SCOTT PICKEN
PROPERTY GOING GLOBAL
nomic growth in the East, with China, Australia and India having
future economies equivalent to the US, and you will have a much better
balance to the global economy. What would hap en, however, if China
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were to falter? What would be the impact of a falling resource demand
on countries which are heavily dependent on these resources, such as
Australia? How would this affect your Australian investment?
Finally, the UK Gross Domestic Product (or GDP) is 70% depen
dent on banking and insurance. The government continues to talk about
higher taxes on companies and employees to try and reduce government
debt, but what would be the consequences? Since these businesses are
extremely transient, what would be the impact of your UK or London
investment, if they were to relocate their educated workforce to a more
government- or tax-friendly environment?
This ability to consider the direct results of different scenarios in
different countries or regions, is why I use Clem Sunter as part of the
team. He has been a great help to me, as I travel the world to find the best
real estate investments.
And he can be a great help to you as well.
In the year 2000, Chantel Ilbury and I developed a thesis on scenarios and
techniques that involves looking into different possibilities, not betting
on a simple future. This process involved signalling, or what we like to
call “flagging” various specific countries and possibilities. These flags will
suggest what the future will look like, and when these flags are going up
and down, people will want to know what the probabilities are.
We have taken the scenarios-based process that is used in uni ersities
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in the UK and the US, and we have added the conept of flags and
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probabilities. But remember, it is no good just planning scenarios. You
have to connect the dots and look at the options of each scenario in
advance. So, as the flags go up, the probabilities of something happening
increases, and you will have a plan of action to counter each scenario.
In my book, The Mind of a Fox, which I wrote with Chantel, I said
that one needs to make decisions with fox-like qualities. But you can only
do that if you play out different scenarios, watch the flags going up, and
consider the probabilities. You need to have your options ready to chase
the opportunity, and then, of course, take action. That’s our approach.
The hedgehog is completely different to the fox. The fox is nimble, and
adapts as the scenarios change, but the hedgehog decides on a strategy,
a direction or a vision, and then continues on that path no matter what.
That is 20th Century thinking, and the world is changing; we all need to
be foxes, not only to survive, but thrive, in these changing times!
Here is one example: In a 2001 letter to US President George W.
Bush, we suggested that the biggest threat to his imminent presidency
was a massive terrorist strike on one of the biggest American cities. Our
scenario posed that threat was a nuclear strike, or nuclear device. So
we were obviously wrong, because it was the planes that flew into the
buildings, but we were totally correct in that we had flagged the great
confrontation between the major religions and movements, dedicated
to the downfall of America, and the attacks on Afghanistan, in the mid
1990s. For us, the clinching flags were the two attacks on American
embassies in Africa; one in Kenya, one in Tanzania.
Had the US paid attention to those flags, the tragic events of 9/11
might not have happened. We travel around the world testing company
strategies, by lookng at alternatives, looking at scenarios, looking at the
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flags, lookng at the probabilities, and then deciding how they have to
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adapt their strategy for each scenario.
Here is another example: In 1988, a report indicated that many
Japanese golfers were resigning, due to loss of income, and that report,
combined with the astronomical increase in property prices in Japan at
the time, when the emperor’s palace in Tokyo was worth more than the
state of California, raised flags that indicated the economy was about to
crash, which it did in 1990.
Twenty-three years later, despite throwing more money at the
problem than anybody else, Japan has a national debt or GDP share that
is 230%, which is almost twice that of any other country.
The types of flags that investors can use to study an economy, for
example, are dynamics such as aging populations in Europe and Japan,
Japan’s decline in innovation, or Italy’s decline in population.
But, while we think that the Japanese experience will coninue,
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Europe will not recover from its economic slump quickly, due to their
aging population. Germany has a world-class economy, and Europe will
remain intact for another ten to fifteen years, which will obviously have
an impact on property values, but there are some massive flags to watch.
I mean, if you put a roof over the top of the UK, you basically have an
“old age home”.
So we have flags, and we have probabilities – and through them we
can make reasonable predictions for investors.
Here is an example that might make this clearer: When the US went
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Clem Sunter: In His Own Words