How do you become the world’s richest person? Answer that and, even if you do not get to be as rich as Croesus yourself, there is a fair chance you will find ways to be wealthier.
Over the past two decades, debate on how to do it has been dominated by the two men who have been the world’s richest for a long time: Microsoft’s Bill Gates, and the legendary investor Warren Buffett. The latter in particular has inspired numerous books attempting to distil his secrets into simple formulae for investing success.
Now there is a need for new books, because the world has a new richest man. This month has seen a rash of commentary about Carlos Slim, the Mexican investor, after Sentido Comun, a highly respected Mexican financial news website, announced that he had overtaken Gates and Buffett. The 26 per cent rise in the shares of his America Movil so far this year was, the site argued with clear mathematics, more than enough to take him past both the established legends.
As far as I know, nobody has yet written a book on Slim’s formula for riches. His success rests partly on personal factors – such as his training as an engineer and a certain ruthlessness.
It also rests on ancient principles that all can follow and shows that the route to riches is changing.
So, you read it here first. Here is an attempt to define the Slim Way to Riches.
●Cash is king. Slim’s empire is now built around telecoms, but the base of his fortune came from tobacco distributorships. Demand for tobacco is constant in Mexico. But what attracted him was the cash it generates. Collecting tobacco taxes was the responsibility of companies and they could hold it – and earn interest on it – until the next year. This cash flow was the lifeblood of all that followed.
●Stick to what you know. That way, you can reasonably expect to be smarter than the rest. Slim is not parochial; his business empire stretches throughout Latin America into the US. But he studies his options deeply. Before launching his latest foray, in infrastructure investment in South America, he spent months travelling the region, talking to politicians about the possibilities. He never gets into a business he cannot understand.
●Buy companies with wide economic moats. This concept comes straight from Buffett. It means looking for companies with sustainable competitive advantages. It helps if someone else digs the moat for you. In Gates’ case, IBM allowed him to maintain control over the operating system for its personal computers. For Slim, the Mexican government built his moat by selling him Telmex, the national telephone company, as a monopoly.
●Make a few concentrated bets – but don’t stick with what you have. At different times, the Slim empire has centred around property, tobacco, an industrial conglomerate, fixed-line telephony and now mobile telecoms. Each has been a long-term play, but Slim has always been looking ahead. He may have been lucky to get hold of a fixed-line monopoly, but America Movil, his wireless company, is now worth six times Telmex and it has never had a a monopoly by government fiat. He was alert enough to use his power in fixed-line to give him dominance in the newer and faster growing market.
●Look in inefficient markets. This is where you can pick up assets for less than they are worth. It is also where superior knowledge can allow you to stay a jump ahead of regulators. Mexican telecoms users can testify to the brilliance with which he has kept phone charges high while extinguishing competition and this would have been harder in countries with stronger institutions. Slim has looked further afield in recent years, buying up companies in the small countries of Central America, most of which have even less efficient markets than Mexico. His increasing investment in consumer finance and retirement saving in Mexico, an industry that collapsed after the tequila crisis of 1994, is another example.
●Buy when there’s blood in the streets, but don’t worry about selling too soon. Both pieces of advice come from Baron Rothschild, who said he was so rich because he “always sold too soon”. Slim used the tequila crisis as a buying opportunity within Mexico and then bought out a range of foreign telecom companies when they gave up on their forays into Latin America in this decade. All proved to be perfectly timed. He occasionally sells too soon. Two years ago he sold his stake in MCI (the former WorldCom) to Verizon of the US, for $1.1bn, netting a vast profit. This was during a bitter bidding battle for MCI. Had he waited a little longer, he would have extracted a little more. But he was paid in cash. He did not need to be greedy.
●It’s emerging markets, stupid. It is no coincidence that the man to eclipse Gates has done it in emerging markets. They offer the prospect of more growth and a better chance of finding mispricings for those who know what they are doing, like Slim.
Nobody knows how long Slim will keep his title as the world’s wealthiest man. But it is a good bet that whoever ousts him will do so by investing in emerging markets. Buying into such markets will not guarantee you a fortune like his, but the lesson applies to us all.
john.authers@ft.com
