Expatriation in the Wake of the Facebook IPO
By Bill Bonner

Reckoning today from Baltimore, Maryland...

The Maryland House of Delegates just voted to raise taxes. Should we move to Florida...or Delaware?

If we move to Palm Beach, will we ever be able to visit our beloved Maryland homeland again?

The Financial Times reports that thousands of wealthy French people are now moving to London. Their motive? They want to escape the taxes proposed by France's new president, Francois Hollande.

Should the French impose an exit tax on these "ex-patriots"? Should it then bar them from visiting France?

Of course not.

In England in 1215, the right to travel was enshrined in Article 42 of the

(1) Everyone has the right to freedom of movement and residence within the borders of each State.

(2) Everyone has the right to leave any country, including his own, and to return to his country.

Article 12 of the International Covenant on Civil and Political Rights incorporates this right into treaty law:

(1) Everyone lawfully within the territory of a State shall, within that territory, have the right to liberty of movement and freedom to choose his residence.

(2) Everyone shall be free to leave any country, including his own.

(3) The above-mentioned rights shall not be subject to any restrictions except those provided by law, are necessary to protect national security, public order (ordre public), public health or morals or the rights and freedoms of others, and are consistent with the other rights recognized in the present Covenant.

People should be able to move where they want, no? They should be able to look for lower tax places to live, shouldn't they? After all, we're Americans, aren't we? Aren't we all descendants of people who tried to improve their lives by moving to a new place?

Apparently, a lot of Americans don't think so. Facebook is going public. And one of Facebook's founders has moved to Singapore. He will save, by one estimate, $67 million in taxes by giving up his US citizenship. He says that's not the reason he gave it up. But you can believe what you want.

And now the politicos are up in arms. Mr. Saverin has helped to give them an asset worth about $100 billion. Are they grateful? Do they bend down and kiss his derriere?

No! They want to tax him even more heavily...and prevent him from ever setting foot in the US again.

Yes, dear reader, there is no thought so dumb...so short- sighted...so low...that it won't become the law of the land. Bloomberg reports:

Chuck Schumer, D-N.Y., has a status update for Facebook co-founder Eduardo Saverin: Stop attempting to dodge your taxes by renouncing your US citizenship or never come to back to the US again.

In September 2011, Saverin relinquished his US citizenship before the company announced its planned initial public offering of stock, which will debut this week. The move was likely a financial one, as he owns an estimated 4 percent of Facebook and stands to make $4 billion when the company goes public. Saverin would reap the benefit of tax savings by becoming a permanent resident of Singapore, which levies no capital gains taxes.

At a news conference this morning, Sens. Schumer and Bob Casey, D- Pa., will unveil the "Ex-PATRIOT" - "Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy" - Act to respond directly to Saverin's move, which they dub a "scheme" that would "help him duck up to $67 million in taxes."

The senators will call Saverin's move an "outrage" and will outline their plan to re-impose taxes on expatriates like Saverin even after they flee the United States and take up residence in a foreign country. Their proposal would also impose a mandatory 30 percent tax on the capital gains of anybody who renounces their US citizenship.

The plan would bar individuals like Saverin from ever reentering the United States again.

If Chuck Schumer has his way, entrepreneurs like Eduardo Saverin will think twice before setting up shop in America!

Regards,

Bill Bonner

To the READERS of Club 300

It would be my fondest wish to have E-Bear interview this Prince and report his take back to us.

"The Prince of Deals"
By Chris Mayer

Prince Alwaleed is one of the world's greatest investors. Born in 1955, he started out as an investor in the late 1970s by opening a small office on a side street in Riyadh, Saudi Arabia. He had $30,000. By 1988, Alwaleed was the subject of a Forbes profile. He was 33.

Today, he is one of the richest men in the world, with an estimated net worth of around $20 billion. He controls a vast fortune through Kingdom Holding Co., of which he is the founder, CEO and 95% owner. He has created his fortune through a mix of private and public investments across dozens of industries in over 130 countries.

You can make a good case that he's the No. 2 greatest investor ever behind Warren Buffett. And though I'm getting tired of these kinds of labels, he's been called "the Arabian Warren Buffett." (Buffett, in a metaphorical tipping of the hat, called himself "the Alwaleed of America.") A better nickname comes from Forbes, which called him "the Prince of Deals."

I hadn't given Alwaleed much thought until I read Jeffrey Towson's book recently - What Would Ben Graham Do Now?: A New Value Investing Playbook for a Global Age. Towson and I share a common affinity for the principles and values espoused by Benjamin Graham, often called the father of security analysis.

We are also both intrigued by the investment menu offered up in the 21st century. Writes Towson:

I think my entire generation has gotten lucky. We are the first wave of investors to see the entire world as our opportunity - being equally excited and comfortable in Shanghai, New York, Dubai and Mumbai. It's a thrilling time if you are ambitious...And now there is much more of the world to learn about. Beijing banks. India-US cross-border mergers and acquisitions (M&A). African natural resources. It's all fascinating - and profitable.

I am in full agreement with this worldview. It is a great time to be an investor - at least a certain kind of investor. Which brings us back to Alwaleed.

Towson served as one of Alwaleed's five investment chiefs in Riyadh for almost a decade (2000-09). His tenure with one of the world's greatest dealmakers influenced his thinking at least as much as Graham. "I have found that Graham's concepts are the theoretical anchor for global investing, but Alwaleed's deal history is the Rosetta Stone."

There isn't much out there on Alwaleed. "Alwaleed remains one of the greatest business stories never told," Towson writes. "He created one of the world's largest fortunes but never has undergone much external, independent analysis." Part of this is because he keeps a small circle in Riyadh. According to Towson, there have been only 10 investment staffers in 30 years. Another factor is his home base in Saudi Arabia. Investigative journalism doesn't really exist there, and he's free to operate in relative privacy.

And Towson is not the man who is going to spill the beans on his old boss. "Because I'm a loyal guy," he writes, "you won't read the 'Waleed story' here." That's too bad, because there are enough enticing tidbits about Alwaleed in the book that made me wish he did write the story of Alwaleed. I wanted to know more about him.

Towson himself poses the great question: "How had a pure investor with only two or three staff members built $30,000 into a $22- billion fortune?" That is a question I would be most interested in seeing answered.

Still, as I say, there is enough in the book to make it the best we have on Alwaleed so far. Towson makes the case that Alwaleed is "the world's first private global investor," as he moves easily between nations, a true global tycoon. Towson's book is as much a reflection on the lessons learned while part of Alwaleed's team as it is a reflection on Ben Graham's teachings.

Alwaleed is unique among the great investors because he was the first to come out of an emerging market. When he started in Riyadh, there were no public companies. There was little rule of law and lots of regulatory uncertainty. There was no public market information. Management teams were notoriously unreliable.

Though it sounds awful, this was probably a great place to start for a global investor. It probably has something to do with Alwaleed's comfort investing in virtually any market. I believe the best investors of the 21st century will be those who are equally comfortable in Mumbai as they are in São Paulo. They will be comfortable looking at mines in Ghana one day and hotels in Mongolia the next.

Alwaleed earned much of his early fortune in emerging markets. It was only in the 1980s that Alwaleed seriously invested in developed economies. His most-famous bet was his 1991 investment in troubled Citi. (Is Citi ever not in trouble?) Since then, he's picked up big stakes in Four Seasons, News Corp., Euro Disney, Apple (in 1994!), Saks Fifth Avenue and more. He's the largest foreign investor in the US.

Towson also includes an interesting speculation on the situation of the Saudis, which may contribute to Alwaleed's skills. We know the Saudis were lucky that their deserts were full of oil. It gave them immense wealth.

But they had little in the way of a domestic market. So they had to become cross-border investors a good 30 years before it was popular. The Saudis also faced many obstacles investing abroad: language differences, cultural gaps and a lack of technical abilities possessed by more-experienced investors in the West.

But they evolved to be successful abroad. Towson includes a section called "Lessons From the Saudis," which is based on his experiences with the Saudis. The first lesson is: "A foreigner and his money are soon parted."

When looking at a deal, the Saudis like to ask if all the local investors already passed. In other words, are they the dumb money? If it's such a great thing, how come the locals aren't in on it? Another lesson I like is, "Don't get caught up in geographic strategies." To the Saudis, the world is industry- specific, and their experience teaches that it is more important to be in a good industry than it is to be in a specific place.

Towson includes other tidbits on Alwaleed, such as his work habits. If you visit the Kingdom office, you won't find analysts or traders with Bloomberg terminals. No cubicles. No workrooms. You find the prince behind a desk with several sofas around him and three or four staff members down the hall. He reads - a lot. He meets with people, but only in a very disciplined way. There are no meetings in the hallway or casual drop-ins. He manages his schedule to the minute. Meetings last 10-15 minutes, and you generally get three minutes before the prince interrupts you. And when you leave, there is usually someone else ready to enter.

"There is a machine-like quality to the days," Towson writes. "The process never slows or stops. At nights, the activity shifts to Alwaleed's palace. On weekends, it continues at his desert camp. During vacations and business trips, it continues aboard his Boeing 767, on his yacht or in boardrooms around the world."

It's a never-ending search for ideas. It is an extreme version of a template followed by great investors everywhere. You must love the hunt. And if you continue to apply the same proven techniques, over and over again, time is on your side. "You must become wealthy - if you keep doing it consistently," Towson writes.

The most interesting parts of the book, to me, are the "war stories" about different investments Alwaleed made. They will give you a good feel for what successful deals in emerging markets look like.

Towson advises staying in the trenches and getting out of the clouds. "It really does look different from the ground, as compared with flying over at 30,000 feet," Towson writes. The decisions are also easier, the data more concrete and real, going beyond macro- generalities.

Towson himself is a global investor of this new 21st-century breed.

He writes about how, when putting the book together, he had about $175 million in deals he was looking at: a Swiss water company with concessions in Madagascar, a Libyan construction project, a Saudi small business, Chinese health care projects, a Middle Eastern insurance company and a South Carolina physician home-monitoring company. "And I'm doing this while commuting between New York and Shanghai, where I live; Beijing and Cambridge, where I teach; and Hong Kong and Paris, where I normally stop over for a few days to rest and write."

This is the world of investing in the 21st century. You better get used to it, or you will miss out on some fantastic opportunities.

Regards,

Chris Mayer