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Tomorrow's Gold: Asia's age of discovery

This note is one of a series about the books that have informed and inspired my life and work. Click here for the previous book, Too Big To Fail.


A Conversation with Dr. Marc Faber on Tomorrow's Gold.

Chris DeMuth Jr:

What has changed since you wrote this book?

Marc Faber:

The title was Tomorrow's Gold - Asia's Age of Discovery: Asia has now been well discovered and Chinese growth will slow down. Commodities have performed superbly and are now largely fully priced (not gold in my opinion). International tensions have intensified and are likely to impact asset markets in future.

Chris DeMuth Jr:

What would you do differently as an investor as a result?

Marc Faber:

According to pundittrackers.com my recommendations at the annual Barron's roundtable returned 22% annually from 2002 to 2012. So, I would not do anything much different. It is the future I am worried about. A major systemic crisis still lies ahead.

During this era, the S&P 500 returned an anemic 0.8% while the Barron's Roundtable Average offered a solid 11.4% compound annual growth rate (OTCPK:CAGR). In this extremely competitive field, against famed investment luminaries such as Felix Zulauf and Oscar Schafer, the leader of the pack was Marc Faber. With all due respect to the clichéd disclaimer that past performance is no guarantee of future results, past results over a statistically significant timeframe in all types of markets can be indicative of likely future results. At the very least, it has been lucrative for the investors who have followed his advice. I am grateful that I count myself among the people who have listened carefully to what Faber has had to say for over a decade of massive outperformance. He has made 149 correct calls out of 207, for a hit rate of 72%. In terms of calls that were both bold at the time and proven later to be correct, this record is about as good as it gets.

This book was almost eerily prescient. For one of many examples, Faber began by describing two great societies, "Leisure" (I hope that I won't be ruining the ending by identifying this as the US) and "Diligence" (again, sorry if I wreck the punchline by calling this one China). The prosperity enjoyed by Leisure was unsustainable because it was driven by home price inflation, not by employment gains driven by capital investments.

What was most applicable?

Manias Coincide with Neglected Bargains

Faber is hard to pin down because he is such a contrarian. The moment that an investment theme becomes accepted, popular, and understood, he becomes cautious. Faber looks on manias' bright side, their tendency to cause bargains located elsewhere to be completely neglected and overlooked.

Precisely Predicting Timing is Difficult or Impossible

Faddish, pricey markets will eventually suffer. However, we have almost no idea when that might be. Therefore, Faber prefers to find opportunities that do not rely on a shift between major investment themes in the minds of investors.

Publisher's Description

Renowned investment advisor Marc Faber sets out to find tomorrow's gold, the outperforming asset classes of the future. Far from being a sensational reading of the runes, this book delves deep into the past, to chart how old investor trends developed and assess how new patterns might emerge. Change is the thread. As Faber points out, the world is experiencing a transformation as great as Europe's late-15th Century golden age of discovery and the Industrial Revolution of the19th Century, events that altered the commercial face of the Earth forever.

And from this dramatic landscape a world in which economic, social and political conditions are morphing at an alarming rate Faber identifies investment opportunities.

Asia's three-billion-strong population will have a profound effect on the world, writes Faber, cautioning that today's richest cities and clusters of wealth are unlikely to retain their exalted positions in the future.

Marc Faber's Most Recent Picks for the Barron's Roundtable (2012)

Investment/Ticker

1/6/12 Price

12/31/12 Price

Change

Total Return

BIG-CAP STOCKS

Total/TOT

$50.75

$52.01

2.5%

8.3%

Nestle/NESN.Switzerland

54.00 CHF

59.60 CHF

10.4%

14.0

Novartis/NVS

$57.31

$63.30

10.5%

14.8

Pfizer/PFE

21.57

25.08

16.3%

20.3

SINGAPORE

SATS/SATS.Singapore

S$2.23

S$2.89

29.6%

41.3

Keppel REIT/KREIT.Singapore*

0.89

1.30

46.1%

55.6

StarHub/STH.Singapore

2.90

3.79

30.7%

37.6

Wing Tai Holdings/WINGT.Singapore

0.99

1.87

88.9%

95.5

Fraser & Neave/FNN.Singapore

6.35

9.70

52.8%

55.6

*Name change from K-REIT Asia Management on 10/15/12.

HONG KONG

Sun Hung Kai Properties/16.Hong Kong

HK$98.20

HK$116.20

18.3%

21.7

Swire Pacific/19.Hong Kong

75.45

95.85

27.0%

31.5

Hang Seng Bank/11.Hong Kong

92.90

118.70

27.8%

33.4

INDIA

India Capital Fund*

$52.50

$65.99

25.7%

N.A.

SHORT

International Business Machines/IBM

$182.54

$191.55

4.9%

6.7

Salesforce.com/CRM

101.06

168.10

66.3%

66.3

Australian dollar

A$1=$1.02

A$1=$1.04

Source: Tomorrow's Gold: Asia's Age Of Discovery