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Travelling with $25 billion in luggage!
How many of us travel with $25 billion in our luggage?
Ruchir Sharma, head of the emerging markets equity team at Morgan Stanley Investment Management, New York, certainly does.
An economic traveller, he hops from country to country, uncompromisingly sniffing out opportunity, for Morgan Stanley's billions. Every week he may be in a different country, figuring out its economic climate, testing its investment waters.
Like a detective, he has to quickly and astutely construct a picture of the financial scene of a nation, based on any clue he picks u - a stray remark by a taxi driver, the prices in his hotel, a careless comment by a politician and more. And make an informed investment decision on the country.
Last year, Sharma, a native of Jaipur, a graduate of Delhi's Shri Ram College of Commerce, decided to write a book about his travels.
Breakout Nations: In Pursuit of the Next Economic Miracles was a bestseller.
A few weeks ago, Sharma, the author and investment banker, was in India to attend the Jaipur literature festival. He was in conversation with Nandan Nilekani, chairman of the Unique Identification Authority of India, about his book.
India Abroad's Vaihayasi Pande Daniel listened in. This is the first of a three-part feature.
Nandan Nilekani: A lot of books are about the theory of investing or the theory of how countries change. But yours is very much a practitioner's book. What was your idea when you wrote this book?
Ruchir Sharma: I just feel that a lot of books, that are written, are written from a very academic standpoint in the area of non fiction... The problem I find is that they have very little practical application. And that was one thing that would always bug me a bit.
Nilekani: You have always been a practitioner?
Sharma: The problem with many practitioners is that they don't have time to write a book. Or they don't think it is important enough to write a book. What I was trying to do was to bridge the gap here (by) writing a book that was both an academic sort of work, but more than that a practitioner's guide, in terms of what is exactly is happening in the global economy.
Because that's what I do. I am forced to put my money where my mouth is.
Nilekani: All the countries that you talk about in your book - have you visited each and every one of them?
Sharma: I think that is the rule that I follow. There are 20 countries mentioned in the book. It is an economic travelogue.
The whole idea was to make it as accessible, as possible, to as many people as possible. And the most important thing in this book, I thought, was to keep the time frame very relevant - which is to speak about the next three to five years.
The old rule of forecasting used to be that you make as many forecasts as possible and you remind people when you are right.
To me, the new rule of forecasting, now, really is that you make such long term forecasts that no one knows if you and I will be here to know if you were right or wrong!
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Travelling with $25 billion in luggage!
Nilekani: Ya, like in 2050 India will be bigger than...
Sharma: Who cares! 2050. 2060 etc. We don't know. If you look at the history of forecasting, everything that was said ten years ago has been turned on its head. When I started this business out, investing in emerging markets, two decades ago it was hot.
In the late 1990s, there was a series of crises in the world. Everyone thought emerging markets were these rat-infested, mosquito-invaded markets and what was the point of investing in these places. Today we have, of course, have a different sentiment - not right now it has soured a bit - but at least in 2010, the sentiment really was that (these markets were) the place to go.
Nilekani: I notice in your book that you don't think there are any set formulae, magic bullets. It is not a spreadsheet that you put some numbers and something happens. Each country, each region, has its own attributes and you go and figure that out. Right?
Sharma: I try and travel to one country a month, spending a week in a country and sort of obsessing with it - which is that you stay in that country for a week, be with all the local characters, the politicians, the business people and when you are in that country you are obsessed with it. Every sensory moment of yours is picking up the inputs.
Nilekani: So you talk to the taxi driver, bellhop, all that?
Sharma: That's right. You are obsessed with the country. You don't know what you are going to pick up, at what point in time.
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Travelling with $25 billion in luggage!
Nilekani: Since you do this almost in an experiential way, where you pick up all the senses. When you go to a country, what is it that finally gives you an instinct that this country is going to do well in the future? That it is going to be a breakout nation?
Sharma: There are multiple rules. In the book there is something called Rules of the Road. I have come up with a whole bunch of factors that you look at to try and figure out if a country is going to rise or a country is not going to do that well, over the next three to five years or so. And the entire issue here is to focus on these Rules of the Road in a multiple format. There is no single factor. No magic bullet.
Nilekani: Give me an example. You go to some country and what happened there and so you said to yourself: 'Oh my god, this place is going to breakout soon!'
Sharma: I went to the Philippines, I remember, in early 2010. Now the Philippines had for 30, 40 years been a country that had been a real economic laggard. The Philippines used to be the second richest economy in the 1960s and after that it was surpassed by every other country in Asia, at least in terms of per capita income.
But I figured out that the people there were getting really fed up. They wanted to vote in a leader now who sort of cleans the place up and changes things. We finally got an election in mid 2010 when we got a new political leader out there who decided: 'I have to do something.'
Nilekani: But how did you sense this when you were moving around Manila?
Sharma: Well, you meet the people, the various business people etc. There was a sense of a combination of despondency, but also a sense of our backs are to the wall. And I think in many societies what happens is that people tend to reform when they have their back to the wall.
Nilekani: I think it was John Templeton (the American-born British stock investor) or Warren Buffet who said invest (in a country) when there is blood on the street. Is that one of your principles?
Sharma: Yes, when sentiment is very, very negative. The best time to invest in India was a decade ago when nobody really cared about India on the global stage.
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Travelling with $25 billion in luggage!
Nilekani: There is this famous story of how J P Morgan was getting his shoe shine done on Wall Street in 1929. The shoe shine boy was giving him stock tips. 'It is time to sell when the shoe shine boy is giving you tips of the market,' (he thought). Then the thing has gone over the top.
Similarly, what are the moments when you felt that a particular break out nation has just reached the limit of that and was actually going to be headed for trouble?
Sharma: I started to get worried about emerging markets, and India, in general, in late 2010, because a couple of things happened - a couple of anecdotes which I mention in the book, that I will be happy to share. I come to India in late 2010 for Diwali. At that point in time I was invited to one of those decadent farmhouse parties in Delhi - Delhi has these farmhouses on the outskirts.
Nilekani: Where the murders happen...
Sharma: So this party that I was invited to, in late 2010, was this really decadent affair. When you entered, the valets were sort of juggling the Jaguars and Bentleys, etc. The cuisine was ordered from various countries, the caviar was from Azerbaijan, truffles from Belgium and stuff.
I went in there and I got into a conversation with this young 25 year old who sorted me out very quickly, that I was one of those Wall Street types who had come here for investing.
He sort of looked at me and said, "Where else will the money go?" This sort of arrogance from a 25 year old guy; he was dressed in the typical sort of Delhi exporter's son kind of variety (of clothes), wearing this tight black T-shirt, jeans, the hair spiked with gel, and an attitude... "where else will the money go."
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Travelling with $25 billion in luggage!
Nilekani: So when that happened did you go back to your office and say: "Sell!" (Laughter)
Sharma: I wrote a cover for Newsweek magazine, in fact, saying that India's fatal flaw is crony capitalism. That was not the only anecdote. There were a series of incidents were building up. Soon after this trip to India, I went to Moscow. I was invited there by then prime minister (Vladmir) Putin, to make a speech about what my thoughts, as a global investor, are about Russia.
I went on stage there. I did not know the audience would be so large and covered live on television. So I was not quite sure. But I (still) made a very frank presentation on Russia. Saying how a decade ago I used to like Russia, when your people were really paranoid about the low prices of oil. And now, today, I am concerned about Russia because of the very high prices of oil.
No one is reforming out here. And I was very concerned about what was happening in Russia. Now Putin was sitting on the stage and he was taking notes. I thought this is all going very well -- you have a leader out here, who seems to be listening to you, and stuff.
The next day I was very shocked because in the press there was this entire onslaught against me. And the tone in the press was: Who needs your money? So again, this arrogance. In 2010, so much money is coming in (to Russia) and if this guy (Sharma) is going to be critical about a country, forget it. Who needs your money!
And that sort of again struck me as how the attitude had shifted. A decade ago, back to the wall, oil prices are $20 a barrel and they want to do something to try and reform themselves. Here they are today, with oil prices at $100 a barrel, and the attitude is: Who needs your money.
Shortly after that I had an interview with President (George W) Bush, in a similar format for our clients. And I asked Bush this question: "You said when you went to Russia in the early 2000s, you looked Putin in the eye and you said you saw a friend. You still hold that statement and you still think Putin is the same guy?"
He said: "Let me tell you how Putin has changed. When I would meet him in the early 2000s, he would be very paranoid about what's happening to Russia's debt situation and he would speak to me about that. By 2008 he would be asking me about America's debt situation."
Bush mentioned this very interesting anecdote. He said when he invited Putin to the White House, the first time, in early 2000, Bush's dog was playing around. This dog is called Barney. Putin saw it and must have absorbed it.
Then when Bush went to Putin's residence, in 2008, Putin said: 'Do you want to meet my dog?" Bush said fine. So in came the dog, this huge dog. Basically Putin goes to Bush: "See bigger, better, stronger." So you could make out this was how the attitude had changed.
To answer your question: You are looking to go to a place (invest in a country) when people are not that interested in it. And you are looking to head for the hills, when everyone is crowding in (a country) and saying this is the place to be.
Part II: We let our heart rule the head, says Ruchir Sharma
Part III: 'Energy revolution is America's big comeback story'