How I’ll Make a Nearly 8x Return From Paris Hilton

[Editor’s note: This letter was written by Sovereign Man’s Chief Investment Strategist Tim Staermose from Dar es Salaam, Tanzania]

One of my favorite things about being a full-time frontier markets investor who actually lives on the ground here in Africa is that it’s like stepping back in time.

I started my investment career more than 25 years ago as an analyst based in South Korea. I speak Korean, so one of my jobs was to monitor the Korean-language news; if there was anything important that could move markets, I would report it immediately to our trading desks in Hong Kong, London, and New York.

This was really before the Internet was in widespread use, and information used to travel a LOT more slowly than it does today.

So something as simple as having access to the basic news on the ground in South Korea gave my firm a distinct advantage.

It’s amazing that, in many respects, this advantage still exists here in Africa.

Ever since I moved to Tanzania a couple of years ago, my daily routine has been pretty mundane. I drop my daughter off at school by 7am, pick up the morning papers, walk back to one of my favorite cafes, and spend some time soaking up the local news.

But I’ve come to realize that, most other people who invest in Africa are living literally thousands of miles away, and sometimes with a difference of 5-10 time zones.

Of course, it helps that most people aren’t even thinking about investing in Africa.

Overpaid fund managers in rich, developed countries are too busy trying to not look stupid with the latest meme stock craze… or chasing some new tech company (that isn’t really a tech company after all). So they’d never even think about something so unsexy as an African cement company.

Investing where no one else is looking is definitely a way to gain advantage.

And it definitely helps being on the ground. The access to information and local perspective is incredible.

I make sure to spend as much time as I can with prominent local and regional business leaders; in fact nearly every day I have lunch with a key player in business or finance.

The advantage is enormous. Here’s a great example —

One day last November, I came upon a full-page announcement in a local newspaper here in Dar es Salaam (Tanzania’s capital city) about a takeover deal.

In short, the biggest cement company in Tanzania was making a bid to take over a smaller rival, a company called Tanga Cement.

The price they were offering was absurd.

Tanga’s shares were trading for 400 Tanzanian shillings prior to the takeover announcement.  But the larger company was bidding 3,157 shillings per Tanga share, nearly 8x as much.

I couldn’t believe it.

But here’s what was even more incredible: a large foreign investor (who clearly is not based in Africa) owned about 5% of Tanga’s shares and was looking to get out.

They had been looking to sell their Tanga stock for a while and exit their position. But Tanzania’s stock market is small and fairly illiquid, so they hadn’t been able to sell too many of their shares.

But then this takeover bid was announced…

Local investors in Tanzania all knew that this foreign investor had been trying to sell their Tanga shares.

So everyone called their brokers. And it turns out that the foreign investor still had a standing order to sell their Tanga stock at 400 shillings.

Was this mysterious foreign investor even aware that the largest cement  company in Tanzania had just bid 8x as much for Tanga’s stock? Who knows.

It was publicly available information, after all. The larger cement company had taken out a full-page ad in the local newspaper.

But again, most foreigner investors who live 10 time zones away aren’t paying attention to the local news in Tanzania.

So locals happily bought up the foreign investor’s Tanga stock at 400 shillings; my broker was able to take the last available block — nearly 1 million shares — for myself, my business partner, and the fund that I manage.

Now, this is not a risk-free transaction. It’s possible that the takeover deal may fall apart, as they tend to do from time to time. It’s also possible that another rival cement company may step in and bid even more.

But even if the takeover deal falls apart, Tanga is a profitable business, and we’ve purchased shares at a good price.

And if the takeover deal closes successfully (and so far everything is on track), our Tanga investment will be worth nearly 8x as much.

In fact, Tanga’s stock price has already risen to 2,000 shillings, so we’re already up 5x.

Funny thing — I did some digging around, and I believe the mysterious foreign investor who sold us the Tanga shares at 400 shillings was none other than the Conrad Hilton Foundation.

They had been trying to exit their 5% stake in Tanga over many months, and the block I secured was literally the last one.

I doubt Paris is going to lose too much sleep over this transaction. I doubt she even knows.

But it shows that being in the right place, at the right time, with the right information, can generate compelling results.

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