Eric Schleien is making the case for investing in international stocks. Warren Buffett and Martin Whitman have been doing this.
The United States is a very different country than it once was. A century ago, we had a thriving economy powered by steel companies, textile mills, automobiles, and radio. The country had a huge trade surplus, a comfortable savings rate, and a booming stock market. Today, the situation is much gloomier. We have as what Warren Buffett calls an unsustainable trade deficit. The country now has a negative savings rate, and the world’s greatest steel, textile, automobile, and technology companies are not even located in the United States anymore. At the current moment countries such as China and India are leading the way with high GDP growth, huge trade surpluses, high savings rates, and booming industries. These countries, as well as many others, have figured out how to operate a business at a lower cost than in the United States. Going back to Warren Buffett, he has said during his annual meetings that he believes the United States could face a huge financial disaster in the years ahead. Buffett has backed up his words with his investing strategy. While still maintaining a disciplined value approach, Buffett has for the first time in his investing career started investing overseas. In 2002 he made some investments in South Korea, buying companies at one and two times earnings and below their tangible net worth. One of these companies was POSCO (PKX), a South Korean Steel Company that has fat profit margins, low operating costs, and was trading below its tangible book value when he bought in. Along with POSCO he has made numerous other investments overseas which are paying off handsomely.
So what does this mean for the individual investor? Well from a logical standpoint, it may be wise to follow in Warren Buffett’s footsteps. I believe having international exposure is something that is very important in this age of economic opportunity. If Buffett is right, and historically it is not wise to go against the Oracle of Omaha himself, purchasing foreign entities is probably a good idea. International investing may also help one hedge him or herself against a declining United States economy. So how will it hedge? Going Back to Warren Buffett, he believes as well as many other notable investors that the dollar is in for an everlasting decline. If that is the case then investing in currency that is not dollar denominated makes perfect sense. Logically if a company is making money in Yen, Yuan, or New Zealand Dollars, buying those companies with your American dollars will help offset any declines in United States currency. An example would be if you were to buy Petro-China (PTR, Financial), an oil company similar to ExxonMobil but located in China instead of good ol’ Texas. While ExxonMobil (XOM, Financial) makes much of its profit in United States dollars, if that currency becomes worth less in the future than it is today, then ExxonMobil’s profits would be worth less than if they were in another currency. On the contrary, if Petro-China is making most of its money in non US Dollar denominated currency then buying Petro-China shares with US dollars would help offset any declines in the US dollar. On top of that you have China’s booming economy and thirst for petroleum and oil products to help grow the company.
Unfortunately for the average investor there can be many risks involved with investing in companies overseas. Unlike in the United States, many countries have terrible disclosure policies and extremely lax accounting standards. Therefore many companies are probably engaging in fraudulent activities. Also there are government risks. As we saw earlier this year with Venezuela’s CANTV, Hugo Chavez decided to privatize the entity causing the shares to plummet. Guru investors who are going international have surely done their due diligence, probably more than you or me would ever have time for. Warren Buffett even says he reads six newspapers daily, I know I surely don’t have time for everyday.
Another great investor who has been investing overseas is Martin Whitman. He has been able to find companies trading below their tangible net worth, much like Warren Buffett was doing in South Korea in 2002. Whitman has said he has been finding gems in countries such as Hong Kong, most very much under the radar. Without reading about Whitman’s holdings it would be a safe bet to say the average investor would have trouble learning about companies such as Cheung Kong Holdings (CHEUY.PK, Financial) or Mitsubishi Estate Co.(MITEF.PK, Financial). Riding along with Whitman or Buffett will probably yield returns that you won’t be complaining about. An interesting strategy would be to look at the international companies that prices have went down for buy and hold Guru investors such as Warren Buffett as you would yield better returns on the oracle himself.
With GuruFocus’ Premium Tools of International Picks, one can browse through the International Picks and Holdings of the greatest investment Gurus by regions and countries. Currently International Picks includes 25 Stocks in Canada, 26 in Asia (Japan, Hong Kong, and China etc), and others in Europe, South America and Africa. Take a Free Trial of GuruFocus Premium Membership, test drive the tools for International Picks and many more others. Your Margin of Safety: there’s nothing to lose in trying this out.
The United States is a very different country than it once was. A century ago, we had a thriving economy powered by steel companies, textile mills, automobiles, and radio. The country had a huge trade surplus, a comfortable savings rate, and a booming stock market. Today, the situation is much gloomier. We have as what Warren Buffett calls an unsustainable trade deficit. The country now has a negative savings rate, and the world’s greatest steel, textile, automobile, and technology companies are not even located in the United States anymore. At the current moment countries such as China and India are leading the way with high GDP growth, huge trade surpluses, high savings rates, and booming industries. These countries, as well as many others, have figured out how to operate a business at a lower cost than in the United States. Going back to Warren Buffett, he has said during his annual meetings that he believes the United States could face a huge financial disaster in the years ahead. Buffett has backed up his words with his investing strategy. While still maintaining a disciplined value approach, Buffett has for the first time in his investing career started investing overseas. In 2002 he made some investments in South Korea, buying companies at one and two times earnings and below their tangible net worth. One of these companies was POSCO (PKX), a South Korean Steel Company that has fat profit margins, low operating costs, and was trading below its tangible book value when he bought in. Along with POSCO he has made numerous other investments overseas which are paying off handsomely.
So what does this mean for the individual investor? Well from a logical standpoint, it may be wise to follow in Warren Buffett’s footsteps. I believe having international exposure is something that is very important in this age of economic opportunity. If Buffett is right, and historically it is not wise to go against the Oracle of Omaha himself, purchasing foreign entities is probably a good idea. International investing may also help one hedge him or herself against a declining United States economy. So how will it hedge? Going Back to Warren Buffett, he believes as well as many other notable investors that the dollar is in for an everlasting decline. If that is the case then investing in currency that is not dollar denominated makes perfect sense. Logically if a company is making money in Yen, Yuan, or New Zealand Dollars, buying those companies with your American dollars will help offset any declines in United States currency. An example would be if you were to buy Petro-China (PTR, Financial), an oil company similar to ExxonMobil but located in China instead of good ol’ Texas. While ExxonMobil (XOM, Financial) makes much of its profit in United States dollars, if that currency becomes worth less in the future than it is today, then ExxonMobil’s profits would be worth less than if they were in another currency. On the contrary, if Petro-China is making most of its money in non US Dollar denominated currency then buying Petro-China shares with US dollars would help offset any declines in the US dollar. On top of that you have China’s booming economy and thirst for petroleum and oil products to help grow the company.
Unfortunately for the average investor there can be many risks involved with investing in companies overseas. Unlike in the United States, many countries have terrible disclosure policies and extremely lax accounting standards. Therefore many companies are probably engaging in fraudulent activities. Also there are government risks. As we saw earlier this year with Venezuela’s CANTV, Hugo Chavez decided to privatize the entity causing the shares to plummet. Guru investors who are going international have surely done their due diligence, probably more than you or me would ever have time for. Warren Buffett even says he reads six newspapers daily, I know I surely don’t have time for everyday.
Another great investor who has been investing overseas is Martin Whitman. He has been able to find companies trading below their tangible net worth, much like Warren Buffett was doing in South Korea in 2002. Whitman has said he has been finding gems in countries such as Hong Kong, most very much under the radar. Without reading about Whitman’s holdings it would be a safe bet to say the average investor would have trouble learning about companies such as Cheung Kong Holdings (CHEUY.PK, Financial) or Mitsubishi Estate Co.(MITEF.PK, Financial). Riding along with Whitman or Buffett will probably yield returns that you won’t be complaining about. An interesting strategy would be to look at the international companies that prices have went down for buy and hold Guru investors such as Warren Buffett as you would yield better returns on the oracle himself.
With GuruFocus’ Premium Tools of International Picks, one can browse through the International Picks and Holdings of the greatest investment Gurus by regions and countries. Currently International Picks includes 25 Stocks in Canada, 26 in Asia (Japan, Hong Kong, and China etc), and others in Europe, South America and Africa. Take a Free Trial of GuruFocus Premium Membership, test drive the tools for International Picks and many more others. Your Margin of Safety: there’s nothing to lose in trying this out.
