I want to do something I haven’t done in a very long time… tell you about an opportunity outside the United States. You have some good reasons to consider spending part of your capital (and part of your life) in a second country. But first, let me begin by warning…
Most of you reading this will find what follows to be “out there”… far outside your comfort zone. That’s OK. You don’t ever need to invest a penny outside the U.S. to become a successful investor. But… as I always do… I feel an obligation to tell you what I would want to know if our roles were reversed.
Something important is happening right now in one of the world’s major economies… an economy that has not correlated to the U.S. or Europe… a place that has been left for dead for nearly 50 years. So try to keep an open mind and think about what I’m saying below. I’m certain it’s worth your time. There’s a huge amount of money to be made over the next 10 years…
To make a “Colombian necktie” – acorte de corbata – an assassin would use a very sharp knife to cut a large hole under the victim’s chin, just under his jaw line. Then the victim’s tongue would be pulled through the hole, leaving it hanging in front of his torso, like a necktie. And that wasn’t the worst thing done to people during Colombia’s long, vicious civil war.
The corte de florero– “the flower vase cut” – was far more gruesome. Here, the victim was beheaded and dismembered, with his appendages then stuck down his neck, turning the victim’s headless torso into a bloody vase of body parts.
Ask almost any American about Colombia and the first answer you’ll get is Pablo Escobar, the drug lord who was assassinated in Medellín by U.S. Drug Enforcement Administration agents in 1993. Most Americans have no idea that the drug wars fought around Medellín between 1980 and 2002 were merely an outgrowth of a violent civil war that began in 1948.
The war started when progressive presidential candidate Jorge Gaitán was murdered. Gaitán was far more “left” than the established liberal politicians in Colombia. He was murdered on his way to a meeting with Fidel Castro. A violent mob immediately killed his assassin, so it’s not clear even now whether Colombia’s conservatives had him murdered – like populist Louisiana Gov. Huey Long was murdered in the U.S. – or whether liberals had him murdered because he threatened their power, too.
Imagine if President Obama had been murdered during his first presidential campaign. Imagine if most Americans believed the Bush family was secretly responsible. That’s what happened in Colombia. The results were horrific…
In the months that followed, hundreds of people were murdered all across the country – including inside the country’s House of Representatives. A conservative representative shot and killed a liberal member on the floor of the chamber! In response to the violence, the liberals boycotted the next presidential election, leading to a completely divided country. The U.S. first got involved in 1952 when Colombia’s president requested help to quell the violence.
To give you an idea of how politically unstable Colombia has been for decades, just consider that Medellín (the second-largest city in Colombia, and its economic center) had 48 different mayors in 40 years between 1948 and 1988. Drug trafficking gave enormous economic power to the violent extremists on both sides of this civil war, causing the scope of the violence to completely explode.
Pablo Escobar became the most notorious warlord and was probably the most violent. He murdered anyone in Colombia who opposed him, including senior members of the government. The country disintegrated. In 1991, at the peak of the civil war, the country finally adopted a new constitution designed to provide more power for the central government and more stability for the country. Even so, it took a long time for the violence to subside. In the 15 years before 1991, 45,000 people were killed in Medellín alone – making it the most dangerous city in the world. But in the 15 years after 1991, another 45,000 people would be killed, too.
While some guerilla groups were disarmed in 1990, the war didn’t really come to an end until the mid-2000s. A new president, Álvaro Uribe, was elected in 2002 with a popular mandate to bring peace to Colombia. He passed a one-time wealth tax, raised $600 million, and doubled defense spending. By August 2004, murders, terrorist attacks, and kidnappings dropped by 50%, to their lowest levels in more than 20 years.
By 2008, Uribe was able to pass the Justice and Peace Law, which represented a final end to the civil war by offering reduced prison sentences to paramilitary leaders who agreed to lay down their arms. The annual murder rate in Medellín has fallen from 380 per 100,000 residents (6,349) in 1991 down to 30 per 100,000 in 2014. (For comparison, poor Detroit suffered 43.4 murders per 100,000 last year, No. 1 in the U.S.)
A final point about the real cause of the violence that plagued Colombia for decades… Almost all of the fighting stopped about 10 years ago. Meanwhile, officials estimate that cocaine production in Colombia has increased by 60% over the last decade. Cocaine didn’t cause the violence. Cocaine funded the civil war – a war that ended with President Uribe’s effort to regain effective police control of Colombia.
There clearly has been substantial cooperation between government leaders and the major drug producers – cooperation that focuses on reducing violence. Two weeks ago, Colombia’s president even announced that he wouldn’t oppose large-scale marijuana production and the country would stop spraying herbicide over coca farms. These agreements are undoubtedly part of the ongoing efforts to prevent drug-related gang violence.
As a result of the peace, Medellín was named “City of the Year” by the Urban Land Institute, a Washington, D.C.-based nonprofit that researches real estate development around the world.
These were a few of the major factors that led me to visit Medellín last week. I’d heard from a growing number of friends that the city has become something of a hub for Internet entrepreneurs and ex-pat real estate developers from around the world.
Having spent only a few days there, I haven’t worked out all of the details about what I plan to buy… but I have decided to make a few real investments. If my research pans out like I think it will, these will be very large investments.
Colombia is a major global economy. Its exports include oil and coal. It has tremendous mineral deposits. And it has a long history of representative government. And unlike virtually any other country in Latin America, Colombia has never been ruled by a dictator. It is also the only country in Latin America to never default on its sovereign debt. Meanwhile, the country was hamstrung for more than 50 years by a never-ending civil war largely financed by the global drug trade.
I’m bullish on Colombia as a country for a few good, long-term reasons. First, the war is over and there’s a tremendous amount of pent-up demand for consumer goods and real estate. Instead of buying guns, Colombians are now focusing on better cars and apartments. This trend will last for decades, as the country becomes much, much wealthier thanks to peace and a free-trade agreement with the U.S.
Second, I believe the war on drugs has completely failed. Legalization of marijuana in the U.S. and Uruguay is only the first step to a new (and much smarter) approach for dealing with drugs. Arresting people for selling what other people want (and will pay for) never works. Just like price controls and cartels… the market will always route around obstacles to people’s wants. All prohibition does is inspire violence and criminality. Sooner or later, Western governments will wise up. And Colombia will be a tremendous beneficiary of this trend.
Third, Medellín is simply one of the greatest cities in the world thanks to its outstanding climate and its beautiful and intelligent people. It’s a must-see for global travelers. But it’s currently about 75% cheaper than other, similarly high-quality global cities.
And one more thing… I’ve seen a few places boom over the last 20 years – Vancouver, for example. They start out cheap. But they end up very expensive. I know the same thing is about to happen in Medellín. Part of how I know is the people I ran into completely by accident…
One of them was an early employee of Microsoft. I’m certain he will return with his friends… who will bring a ton of capital with them. And I know Medellín will boom because of the things I didn’t see – a Four Seasons Hotel, for example. All of those things will come, of course. But I believe you’ll make a lot of money if you buy here before they do.
If you don’t like to travel or have the means for a direct investment in Colombia… but you do want to “play from home”… I’d recommend following the shares of Grupo Aval Acciones y Valores (AVAL). This is a large financial-services holding company with operations across the entire Colombian economy. In my opinion, it’s the best-managed Colombian financial institution. It has very good operating metrics (operating margin 29%, return on equity 15%) and pays a substantial dividend (4.7%).
Thanks to the recent decline in energy prices, it’s also a reasonably priced stock, trading for just two times book value and 12 times earnings. I’m sure you can earn higher returns by investing directly in the country (via real estate or an operating business), but Grupo Aval is worth watching if you’re interested in a completely passive investment. As Colombia grows, it will do well.
Editor’s Note: We wholeheartedly agree with Porter on the tremendous value Colombia offers. In the most recent issue of Crisis Speculator we uncovered how US investors can access a quality Colombian company paying a SAFE 9% dividend with lots of upside for capital gains as well. For all the details on how you can profit from the perception gap on Colombia, be sure to check out Crisis Speculator.