Making money-come rain or shine

In the games of cricket and musical chairs, timing makes the difference between winning and losing. Your timing must be impeccable if you seek to succeed. Some create wealth by anticipating the rise of a startup before others realise and invest. For others, fortunes are made by foreseeing the miseries of corporations and nations- ahead of their downward spiral.

Did you know that a Russian from Uzbekistan, who was in an Uzbek jail, has made a profit in excess of $5 billion from the Facebook IPO? The name of the gentleman is Alisher Burkhanovich Usmanov. He made an investment of $900 million in Facebook during the global economic recession of 2009 .The investments are worth well in excess of $6 billion, if the Facebook shares are valued at the IPO price of $38 a share.

Let us lend our ears to Usmanov on his theory of using crisis to create wealth: “I have a theory of crisis that you must employ crisis to create additional margin. You need to understand when the moment of growth is coming and invest just before that.” The most important element of Usmanov’s crisis theory is “just before”, which is timing.

How did Usmanov receive as much as 10 per cent of Facebook for $900 million? Well, Mark Zuckerberg was fishing for investments that were not tied to conditions. He was unwilling to allow even major investors a board seat or voting rights, or, a say in Facebook’s policy. No self-respecting American investor would have accepted such humiliating conditions of “pay, but, shut up”.

He was, under no circumstances, willing to jeopardise his ties with Kremlin by taking any responsibility for Facebook’s policies. The conditions imposed by Zuckerberg were, indeed, for him a boon in disguise. Facebook is used as a platform of dissent in many parts of the world, Russia included. Thus, luck and timing combined to create enormous wealth for him.

Let us look at two other iconic companies in the US. Berkshire Hathaway is a very successful company. It is also one of the most expensive stocks traded in the US. One Class A stock of the company trades at around $1,22,000. Listen to the Oracle of Omaha. “The beauty of stocks is they do sell at silly prices sometimes,” Warren Buffett said. “That's how Charlie and I got rich.” How rich? About $44 billion, fluctuating up and down, with the swings and fortunes of the stock market. Timing of going in and getting out was the essence of making money for Buffett. Of course, he was wise in picking his stocks.

Now, let us look at Apple. If in 2002, you had invested in a typical American house for $2,20,000, this house would be worth about $2,80,000 today. If instead, you had invested in Apple stocks at the time at $12 a share — today the same investment would be nearly $10 million. One catch: You should have resisted the temptation of selling out and booking profits in between. It is timing again.

A class of financial investors are timing their action to make money from the miseries of corporations and countries. Greece is in agony. It is a beautiful country with an ancient culture. Those who have had the privilege of visiting Greece know how warm the people are. It has a rich culture. Athens is home to many global corporations. The caricature of Greeks as slackers and beach bums and carefree spenders are far from the real story of Greece. Nevertheless, it does not possess a ‘drachma’ printing machine any more, it is debt-ridden and in the clasp of an austerity regime dictated by creditor nations. In this scenario, some “vulture funds” are making lots of money.

On May 15, the Greek government was forced to repay every euro of the €436 million bond borrowings to the hold off investors who had rejected the country’s historic debt restructuring plan in March. Almost 90 per cent of this large repayment went to a secretive vulture fund based in the Cayman Islands, which had bought these sovereign debts from other lenders with weaker nerves at a deep discount. Vulture funds make money by timing their investments. They buy distressed bonds and sovereign debts of nearly bankrupt countries at heavy discounts. If they do not get paid, they sue the governments for the money. Usually, the governments blink because they are in no position to take on the vulture funds. The politicians are screaming in Greece. Greek banks and institutions have taken a 75 per cent haircut on their local bonds. The common man on the street is reeling from austerity measures. Yet, the foreign funds are extracting their pound of flesh and the government is obliging. Why? Hear it from the horse’s mouth: “They caught us at the weakest possible time,” said Gikas Hardouvelis, a senior economic adviser to prime minister Lucas Papademos, an individual who was directly involved in the decision.

It is not just Greece, but also, Peru and Argentina. A clutch of vulture funds are now suing Argentina for recovery of $2 billion in the US courts. A very poignant note has been made by an investment banker: “You have a dying corpse and everyone is trying to get a bite,” Andreas Koutras, a Greek national and analyst at London’s In Touch Capital Markets has said.

They say money begets money. Smart investors are men for all seasons. They make money no matter what and when. They look for the opportunities. And they time their shots and exit exquisitely.

Most investors make hay while the sun shines. A few others make even more when it rains and pours.