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Investing , Lifestyle

AI in the Jungle

July 2, 2023
ai in the jungle

“What do you think this place will look like in 100 years?” she asked me, while we were driving down a dirt road in the middle of the Costa Rican jungle.

“Probably the same,” I said, while we bounced down the pot-holed single vehicle path.

“Really?” she asked, “You don’t think this place will be completely different?”

“I mean, maybe this road will be better. Or maybe we’ll be flying in drones instead. I’m not sure. But I don’t think it’ll look much different. There’s just nothing out here other than wild jungle and good waves to surf.”

We had been driving for over seven hours at this point – the last two hours without any asphalt.

I hadn’t been to this area of Costa Rica in over a decade, so I was excited to see what had changed over the years. Like many surf towns throughout Central America that have seen massive construction projects, I thought I’d see signs of development here too.

But there wasn’t much change at all. The entire area looked just as it had from a decade prior. Dirt roads, stray dogs, and an overwhelming amount of jungle that was eating away at dilapidated small homes.

There’s electricity, but it usually goes out every night for several hours. Cell phone service is spotty and mostly unusable. There are no gas stations, no grocery stores, and no real economy other than fishing and harvesting exotic woods. But there’s still huge opportunity for some investors…

Ideas are Fast, Investing is Slow

This past trip to Costa Rica was a great (and well needed) reminder that most important things just take time. Getting an education, raising kids, maintaining friendships, and building wealth all take patience. There is no cheat code to making important things happen faster and better.

In today’s world, where we’re bombarded with information about artificial intelligence, political turmoil, and social conflicts, it feels like everything is happening so fast. Each day there seems to be a groundbreaking news event, or a new technology that will change the world. The reality is that almost all of this is just noise.

Human behavior and societal habits are hard to change. And that’s what investors need to remind themselves about today. Here are three ideas to keep in mind, as the world gets hypnotized with hyperbolic news.

Real Estate in the Jungle

Although I didn’t notice much change on my trip, I did get reminded about how much money some real estate investors are making. Specifically, I was staying in an Airbnb that I estimate was making its owner at least 20% cash-on-cash returns. Here is the basic math:

  • Initial investment of $200k = $100k land + $100k house
  • Yield of ~22% = 80% occupancy @ $150/night rental rate

Obviously, this is super rough math, but I think this is a very conservative estimate. Having developed several different projects in Central America myself, I think this specific owner was easily clearing $50k/year, even after all operating expenses. And that doesn’t even take into account any potential long term value increases.

Undertaking a real estate project like this is extremely simple and can be executed by someone with almost zero experience. Although I’ve mentioned avoiding investing in real estate outside the US, this is a great way for someone to start their investing career.

Oil and Energy

I hesitate to even mention oil and energy investments because they’re boring. But, spending time in Costa Rica reminded me how important electricity and fuel are to everyday people around the world.

Although there is much hoopla about the transition to ‘green energy’ in most western nations, the reality is that the world will depend on traditional fossil fuels for many decades to come. While the price of oil may be turbulent for the foreseeable future due to unknown Russian and OPEC outputs, energy investments will likely weather the next 5 years just fine.

$XLE is the easiest way to gain exposure here and currently has a P/E < 10. If you want to pick individual stocks, there are literally dozens of oil/gas/energy companies trading at very reasonable values. Heavy weight companies Exxon and Chevron are both trading around a P/E of 8!

Basic Materials + Ag

Similar to oil and energy, many companies that produce basic materials (chemicals, building materials, minerals, etc.) are very inexpensive right now. Although these investments don’t necessarily have exponential gain potential (like tech), they produce the building blocks of our society and aren’t going to disappear anytime soon.

You can hunt for individual companies that are especially cheap right now, or you can just invest in the Vanguard Materials Index Fund ($VAW). This fund has a 2% yield, a diverse basket of holdings, and only charges an annual 0.10% fee. Also, copper is looking interesting.

No AI in the Jungle

I honestly don’t think that the remote part of the Costa Rican jungle I was in will look much different in 100 years. As the world’s population slows its growth (and will eventually contract), urban sprawl is unlikely in many parts of the world. Furthermore, it’s highly likely that most countries will begin to preserve more areas of wilderness while working on making existing communities cleaner and more efficient.

As investors pile into high tech stocks with nose bleed valuations, we have to remind ourselves that the world will change… just not as fast as we think. Nvidia’s current valuation, which has been called ‘priced for fantasy,‘ is a perfect example of investors losing touch with reality.

Of course the world is going to need more computing power. But don’t forget about the simple things that make our societies run, and are currently undervalued. Don’t get distracted by ideas that have yet to come to fruition.