A lot of Americans are familiar with Sun Tzu’s famous book, The Art of War. But most people have never heard of the Thirty-Six Ancient Strategies of China.
Historians have been unable to establish who wrote Thirty-Six Strategies, but the book is a unique collection of ancient Chinese proverbs. While The Art of War was heavily influenced by the Confucian notion of honor, Thirty-Six Strategies, makes no pretense of being anything but ruthless.
In its pages are some of the most cunning strategies used by ancient Chinese warriors. Some of my favorites have names like “killing with a borrowed knife†… “befriending the far and attacking the near†… and “catching a fish in troubled waters.â€
And over the years, these strategies have been cited and used by not just generals, but also Chinese businessman. In a moment, I’m going to tell you how one smart casino operator is taking a page from the Thirty-Six Strategies playbook. But first, a little background …
Macau Is Engulfed in
A Blaze of Frenetic Activity
In past Money & Markets, I’ve told you about Macau, the only place in China that allows legalized gambling. [Editor’s note: See “A Solid Bet in Macauâ€.] On my latest trip to Asia, I went back to the city to see how things have been progressing …
It had only been five months since my last visit, and Macau’s skyline had already drastically changed. Listen, I’ve been all over Asia and China — no place can hold a candle to Macau’s frantic construction pace!
Casinos from Wynn, MGM, the Venetian, and Melco went from holes in the ground to dominating the cityscape. And in only a matter of months, most of these new casinos will open their glitzy doors to hordes of Asian gamblers.
So the question on my mind was whether the rapid influx of new casinos would result in a profit-choking glut, or, if like Las Vegas, the concentration of exciting casino properties would end up pulling in a growing crowd of tourists and gamblers.
The answer was crystal clear to me after I spent an entire day touring the casinos and casino construction sites …
Seeing is believing #1: When I visited the Macau Sands last March, the crowds were so thick that it took me ten minutes to traverse 100 feet from the top of the escalator to the bathroom.
On my recent trip, the crowds were significantly smaller, even though I was there on Saturday, the busiest day of the week. Don’t get me wrong, there were still a ton of gamblers betting mountains of money, but there were less of them than before.
Seeing is believing #2: The $1.2-billion Wynn Macau opened in September, so I assumed that it had temporarily sucked away gamblers from the Sands. Wrong!
When I got to the Wynn, my first observation was that it was much more luxurious and welcoming than the Sands. My second observation was that its casino floor was even emptier than the Sands! While there were plenty of gamblers, it wasn’t hard to find an empty seat.
Seeing is believing #3: The most illuminating visit of my trip was to the Cotai Strip, the 1.8-mile-long strip of reclaimed land between Macau’s two main islands. This stretch of land will be home to the new Venetian Macau and Melco’s Crown Casino.
Even though I was discouraged by the gambling traffic at the Sands and Wynn, I was blown away by the size, scope, and spectacular potential of the new Venetian casino, mall, and convention center.
The Macau Venetian is a $1.8-billion master-planned center that will truly transform Macau into the Las Vegas Strip of Asia. The Venetian Macau will include 3,000 luxury suites in a 32-story tower, as well as 1,200,000 square feet of meeting and convention space, 1,600,000 square feet of retail, 550,000 square feet of casino space, and a total of 25,000 seats in live entertainment venues.
Of course, checking out the locations was just the first part of my research. Next, I spoke to hospitality industry workers in Macau. Instead of talking to the perpetually optimistic Investor Relations lackeys, I chatted up the dealers, pit bosses, gamblers, doormen, waitresses … even the taxi drivers.
And everyone I talked to confirmed my first-hand observations were correct. In short, they said business was good but spread out over too many hungry mouths.
The bottom line is that I now have some serious short-term worries about investing in Macau gaming stocks like Las Vegas Sands (NYSE: LVS) and Wynn Resorts (Nasdaq: WYNN).
But I didn’t leave empty handed. I found one Macau company that is following one of the Thirty-Six Strategies and looks set to soar …
This Gaming Company Will Succeed
By Observing the Fire on the Opposite Shore
One of the most effective of the Thirty-Six Strategies is “observing the fire on the opposite shore.†In essence, you delay entering the field of battle until all the other players have become exhausted from fighting amongst themselves.
I’ll give you a real historical example. In 1583, the great general Toyotomi Hideyoshi was positioning his forces against Akechi Mitsuhide in what would be the great battle of Yamazaki.
Shortly after the battle had engaged, Tsetsui Junkeian, an ally of Mitsuhide arrived on the scene. Impressed by the superior forces of Hideyoshi, he refused to attack. Instead, he ordered his men to line up in battle formation on a hill above the Hora-ga-toge pass.
From his elevated vantage point, he watched the battle before deciding which general to side with. Seeing Hideyoshi gaining the advantage, Junkeian betrayed his ally and sent his troops over to Hideyoshi’s side!
Today, a similar scene is playing out in Macau. One stealthy company has been quietly sitting on the sidelines while Sheldon Adelson of Las Vegas Sands and Steve Wynn have battled it out to be the king of the Macau hill. More importantly, this company has made careful notes on what’s been working.
Like Tsetsui Junkeian, I believe this company is setting itself up for certain victory. And it may very well become the most profitable casino in Macau when it opens its doors later this year. Best of all, its stock is trading for $2 a share. That means you can control 1,000 shares of this hidden gem for a little more than $2,000. Talk about leverage!
This is the kind of stock I love recommending to my Asia Stock Alert subscribers. But to find them, remember these two important points:
First, nothing replaces boots-on-the-ground research. If I hadn’t gone back to Macau, I might not have realized how quickly things had changed. Also, it wasn’t enough to just look at the corporate headquarters or talk to the Investor Relations people. I talked to the people dealing with the business on a day-to-day basis.
Second, these kinds of opportunities are found off the beaten path. I travel to places that most Westerners dare not tread precisely because that’s where I’ll find the hidden gems!
Best wishes,
Tony
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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