors do not often think about what opportunities may be present in other far-off lands, nor should they - without thorough research. This paper does not set out to offer a thorough perspective of such opportunities, it merely hints at possible starting points for investors who may be considering investments outside of their home-range.

INDEX

THE INVESTMENT BIKER – Around the world with Jim Rogers *

Submitted: 6 August 2002 *

PURPOSE OF THIS PAPER *

WHO WILL READ THIS PAPER *

BACKGROUND *

Ireland *

Austria *

China *

PART 2 – Tokyo to Dunquin *

Japan *

PART 3 – Dunquin to the Cape of Good Hope *

Algeria *

Cameroon *

Botswana *

South Africa *

PART 4 – Rounding the Horn *

Australia and New Zealand *

South America *

Post Script: *

EXECUTIVE SUMMARY

Jim Rogers has literally traveled the length and breadth of the planet. This epic trip began in March 1990 and ended in August 1992, 65,067 miles later.

BACKGROUND

He traveled from Dunquin in Ireland through Ankara and Beijing to Tokyo and back via Siberia, through Moscow to London; then through Europe to Tunis, at the top of Africa, to Cape Town at the bottom, and onwards through Kenya, Madagascar and Singapore. In Australia he began in Perth and went to Auckland, New Zealand via Darwin, Sydney and Hobart; he traveled up the Americas from Cape Horn to Alaska, and across from San Francisco to New York.

"While this wasn’t an investment trip by any means, I suspected I would visit promising stock exchanges. In addition to experiencing the world and its people firsthand in the vivid and close way you can on a motorcycle, I knew I would learn about the markets in Africa, China, and South America, which I felt might explode in the nineties." (Rogers 1994, 13)

As it seemed to be the markets in the developing world that were already attractive for potential investors, I will concentrate on the author’s views on opportunities there.

The trip was made up of four parts:

On the Western most side of Europe was Dunquin in Ireland. This was the first leg of the journey that ended in the Eastern side of Asia in Tokyo, Japan.

Ireland

Ireland appeared to be a victim of statism – highly centralized government controls and the populace’s belief that the state is the best mechanism to solve all of the county’s ills. Ireland has a large pool of semi skilled labor, and so Roger’s view was that Ireland might make it as the back-office for English and German banks, insurance companies and brokerages. More recently it has been among the fastest growing economies in Europe, particularly due to the recent success of its Information and Communication Technology (ICT) companies.

In 1984 the Austrian stock market was ripe for the investor. By 1987 it had grown 400 or 500 percent and was beginning to show classic signs of coming unstuck. It is important to remember that the laws of supply and demand work, and work well. This law is like a law of nature, and no government can override it for very long. The Austrian market did correct, but then so did many of the world’s markets in 1987; it was the biggest crash in 70 years. It appears that Jim Rogers saw it coming, and got out in time.

China

Jim Rogers seemed to be impressed with the progress that this vast country has made in recent years. His observations are confirmed by the facts.

"Everywhere on my trips through China I’ve seen signs that the sleeping dragon has awakened." (Rogers 1994, 55)

"Two decades from now they are going to be among the best capitalists in the world. They may still call themselves Communists, but I promise you they will run circles around most of us." (Rogers 1994, 55)

China has the largest population of the world’s countries, and the seventh biggest economy that has exhibited an average growth in real GDP of 11.2% over most of the last decade. China also boasted the highest average annual increase in industrial growth between 1990-97 of 15.7% in real terms. (Economist 1999, 44)

China has a huge number of overseas Chinese living and working in other parts of the world, maybe third generation expatriates. This number may be 50 to 100 million, and they would all be welcomed if they wished to bring back their wealth and expertise. However, Rogers believes that the Chinese won’t allow outsiders to make big money. So, how should the prudent Westerner invest in China?

"If you want to get involved, you should get a Chinese company to do business for you in China." (Rogers 1994, 86)

China’s GDP has increased 7.6% over the year and yet it is experiencing deflation, as consumer prices have fallen over the year by 1.3%. China’s trade balance is positive, and a third of the size of Japan’s, while China’s current account is also positive and approximately the same size as that of France. (Economist Vol. 363, No 8275, 100)

Rogers estimates that "Sometime in the first half of the twenty-first century China will come to have the world’s largest economy." (Rogers 1994, 84)

Growth as spectacular as this, should present many opportunities to well-informed investors.

Japan

Rogers identified two basic principles of investment, and wanted to apply these to the purchase of seats on the Japanese commodities exchanges:

Firstly the seats were attractive because they were cheap.

Secondly, he believed that a dynamic change in its favor was about to occur.

"This was such an attractive investment – and Tokyo was such an exciting, vibrant city with so many investment opportunities – that Tabitha and I strongly considered moving there after our trip was over." (Rogers 1994, 101)

Tagya, Siberia, Kansk, Novosibirsk, Moscow and on to Ireland

There was not much to attract an investor through the top of central Asia, and Russia. It is a part of the world that has abundant resources, but needs China’s abundant labor to take advantage of it.

Algeria

This is a prime example of statism. Petroleum products account for 95% of Algeria’s foreign exchange earnings; when the price of oil fell the country was hit hard and appears never to have recovered. Roger’s predicted that this was a country, like the Soviet Union, whose people were going to demand a big change.

Cameroon

"At some point this country, with its abundance of natural resources and an educated and outward looking population, would be quite an investment." (Rogers 1994, 210)

Rogers believes that companies in metals, lumbar or agriculture, that are well financed and sell to sound African neighbors such as South Africa and Botswana or north into Europe, could be worth investigating.

Botswana

One of the big problems in international investing is finding a country that has a freely exchangeable currency. Botswana was prosperous by African standards and the government’s free-enterprise orientation had attracted some foreign capital, "although its investors still tended to be wary of the country’s dependence on South Africa." (Rogers 1994, 256)

Roger’s invested in Botswana because he had checked out a number of key factors:

It is worth noting that that initially Rogers only got "his feet wet" to see what kind of problems happen before he really piled in.

China and Botswana were ranked numbers two and three in the world for the highest growth in number of listed companies between 1992-97, both showing over 1,100% increase in number of listings. (Economist 1999, 75)

Botswana and China have managed to sustain their impressive growth for most of the last two decades.

Botswana (at 10.3%) ranked above China (at 10.2%) as the number one and two in real DGP growth in 1980-90. (Economist 1999, 45)

South Africa

South Africa remains the economic powerhouse of Africa, it is Germany and California rolled into one. Unspectacular but sound; in African terms, relatively stable. Inflation is in single figures, and interest rates are positive, GDP has grown 2.1% on an annual basis in 2002. (Economist Vol. 363, No 8275, 100)

As Rogers left Africa, he knew that he would be back in a few years to make more extensive investments.

"What I know for certain is that big fortunes will be made on the African continent in the next twenty-five years." (Rogers 1994, 275)

Australia and New Zealand

Rogers found Sydney in Australia to be vibrant and dynamic, and put it about fourth on his list of cities in which to live. It was New Zealand, however, that attracted his investment interest. The boom in wool and lamb had long gone, but as already discussed, the best way into a depressed market was to buy a seat on the exchange. The exchange was not limited to wool, so instead, Rogers picked out twenty stocks in agriculture and raw materials with strong balance sheets, including some in Australian agriculture.

One of the strategic benefits to being in this market was also that the time zone differences meant New Zealand opened its markets while it was still Sunday afternoon in New York. This would have potential benefits if there were to be some earth shattering world news that broke over a weekend while other markets were closed.

South America

Argentina had had its fair share of problems along the way but Rogers saw some future in the tourism industry, and admitted to loving the ambience, people and vibrancy of Buenos Aires. Uruguay was interesting and would benefit from the boom times of its neighbors. "If the country didn’t exist, South Americans would have invented another to hide their cash from their confiscatory governments." (Rogers 1994, 309)

Chile had the fourth highest economic growth between 1990-97 averaging 8.3%. Chile has significant agricultural exports and is by far the world’s biggest copper producer.

"The country had become the engine, the model, of South American growth." (Rogers 1994, 321)

"Chile is now democratic and prosperous for the first time in decades." (Rogers 1994, 322)

Democracy and prosperity are not the two most important things to look for while investigating new markets, but they are good starting points.

CONCLUSION

What Jim Rogers has demonstrated is that thorough investigation and preparation is vital when entering the unknown. He would not have completed his epic trip without attention to detail. The fact that Mr. Rogers is a multi millionaire also demonstrates his ability to make sound decisions based on that information, and the courage to embark on a dream and realize it with a well-executed plan. Each of us is capable of this.

"…I’ve also learned that if you’ve got a dream, you have to try it; you must get it out of your system. You will never get another chance. If you want to change your life, do it." (Rogers 1994, 381)

But I must end on a cautionary note. The world is largely a friendly place and people generally like to help other people when they trust each other. This trust can be tested when different cultures clash, and this is the reason it is so important to visit and understand the market you plan to invest in. Trust is also tested when people do not want to share their opportunities, or when greed causes people to hide facts. This can happen even in markets that we think we understand, as has been recently demonstrated.

Post Script:

In 1994 Jim Rogers wrote: "Our system is so rotten, so corrupted and bloated with debt, obvious and disguised, that no matter what any politician does, it will become the focus of an immense crisis before the decade is over." (Rogers 1994, 377)

The world’s investors are still reeling from American corporate fraud and collapses which, at the time of writing, even Alan Greenspan (Chairman of the Federal Reserve) predicts are not yet over.

"Enron tops the list of America’s corporate collapses. The energy giant filed for bankruptcy protection last December after admitting that its profits over the previous few years were nearly $600 million lower than it had claimed."

"Andersen was Enron’s auditor and the firm was destroyed even before being found guilty of obstruction of justice in June."

"Tyco International has named its new chief executive: Motorola’s former president and chief operating officer Edward Breen. He replaces Dennis Kozlowski, who resigned in June just before facing a criminal indictment on tax evasion charges."

"The Securities and Exchange Commission is investigating whether Global Crossing engaged in swapping capacity with other operators in a bid to boost revenues."

"WorldCom admitted in June that it had mistakenly booked $3.8 billion of costs as capital expenditure, and that profits for the past five quarters should have been losses."

"Xerox restated its accounts in June because the office-equipment company said that a so-called "mis-application of GAAP" over-stated its profits by $1.4 billion over five years."

"Vivendi, a French conglomerate… has denied allegations that it tried to flatter its accounts but Moody’s has downgraded it to junk status."

"Merck, a pharmaceutical company ...admitted early this month that it had overstated its revenues – and its costs – by some $14 billion over three years."

"Halliburton is an oil company that was previously chaired by Dick Cheney, Bush’s vice-president. The SEC is looking into how this company handled its cost overruns on construction jobs."

"Harken Energy is a company in which Bush was a director. In 1990 he sold shares in the Texan firm just eight days before it unveiled sharp losses. …The SEC investigated but never took any action."

All of the above (Sunday Times July 14, 8)

"AOL Time Warner’s share price slid to near four-year lows on the back of an enquiry by the US Securities and Exchange Commission into the accounting practices at the online unit." (Sunday Times July 28, 2)

Diversification in other markets that may be shielded from corruption is a sound goal but, even in supposedly well-regulated and free markets, investors can be hoodwinked. Diversify for security, but don’t underestimate the power of greed, nor fall for it yourself.

REFERENCES

1) Rogers, Jim Investment Biker, Around the World with Jim Rogers. (Adams Media Corporation, Holbrook, Massachusetts, 1994)

2) The Economist Magazine June 1^st to 7^th 2002. Volume 363 Number 8275 Emerging market indicators

3) The Economist Pocket World in Figures 2000 (Profile Books Limited, London, 1999)

4) The Sunday Times, Business Times (South Africa) July 28, 2002 Business Briefs (Page 2)

5) The Sunday Times, Business Times (South Africa) July 14, 2002 Corporate America walks the tightrope. (Page 8).