[Editor’s Note: Darren Kaiser, Sovereign Man’s Chilean property consultant, is filling in for Simon today from Santiago, Chile.]
During most of the 2000s, I patiently sat on the sidelines while the paper-fueled run up in asset prices (primarily stocks and real estate) in my home country took off.
I always thought that when the cheap and easy credit eventually ran out, prices would come tumbling back down. And when that finally happened in 2008, I jumped in.
One investment that seemed obvious to me was betting against commercial real estate investment trusts (REITs). All the research I had done indicated that commercial REITs were in WAY over their heads and doomed to fall.
Initially, my strategy did well. As expected, the commercial REITs took a nosedive, and I was making money. Until Obama screwed me.
After implementing the Troubled Asset Relief Program (better known as TARP), President Obama effectively bailed out the REITs… eradicating their losses and sending their stocks soaring.
Since I was betting on the REITs to fall, I was practically wiped out. I couldn’t believe it—I had made the right call. The REITs were a disaster. And if the free market had been allowed to function, I would have made a lot of money.
But I ended up taking it on the chin thanks to government intervention. The REITs were too big to fail. I apparently was not.
When I set out to rebuild my capital again, I kept things very simple: gold, silver, and Chilean property.
These asset classes have performed extraordinarily well. And as much as I believe in the precious metals premise, I have actually been reducing my positions in order to buy more Chilean property.
Outside of Santiago and other urban areas in Chile, most real estate transactions here are done “al contado” or paid in full. People have to save up for years and actually have the money in hand before they make a purchase meaning downside risk is very limited.
In other words, this is not an asset being inflated by central bankers; I’m not riding a wave of easy credit, but rather speculating in the future growth of this vibrant economy.
Month after month, there are obvious signs of improvement. Roads are paved. New highways are built. Electrical infrastructure is improved. Each time this happens, property prices can double in a short period of time.
If zoning is changed at the same time as infrastructure projects are going in, you can sometimes replace the word “double” from the previous sentence with “triple” or “quadruple”.
Plus, as Simon often writes about, there’s nothing like an investment that bears fruit, both literally and figuratively. When you have fertile soil and solid water sources, your investment cannot go to zero. It makes it hard to get hurt.
These sorts of situations are hard to find in today’s world and there’s no doubt in my mind that sometime soon, a lot more people outside of Chile are going to catch on to this anomaly.
Until that happens, I’m happy to be one of the few, along with Simon, to be investing ahead of the crowd in this thriving country.