An Investor's European Vacation - Impact on a Curious Mind

Just another day in an Irish cemetery - The Philosophical Investor

Just another day in an Irish cemetery – The Philosophical Investor

I just returned from a two week European vacation to the United Kingdom which included a cruise of the British Isles (Scotland, Northern Ireland, Ireland, and England) and a few days in London. The weather was unusually good for this time of the year, the cruise was wonderful, the places were quite interesting and scenic, the time expended was a great combination of purposeful activity, leisure, and education, and great memories were created with the family and a lot of laughs. I thought I would take the opportunity to share some thoughts and observations from my time there. I have found international travel to be invaluable to becoming a better investor and my European vacation drove that point home. It’s important to not be stuck in one American-centric point of view. There’s a big world out there that doesn’t always think the way we do and value the same things. There are also opportunities to see where certain trends might be headed. For example, when I was in Hong Kong in 1999 and 2003 it was clear how far ahead they were in terms of how they used their mobile phones for so many more purposes than we were at the time. That really made me cognizant of the explosive growth still ahead for the mobile phone industry in the U.S.

Every place through out my European vacation had something interesting to offer for the curious minded, history loving, internationally aware individual. Scotland is gearing up for a referendum on independence. The English don’t seem to be too concerned with it while the Scottish just want to get it over with. My personal opinion is that Scotland would be making a mistake leaving the United Kingdom. They most assuredly should not join the Euro as most countries outside of Germany and possibly France probably regret giving up their monetary sovereignty by joining the Euro. The United Kingdom unequivocally made the right decision to not join the Euro zone and keep the British pound. Its recovery has been more rapid and stronger than the Euro zone’s. It’s somewhat akin to Britain being the first country to leave the gold standard during the Great Depression and it was a catalyst for it to recover much more quickly than any other country. J.K. Rowling lives in Scotland and loves the country very much. She has given money to groups opposed to Scotland seceding because she thinks it will hurt Scotland economically and negatively impact its standard of living.

Real Estate Aficionado – European Vacation

Carnegie Castle

Carnegie Castle

Being the real estate aficionado that I am I asked, much to my family’s dismay, to take a sojourn to see Andrew Carnegie’s castle which was about an hour out of our way. The tour guide accommodated my request. Unfortunately, when we got there the sign at the gate said visitors must have an appointment to enter since it is now a private club. Of course, we weren’t that well prepared and our driver was unable to convince the person on the other side of the speaker to let us in. Once he told me, however, that there are no trespassing laws in the UK, I decided to go through the gate myself by foot and walk the long driveway to the castle. Upon getting close to the magnificent sight, I was approached by one of the employees who, in a somewhat friendly manner, told me the club was private and I was not welcomed there and for me to please leave. I didn’t want to create an international incident so adhered to his demand. I am not a golfer and have had virtually zero interest in joining a club but, I must say, the Carnegie Club has definitely captured my fancy.

In 1985 I spent three months studying at Oxford and during that time I wrote a paper on the history of the Irish conflict with Britain and between the Protestants and Catholics in Northern Ireland (Ulster). I have always found myself fascinated by long, seemingly intractable conflicts for some reason. Northern Ireland was one that particularly captured my interest. As a result, I always wanted to visit there just to see it with my own eyes. I imagine being a fan of U2 and Sunday Bloody Sunday also stoked my interest as well.

Our driver was very knowledgeable about the history and he made the trip to the Giant’s Causeway and back to Belfast extremely interesting and entertaining. He even sang a traditional Irish song for the six of us. It was quite well done. He also worked for six years with one of Bono’s first cousins, which of course led me to ask a bunch of inane questions that would continuously annoy my family. Despite the centuries of conflict between Protestants and Catholics, the tensions have really nothing to do with theological differences. It’s been almost entirely economic with a huge class divide in what has been the predominantly Protestant majority in Northern Ireland and the less economically advanced and more repressed Catholics. Despite centuries of complete disdain and brutal violence, remarkably with the Good Friday Accords in 1998, there has been remarkable calm. The economic pie is divided a bit more evenly now and it would appear that everyone has a stake in the system and not disrupting it with violence and fear mongering.

We moved further south to beautiful Ireland and visited Dublin and Cork. My daughter was particularly excited about Dublin because she is a huge fan of Irish writers like James Joyce, Samuel Beckett, and Oscar Wilde. Our driver, the same one referenced earlier, paraphrased Wilde to describe the Irish people when he quoted him as saying, “Every time I hear of some good fortune of a friend of mine, a little part of me dies.” Prior to the potato famine, Ireland’s population was 8 million. In four years it was cut in half as 2 million died and 2 million emigrated, most of them to America. To this day, Ireland’s population (including Northern Ireland) is still less than the 8 million that was in place in the 1840s.

Our driver was very well versed in the incredible boom and bust that Ireland went through in the mid-2000s, culminating in a huge bailout when its banking system nearly collapsed due to all of the same terrible real estate lending decisions and practices that impacted the United States. He described it as “banks shoveling money to people” that should never have gotten loans. Walking through Dublin one does not see any obvious effects of such a tremendous downturn. I’m a big fan of the movie Once and was interested to see where some of the scenes were shot. The streets were bustling and most of the real estate was occupied. Home prices are way down, however, and the driver said some of the carnage could be seen more in the suburbs.

In a Bloomberg article about Ireland statistics are cited which illuminate how large the boom was (by Irish standards).

Home prices across the country gained an annual 12.5 percent in June, driven by a 24 percent surge in Dublin values, according to the country’s statistics office. Values remain 43 percent below their 2007 peak and Irish mortgage lending is running at less than 10 percent of the 2006 record of 40 billion euros.

About 8,300 homes were constructed in 2013, according to state records. On average, about 30,000 houses a year have been built since the 1970s. At the peak of the market, developers were building about 93,000 homes a year.

We ended the cruise in Portland, which is a port town in England that was quite important for the D-Day invasion. Prior to seeing this, however, we decided to go off the beaten path to a cool zoo called Monkey World which rescued and housed a wide variety of monkeys, chimps, gibbons, and orangutans. It was quite fascinating to see them in fairly natural habitats and interacting with each other. As we returned the cab driver drove us by where Lawrence of Arabia had his fatal motorcycle accident.

We ended in London on the 100th anniversary of the start of World War I. London is my favorite city and one I have visited five times so far. I never get tired of it and find it incredibly invigorating. Jane Jacobs, one of the world’s foremost experts on urban areas and what makes them successful and unsuccessful, says that cities, at their core, are about ideas. And boy does London get one thinking. The architecture and seemingly endless historical structures teamed with a polyglot of extraordinarily large numbers of people creates an energy that combines a timeless past with a limitless future. Real estate prices are skyrocketing due to London being a hub for finance and benefiting from the huge wealth created since the markets bottomed in March 2009. It’s also a magnet for billionaires to store their wealth in real estate, much of which is not used very often. This is creating great consternation as there is a significant housing shortage and a large number of residences are sparsely occupied. London home prices have gotten to the point where they are way out of whack with rents, akin to the U.S. in 2005-7 as the linked Bloomberg article attests to.

Home prices in London’s best districts have risen three times faster than rents over the last five years, according to broker Knight Frank LLP, making it much cheaper to lease a home than to own one in neighborhoods like Knightsbridge, Mayfair and Kensington…

Finally we ended the visit seeing two plays, The Commitments and Mousetrap, the longest running play in history. It’s been playing in London for 62 years and approximately 40 years at the same venue.  Despite my tremendous enjoyment of the play I couldn’t help but try to calculate in my head the revenues generated by the play and a rough estimate of the profitability over its life. From a financial standpoint very few things can top creating something that has the ability to produce a tremendous amount of recurring income for years to come. Very few plays are successful but those that are have the ability to produce a lot of income because they can be staged in many places around the world and have long shelf lives.

Agatha Christie gave her grandson the rights to  the play for his birthday. Lucky little bugger!  She thought the play would only run eight months at most. 25,000+ performances later she turned out to be a little off the mark. I have found over the years that it’s not always easy to pick which investments will be legendary winners. We have our hunches and expectations going in but it doesn’t always turn out to materialize like we thought. As Shakespeare said, in some of the best investment advice one can get:

“Oft expectation fails, and most oft there

Where most it promises; and oft it hits

Where hope is coldest, and despair most fits.”

All’s Well That Ends Well (II, i, 145-147)

2 comments on “An Investor's European Vacation - Impact on a Curious Mind
  1. Doug Williams says:

    Entertaining write up on your vacation … thanks for sharing.

  2. Randy Wilson says:

    Gary, congrats on a rewarding, educational and inspirational trip. I especially liked your references to all of what we Yankees know of Ireland (U2), Scotland (JK Rowling) and London (The Commitments = my favorite movie). I’ve taken only one Winter trip to England; London, Oxford, Bristol and Cardiff, Wales. Your observations are spot-on.
    It’s amazing how the Real Estate market there so closely mimics ours, tho’ Property Ownership in England has always been a stretch for most people.

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