As promised here is the first lesson of the course International Investing Made EZ. Good Investing!
International Investing Made EZ 2001
Lesson One – First Session
* Why Invest Abroad? Being international is in the nature of things. Learn why a change in the “Limiting Velocity of the Universe” means part of your savings should be abroad.
* When to Invest Internationally? The time to invest is when you spot opportunity or distortions in markets. See why both exist.
Night in the tropics, air so soft its velvet, mist and warmth brushes my skin. Thick evening scents in this fragrant harbor. Mellow insects purr in rhythm with the cacophony that is a great city beyond. At this airport, I enter an enormous metropolis and an adventure begins.
Kai Tak Airport, Hong Kong. May 1968. American born and bred, this was my first airplane trip, first time out of Oregon. Portland to Vancouver, Tokyo to Hong Kong. Melting within my heavy woolen blazer, weariness and fear sweep over me. But there is excitement as well, an exciting journey is about to begin.
Who could have known how exciting the next 33 years would be, how much information, facts, figures, ideas and insights on how to invest globally would be gained. Had I known the mistakes to be made I would probably have run! Thankfully all the trials, tortures and errors were mitigated by much fun and an earnest endeavor to live right and learn.
My goal in this and upcoming lessons is to share with you the basics learned over these 33 years. This is an update of a course written eight years ago. Much about international investing has changed since. The fundamentals remain immutable, but additional lessons here are from my stumblings since.
We move inaccurately through the mists of the here and now, blindly trying to see what we cannot (the future) but not being able to stop trying.
I humbly submit these events as fact. These are my illusions that for me have become real and they have worked. I gratefully share the excitement, the fun, the incredible fulfillment that growing in this ever expanding universe can bring and ask for forgiveness in advance of any of my realities that are errors or distortions for you. The era of the Guru is dead and share these ideas as a simple human who has spent his life wandering and gathering a lot of economic facts.
Work with the knowledge that money is not everything. Investing globally is not a panacea, but expanded horizons are. My sincere wish is that you will see some truths here that will help you grow as they have helped me. And from this growth I wish you an existence that is better, happier and more financially or otherwise secure.
Life is a trip. We have been given an entire globe to enjoy. So here we go. I hope you have fun on the ride!
Why be International?
My first trip abroad 33 years ago was significant because we have just passed through another era of productivity, that included the era of the Internet bubble. Back then in 1968 events were incredibly similar.
My arrival in Hong Kong at that time coincided with the beginning of a new era for world stock markets. When I arrived in Hong Kong that year and 40 or so proceeding had been dominated by Wall Street. The New York Stock Exchange was the biggest stock market in the world. It was bigger than all the rest put together. It was so big that when one thought of having stocks, the thought was automatically of one place the USA. U.S. dominance was about to change. Let’s see how knowing this can help us learn together.
1968 was the year when the Hong Kong Stock Market began to explode upwards along with Tokyo’s market. What a ride!
The Heng Seng Index was then 100. When I first wrote this course in 1993 it had risen to 6,000 and went onto rise to 18,000. Anyone who steadily committed money to this markets made a fortune.
Though the year ahead will be different only by climbing the foundations of the past can we get any glimpse at all of what the future may bring.
Here was the performance of the stock markets of the world over the 25 years after I arrived in Hong Kong.
Japan 3,093% Hong Kong 1,456% Spain 1,254% Austria 1,193% Switzerland 1,112% Singapore 1,011% Denmark 826% United Kingdom 557% Germany 556% Belgium 546% New Zealand 532% France 485% United States 378%
This was an era when all one needed to do was invest in the next market to emerge.
Times (since the mid 90s) have changed! Global investing is different today.
Technology Brings Opportunity
My arrival in 1968 also coincided with and was possible because of a new wave of technology. I was on the leading edge of a technological invasion of baby boomers about to conquer the world. We, born in the mid 1940s, given incredible, free educations and great confidence, were the first large segment of mankind in recorded history not confined by the boundary of distance on earth.
I had quite unknowingly been among the first platoon of men and women to enjoy freedoms never, ever exercised en masse by the common man. As the world improved its ability to communicate and transport, its global economy expanded. As humanity grew more able to share knowledge, skills, resources and actions among itself, every persons standard of living had a chance to grow. In that flight from Portland to Hong Kong I had proven that. A kid with no money, no international experience, or background, but in one day I could physically move around the world! This is so commonplace today it does not even seem remarkable.
But in the perspective of time this seemingly simple event was incredible and represented a vital turn of events in terms of our investing opportunities, tactics and disciplines today.
Look back in time at the world and its economy before the telephone, steam engine, car, airplane and computer, before the net. The limiting velocity of man, of finance and investing was the speed of the horse. Imagine the impact this had on business and investments then.
Take a silver miner in Mexico as an example. In days of old if he had the silver in Mexico it was hard, slow, expensive to send that silver anywhere. To find buyers was a big job. Imagine what it took to sell Mexican silver in New York! The fastest way to send a message about price was the speed of a horse.
Transportation was even worse. The silver had to be shipped by horse and wagon. The money had to pay men for weeks just to transport not mention protect) a load of silver from Mexico to New York. It is not surprising that the silver miner would sell his silver for less in Mexico than in New York. Only the most ambitious, best-capitalized miners could afford to send men all the way to New York to find markets for silver. Most markets remained local.
Imagine the compounding of costs and complications if the miner tried to sell silver in further markets like Tokyo! Such constraints of time and distance have shackled mankind for all of recorded history until 40 years ago! But as I arrived in Hong Kong all that was about to change.
Today through telephone, fax and the Internet the same miner can find, monitor and conclude deals on a global basis, anywhere in the world within seconds. He can ship valuable cargo at high speed to modern airports and deliver cargo anywhere in the world within a day.
Technology has made international business easier and easier, thus investing has become more global as well.
Global investing simply offers more opportunity. The sun always shines somewhere and so does opportunity! Investing globally frees you from the constraints of your local culture, economy, political system and currency.
Technology has made every business market in the world more efficient and more global in nature. However these markets are still far from being perfectly efficient. This creates opportunity in distortions and the goal of this first session is to learn how to spot distortions.
Distortions are a Glimpse into the future.
I pointed out that none of us can see the future no more than we can help trying. Yet there is a way we can make accurate predictions about what will happen in years and months ahead, through distortions. We know enough about the universe to understand some of the balances that exist. When we see imbalances, we can expect corrections and the differing rates of economic social and political evolution creates distortions.
The case study is the first example and shows how a smart read to this site has spotted a distortion. He wrote:
"Dear Mr. Scott: Just got my June 2001 issue of "Jaguar Monthly" magazine. An article listed the UK top 10 Car Makes in customer satisfaction according to JD Power & Associates: Lexus 867 Jaguar 844 BMW 836 Toyota 834 Skoda 830 Porsche 830 Mercedes-Benz 829 Subaru 823 Audi 817 Honda 815 Industry Average 784 I'm sure the name that must have jumped off the screen at you is Skoda, tied with Porsche and ahead of MB, Audi and Honda. As a "motoring enthusiast" I am familiar with the brand, but I imagine most Americans are not. Likewise, I remember it as a "Czechoslovakian" company, but with the split into two countries I can only guess that it is a company from the Czech Republic, not Slovakia.
The reason I share this info with you is that I have a theory that the quality of a country’s cars is a measure of the quality of the country’s people, and by extension, the country’s economic strength and future direction. Something is happening in the Czech Republic, and I’d like to take advantage of it (other than by buying a Skoda).
Was wondering what thoughts you might have on my theory, and what steps I should take to share in the apparent emergence of a new European economic force.”
The distortion the reader spotted is that labor and costs in the Czech Republic are much lower than in Germany and Japan. This reader is very wise to have spotted this and pointed it out so there may be some special opportunity in this nation.
Your homework assigned before the course as to check out http://www.creditsuisse.com/ (one of the largest Swiss banks) and find the Czech branch of Credit Suisse. This bank operates an investment fund in the Czech Republic and is an excellent starting point of information. If you have looked it up the address is:
PRAGUE Lazarska 8 120 00 Prague 2 Czech Republic Tel: ++4202 5100 1311 Fax: ++4202 5100 1300 http://www.csam.cz/
This is an excellent starting point to learn about and invest in this country.
This is an Interactive Course
For the first time, thanks to the power of the Internet we can combine our knowledge and contacts. Share here with me the knowledge and contacts you have about the Czech Republic and it will help shape Session Two of this lesson which will focus on currencies.
Until then, good global business and investing!