Berkshire Hathaway's (NYSE: BRK-B) Warren Buffett, perhaps channeling Eleanor Roosevelt,
has been quoted as saying: "You want to learn from experience, but you
want to learn from other people's experience when you can."
This adage isn't as easy to act upon as it may seem.
My colleague Adam Wiederman has a great piece telling Fools about his losing position in Allied Irish Banks, and how to avoid his mistakes. You may be nursing a similar wound in your own portfolio, and thus identify with Adam's plight. Still, you don't literally
feel his pain. Only personal losses cut that deep. So how likely are
you to take his lesson to heart, without taking the hit yourself?
A stock's seductive story, combined with the enthusiasm of the
crowd, can sometimes cloud the clearest of investing minds. Maybe it's
futile, then, to tell these cautionary tales.
Well, I'm going to give it a shot anyway. This lesson's far less
psychologically sticky than Adam's battle with confirmation bias. It's
one you can easily apply, and should help you avoid losing money. Sound
good?
Not just a platitude, dude
You've surely
heard that investing in emerging markets carries elevated risks. Of
course, that's painting things with a pretty broad brush. For example, India is a lot different than China.
But in general, there are serious pitfalls to contend with when you
start looking at countries where governments are prone to topple,
there's violence in the streets, or corruption is ingrained in the
business culture.
Globe-trotting Fool Bill Mann boiled it all down to this key issue
back in 2006: "Investing in another country means that you need to have
an understanding about what the people to whom you are entrusting your
money think about people like you."
From Russia, without love
Russian
businessmen have repeatedly shown that they don't think much of people
like you. And by that, I don't just mean American investors.
Citing the "unpredictability of administrative processes" in Russia,
Swedish retail behemoth Ikea iced all its future Russian investments
earlier this year. The company's founder spoke about being gouged on
electricity prices there in supposed retaliation for an unwillingness
to grease some palms. In a statement very reminiscent of that Bill Mann
quote, Ikea's country director conveyed the feeling to an interviewer
that "someone somewhere does not like us."
So it is that Ikea joins a very long list of Western businesses to catch that frigid feeling. Pan American Silver (Nasdaq: PAAS)
learned this lesson back in 1999, when its Dukat project was "ambushed"
(in the company's words) by a local Russian company. More recently, Big
Oil has been the one getting roughed up by the Russian bear, from Royal Dutch Shell's getting shooed away from Sakhalin-2 to the ouster of Robert Dudley as head of BP's (NYSE: BP) joint venture in the country.
Despite this boorish behavior, the allure of Russia's resource wealth continues to draw in the likes of Kinross Gold (NYSE: KGC) and Total SA (NYSE: TOT).
I think they are making a mistake. Ikea certainly did, but recognized
it quickly enough, and will now bring its meatballs and BEDDINGE futons
to places where they will be better appreciated.
Meatballs to morals
For me, this is an
experience that I don't need to suffer firsthand. Russia is a big-time
"avoid" in my book. That definitely rules out folks like Mechel OAO (NYSE: MTL), and even makes me reluctant to consider something like ConocoPhillips (NYSE: COP), with its 20% stake in Lukoil.
Yes, the country's stocks often look cheap, but as my colleague Ivan Martchev argued, they may always remain so.
Despite the risks, investing internationally may be the only way to preserve your wealth. Find out why Tim Hanson thinks the dollar is doomed and what you can do about it.
© 2009 UCLICK L.L.C.
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