Panic sales in emerging markets will often create bargains, like the four shared here by Benj Gallander, who explains the other benefits and limitations of contrarian global investing.
Benj, tell us within your contrarian strategy how an individual investor might go about investing globally.
Well, what I do is look at countries that are often having difficulties.
A perfect example is back in the mid-1990s. I was buying into a lot of the Asian countries that were having problems. It’s key to look at a region like that, because often what happens is stock market in certain countries get decimated, and when that happens it generally leads to certain bargains.
What I do try to avoid, though, is going into countries where I know there’s a lot of corruption. If there is a lot of corruption, then you know any returns you have will most often be trimmed back, because the other people have to get what they consider to be their fair share.
So what’s a good way, then, for investors to begin researching the markets that might be right for them?
Well, what you can do is look at the annual returns for different countries. A number of years ago, almost every country in the world was way up in value, and then in 2008 they got absolutely killed, so that’s a point where things are of incredible interest.
A number of months ago, I got very interested in China. Part of it was because of what happened just recently with Sino-Forest (Toronto: TRE). When Sino-Forest had all their difficulties, a lot of Chinese companies got painted with the same brush.
What I did was look at companies like China Security and Surveillance (CSR). It was trading at around $4.50 and they had a $6.50 offer on the table. I thought it might be a good buy.
Another company in China that I really liked was Deswell Industries (DSWL). They’re a plastic and metal fabricator. They trade around $3, they pay a dividend that’s currently at three cents a quarter. They have a skilled management team that’s made money in the past.
It’s not all good there, though, because Chinese wages have been going up dramatically. They faced two 50% wage increases over the past year so that cut margins. What the company did was they laid off workers. It’s unfortunate they had to do it, but we have those competitive aspectsâ€"to stay competitive you have to do something.
Do you own both of these?
I own both of these, and in the portfolio that I manage…they’re both in the portfolio.
In addition to a couple of these Chinese names, any other global regions that may be worth a look right now?
Well, I think for those who really want to move further afield, they might want to look at Greece. Tthey might want to look at Ireland.
Those countries have been really badly beaten up. You have to have a real stomach for it. You have to be willing to be patient. You also have to be willing to, in some cases, risk all of the capital that you invest in certain companies.
For example, I own a piece of National Bank of Greece (NBG). It is certainly not for the faint-hearted. I actually lost about two-thirds of the money I put in. Doesn’t sound good, and I’m not recommending it by any means, but it’s the kind of thing to do.
I did the same thing with Bank of Ireland (IRE) and I had its ten-bagger a couple of years ago in about seven months. In that case it worked. National Bank of Greece hasn’t worked, but overall if you have a ten-bagger or a five-bagger it can offset some of the losers. [Incidentally, in the rally that followed this interview, NBG has tripledâ€"Editor.]
When you say a five-bagger or ten-bagger, what do you mean by that?
Well, a stock that goes up five times is a five-bagger, and a stock that goes up ten times is a ten-bagger. In our system, we’re always looking for stocks to at least doubleâ€"often three, four times or moreâ€"so you can have absolutely tremendous returns that way. And it does counterbalance some of the losers, which all of us have.