Dateline: Skopje, Macedonia
Economic growth here in Macedonia has floundered since the global recession as the country grapples with the issues surrounding it in Europe. Heck, Greece is just a stone’s throw away.
However, looking to Europe is not exactly the best advice for international investing. While this part of the world holds the promise as an emerging economy, we frequently speak here about the best opportunities being in Asia and south America.
Just today, a top venture capital fund raised over a half-billion dollars for its latest investment fund in India. Another fund investing in India and the Middle East just raised $350 million. Every day, more money is pouring into fast growing economies around the world.
However, the mainstream media doesn’t want you to get too excited about international investing. In fact, they claim there are “mistakes” you must avoid when investing overseas.
The fact is, Wall Street doesn’t want your money leaving the country. When you invest in lucrative, high-yield investments – the kind we talk about here – you impact their ability to swindle the general public and make record profits.
But that doesn’t mean they won’t try to dissuade you from international investing.
I recently came across a list of four mistakes in international investing from the folks at Charles Schwab. Here are the four mistakes… and why this Wall Street firm is looking at them the wrong way.
1. Confusing a country’s economy with its stock market. A growing economy doesn’t guarantee a bull market in stocks, nor does a sputtering economy guarantee a bear market.
Typical Wall Street. For most uninitiated international investors, stocks, mutual funds, and ETFs are the only game going. Turn on CNBC and you’ll see a never-ending stream of advertisements for some company’s latest exchange trade fund that promises to invest only in coffee bean suppliers in northern Guatemala.
Wall Street has attempted to convince western investors that they can buy some off-the-shelf fund with a ticker symbol and get the same exposure to overseas markets as if they went there themselves.
And that’s just not true. While there are relatively easy ways to cash in on the money being made in fast-growing international markets, it’s not likely you’ll enjoy much of those gains with a stock or mutual fund.
Indeed, a stock market does not entirely reflect a country’s gains. Just look at The Land of the Free. Despite passing a draconian healthcare law, overseeing a fall in the US dollar,
2. Not researching what’s actually in a country’s index. You may not be getting as much diversification as you think when you invest in a country-specific index exchange traded fund (ETF) or mutual fund.
David Ogilvy, one of the greatest advertising copywriters of all time, wrote an advertisement that helped turn Merrill Lynch from a boutique brokerage house into a top Wall Street firm. His secret was one that every advertising “guru” said would never work.
The secret: the art of presupposition; the basis of making statements and assuming people agree with an unspoken underlying point. In this case, the presupposition is that, if you only dig deep enough, you can find the right mutual fund. The assumption is that you would never look beyond the stock market to find any kind of “real” investment.
And according to the author of these “international investing mistakes”, your digging will lead you right back into the arms of some domestic blue chip index or other weak investment.
I look at international investing as a way to escape not just the weak returns and QE-dependent nature of the stock market, but to escape the entire western system that is in decline.
Presupposing that international investors are those that find some allegedly exotic ETF is inaccurate. I’ll trust my money in gold held in Singapore or Cambodian real estate over Wall Street any day. And this is coming from a former stock market disciple.
3. Ignoring currency differences: Currency exposure is part of the diversification benefit of investing internationally.
It should be no secret that the US dollar is in decline. Many even warn about a dollar collapse. While the exact meaning of “dollar collapse” in up for debate (in reality, it has already collapsed), the US dollar is not what it used to be.
When I was a young child visiting Europe with my parents in the early 1990s, our US dollars were welcome with glee by those eager to trade them for escudos, francs, and liras. Today in Europe, you get dirty looks when you bring US dollars.
Earlier this year, I talked about several “safe haven currencies” for keeping ones money. I’m constantly trying to increase my exposure to foreign currencies.
It helps to live outside of the United States and parts of Latin America that use US dollars; what do I care if the US dollar goes to hell if I don’t A) hold US dollars or B) live there? Obviously a dollar meltdown will have an impact on the world economy, but that potential future impact is softening by the day.
Rather than thinking “how can I make my worthless US dollars more valuable?”, start thinking “which currencies offer the best potential for capital preservation and appreciation?”. At a certain point, you will need to include foreign currencies as a part of your asset protection and growth strategy, because you won’t be able to depend on US dollars.
That time is now. If you want to be wealthy in the coming years, you’ll need to think outside of your own borders – and that includes currency.
4. Substituting U.S. multinationals for international investments… The stocks of U.S. multinational companies tend to move in tandem with other U.S. stocks, and U.S. multinationals typically still derive a large percentage of their profits from the United States. But this misses the point of investing internationally—to diversify into areas that aren’t so highly correlated with the U.S. market.
These “mistakes” are making me sound like a broken record. Again, the idea that international investing is all about some new way to play the stock market is a bad idea.
If you want real returns, you need to get your hands dirty – or at least find someone else who is. For example, I’m having my lawyer do the due diligence on several excellent opportunities in Asia where the principals have churned out returns of nearly 100% a year.
The guys getting these returns aren’t analysts living in cushy $15,000-a-month apartments in Hong Kong and occasionally fly to Myanmar to check on some oil refinery. They are real, hands-on operators who allow a select group of investors to join them and split profits. In many ways, the investments they offer are extremely simple.
It’s what international investing would be like if it weren’t for government regulators.
These are the kind of international investments you should be looking at. Last year, I met with the owner of a private equity fund in Cambodia who spent nearly five years actually living in Phnom Penh, working the deal flow himself. (My very insightful interview with him is in The Nomad Society library).
Private equity guys working in frontier markets shoot for returns as high as 100X. No stock or mutual fund is investing in those kind of companies.
The reality is, almost anyone can benefit from international investing. Contrary to what the Wall Street brokers want you to believe about offshore “mistakes”, there are easy ways to invest overseas and open yourself up to potentially much better returns.
International investing can be much easier than the complicated products sold by Wall Street brokers, too. As I said, some of the best investments are those that are done with a handshake and a simple contract – as opposed to the tome of legalese that is standard fare with almost any mutual fund purchase these days.
It’s ironic how Wall Street is complaining about overseas investment being too complicated as they create more and more complicated products for sale, from derivatives to indexed insurance products and more. Not all of these domestic products are bad, but any plan that doesn’t include international exposure in your portfolio is.
And, again, some of the investments I see firsthand are available even if you only have a few thousand dollars. Many of these investments are limited to as little as $1 million in investor money, which is why I can’t publish them on our site. However, we will be talking about one such opportunity at dinner next month – that dinner, along with all of the inside information, is available only to Members of The Nomad Society.