Richer, Wiser, Happier by William Green

Author:William Green
Language: eng
Format: epub
Publisher: Scribner
Published: 2021-04-20T00:00:00+00:00

A House Built on Rock

Sleep and Zakaria named their fund Nomad because they were willing to roam anywhere in search of value. They were not trying to replicate a particular index or perform well on a relative basis. They were gunning for outstanding absolute returns, unconstrained by reference to what anyone else was doing. Their quest took them to some of the least popular corners of the globe.

The fund began trading on September 10, 2001—one day before the attack on the Twin Towers. Markets cratered as investors confronted unfathomable threats of terrorism, war, and economic disruption. Adding to the gloom, many investors were still in shock from the bursting of the tech bubble. Sleep and Zakaria invested boldly amid the turmoil, targeting temporarily depressed businesses that others were too scared to own, since the future seemed so precarious.

In the Philippines, they invested in Union Cement, the nation’s largest cement producer, after its stock had plunged from thirty cents to less than two cents. Pessimism was so pervasive that the market valued the business at one-quarter of the replacement cost of its assets. In Thailand, they invested in Matichon, a newspaper publisher whose stock had crashed from $12 to $1. It traded at 0.75 times revenues and was worth about three times what they paid for it. In the United States, they bought preferred shares of Lucent Technologies, a fallen telecom star that had lost 98 percent of its value. These were classic “cigar butts”—not the best businesses, but fantastically cheap. By the end of 2003, Nomad’s net asset value had doubled as opportunistic bets like these paid off.

The supply of bargains dwindled as fears receded and markets revived. So Sleep and Zakaria ventured to one of the few remaining pockets of despair. In 2004, they crossed the border from South Africa into Zimbabwe. Under Robert Mugabe’s despotic rule, Zimbabwe’s economy was paralyzed by corruption, a currency collapse, the nationalization of many privately owned farms, and mobs of looters. Undaunted, Sleep and Zakaria bought a basket of four Zimbabwean stocks—virtual monopolies that traded as if they were almost worthless. Zimcem, a cement producer, sold on the stock exchange in Harare for one-seventieth of the replacement cost of its assets.

Writing to Nomad’s investors about the perverse appeal of this detested market, Sleep remarked, “The clients will hate it. Compliance will hate it. The consultants will hate it. Marketing will hate it. The size of the investment opportunity is tiny. It is not part of the benchmark.… It’s perfect.”

For a while, Nomad valued its basket of bargains at zero because trading on Zimbabwe’s stock exchange ceased entirely. The economy remained a catastrophe. Still, by the time Nomad sold the last of its Zimbabwean stocks in 2013, they’d risen between threefold and eightfold. As a souvenir, Sleep and Zakaria gave each Nomad shareholder a worthless banknote for 100 trillion Zimbabwean dollars, which the government had issued at the height of hyperinflation.

Nomad’s appetite for reasonable businesses selling at unreasonably low prices made sense, given the opportunities available at the time.

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