Foreign Stocks

There’s always someone at a party who’s claiming their investment asset of choices is the best. In 1999, it was stocks. In 2005, it was real estate. Right now, I’m claiming its Canadian Income Funds and commodities like gold. But is there an investment that’s actually better than something else?

Many proponents of the stock market have claimed that it is better than real estate. It’s more liquid and there’s never been a 10 year cycle where the S&P 500 had a down year. Of course, that’s rubbish. Ever try selling your stocks when the market is tanking? You’ll get taken to the cleaners. According to CNN Money, stocks follow a 16 year cycle. They go up for 16 years and then they’re roughly flat for the next 16 or so years.

Right now the Dow Jones Index is almost where it was back in early 2000. Adjusting for inflation, you’re still underwater. There’s also an often quoted comment about the stock market returning 11.5% a year over the long run. According to Ben Stein, this is factually incorrect. Over a rolling 20 year period since 1900, the stock market has on average returned just under 8%. Real estate also has had similar cycles. In Southern California, where I live, the market was down from 1991 to 1996, after booming for several years. Then in 1997 until 2005 it boomed again. Right now its falling again. Similarly in Salt Lake City, another market I follow and invest in, real estate boomed from 1991 until 1997 and then was stagnant until the end of 2004. Since 2005, its been in on the upswing again.NAR, the National Association of Real Estate, often cite the fact that nationwide, real estate has never gone down. That’s a useless fact unless you’re going to be buying a house in every major city in every state. Locally, real estate does follow periodic and somewhat predictable cycles. Between 2000 and 2005, when the stock market was tanking, real estate performed wonderfully.

And like stocks and real estate, commodities also have their own cycles. Chuck Butler , President of just sent me this email, “… the current Bull Market for commodities is at about 7 years and running… History shows us that (going back 200 years) that Bull Markets in Commodities have trends that last 17-22 years”. If you had bought gold in 1971 for $35/oz, you would’ve done extremely well by selling it in 1980-81 for nearly $800/oz. However, between 1982 and 2000 it languished and you might have given up and sold everything in 1999 after seeing the tremendous returns of the stock market. After all, nothing beats the stock market, right!

But $800/oz gold is here again. I’ve been investing since 2005 when it was around $500/oz. Gold has tripled since its lows of 2000 and is probably set to rally even further as the US Dollar continues its slide.

Even businesses are not free from cycles. There are times when businesses are cheap to buy (if you have the money) and are great money makers, and there are times when they are expensive (although easy with cheap money and easy liquidity) and tough to sustain at a profit.

So essentially there is no ideal investment. No single investment will yield substantial returns, year after year, for extended periods of time. Either you have to be on top of the economic factors that affect the various cycles, and keep switching in and out every few years or decades, or you need to diversify your assets so you have equal exposure to various different asset classes.

So unless you have exposure you US & foreign stocks and bonds, global real estate, currencies, commodities like oil & gas, precious metals, building materials like steel, lumber and copper, and even your own businesses, your investment portfolio is incomplete.

Claiming that one investment is better than another is just the result of ignorance. (Unless you decide to get a job as a day-trader, in which case trading indexed futures is probably the best vehicle, although the toughest to succeed at. But thats not an investment, its more like a job!)

Regular readers already know my penchant for collecting Napoleon I era gold coins. Just like Napoleon Bonaparte, I too harbor a secret desire to conquer the world. But unlike Napoleon (or George W. Bush for that matter) I don’t want to invade them. I want to prosper by investing in their economies.

The Us economy is no longer the growth engine of the world. Rising prosperity levels in all across the world have caused a massive redistribution in the global economy. So what’s the best way to profit from this? Apart from reading several other posts and forming your own conclusions, you can blindly diversify out of your US and into global ETFs.

Here are some of the ETF/ETNs on my radar. Make sure you don’t blindly invest in them. I typically go to ETFConnect and make sure I read up a little bit on what it invests in, and more importantly that it’s not selling at a massive premium to its Net Asset Value

EWS: iShares MSCI Singapore Index

Singapore’s economy is booming. Their currency is also strengthening against the US Dollar (as is every other currency, so that’s pretty redundant!) and several people think it’ll continue to do exceptionally well in 2008.

EWY: iShares MSCI South Korea Index

Korea is booming too. And Warren Buffett thinks its stock market is at a good valuation. I bought KF instead of EWY, mainly because it very recently returned a 30% dividend which was used to purchase stock at a price which was the lower of the market price or NAV. I basically got re-invested at $28.50 vs an NAV of $31.55, which represents a 9% discount.

FXA: CurrencyShares Australian Dollar Trust

Direct bet against the US Dollar. This is like buying a CD, you get monthly interest currently around ~5%. You can also look at FXE, FXB, FXY, FXC and FXS – whatever tickles your fancy.

JSC: SPDR Russell/Nomura Small Cap Japan

The Japanese economy has been stagnant for a very long time. Looks like things are finally picking up. The Yen is also finally showing signs of strength too.

SWZ: Swiss Helvetia Fund Inc.

This is an ETF that invests primarily in low-risk blue-chip stocks based out of Switzerland. Most of them have a global presence and are household names like Nestle, Roche, Novartis, UBS AG, Credit Sussie, etc. As the carry trade slowly unwinds, the swiss franc should also continue to appreciate.

EWZ: iShares MSCI Brazil Index

This Brazilian ETF has been a stock to own this year. Its up almost 100% in the past 12 months. I’m not saying you should jump in now, but definitely keep it on your watch list.

INP: iPath MSCI India Index ETN

Another doubler, this currently seems overvalued. Its trading at a 20% premium to NAV. If I was a hedge fund, I’d buy the underlying stocks and short this one. But I’m not. So I won’t. But it has stellar companies like HDFC, Reliance Communications, Oil and Natural Gas Corp (ONGC), L &T, Infosys, and Satyam Computers. Definitely something to buy on a pullback.

These are just a handful of stocks to start you on your way to total world domination! Let me know if you have any of your favorites. Happy Investing!

I was in Los Angeles for the past several days. While spending several hours parked on the 405 freeway I heard Ben Stein on the radio. He thinks financial stocks have been beaten up and are great values right now (as of November 13th 2007).

He recommended buying a financial sector ETF. I think he mentioned Financial Select Sector SPDR (XLF). He thinks stocks like Citigroup (C) and Bank of America (BAC) aren’t going to go bankrupt and the market is over-reating. Thats quite a contrast in opinion from last week’s comment by Jim Rogers, who’s short the financial sector via ETFs.

While I didn’t jump in and buy either Citigroup or Bank of America, I did close my positions in UltraShort Financials ProShares (SKF) and UltraShort QQQ ProShares (QID) yesterday for a slight gain. I’m still not convinced enough to go long though.

Stein also recommends buying Energy Select Sector SPDR (XLE) . I’m long on the energy sector ad I think XLE will probably do well. However, I’m already heavily weighted in Canroys and direct oil-gas drilling programs so I’ll stay out of XLE too.

Since I decided to kick the old job (which was a hard habit to break), I’m going to be more reliant on my passive income. Part of my passive income comes from Canadian Income Funds, some of which pay out over 16% in annual yields. They pay out the dividends on a monthly basis and after tax (which the Canadian Government takes out at source) it still works out to over 1% per month. This is about 3 times what I get in my savings account!

Also, being enrolled in the dividend-reinvest program (also called DRIP) my dividends are used to buy more stock every month without paying a commission. Any best of all, some stocks offer a discount to the prevailing market price.

I added to my position in Harvest Energy Trust (HTE) yesterday. I calculated I have too much money in savings, even if I don’t have a job for the next year. So I decided to take a little bit of money (from my Bank of America account, which pays half a percent in interest) and buy something that yields 16.5% per year (just over 14% if you consider the Canadian Tax). While the monthly increase in my cashflow is not significant, its still a good optimization of my resources. And after all, leveraging and optimizing one’s resouces is how you get rich. Their DRIP offers a discount too.

If it drops a bit from here, then I’ll probably buy more, else I’ll buy Australian Currencyshares Trust (FXA), which pays out ~5.5% yield. If the Federal Reserve cuts the rate tomorrow and the Reserve Bank of Australia boosts it next week, we could see parity between the USD and AUD in fairly short order.

In the long run I think energy prices are heading higher and the USD is heading lower. Having the conviction to follow through with your beliefs is also an important factor to becoming rich. Either way, I’m pretty sure exchanging my USD for something else is a good idea.

Its not often that Warren Buffett offers investing advice that’s easily to implement. According to an email I just got yesterday,

“We are still negative on the dollar,” Buffett continued, shifting his focus to Berkshire’s strategy for dealing with the troubled U.S. currency. “We bought stocks in companies that are earning their money in other currencies. We are gaining foreign currency exposure.” His comments echo Jim Rogers’ and Julian Robertson’s bearishness from yesterday.

So where will the $52 billion man be putting his money?

“My impression is that the Korean market is modestly cheaper than other markets in the world. I think the Korean market will do better for the next 10 years,” said Buffett. The Oracle of Omaha is currently visiting the TaeguTec facility in Daegu, South Korea. TaeguTec is a subsidiary of Iscar — a company Berkshire Hathaway bought a $4 billion stake in last year. While there, he voiced his approval of South Korean steelmaker Posco.

“It’s a great company,” Buffett said of Posco, “and great companies get worth more and more all the time.”

I had recently sold half my PTR stake and bought ICON Asia-Pacific Region S Fund(ICARX), which has quite a few korean companies in it. But if you want to get a pure Korean play, iShares MSCI South Korea Index (EWY) is a good buy. Its up 40%+ YTD!

Another good buy is the Korea Fund (KF). Like EWY, its also up 40%+ YTD. I bought a little bit today since its paying a crazy 32% dividend and today its going ex-dividend (which means its the last day to buy it and get the dividend).

If you’d like to buy it, it should trade at a 32% discount on Monday (since it’ll be ex-dividend, it will most likely drop by the amount of the dividend) even though the dividend won’t be paid out until end of November.

The advantage to buying right before the dividend is that sometimes stocks don’t drop the full amount of the dividend or they quickly make up the loss in share price. The disadvantage is you’re slapped with a dividend and a tax liability immediately.

Maybe I’ll sell the other half of PTR and buy EWY as well. Although, according to ETFConnect, KF trades at a 5% discount to NAV, while EWY trades at a 1% premium.

But regardless of what you buy, you’ve been given a chance to invest like Buffett.

I just sold half my stake in PetroChina(PTR).  Actually I put the order in over the weekend and forgot about it. When I bought PTR, the dividend yield was 4.85%, which is more than you get in most bank CD’s. Since the whopping 130%+ run-up in price, the dividend yield has dropped to a mediocre 2.30%.

My first and foremost goal, when it comes to investing, is to get a good dividend yield. Most of my portfolio consists of high-yielding Canadian income funds (Canroys) and is heavily weighted towards oil & gas and mining companies.
Since there’s a lot of excitement surrounding PTR’s Chinese IPO, there’s a good chance that it can rise even higher. However, if the dividend yield doesn’t keep up, it might be a signal that the valuation is becoming too rich. Of course, if the market considers it a growth stock instead of a value stock, it deserves a low yield ( and high PE ratio). However, PTR is already the world 2nd largest company. How much more can it grow?

Will it double from here and become the world first Trillion Dollar Company? I don’t know. But I don’t think so. I’d rather take my profits and invest them in a company which has a better chance of doubling.

Jim Rogers, co-founder of Quantum Fund along with George Soros, achieved 4,000% returns in the 80’s. He’s famous for being bearish on the US economy and the US Dollar. However, he’s currently bullish on the Dollar, saying that everyone is negative on it.

In his opinion, when too many people take one side of a trade, the opposite is likely to happen. The Dollar has been in a bear market since 2002, but it turned bullish during 2005. He thinks its over-sold and in the short-term at least, due for a correction.

While I’m not buying any Dollars, I could definitely use a spike in the USD for my entry point into Australian Dollars.

Many claim the dollar’s weakness is helping offset a dropoff in U.S. economic demand that’s come from a recession in the housing market. Goods priced in dollars are cheaper in Europe or Australia, and manufacturing in the U.S. becomes more attractive for companies that export goods. That helps preserve jobs in the U.S.

But a debased currency is a hefty price to pay for growth, and not an easily reversible one, says Rogers. It breeds inflation and weak purchasing power, which ultimately undermines any short-term boost in growth. He reiterated his belief that the U.S. dollar is bound for a decline similar to the British pound’s 50% decline in the early 1980s.

He’s not very impressed with Bernanke lowering the interest rates either.

“The fool went and cut interest rates with the stock market down 6%,” he says of Fed Chairman Ben Bernanke. “What’s he going to do when stocks are down 30%?”

He says Bernanke and the Fed are ignoring obvious evidence of inflation in food, education and entertainment prices.

“This is a man who’s made a career learning about printing money and now we’ve handed him the printing press,” he says, likening Bernanke to his predecessor Alan Greenspan in their penchant for saving the markets by cutting rates and inflating asset bubbles.

Rogers is a believer in the global growth story, particularly China’s. He said he’s sold out of all his emerging market investments except for his investments in China, claiming the other emerging nations have “been exploited by 20,000 MBAs running around looking for markets.”

Rogers hopes he’ll be able to pass down his Chinese stocks to his 4-year-old daughter, but adds he may be forced to sell.

“If a bubble develops in China in the next year or two, I’ll have to sell because bubbles end badly,” says Rogers, pointing to Japan, where stocks remain well below their levels of over a decade ago. But he believes Chinese stocks would have to double before he’d feel forced to sell.

The self-proclaimed “inactive investor” is not buying much these days. He’s bullish on commodities, though he agreed he’d be hard pressed to find anything to buy at these levels. If he’d buy any commodity it would be in the agricultural space rather than the metals, though he declined to specify one. He’s short the U.S. investment banks along with the dollar.

Next to China, Rogers says he’s long gold.

I’ll undoubtedly buy more gold,” he says, predicting it will double from here in the next few years.

PetroChina (PTR) has been on a tear recently. Since bottoming around $125 a month ago, its risen exponentially to $175 today. That’s a 40% in about 30 days! And thats despite the news that the 2nd largest shareholder Warren Buffett has been busy liquidating small amounts of his holdings. Its up solely on the news of its IPO in China.

BHP Billiton (BHP) has also jumped recently on news that its Olympic Dam site is the world’s largest resource for uranium, the fourth-largest deposit for copper, and ranks among top-producing Australian mines in gold and silver production. Its currently at 27 year highs. Its also up 45% in the past month and nearly 100% in the past year.

While I didn’t panic and sell liquidate my holdings during the sell off in July, I did use that opportunity to buy more of my favorite Canroys. Most of them are flat to barely up since then. But they’re still paying dividends so I expect them to continue to chugg along.

Most of my porfolio is heavily wieghted towards oil/gas and commodity stocks. One of the few exceptions is SRS which I been trading in and out of and FXA which is an Australian currency ETF that also yields just over 5%.

I’m thinking of buying some Berskhire Hathway B shares (BRK-B) since they’re looking a bit week technically right now. I’ve been watching them for a while. The last time I was going to pull the trigger they shot up 10% so I’m waiting for a slight pullback.

Did any of you make a killing in a stock you’ve purchased in the past month? Let me know.

Here’s a really, really good video on how the carry trade works and what implications it has on global asset prices and the global financial stability.

I think the carry trade will have to reverse at some point in the near future. Trees do not grow to the skies and financial excesses do not last forever. When the average man on the street with no financial education starts talking or investing in a particular sector, it usually marks the end of that run. (In 2000 I overheard my hair-dresser talking about internet stocks – I should’ve sold then. In early 2005, I overheard some guys at the movie theater talking about getting into the local real estate market – I sold then and I’m glad I did!)

With Japanese housewives partaking in the carry-trade now, I think its safe to say that we’re pretty close to the end of the cycle of cheap, easy money. I sold some USD and bought Yen and I’ve also invested some money in Japanese investments (a REIT and a stock ETF).

Related Posts:

Shares of American Home Mortgage Investment Corp. (AHM) gapped down today nearly 90%!!! Thats after they already dropped from $30 to $10 last week! Despite the rebound in the market today, most home-lending companies were down. And later in the day, the market was down on AHM’s news.

I think this might be an indicator of the growing liquidity crunch. The excess liquidity that was sloshing around seems to have dried up rather suddenly. After Bear Stearns reveavled that its subprime hedge funds were worthless, it seems that everyone’s suddenly concerned that the AAA ratings issued might not really be true and the subprime debacle might spread to Alt-A and prime paper too!

John Devaney, CEO of United Capital Markets, a hedge fund that focuses on buying subprime ARM-backed securities, has been forced to sell his $23.5 million 145-foot yacht and his $16 million Aspen vacation home. Things must be really bad when you have to sell your boat and home!

It also seems that leveraged-buyout party is close to an end. The highly anticipated Chrysler/Cerberus has stalled. Even Blackstone is nearly 36% off its highs. And now it seems that Bernanke won’t bail out investors by cutting interest rates.

Looks like a real good time to be a buyer of gold coins and gold stocks!