How to Use The AK-47 Indicator
March 31, 2017
In the wake of World War II, as the United States spied on the Soviet Union for signs it had developed an atomic bomb of its own, another deadly Soviet weapon took America by surprise.
This weapon was a revolutionary new kind of machine gun. The new gun was powerful. It was durable and cheap to produce. Almost anyone could quickly learn how to use it… and it was extraordinarily reliable.
All these traits ensured the AK-47 would become the most widely sold, most widely used machine gun in history…and a mainstay in third world conflicts, where “cheap, simple, and reliable” are the preferred qualities of firearms.
It’s estimated that more than 75 million AK-47s are in circulation around the world. The gun’s profile, created by its stubby barrel and “banana clip,” is unmistakable.
I’ve traveled to more than 100 countries to visit more than 500 resource projects, so I’ve seen my share of AK-47s. One of my most memorable experiences came in 2010 while researching oil investments in Iraq with my friend Doug Casey. Our bodyguards rode in the vehicle with us, AK-47s in their laps.
Over the past 17 years, I’ve been all over the world—often to places that many people would never dare to go. Besides Iraq, I’ve traveled to Kosovo, Venezuela, Russia, China, Argentina, Colombia, Mexico, Turkey, Nigeria, Kenya, Ethiopia, and dozens of other countries.
Yet if you read my work and look at my portfolio these days, you’re sure to notice a lack of “third world” excitement that many resource investors crave.
As a new resource investor, it’s hard not to get interested in the excitement and drama that comes with investing in far-off lands. After all, many countries in Africa, Asia, and South America are less picked over by exploration geologists. You get to visit new places and meet interesting people. And the prospect of finding the next giant gold deposit in some jungle is just plain exciting. All these things got me on many plane trips.
Yet, now…after many successes and many mistakes, I tend to avoid places where people hold AK-47s in the streets.
All the travel I’ve done…all that time spent on planes…has shaped my portfolio and the research I write today… which overwhelmingly features companies that operate in my backyard, Canada.
In other words, after flying millions of miles on planes and visiting more than 100 countries, I’m right back home. But the reason I invest so heavily in Canada and other English-speaking countries isn’t nostalgia for where I’m from…it’s strictly a matter of making money.
I’ve learned the hard way that if you’re interested in making money, you need to trade excitement for boring old rule of law and a simple respect for business.
The places where people with AK-47s walk the streets tend to be the places that have very few of the roads, bridges, power lines, railroads, and ports needed to transport raw materials. That kind of infrastructure is critical for turning resource deposits into free cash flow. The places where people walk around with AK-47s also often lack contract laws, property rights, and worst of all, respect for human life.
If you’re reading this, there’s a good chance you live in the U.S. or Canada. As much of an SOB as you think the politician in your state or province is, trust me, he has nothing on the average lunatic running a third-world country. Or think of it this way: if Donald Trump doesn’t like you, he sends out a nasty tweet. If your average third world dictator doesn’t like you, he sends out a hit squad.
After doing business all over the world – and in more than a few war zones . I would now much, much rather put my capital to work in countries with long histories of respecting contracts and property rights, and which have the roads, power lines, bridges, and ports that are critical to extracting and transporting natural resources. I say let the novice investors have all the third-world excitement they want. I’ll take the money.