Investing abroad

Chris Mayer - Thu 16 Nov, 2006

...Plenty of options lay before investors these days. Consider the opening up of Eastern Europe or the booming economies of Asia...

 
 
I just finished two new books about investing. One,
written by a capable analyst, tackled global investing
directly. The other, penned by a famed money manager,
did so only indirectly. But the message behind both
books was simply this - investors need to look abroad.

We'll start with the indirect first. Christopher Browne
of Tweedy, Browne fame just published a book called The
Little Book of Value Investing. In it, he lays out some
basic thoughts and ideas on how the aspiring investor
may add to his financial breadbasket.

The book is in the Graham and Dodd tradition - espousing
simple verities about the virtues of buying cheap
stocks. It's like a little country store. But instead of
polished apples and sweet corn, the shelves hold bags of
polished wisdom and sweet dollops of moneymaking advice.

But what struck me, buried among the homespun maxims,
was his emphasis on global investing.

Browne gleefully tells readers of his exploits kicking
around in faraway markets. Like an eager traveler
returning from his first look at the pyramids of Egypt
or gazing up at the Incan ruins of Machu Picchu, Browne
talks about the glories of picking up cheap stocks in
Japan, South Korea and Switzerland.

In the late 1990s, free-spirited investors could find
Japanese homebuilders, media companies and textile mills
selling for less than the cash on their books. In 2003,
Browne uncovered a Swiss conglomerate loaded with
valuable assets - real estate, a sheet metal business, a
sporting goods division and more. The stock traded for
only one-half of an understated book value. In two
years, the stock doubled. He writes about Dae Han Flour
Mills of South Korea, which he picked up for one-third
of book value.

This is merely a small sample of Browne's profit-laden
travelogue. A globe-trotting treasure hunter, Browne
spends considerable ink on the rationale behind global
investing, understanding foreign accounting, what to
make of foreign currencies and more.

But for all the convoluted reasons others often offer up
for investing in foreign stocks, Browne offers one
that's crystal clear: "If you expand your horizons to
all the developed countries of the world," he writes,
"you can double your chances of finding cheap stocks."

Browne says that investors ignoring these other
opportunities are like wine drinkers who don't want to
try imported wines. They have restricted their choices
unnecessarily - and they don't know what they are
missing.

Browne is a man who follows his own recipes. Today, his
firm, Tweedy, Browne, is finding bargains overseas. Of
the $14 billion in assets it manages, about 70% of the
pile is in international stocks. And about a third of
that is in small companies with market caps of $5
billion or less. Among his current favorites spots are
South Korea, Japan and Mexico.

The second book tackles global investing directly.
Finding the Hot Spots is the title of David Riedel's new
book. A former Salomon Smith Barney farmhand, Riedel now
heads up his own independent research firm.

Riedel opens his book with several myth-slaying pages.
To the charge that investing overseas is too risky,
Riedel says that corporate mischief and thievery pepper
companies in this country as well.

Investors also have a way of looking down at foreign
firms because they believe the information they are
getting is not reliable. Again, Riedel points out that
unreliability is not unique to overseas markets. It's
not as if we are talking about malaria or polio. In my
personal experience, the disclosures can sometimes be
even more thorough overseas than at home. Foreign firms
know they have an extra hurdle to clear.

The most interesting aspect of Riedel's book is the
numerous profiles of foreign firms. Many of these are
companies you've never heard of before. And they trade
on US exchanges. Riedel discusses China Yuchai, for
example, which makes diesel fuel engines. Another
interesting China play is Bodisen Biotech. Despite its
name, Bodisen is simply a producer of fertilizer in
China. Riedel's book gives plenty of interesting ideas
like these.

In summary, plenty of options lay before investors these
days. Consider the opening up of Eastern Europe or the
booming economies of Asia. Or look at the brightening
prospects in parts of Africa. Or easily overlooked South
America. Both Browne and Riedel remind us of the
potential in these markets. They nudge us on to take a
look beyond the fringe of trees on the horizon and
explore other lands under the big open sky.


Regards,

Chris Mayer
for The Daily Reckoning