Chattanooga financial adviser Jim Place, who runs Evergreen Advisors, is a man who has his ear on the heartbeat of Chattanoogans. He hosts a daily talk show on WGOW talk radio from noon to 1 p.m. daily and fields calls from savers, debtors, investors, people with financial distress and others with big dreams.
How confident should we be that Chattanoogans and their businesses are good investment vehicles? If we investors help them, might they reward us?
In this second part of an interview he was gracious enough to give Nov. 29, Mr. Place answers several questions: How workable and valuable is lococentrism as an investment paradigm? How far do charitable instincts go in investing? How beneficial is the opening of a local factory by global player VW? Would local investors strengthen local engines of prosperity such as InfoSystems, the IT specialists, which is a privately held company that may need capital for growth?
To get the context, please take some time to go through the first part of our visit.
Personal connections shift emphasis away from idol of dollar
David Tulis I’m just suggesting this as an idea. *** Here’s why. If you are investing in local shops, people you see in the paper, in the metro section of the local paper even, the bigwigs, the people who run factories who make widgets and provide services, you’re not going to be driven solely by the dollar. You’re not going to be just a gambler. Your perspective seems to be that everybody is a gambler, everybody thinks, “I care just about that percentage, I care just about that statement at the end of the year, how much it went up, or how much the dividend was.”
But, investors are not just gamblers. They’re not just looking for the money. Investors, especially if they can have a personal relationship and a personal connection with the entities in which they invest, they’re not going to be as dividend conscious — just like when you do business with someone you know, you’re not as price conscious. You will have the man paint your house, and you will not shop the job out. Why? Because you know that man and you trust him. You’re not going to worry about the money; you know he’s going to treat you fairly —
Jim Place To a certain extent. To a certain extent I am. But I am also going to know — I am going to have a pretty good sense and feel for what the project is going to cost. Now, I may know that the quality of the service that XYZ provides is very good. Let’s take a painter, local painter.
A great example here in town would be Brandon Lewis, who owns a Painter Ready. I know that the kind of prep work that they do before they start to paint is incredibly good. It’s going to be more expensive, but it’s more labor intensive, but it’s going to last longer, it’s not going to flake later on. One, I know him so I would rather do business with him than the international guy or the guy in New York city if I had a choice. Two, I know he has quality, very good quality. But I know, I am going to know, reasonably speaking, the price of the project should be. You have to be able to compete.
Because the idea in this book isn’t simply, isn’t just that it’s local. The idea in the book is that the return is going to be better.
Q That’s right.
Jim Place He’s saying the sheer economics of it would work.
Q Do you think the local investor cares only about the dollar, or when he says, “You know, I can invest locally, I care about where I’m from, I can wait some years for a payout”? —
Jim Place — Would you consider a percentage of what you’re doing to be philanthropic in its nature, relative to your community? *** It’s one thing if you’re saying to me, we think this project would not only be successful and make Chattanooga better, but that you would do well with it as an investment — fine. If you’re saying to me, “We don’t have any idea whether this is going to make it or not, but we think we ought to donate it to Chattanooga, I’m going — no.
Investing is not charity
Jim Place Now I might give the money to United Way that spends the money in Chattanooga, but I would distinguish the difference between what I consider a charitable contribution and what I consider a very good investment. But, if you go back and think about it, David, there are in larger cities, maybe not in Chattanooga, Tenn., say a venture capital firm that really focuses on downtown Boston, or wherever. There are products of this nature that have been put together. But they have normally been limited to very very high net worth investors.
Now, if we thought about that for a second, the — one of the things that has made a mutual fund so incredibly viable is that I can buy into a thousand companies with F$100. So, if we’re talking about putting a pool together where a person to invest F$1,000, or F$5,000 or F$10,000, can you create — you can’t really do it with a mutual fund, because a mutual fund buys in publicly traded companies. We’re talking about companies that are not publicly traded. But in a pool of this nature, they’re going to have to reach those standards to do the accounting.
How to structure the co-op or exchange
One of the biggest aspects of what you’re talking about here that I know very little about would be structure of the accounting for a process of that nature, because as we said before, it does have to be valued. If I knew that the due diligence up front, if I knew that the due diligence being done up front was sound, that it wasn’t just simply, “Oh, we love Joe’s bike place and we’re going to give him 150 grand and hope to hell it all works out.” I have to know the due diligence is good and I have to know that whether I’m donating or I’m investing the money to a Chattanooga pool or any other pool. I have to have faith in the advisers who are making the decision about who comes inside the pool.
I have to have complete faith in the evaluation system. So I have to have not only confidence in their ability to do the job, to recognize what the best companies would be in that process, and I have to believe that I attract enough capital in a pool of this nature to be able to kind of impact on the community that you’re talking about. Now, in the utopian world, we might get there.
You might be able to step beyond the bounds and say, OK, what would be our legal considerations for here, what kind of entity do we have — first thing that we’d be talking about would be, what kind of entity does it have to be? Maybe it does have to be a co-op? Maybe you go out and you look at a mutual fund concept and you look at a co-op concept and you look at an investment venture capital type firm, and say, what kind of entity do we have to be to make that happen?
Q Not to take up too much of your time. Let me get back to the basic question. Do you think that local economy and the people involved in are worth investing in, or is it just too risky and too dangerous?
Jim Place It’s going to have a level of risk to it, because there is a lack of diversity from the standpoint of everything is betting on this particular area of the country. Any recession that hits — we look at Chattanooga right now, and it’s actually weathered this last economic downturn incredibly well. There other downturns that have taken place that Chattanooga did not weather well. We only go back to the late ’60s and ’70s and early ’80s to see that, OK? So the advantage of being in 50 different states and 1,000 different companies can be pretty strong. So, we know we have some risk because it’s going to be consolidated.
Q So, the risk is the limitation on geography?
Jim Place Let’s say there’d be a lack of geographical diversity in what we are proposing.
Q By design?
Jim Place By design, that’s right. But even though we designed it, there’s an incremental level of risk. And all investment, all investment, is going to be about risk vs. return. Because if I believe, if I believe what you’re talking about makes sense, then I’m going to be an investor in it. And I am going to accept the lack of geographical diversity, yes. It’s a risk. But the upside here is that I can see it, I can kick the bricks, I know the people, I know there is economic viability. Yes, if you ask me, could that — could I envision a world where that would work — yes.
Q Is local economy, apart from the considerations of the entry of the investor into that market, is local economy profitable? Just generally speaking?
Jim Place Well, I would think so. If we had done this arrangement in North Las Vegas five years ago, we would have lost all our money. I mean —
Q Well, you would have lost a lot of it, and no one would want to sell. They would just have to hold on through the crisis. They would have to wait. They hadn’t lost it.
Chattanooga frees itself from barons; but will it need one?
Jim Place That’s right. That’s right. Now, if someone asked me in particular if Chattanooga were an economy I’d like to be able to invest it, I would say yes.
Jim Place I came to this town in 1977. There was a death grip on this town by a few incredibly wealthy people that made this community almost exclusionary in its nature, made it difficult to come to Chattanooga and do business.
Q What were you doing?
Jim Place When I first came *** and started this business, what you could see that Chattanooga was a very controlled community. The explosion that took place in the ’60s and ’70s in Atlanta, the explosion that took place in the early ’60s, ’70s and ’80s in Charlotte, the growth that took place in Huntsville during those time periods, Chattanooga missed the boat big time. Chattanooga will not miss the boat this time. They’ve cleaned the community up. They’ve cleaned up the river. This has become a destination location —
Q For investors?
Jim Place For investors, for business. Whether people like it or not, it’s a right to work state. No state income tax. We’ve got an incredibly beautiful community out here. It was a city when I came to, it was dismal. When you came over the Ridge Cut, you couldn’t see Lookout Mountain. *** You don’t have that today. You have challenges today. You don’t have a great public school system. *** You have some transportation issues relative to the airport where you can get to; there are some downsides. But there are incredible upsides. I look today, and I go around the country, and I see very few, very few communities that I would rather live in than Chattanooga, Tenn. I couldn’t hardly name a community in 1977 that I wouldn’t rather have lived in than Chattanooga.
Q These things you are saying about Chattanooga in its favor. They are touristy and environmental. Are these things plusses in terms of investment?
Jim Place Sure they are. Volkswagen didn’t come here because it’s a nice tourist town. Why did Volkswagen make that decision?
National players — how do they benefit city?
Q They got subsidies?
Jim Place I understand that may not be incredibly popular, but in a competitive world, it is what it is.
Q Well, the theory of local tends to disfavor that kind of [tax] break.
Jim Place Well, the gentleman who owns the bike shop is not checking to see whether the guy works at Volkswagen or not. He’s not saying, you’re working at Volkswagen, that’s not a local place, we don’t want to sell a bike to you, or we don’t want to sell flowers to you, or we don’t want to sell shoes to you because you’re at Amazon or Alstom or something like that. No, I am not looking at some sort of exclusive community boutique that tries to figure out how to make it completely by itself.
But, I do know, as we started this conversation, the bike shop needs capital, the flower shop needs capital, the shoe store needs capital. Someone has to value that business. Someone has to determine that there’s a good solid economic reason for us to invest in it. If you go back to the baseline question is: If someone could make something like what you’re talking about here, could it indeed be in this community be a good investment? It would be a great investment. Now, the downside of that is, I think we’re just beginning to see the growth of Chattanooga, Tenn. You may not completely like what you see at the end of this process 10 to 20 years ago, because it’s a lot hard to get around Charlotte and Atlanta than it was 20 years ago. I mean, if there’s such a thing as a downside to prosperity, you might to some extent have to deal with that.
Q The arguments I’ve been reading in local economy say that a person who invests locally is going to be less demanding — I’m repeating myself, perhaps — less noticing of the bottom line — he’ll be less occupied with just profit. He has those other things that are in relation to him. *** He’s in the same town, he’s investing locally; these things are all less demanding than simply looking at a sheet of paper with a number on it.
Would Noogacentric capital fund need angel investor? Probably
Jim Place There’s a difference between me being somewhat less demanding on the front end relative to the numbers, and demanding over an extended period of time that you run a good business. You’ve run back two or three times in this conversation, asking am I willing to give something up. *** I’m going to make an assumption that we may become a little bit more aggressive investment pool — because if we take a less aggressive look at the number at the front end, then we are by definition gonna have more failures. Now, on the other hand, we also may have some incredibly bigger winners. Because someone of the people who didn’t get the financing couldn’t get it done in this community. ***
My guess would be, that in order to have some potential to pull something like this off, it would take significant grant of money on the front end of a philanthropic nature. I think it would take major player on the front end to provide the seed capital that probably would be considered a donation or grant. Because I think whatever structure you talk about, it’s going to be fairly expensive to set up. Because if you do it wrong, you’ve got so much potential for fraud, for who gets loans, who gets bought. It’s going to take some very qualified people to figure out what you’re talking about. And it’s going to take someone on the front end who’s going to say, “I’m going to underwrite this for F$5 million or F$510 million to get off the ground.
Q I think that’s very interesting. There are a lot of wealthy people in Chattanooga who are good natured. A lot of Christian people who give their money. We have a foundation in town that teaches people how to give away their money.
Jim Place You need a structural wizard, you know what I mean; you need a structural brain. You need someone to say, this is it. This is how it would be structured. This is how it would look like. Then you need the 80-year-old guy that’s worth the billion who goes, “I’d put F$20 million in this thing and say, let’s make this thing work.” **** It would have been interesting if Lyndhurst or something like that had been a publicly traded entity that all Chattanoogans could invest in. I pick Lyndhurst because it’s just a name.
How local firm InfoSystems fits into local capital
Q It’s not that Lyndhurst is doing anything of value of itself. What it’s doing is helping all these shops and factories and IT shops like InfoSystems to expand, to be better at what they do. The goal is to make InfoSystems as a locally owned company to be better than it is already. To expand not just to Nashville, but past Knoxville.
Jim Place Wherever. It has a home base here, but it may be all over the country.
Q The money is coming there. Think about Volkswagen. Volkswagen is not profitable for Chattanooga. And here’s why. Because the shareholders are the beneficiaries of the profit. They receive the profit. What doesn’t go into capital reinvestment, into new auto bodies and new factories, goes to shareholders all over the world. They’re not here. But if InfoSystems expands, with added capital and talent of its owner and founder, the money is coming back here. What’s he going to do? He’s going to buy a new building. He’s going to hire more people. He’s going to provide new services.
Jim Place To a certain extent it is in the beginning. But it may very well be when he expands it’s not going to be a new building here. It maybe a second building in Cincinnati.
Q But the profit comes here. This city is a magnet for the profit.
Jim Place A percentage of the profit.
Q He’s locally owned.
Jim Place Then you’re saying in it would not be a publicly traded entity.
Q [Infosystems] remains a private company.
Jim Place Yes, it remains a private company. But when you make the statement that Volkswagen is not profitable in any shape, way or form to Chattanooga, Tenn. — you really think that?
Are VW wages the most city can expect?
David Tulis There’s the initial capital investment, all the hiring and so on. But the people who work for it are just receiving wages. Wages are not profit.
Jim Place So you’re saying there’s no added value to the next person who wants to make a decision to locate in Chattanooga, Tenn.
Q I’m not going to say that.
Jim Place — to look out there and say, here are some people who made a pretty big financial commitment to the community. Now granted —
Q They didn’t make it to the community. They made it to the shareholders.
Jim Place Well, would you make that same argument about Unum?
Q Well, when Provident was bought by Unum, it was no longer a local company.
Jim Place Are you saying it no longer benefited the local community?
Q No. Well, it’s a publicly traded — [indecipherable]
Jim Place So there’s a give and take there. And would you be averse for somebody who wanted to own a piece of this entity you’re talking about that lived in Boston? “I love what these people are going in Chattanooga, I think this would be a great investment.”
Q Can you answer that question? What do you think?
Jim Place If you build it, and you build it properly, and if the economic viability you’re talking about exists in Chattanooga, then it doesn’t just become an attractive business decision to the person who lives in Chattanooga. It becomes a unique model for what communities can do all over the country, which is really what the author is talking about.
Q Well, I have taken a lot of your time. Thank you, Jim.
‡ As for Mr. Shuman’s book, I am still in the middle of reading it, and will review it, in God’s providence, soon.