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The Class Warfare Portfolio


As an investor you can capture market growth by understanding the growing divide between the rich and the poor in countries around the world.

This article published with permission from

There are really two types of politicians in this world: pie bakers and pie slicers.

Pie bakers focus on growing the economic pie, while pie slicers are forever wrangling about how the pie gets divided.

I think we all know what type unfortunately dominates Washington today.

But class warfare isn’t just alive and kicking in Washington, it’s surging in capitals all over the world. It’s being fueled by the extraordinary success of a group of talented and well-connected entrepreneurs even as the world economy struggles. The most recent Forbes list shows more billionaires in Brazil, Russia, India and China than in all of Europe.

According to a recent report by Merrill Lynch and Capgemini, the number of millionaires in the world grew by more than 8% to 10.9 million in 2010. The wealth of these individuals is a staggering $40 trillion. On the other end of the spectrum, it’s clear that many in America are struggling and that poverty is still widespread in emerging nations.

Putting politics aside, there are some creative ways for us to go high and low in both our lifestyles and our portfolios.

Take the game of golf. In many parts of the world, it’s seen as a sport of wealth and privilege. Golf Magazine reports that a club near Seoul, South Korea received $900,000 to become a member, and a round at Pebble Beach runs $495, but there are still many public courses in America where you can play for less than $25. (As a junior golfer, I used to play a municipal course in Milwaukee for only $1!)

A palatial home at the Yellowstone Club in Wyoming will set you back a cool $14 million, but in beaten down Las Vegas, you can get a golf membership and a two-bedroom home for only $73,000 at the Los Prados Golf & Country Club.

Like cigars? Lighting up one pre-embargo Cuban Partagás at the Four Seasons in Scottsdale will be a $455 hit to your pocketbook, but just down the road you can pick up a five-pack of Black & Mild tiparillos for just $3.

Playing the wealth divide

Turning to your portfolio, a great place to start on the low end is with the booming dollar store market. I call these $10 stores, because every time my daughter drags me into a dollar store to “pick up one thing I need for school” —

it ends up costing $10. The price she pays is hearing my excellent lecture on the “difference between needs and wants” on our way home.

So far this year, the stock of Dollar General Corp. (NYSE: DG), a $13 billion store chain, is up 29%. The stock of competitor Dollar Tree, Inc. (Nasdaq: DLTR), a $10 billion chain, has jumped 45% while the S&P 500 is in negative territory.

On the high end, there are a few interesting trends going on to make these luxury markets deeper and broader than you might expect.

First, it probably won’t surprise you that emerging nations are juicy targets for these companies. It’s not only the very wealthy but also the emerging middle class that will splurge for a few luxury items as a sign of status. The Economist predicts that by 2030, 93% of the world’s middle class will reside in emerging nations controlling $6 trillion in buying power, and a nice chunk of this will go to luxury products.

This trend seems to be happening around the world, including in America.

American Express Business Insights recently released a special report, Global Luxury Fashion Spending, which shows that average consumers are doing more luxury spending than traditional high-end shoppers.

For your high-end portfolio, let’s skip over some of the luxury companies usually trotted out: Tiffany & Co. (NYSE: TIF) and Ralph Lauren (NYSE: RL).

I noticed that Movado (NYSE: MOV) was recently on the move. In addition to the namesake Movado line, the company distributes watches under licenses for Hugo Boss, Coach, Lacoste and Juicy Couture. MOV currently trades at just a bit over net current asset value with a solid balance sheet.

Next up is Hermes International (OTC: HESAY.PK), a French luxury goods maker, partially owned by LVMH. Hermes is known for its premium silk scarves, ties and handbags.

It recently made a big splash by introducing a sari for India. The sari is a silk cloth draped around a woman’s body and is a must for many Indian women for special events and formal evenings. Prices for Hermes' saris range from an eye-popping $6,100 to $8,400. Part of this price is due to a 40% import duty on foreign luxury goods brought into India. This is also why Harley-Davidson (NYSE: HOG) motorcycles sell for as much as $80,000 in India. Free market anyone?

Finally, there’s a gold mine to be made through products with a “low-price luxury” appeal. This is exactly the approach of Taiwan’s 85C Café Bakery coffee shops run by Gourmet Master. The founder, Mr. Wu Cheng-hsueh, came up with the idea of after getting a stiff bill for coffee and pastries at a five-star hotel in Taipei.

85C has a base of 325 stores in Taiwan and it expects to open 100 stores in China this year with the goal of 1,200 by 2016. The company has three stores in the United States, and its highest grossing store is in Irvine, Calif. where it offers 80 varieties of pastries, as well as its famous sea salt coffee.

Last year, 85C’s IPO on the Hong Kong market rocketed 138% in one day.

The growing divide between the rich and the poor is expected to continue into the future, particularly in the emerging markets. But as an investor, you need to understand what companies cater to the various consumer groups in order to capture market growth. The best way to do so is to make sure you target both high and low retail in your portfolio.

Carl Delfeld is a senior analyst at See more articles by Carl here.

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