Wanted to pass on a well written travel blog – Matt is Missing.  I don’t know Matt – he is a friend of a friend, however in August he took a vacation to Nicaragua for a couple of weeks, fell in love with the country, and ended up staying quite a bit longer!  Some very humorous writing coupled with some excellent stories – Enjoy!

When investing offshore, there are many risks you have to deal with.  Local legal systems, level of political stability, ownership rights, crime levels, business transparency etc.  The level of control an investor has over most of these is minimal, however understanding how to mitigate these goes a long way to reduce your risk/return ratio. 

The recent strike of Hurricane Ida on east coast of Nicaragua got me thinking about the different categories of risk:  

Unknown-Unknowns

• Don’t know what the risk is
• Don’t know the impacts

Known-Unknowns

• Know what the risk is
• Don’t know the impacts

Known-Known’s

• Know what the risk is
• Known the impacts

Hurricanes in general are what most would consider a known-known.

The second thing to know about risk is:

Risk Exposure = (probability of occurrence) * (impact of occurrence)

Although hurricanes on the east coast of Nicaragua don’t happen all the time (last 3 based on a quick Google search were 98, 07, 09) this still represents a moderate risk exposure. 

The key question becomes – if you can get the same investment with no risk exposure on this dimension why not do it?  Although there are some great investment options available on the east side of the country in areas such as the Corn Islands, we focus our investments and those of our clients on the pacific side of the country to reduce risk exposure on a risk that can be easily mitigated. 

An inspiring article from Forbes on Carlos Pellas Chamorro and the empire that has been built by he and his family over the past 100 years. 

Great to see developing countries like Nicaragua making efforts to leave fossil fuels behind.  With some outside help Nicaragua is making some moves to help bring power to 7000 families via solar energy.  Nicaragua like many countries suffers due to dependence of foreign oil from countries like Venezuela.  Nicaragua has some great development opportunities in the area of alternative energy.  In addition to solar, it has initiated ventures into wind, hydro electricity, and geothermal.

Improving infrastructure in developing nations is a big deal.  Infrastructure is what takes a country to the next level in economic development.  Whenever we visit Nicaragua, there is always new road infrastructure projects on the go and moving quickly!  I came across this great article on Beyond Borders Internet TV today talking about the benefits of the advancing road infrastructure in Nicaragua including the following points that you may not have considered:

• Improvements had a direct impact on rural transport services: fares became cheaper and the number of public transport vehicles using the roads increased
• Road works generated employment in 12 departments and 24 municipalities with 23,205 direct and 8,126 indirect jobs. Direct beneficiaries included another 298,739 inhabitants living along these improved roads.
• Anecdotal evidence suggests that paving roads has made transporting staple foods to market much easier, breathing life into agricultural sector micro-enterprises, for whose operations they are a source of manual labor

These and others sited in the article are just the immediate impacts.  Additional items not cited but also true: Increased tourism, travel and investment. 

All of this together creates a better jobs and a better standard of living for the local inhabitants.  For the investor, it also means opportunity for growth.

Part 1 - Buy Low Sell High

Part 2 - Buy High Sell Low?

This could be a fantastic opportunity to buy low and sell high. This lender-owned property is ready for the smart investor. The lender needs to remove the asset off their books so they are willing to sell this property at a deep discount. The lender already made the money they needed to make on it when they sold it the first time.

Buy this property today and 3 - 5 years from now when you boast to your friends they will think you are really smart. Actually, it is pretty easy to buy low and sell high. Just do the opposite of what the masses are doing.

Rodney Dangerfield plays Al Czervik in the movie Caddyshack. When we was playing golf he was on the phone with is business manager and he says. “Buy, Buy, Buy. What? They are all buying? Then Sell, Sell, Sell.” (not a direct quote).

I will give you a $10,000 piece of advice. If you contact us to negotiate this property for you, I am willing to bet the seller will consider all offers.

In this case the sale was a deed-in-lieu of foreclosure. The buyer (owner) could not afford the payments so the buyer gave the property back to the lender. This is still a sale. The buyer bought high ($249,900) and sold low ($0.00). This buyer lost all down payments and any equity in the property.

LENDER OWNED

San Juan del Sur Townhouse For Sale

Two bedroom, two and one half bathroom ocean view townhouse at Bayview Terrace. Fully furnished with towels, linens, etc. Two short blocks to sandy beach and 10-minute walk to restaurants and town center. Original listing $249,900.00 now being offered as a lender owned property at only $139,000.00

Most of us have heard the story of the lemmings. Wikipedia describes their behavior as such:

“On occasion, and particularly in the case of the Norway lemmings in Scandinavia, large migrating groups will reach a cliff overlooking the ocean. They will stop until the urge to press on causes them to jump off the cliff and start swimming, sometimes to exhaustion and death.”

Additional research has shown that the lemming behavior is a result of cycles.

“Lemmings of northern Norway are one of the few vertebrates who reproduce so quickly that their population fluctuations are chaotic,rather than following linear growth to a carrying capacity or regular oscillations. It is unknown why lemming populations fluctuate with such variance roughly every four years, before plummeting to near extinction.”

Economic and Business models have fluctuations and oscillations. It has become apparent to some economists that the oscillations of our current economic models are occurring more rapidly and more intensely. The highs and lows are more pronounced and the frequency is increasing.

I will predict that the world is near the bottom of the financial crisis of 2008 and we will again experience a resurgence of capital.

“there is now some evidence to suggest that the predator’s population may be more closely involved in changing the lemming population.”

The world’s coffers were built up from 2001 to 2007 and the predators, depending on which conspiracy theory you abide by, took advantage of the opportunity to seize the wealth. My current belief is that the Federal Reserve and the IMF were the predators.

Lesson: Those who are selling now are selling at the bottom and those who buy now are buying at the bottom. Now is the time to buy.

We will highlight a property in Nicaragua next week as an example.

Remember: “Due to their association with this odd behavior, lemming suicide is a frequently-used metaphor in reference to people who go along unquestioningly with popular opinion, with potentially dangerous or fatal consequences.”

Be cautious of what the media is telling you to do with your money. Check and see if the suggestions are moving you toward buying something at its HIGH. Are you going along unquestioningly?

Another sign that Nicaragua is growing up - a new magazine called Hecho started this spring focused on Nicaragua’s art and culture scene.  Here is the post I found on the the magazine from Americas Quarterly.  It was started by two US born graphics designers living in Nicaragua.   At a time when magazines are dying in many first world countries its great to see this medium begin to mature in developing nations.  There is still something to be said for high quality print pubs, and unlike the fragmented US advertising market, this will likely offer great ad based subsidies to ensure that the people involved in the art scene will be able to afford to purchase the magazine.

As an investor - yet another sign that the country is is maturing, entering the 21st century and starting to stand on its own identity. 

Best of luck to Hecho!  Looking forward to picking up a copy!