Over the long weekend I had the extreme good fortune to talk with two of my favorite people (and extremely savvy smart money investors) — Chris Tell and Mark Wallace from CapitalistExploits.
Mark and Chris are the “real deal” — they are full-time sophisticated investors who travel the world looking for new deals (while living off the proceeds of their many former successes)! They were gracious enough to sit down with me this weekend and share with me how they got started as full-time investors, how they find deals, the top qualities and skills they believe an investor needs to be successful, what they are up to with their latest adventures, the inner-workings of the private equity space, and much more.
We spoke for over an hour and I hope you enjoy reading this as much as I enjoyed listening! They are truly smart and savvy investors, and I highly recommend you check out their website. (Again, I’m not affiliated with them — I just think they are smart, savvy guys!)
Onto the interview…I hope you enjoy it!
Hi guys, it’s great to talk with you again! Maybe we can start by having you tell everyone a little bit about yourselves and your backgrounds… I know you’ve been full-time investors now for years, but how did you get started? What were the first investments you made, respectively, and what did you learn from them?
I’ve inadvertently done things somewhat backward. It’s typical of many investors I’ve met to have first built a business, and then to use the proceeds to get involved in investing.
I headed full-tilt into investing from the get-go. My first “trade” was with oil contracts in the derivative markets in my early 20’s. Nothing like diving into the deep end, right? (laughs)
Susan: I’d say so! (laughs)
That first trade, which I briefly detailed in trading lessons from an idiot, both made me a lot of money as well as taught me the value of hard work, due diligence, trusting your instincts, and learning how and when to pull the trigger.
That was a long time ago, and much has happened in between. My focus is now private equity and private placements, with a particular emphasis on frontier and emerging markets.
I would say that I try as best as I can to “cheat,” but not in the way you might think (laughs).
There are literally thousands of smart people competing for the best trades and ideas. Am I smarter than Warren Buffett, Seth Klarman and so forth?
In a word…no. I need some means of “cheating” to get ahead.
For this reason I focus on finding fundamentally mis-priced assets in markets which have a large tail wind, but are not all over “bubble vision” — in other words not being played up in the mainstream. Places such as Cambodia, Zimbabwe, Mongolia, Nepal, Fiji and so forth… This is where I can gain an advantage.
I don’t have hundreds of other Warren Buffetts competing with me, so it’s a form of “cheating”.
Furthermore, the mispricing of assets at certain times in specific countries, which I spend an extraordinary amount of time trying to understand, presents me with opportunities to make multiples on my money. It’s very, very difficult, due to the competition factor, to find those sorts of opportunities in western markets in time to act upon them.
That’s great, Chris! So it sounds like you value hard work, due diligence, and trusting and thinking for yourself — we are in perfect agreement on that. And you are very smart to look for places where you can gain an advantage! I would love to hear more about that in a minute, but let’s hear Mark’s take first — Mark, how did you get started as a full-time investor?
I guess I went about it more or less the way Chris described as “typical.” I graduated university, worked for a year in a downtown office and absolutely hated it. Being 21 years old, of course I knew everything, and was convinced I could run the whole company better than my current, much older managers. Ahh, youth… (laughs)
Susan: I can relate! (laughs)
So, when an opportunity came around to buy a small business, I jumped on it. I ran that for 3 years or so, and learned a lot of very valuable lessons. Some easy, some very difficult to stomach. You quickly learn how little you actually know, once you’re having to manage people, deal with customers, run production, keep the books, maintain payroll, etc. That was my MBA!
During that time I was a subscriber to Doug Casey’s newsletter. That was back in the day, when it came via snail mail. I looked forward to those issues literally like a Christmas present every month. I was living vicariously (like many others) through Doug’s global adventures. I knew that one day I wanted to be Doug.
He wrote about a small company called Diamond Field’s Resources. I bought the stock on Doug’s recommendation at something like .50 or .75 cents a share. The stock promptly crashed to around .25, but I hung in there. It was a junior resource explorer, you have to have patience.
That patience was rewarded. I came home one day, fired up my Prodigy account (aging myself with that reference) and checked the quote. The stock had popped on tremendous volume. Doug’s next newsletter wasn’t due for a couple weeks, so I just waited patiently to see what his thoughts were on the move.
Sure enough, the company had made a discovery. It wasn’t diamonds, it was nickel… What would turn out to be the largest nickel discovery in the world at that time. Doug said the geologists were mortgaging their homes to buy more of the stock, according to his sources. That sounded good to me, so I held on.
I eventually sold that stock for about $40/share. It went to $100 after a 4:1 split. That was a massive score for a lot of people, and it hooked me big time on investing, speculating and the whole junior mining and resource space in particular.
That investment taught me about patience and the value of a network of connected people.
That’s amazing, Mark — I know everyone has heard “legends” of people hitting so-called “10-baggers” (or in your case…much more!) but I am willing to wager that not many people have actually spoken with someone who’s accomplished that! Thank you for sharing your story!
Like Chris, you also mention the value of patience and a network of connected people, something I talk about here at Kung Fu Finance all of the time — we are kindred spirits.
And you were willing to hold on when the stock initially dropped in half, which can’t have been easy (I happen to know from experience!) (laughs) because you trusted in yourself and in your thesis and believed in Doug — and what a reward you found for doing so!
It sounds like both of you really jumped headfirst into somewhat “alternative” investments — no 401(k)’s for you! (laughs)
How did you first find out about “alternative” investments and how did you get started down the non-mainstream path? Did you have a particular “ah-ha” moment when you realized the mainstream approach just wouldn’t work for you? And when did you decide to take charge of your own finances? (Sorry…I have so many questions for you guys!) (laughs)
I was introduced to the concept of alternative investments by an investment banker whom I was working with while I was still in my early 20’s. I wrote about the experience when discussing 3 Life-Changing Lessons.
It was some years after first being introduced to private equity that I began getting involved with my own money.
In answer to the second part of the question regarding taking charge of my own finances, this happened to me very early on in life. I was fortunate enough to be brought up in a household where I knew I would have to pay for anything I wanted.
Poor parents can be a blessing.
Money management and earning my own money was a simple factor of wanting what my friends had and not having it.
I think it’s fair to say my motivation was multiples of that which my childhood friends experienced.
I spent time working in the finance industry and saw that to my dismay money managers and investment brokers typically made far more money than did their investors.
Likewise, in listed equities, CEO’s routinely earn multiples of what the company owners (read: shareholders) earn.
Realizing this truth to be self-evident, and furthermore realizing that I didn’t have the ability to change it, I entered the space in between.
This is the space where you get involved with the business owners themselves, finance them and so forth. It has led to many other opportunities, too many to detail in this short space, but those were the driving forces for me.
Thank you Chris! Mark, how about you? How did you get started in private equity?
I think my first real foray into private equity was participating in a frontier markets deal where I was also a consultant. I decided to take equity in lieu of cash. That turned out to be a great decision.
Ask 50-Cent how he feels about taking equity in lieu of compensation. His Vitamin Water stock made him a very, very wealthy guy. Much more so than his music up to that point. Mine wasn’t that spectacular, but it was more money than I had ever seen up to that point.
Like Chris, I wasn’t born to wealthy parents. They did their best to give us whatever we needed, and in fact we were comfortable, but my parents were not great money managers. I wasn’t blessed with that skill genetically, and I still think it’s a weak link for me. I happen to have a lot of confidence in my ability to make money, so I worry less about managing it, which is not ideal.
I have a philosophy, which is not unique to me, that basically keeps me “detached” from money.
I don’t hoard my cash, I invest it immediately into places I think I can multiply it. I don’t “worry” about money, or having too little of it, or anything else for that matter.
Worry is a “negative” energy force that actually repels what you desire. I don’t want to get all “new age” on your readers, but believe me when I tell you that I have seen this force at work in my own life, and the lives of those I care about — it’s not BS.
Money is energy, it needs to be flowing continuously for it to accomplish its highest purpose. Try it for yourselves.
Thank you Mark, that’s fascinating, I agree. I was brought up to believe that worrying was bad, but for a different reason — as a little girl I went to Bible camp in the summer, although my parents weren’t very religious per se (that was simply one of the few “camps” available in the small town where I grew up) but in camp we were taught that worrying was a sin — you are supposed to trust in God (or a higher being or the power of the universe) to provide for you. Whether sin or negative energy, worry is definitely a bad thing!
Robert Kiyosaki has also said that money is energy, and I have found this to be true, too. One of the first questions I now ask whenever I make an investment is “how soon do I get my money back?” — something I never thought to ask before, but now I want to know how quickly I can get it back so I can move it onto some other productive use.
Along those same lines, what do you guys believe are the most important skills and knowledge that an investor needs to be successful? Would you recommend studying history? Markets? Being a contrarian? Discipline? Growing your people network?
I think all of these are important. I would caution being contrarian for contrarian’s sake… fighting the tape is a losing proposition most of the time.
Discipline to manage risk is very important, while at the same time discipline to act and hold ones convictions when they are unpopular is equally important.
With respect to history I think this is probably the most important factor largely missing in the investment community. Without exception every smart successful investor I know is a student of history. I think it’s actually somewhat all encompassing, since it’s not possible to study history and at the same time fail to learn about discipline, people, networks, markets and so forth.
The other point I’d like to make is that investors and entrepreneurs can be successful in certain niches. I have friends who do very well due to their networking abilities, while their investment acumen is quite poor and others who do little networking however are successful due to investment or business acumen.
Life is meant to be a learning experience and as such we’re always attempting to better ourselves in multiple ways. This shouldn’t ever change.
I think all of those are important. I also think a good bit of humility is necessary. You won’t be right all the time, and you can be wrong most of the time and still be a successful investor.
Risk management is probably the single most important factor for success. The ability to recognize when you’ve made a mistake and quickly address it is essential.
It’s the difference between a good investor and a not-so-good investor.
Picking stocks is easy, managing risk is hard. A monkey with a dart will pick a few decent stocks. Teach that monkey how to manage the trades/risk and that monkey will outperform 99% of retail investors!
Concentrate on managing your risk. That means setting goals for your investments before you make them. Stick to your plan. Sell your losers quick and hold onto your winners. Use things like trailing stops to lock in gains.
Understanding history is also important. Realize that this time is NOT different. Everything repeats.
Well-said and very helpful, and I agree that understanding history is much overlooked in the investing community. All of the savviest investors I know are big students of history, and big names like Lacy Hunt, John Mauldin, and Jim Rickards just stressed that point recently, too.
So let’s talk about some of your latest ventures! How did you come up with Capitalist Exploits, and can you tell us a little bit about your mission and why you started it? And as I know you two are die-hard capitalists like me, (laughs), do you have any plans that you can share with us for turning it into a profitable venture at some point?
Mark and I used to discuss a lot about how we had no interest in creating a business purely for the sake of profit. Money isn’t a strong enough motivator for us.
What we wanted was something that we would not tire of, something we loved and were passionate about… So, we simply started talking about our thoughts and what we were doing with some of our investments.
Our blog acts as an opportunity to put ourselves out there and interact with others who have an interest in the things that we’re interested in.
One thing that we both knew from experience was that the private equity space can be a little more difficult to obtain information on. It’s seen as a space that only a few can participate in. That’s complete nonsense, but the fact is there is little information out there about what is involved.
It’s a space in which we live and breathe on a daily basis so we felt we could add value by sharing our thoughts and experiences. It would certainly have been valuable to me finding such a source of information many years back if it had existed.
At certain periods of time in certain markets incredible opportunities will open up for the nimble, well-positioned and connected investor. They never last forever, but can make investors truly stupid money for brief (read under 5 years give or take) periods of time.
We believe that we’re in a point in time right now where we can multiply our capital in a few short years in a few select frontier markets. Places like Mongolia, Myanmar, Fiji, Nepal, Libya, etc.
We didn’t set out with much of a plan, really. We’re not marketing guys, we’re entrepreneurs and investors.
As Chris said, we just wanted to put ourselves out there and see what happened next. The results have been awesome. We don’t have a huge subscriber list, but we have an unbelievably savvy, focused group of ridiculously successful and intelligent readers.
Harvard fellows, endowment managers, hedge fund operators, entrepreneurs and folks that have reached the tops of their fields. It’s very, very humbling to speak to some of these people.
One of the ways we’ve decided to monetize the site is through a membership service that will deal with private equity and private placements. It’s targeted, by necessity, only to high-net worth, accredited investors. These are high-risk deals with limited participation and a small window of opportunity.
We really want people to understand that capitalism is NOT the enemy. Corporatism and crony-capitalism are the enemy.
I’m a big Ayn Rand fan. The woman is rolling in her grave, or at least laughing her ass off. It’s playing out exactly as she said it would. The productive people are being shunned, punished (socially and financially) and are the target of blame, where the criminals that put us in this position with their one-sided “regulation” and fascist beliefs sit smugly on their thrones.
I fear that there has been damage that will take a generation or two to remedy. The perception is that money is evil, capitalism is to blame for everything and the government is our savior. This could not be further from the truth!
I whole-heartedly agree — it is sad and somewhat terrifying to see what our formerly free country founded on the ideas of true capitalism and free markets has disintegrated into today.
I will stop there for today and bring you Part 2 of my fascinating interview with Chris and Mark from CapitalistExploits tomorrow, where we dig much deeper into the inner-workings of private equity…stay tuned!
Thanks so much for reading and being a part of our Kung Fu Finance community!
Please let me know what you think about the world of private equity in the comments, and whether you enjoy these types of “been there, done that” interviews with real-life successful investors!
To your financial success,
— Kung Fu Girl