Advice from the 1 percent

Posted Dec. 05, 2011, at 10:14 a.m.

NEW YORK — Stock markets are down. Europe is gyrating. Cash generates minuscule returns. Commodities, especially gold, can soar or tumble in an instant. In these perplexing times, Bloomberg Markets magazine in its January issue asked 10 billionaires 14 questions covering their views on the global economy, where they see opportunities and who gave them the best advice.

We found much agreement: The billionaires say traditional indicators have little influence on their investment decisions. In fact, hair-care mogul John Paul DeJoria says beauty salons are better barometers of economic health. The 10 largely agree that the euro will depreciate further and that keeping one’s portfolio in U.S. dollars is smart.

Lawyer Joe Jamail, with the bulk of his fortune in bonds and cash, expresses a common tenet: Hedge funds are dangerous.

“I’d buy cocaine rather than buy that,” he says.

We also found diverging opinions. The Standard & Poor’s 500 Index may wind up anywhere from 1,200 (according to Jamail) to 1,400 (according to Rubens Menin Teixeira de Souza) at the end of 2012. Gold is an opportunity, an enigma and a bubble, they say.

Art collector Eli Broad says buying a prime Picasso is the safest investment. Pharmaceutical baron Patrick Soon-Shiong says he’d go with season tickets to the Los Angeles Lakers basketball team.

Russian metals mogul Mikhail Prokhorov offers advice that’s hard to beat: What to do with $1 million in cash? Spend it with pleasure, he says.

Following are profiles of the 10 billionaires and their answers to selected questions:

Mikhail Prokhorov, 46

Primary Asset: 36 percent stake in Polyus Gold International Ltd.

Residence: Moscow

Industry: Commodities

The mining mogul sold his 25 percent stake in OAO GMK Norilsk Nickel, the world’s biggest producer of the metal, to fellow Russian titan Oleg Deripaska. The 2008 deal brought him more than $5 billion in cash and 17 percent of aluminum producer United Co. Rusal. Today, his flashiest assets include Polyus Gold, with about $2 billion in annual sales, and an 80 percent cut of pro basketball’s New Jersey Nets. This year he took control of a pro-business party called Right Cause.

What three economic indicators most influence your investing?

German IFO data on business expectations are best on global manufacturing. U.S. Conference Board data are the top measure of American consumer confidence. Chinese PMI manufacturing data are good for China’s growth and exports. In emerging markets, inflation, budget deficit, production growth index and retail sales are key.

What currency do you believe will depreciate the most in the next two years? What currency would you prefer to hold your portfolio in?

Hopefully, the euro. This would give the euro zone the chance to export its way out of slow growth. I keep my cash in U.S. dollars, and I keep shares of Polyus Gold as collateral. For the long term, my preference would be to keep my portfolio in currencies that offer high interest rates or high growth, a basket of emerging-markets currencies from Brazil to China to Russia.

Where are the best opportunities in global fixed income?

I see little value in 2 percent on U.S. Treasuries. Among developed markets, Canada, Norway or Finland have better debt levels and are less inclined to inflate away debt problems. A combination of Russian corporate bonds, some Brazilian or Turkish local-currency debt, with a sprinkling of less obvious African options would be an interesting combination.

What’s the safest investment: a bar of gold, a pile of U.S. Treasuries or a top-tier Picasso?

As a large chunk of my wealth is in Polyus Gold, a bar of gold, of course!

Donald Trump, 65

Primary Assets: Commercial and residential property, golf courses

Residence: New York

Industry: Real estate

Trump’s television shows and flirtations with politics generate the buzz; real estate brings in the bucks. Trump who claims a three handicap, agreed to buy the legendary Doral Golf Resort & Spa in Miami for $170 million in October.

Best investing advice?

My father, Fred C. Trump, told me to know everything you can about what you’re doing. He believed in being thorough and was wary of blind spots.

Where to park $1 million in cash?

Equities, corporate bonds and, if you know what you’re doing, purchasing foreclosed houses from banks and demanding long-term financing at favorable interest rates.

Margin?

Much of my portfolio is in cash. I don’t believe in margining one’s portfolio.

Best and worst investments?

Best: buying 40 Wall Street for $1 million. Worst: A yacht.

Eli Broad, 78

Primary Assets: Investments, art

Residence: Los Angeles

Industries: Banking, real estate

The one-time accountant made his fortune building houses, co-founding what became KB Home in 1957. Broad bought Sun Life Insurance Co. of America in 1971. He created insurance giant SunAmerica Inc., which he sold to American International Group Inc. for $18 billion in 1999. The modern-art collector owns pieces by Damien Hirst, Jasper Johns, Jeff Koons, Roy Lichtenstein and Andy Warhol.

Influential indicators?

Consumer confidence, unemployment and political gridlock.

Best investing advice?

“Don’t bet the farm.”

Dividend income or capital growth?

Growth and price appreciation.

Best and worst investments?

Best: SunAmerica and gold. Worst: Financial services stocks.

Currency?

The euro will be the worst. The U.S. dollar is what I hold most of my portfolio in.

Margin in portfolio?

Not in this uncertain world.

Where to park $1 million in cash?

High-quality multinational consumer companies such as Procter & Gamble Co., Coca-Cola Co., Kraft Foods Inc. and Johnson & Johnson.

Best fixed-income opportunities?

Quality high-yield bonds.

Hedge-fund investing?

Individual funds and managers with the best long-term track record.

Gold, U.S. Treasuries or a Picasso?

The Picasso.

Alisher Usmanov, 58

Primary Asset: 45 percent stake in Metalloinvest, Russia’s largest iron ore producer

Residence: Moscow

Industries: Metals, mining, telecom, technology

Usmanov runs Gazprominvestholding, the investment arm of the state gas monopoly. Most of his wealth comes from Russian metals, mining, telecom and tech companies. The top shareholder in Metalloinvest, Usmanov also owns 25.3 percent of Mail.ru Group Ltd., Russia’s largest Internet company, and 31 percent of No. 3 mobile-phone operator OAO MegaFon. Usmanov seeded his fortune as Russia sold off government-owned metals companies in the 1990s.

Fixed-income opportunities?

U.S. government bonds and government bonds of strong European countries (primarily Germany, France) and those of China have better prospects.

Currencies?

If EU leaders don’t make a clear decision on how to exit the crisis, then it’s likely we will see bankruptcies by some member states. The euro will suffer the most. This in itself wouldn’t be all bad for the European economy, as pillars such as Germany will get support for exports.

What do you look for in buying stocks?

I first of all trust my own instinct, experience that I gained over years and feeling when the moment is right for buying shares. That is what one calls intuition.

Patrick Soon-Shiong, 59

Primary Asset: Proceeds from combined $6.6 billion sales of American Pharmaceutical Partners and Abraxis BioScience Inc.

Residence: Los Angeles

Industry: Pharmaceuticals

South African-born Soon-Shiong left the UCLA Medical School faculty in 1991 after performing the first transplant of a whole pancreas in school history. That year, he co-founded VivoRX Pharmaceuticals Inc. and worked on a diabetes treatment. A year later, he co-created Abraxane, a breast cancer treatment, which he went on to co-own through American Pharmaceutical Partners. Today, Soon-Shiong says, he has stakes in more than 30 companies. He bought a minority share of the Los Angeles Lakers pro basketball team in 2010 and rates Lakers season tickets a safer investment than gold, U.S. Treasuries or a prime Picasso.

Gold: opportunity, bubble or enigma?

Gold is both a bubble and an enigma. It’s no longer an opportunity.

Where to park $1 million in cash?

The most important thing is not to lose money right now.

Fixed-income investments?

The time for bonds has passed. I thought munis were an incredible opportunity for a while. But those days are gone.

Hedge-fund investing?

Hedge funds are dangerous. I don’t know anyone who can predict volatility, buy across industries, hedge and invest internationally. Assets are too interrelated.

Best advice?

Invest in yourself and the people you believe in.

John Paul DeJoria, 67

Primary Assets: Stakes in John Paul Mitchell Systems and Patron Spirits Co.

Residence: Los Angeles

Industry: Retail

At 9, DeJoria sold Christmas cards door-to-door. In 1980, he invested $700 in a friend’s hair-care company, Paul Mitchell, which generates some $1 billion in annual revenue. DeJoria invested his profits into co-founding tequila maker Patron.

Influential indicators?

Beauty salons. Typically, customers will visit every six weeks; in downturns, that drops to every eight weeks. When the frequency starts to go up again, it indicates the economy is improving.

Where to park $1 million in cash?

Twenty-five percent in gold, 25 percent in silver, 25 percent in NYSE blue-chip stocks that pay a dividend and 25 percent between Asian and European blue chips that pay a dividend.

Currencies?

The euro will depreciate most. I recommend having most of a portfolio in U.S. dollars and Swiss francs.

Joe Jamail, 86

Primary Asset: More than $1 billion in cash, stocks and bonds

Residence: Houston

Industry: Law

The so-called King of Torts made his mark in 1985 representing Pennzoil in its lawsuit against Texaco, earning the trial lawyer a then-record $335 million contingency fee. Renowned for his blue language, Jamail has since litigated personal injury and corporate malfeasance cases, securing more than $13 billion in verdicts and settlements.

What do you look for when buying stocks?

I usually don’t invest much in the market directly. I always look for price returns rather than income, because I make enough f——— money out of this sue shop, my law office. Most of my stuff is in bonds.

Best investing advice?

My dad told me, “Don’t buy any g——— stocks, OK?” He had a chain of grocery stores. He liked that cash coming in.

Fixed-income investments?

Tax-free municipal bonds, guaranteed by a public school fund.

Is gold an opportunity, a bubble or an enigma?

I own some gold. I have a bunch of gold bars, and we give them as Christmas presents to the grandchildren, an ounce for each. They don’t get to keep it. The parents put it away for them.

Best and worst investments?

Best: A law degree, no question about it. Worst: Airline stocks.

Where to park $1 million in cash?

In my mattress.

Peter Hargreaves, 65

Primary Asset: 32.2 percent of Hargreaves Lansdown Plc, the U.K.’s biggest retail broker

Residence: Bristol, England

Industry: Financial services

The former accountant co-founded Hargreaves Lansdown in 1981. Today, it operates a fund supermarket with pension, annuity, discount brokerage and wealth management services for 388,000 clients. Shares soared 185 percent from the May 2007 IPO to Nov. 29; assets under management rose 12 percent to $35.7 billion in the 12 months through September.

What do you look for when buying stocks?

Capital growth.

Fixed-income investments?

German bonds for the currency play when the euro implodes.

Where to put $1 million in cash?

$500,000 in Singapore dollars and $500,000 in Norwegian krone.

Randal Kirk, 57

Primary Asset: Investments via Third Security LLC

Residence: Radford, Va.

Industry: Pharmaceuticals

Kirk’s Third Security has scored some of the past decade’s biggest biotech hits. His greatest: the $2.6 billion sale of New River Pharmaceuticals Inc. to Shire Plc in 2007. He personally netted $1.2 billion. He invested $200 million in synthetic-DNA researcher Intrexon Corp. and followed with February’s $1.2 billion sale of Clinical Data to Forest Laboratories, personally reaping more than $600 million.

Dividend income or price returns?

Both are relevant, and we hold stocks that pay dividends and those that do not. We have only a small percentage of our portfolio in public stocks.

Best advice?

“Good deals are like bus stops; there is one on every corner.” Told to me by Red Robertson of Grundy, Virginia, who invested in my first deal. The advice illustrated he was not so interested in the deal as in my dedication to it. One invests in the guy behind the deal above all else.

Margin in portfolio?

No. Mr. Market thinks things are going to be worth less in the future and therefore borrowing to own more earnings-based or asset-value-based things would be foolish. We invest in technology and expect returns substantially greater than borrowing costs in almost any economy.

Should wealthy investors buy privately held tech darlings on secondary markets?

Only if they would participate as a judge in a Keynesian beauty contest. I am not one of those people.

Rubens Menin Teixeira de Souza, 55

Primary Asset: 32 percent of MRV Engenharia & Participacoes SA, Brazil’s fifth-largest homebuilder by revenue

Residence: Belo Horizonte, Brazil

Industry: Real estate

Menin became a billionaire building homes for Brazil’s lowest earners. He founded MRV in 1979, riding out more than a decade of hyperinflation by keeping costs down. An adviser to the government’s flagship low-income-housing initiative, he says his work is essential to the growth of Brazil’s middle class.

Hedge-fund investing?

Individual funds, with recognized portfolio managers.

Influential economic indicators?

S&P 500, U.S. dollar versus real exchange rate and Bovespa index.

Best investing advice?

Buying Brazilian C bonds when they were trading at 40 cents on the dollar. The securities, issued in the 1990s, traded at par in 2005 when the government bought back the last of them.

Where to park $1 million in cash?

Brazilian investment-grade bonds.

With assistance from Alexander Cuadros in Sao Paulo, Brazil, and Lyubov Pronina and Yuliya Fedorinova in Moscow.

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