International Investing

[luutzu]

We are all talking about better opportunities overseas and I agree the world is a big place to invest.

But should we also be thinking about what returns we can generate for our portfolios whether in Australia or overseas.?

We all know the great man Buffet was able to generate a 20%pa return for over 40 years.

So if we are only investing long term in the ASX and are generating this type of return or greater is there a reason to go overseas?

I would have thought that if your portfolio became so large that you where no longer able to generate this than that may be a time to look elsewhere.

I agree. The aim is absolute return, not travel and foreign adventures.

I don't think Buffett bought any foreign companies while running his partnerships; didn't buy any in first 20 or 30 years of Berkshire's 50 under him either. His subsidiaries and his holdings does operated everywhere, but from memory I'm pretty sure he didn't directly go overseas until quite recently (last 20 years, max).

I'm sure he looked at overseas, and have no problem with brokerage if he's interested... So it's quite obvious that him, and any investor, ought to go overseas if the opportunity and the return there is better for them than whatever market they're in at the moment... But if you're doing fine here, going into new markets is in itself not risk reduction.


Say you want to buy Wal-Mart. It has some 10x WOW's sales [?] ... just think of countless other countries with countless potential "associates" it could also exploit, haha. WOW could barely open a chain of hardware stores.

There's companies that expand overseas and do great... then there's your AMP and NAB a while back. Same with individual investors.

 

[Triathlete]

Out of our population of 23+ million, could you please tell me maybe three names whose record matched or exceeded Buffett over the forty year period investing long only, with long horizon, in Aust equities, as a portfolio investor?

I see your point DeepState

Obviously with his size of portfolio he needs to be in the biggest markets.

Let us bring this back to a more realistic level and say that the average ASX investor starts out with a modest
100K portfolio and because they have the right knowledge they can generate a 20%pa return over a 20 year period that is only around 4 million dollars.

Is this portfolio going to move the Australian market?
Have they generated a 20% return?
Did they go overseas?
Would you know there names?

As I said if your portfolio warrants you to go overseas then of course by all means.
For me it is about generating the returns on the portfolio and if I can do it on the ASX for now that is what I will do and keep repeating that process untill it no longer works.

I have said enough on the topic...thanks for everyones contribution it has been an enjoyable thread.

Happy investing / Trading everyone

 

[DeepState]

I see your point DeepState

Obviously with his size of portfolio he needs to be in the biggest markets.

Let us bring this back to a more realistic level and say that the average ASX investor starts out with a modest
100K portfolio and because they have the right knowledge they can generate a 20%pa return over a 20 year period that is only around 4 million dollars.

Is this portfolio going to move the Australian market?
Have they generated a 20% return?
Did they go overseas?
Would you know there names?

As I said if your portfolio warrants you to go overseas then of course by all means.
For me it is about generating the returns on the portfolio and if I can do it on the ASX for now that is what I will do and keep repeating that process untill it no longer works.

I have said enough on the topic...thanks for everyones contribution it has been an enjoyable thread.

Happy investing / Trading everyone

Actually, the issue arose for the OP, who likely has somewhat less than the capitalization of BRK in personal assets. This isn't to do with outgrowing a market in terms of market impact. It is to do with opportunity, if skilled, or diversification, if not.

Conservatively, even a concentrated portfolio consisting of Australian equities only has a chance of about 1:250k of achieving the outcome you seek. A celebratory dinner at the end of twenty years, if held, could be housed in a very small restaurant. If anything, that figure is a fairly gross over-estimate of the likelihood. Not impossible. Hardly a central case. Of those who manage to pull it off, I'd say we'd hear of at least some of their names. After all, those who pull off a 10-15 year record like this usually charge around 3% pa and 25% of upside for their services. They would have next to no problem, if skilled, raising a mere $50m and receiving fees of $3m per annum straight up and getting to their target wealth a whole lot quicker and with more certainty. That AUM is hardly constraining for a truly skilled investor. At the end of the twenty year period, if sustained, you'd know who they are because they would be mentioned every second paragraph in industry mags and everything they do will be scrutinized and copied to some degree, somewhere.

Right now, having worked in the industry for over twenty years at the end of town which mixes with such people, I know of none. Not even close. I would have thought a person setting out an investment plan ought not just assume they have the skills of the world's richest man and, likely, most successful investor, as a basis for operation. But, that's me and I'm not you.

I agree that this has been an enjoyable exchange. I feel confident that Systematic is data rational given all prior posts he has made. Whatever decision he makes will be peculiar to his circumstances, but will undoubtedly be well considered and, perhaps, richer for this exchange.

For info, it is more likely that the position you have espoused would be related to what is known as a 'home country bias'. It is a tendency for investors around the world to invest disproportionately in their home market, whatever its characteristics. It has more to do with comfort than investment. Nothing wrong with a bit of comfort, but the question was investment related. Over time, these home country biases have been eroded as the investment case asserts itself over the visceral concerns. In Australia, most institutional investors have around half of their equities held offshore...some much more. HNW clients also have a lot held offshore. Even the top professional fund managers usually have some of their personal wealth held offshore. In general, the more comfortable with investment, the less the home country bias becomes for the investor. It is instructive that basically all of the world's richest security traders invest offshore (eg. Buffett, Soros, Dalio, Fink, Yass, Gross, etc..) despite living in countries with exceptionally liquid markets.

More generously, it may have to do with 'preferred habitat' which is where people just have a zone they focus on and become more expert at. A national boundary or an economic sector are natural habitats...as is equity, bonds, currency or property for example, as asset classes. Other habitats exist, these being more common examples only. One of the best I ever came across was a cunning guy who kept strong tabs on the incoming salmon fishermen and arbed the on-shore salmon market. Now that's investing. These, in combination, can lead to pure Australian equity portfolios being the sole exposures in equities. Still, you will find that virtually all professional investors or HNW will find their way offshore in a direct listing sense, with an operating sense being a given.

In Australia, the cyclical nature of the AUD makes unhedged offshore equity exposure particularly appealing. When you add this with the narrow nature of our market and poor quality composition (by and large), you can see the strongest drivers towards offshore investment of some stripe.

FWIW, my offshore equity exposure is approximately 40% of my overall equity exposure. I have other foreign listed stuff which is not equity related in addition to that. I am presently underweight my 'strategic' offshore exposures for various reasons.

Have a good day.

 

[craft]

Actually, the issue arose for the OP, who likely has somewhat less than the capitalization of BRK in personal assets. This isn't to do with outgrowing a market in terms of market impact. It is to do with opportunity, if skilled, or diversification, if not.

Conservatively, even a concentrated portfolio consisting of Australian equities only has a chance of about 1:250k of achieving the outcome you seek. A celebratory dinner at the end of twenty years, if held, could be housed in a very small restaurant. If anything, that figure is a fairly gross over-estimate of the likelihood. Not impossible. Hardly a central case. Of those who manage to pull it off, I'd say we'd hear of at least some of their names. After all, those who pull off a 10-15 year record like this usually charge around 3% pa and 25% of upside for their services. They would have next to no problem, if skilled, raising a mere $50m and receiving fees of $3m per annum straight up and getting to their target wealth a whole lot quicker and with more certainty. That AUM is hardly constraining for a truly skilled investor. At the end of the twenty year period, if sustained, you'd know who they are because they would be mentioned every second paragraph in industry mags and everything they do will be scrutinized and copied to some degree, somewhere.

Right now, having worked in the industry for over twenty years at the end of town which mixes with such people, I know of none. Not even close. I would have thought a person setting out an investment plan ought not just assume they have the skills of the world's richest man and, likely, most successful investor, as a basis for operation. But, that's me and I'm not you.

I agree that this has been an enjoyable exchange. I feel confident that Systematic is data rational given all prior posts he has made. Whatever decision he makes will be peculiar to his circumstances, but will undoubtedly be well considered and, perhaps, richer for this exchange.

For info, it is more likely that the position you have espoused would be related to what is known as a 'home country bias'. It is a tendency for investors around the world to invest disproportionately in their home market, whatever its characteristics. It has more to do with comfort than investment. Nothing wrong with a bit of comfort, but the question was investment related. Over time, these home country biases have been eroded as the investment case asserts itself over the visceral concerns. In Australia, most institutional investors have around half of their equities held offshore...some much more. HNW clients also have a lot held offshore. Even the top professional fund managers usually have some of their personal wealth held offshore. In general, the more comfortable with investment, the less the home country bias becomes for the investor. It is instructive that basically all of the world's richest security traders invest offshore (eg. Buffett, Soros, Dalio, Fink, Yass, Gross, etc..) despite living in countries with exceptionally liquid markets.

More generously, it may have to do with 'preferred habitat' which is where people just have a zone they focus on and become more expert at. A national boundary or an economic sector are natural habitats...as is equity, bonds, currency or property for example, as asset classes. Other habitats exist, these being more common examples only. One of the best I ever came across was a cunning guy who kept strong tabs on the incoming salmon fishermen and arbed the on-shore salmon market. Now that's investing. These, in combination, can lead to pure Australian equity portfolios being the sole exposures in equities. Still, you will find that virtually all professional investors or HNW will find their way offshore in a direct listing sense, with an operating sense being a given.

In Australia, the cyclical nature of the AUD makes unhedged offshore equity exposure particularly appealing. When you add this with the narrow nature of our market and poor quality composition (by and large), you can see the strongest drivers towards offshore investment of some stripe.

FWIW, my offshore equity exposure is approximately 40% of my overall equity exposure. I have other foreign listed stuff which is not equity related in addition to that. I am presently underweight my 'strategic' offshore exposures for various reasons.

Have a good day.

Very interesting discussion.

Deepstate - your post makes me feel like a total anomaly.

 

[DeepState]

Very interesting discussion.

Deepstate - your post makes me feel like a total anomaly.

You are. But for excellent reasons. Will you please bring me to the dinner in twenty years time?

 

[The Falcon]

Say you want to buy Wal-Mart. It has some 10x WOW's sales [?] ... just think of countless other countries with countless potential "associates" it could also exploit, haha. WOW could barely open a chain of hardware stores.

There's companies that expand overseas and do great... then there's your AMP and NAB a while back. Same with individual investors.

To your example, here is the point, WMT is selling at same P/E as WOW. Which company has a greater potential runway for growth? Oz market ex ASX20 is sub scale. When they make international forays (as you mention) they are commoditised as none of them have durable brands outside of Oz. Home country bias probably not a big issue for US investors, as the S&P constituents are global leaders across all industries. ASX20 is some domestic banks and miners with a few odds and sods thrown in. This is very much a bet on Oz, rather than global growth.

Now, probably not of interest to a trader, who can participate in any market. But, personally with a large Oz exposure in the form of real estate, ASX stocks, and an operating business, I want to take a larger tilt to global markets and in particular businesses that can compound wealth over the very long term.

 

[craft]

To your example, here is the point, WMT is selling at same P/E as WOW. Which company has a greater potential runway for growth? Oz market ex ASX20 is sub scale. When they make international forays (as you mention) they are commoditised as none of them have durable brands outside of Oz. Home country bias probably not a big issue for US investors, as the S&P constituents are global leaders across all industries. ASX20 is some domestic banks and miners with a few odds and sods thrown in. This is very much a bet on Oz, rather than global growth.

Now, probably not of interest to a trader, who can participate in any market. But, personally with a large Oz exposure in the form of real estate, ASX stocks, and an operating business, I want to take a larger tilt to global markets and in particular businesses that can compound wealth over the very long term.

Hi Falcon - some reading for you.

https://hbr.org/2005/09/all-strategy-is-local

 

[The Falcon]

Hi Falcon - some reading for you.

https://hbr.org/2005/09/all-strategy-is-local

Re; WMT, I was making a lazy response more as a conceptual rather than actual example. BUT, I am keen to follow that up with some analysis less than 10 years old. A capacity to suffer is required when entering new markets, so not sure that success of otherwise can be judged so quickly.

Stocks I am talking about along the lines of NSRGY/PM/KO/JNJ/BRK/CFR/UL/DEO/SAB/MA/GE/PG/HEIO/CFR.VX/MKL/FFH.TO. This is the stuff I am interested in addition to ASX stocks.

This kind of discussion on a forum like ASF will reach no consensus, as each will be convinced their position is correct.

 

[craft]

Re; WMT, I was making a lazy response more as a conceptual rather than actual example. BUT, I am keen to follow that up with some analysis less than 10 years old. A capacity to suffer is required when entering new markets, so not sure that success of otherwise can be judged so quickly.

Stocks I am talking about along the lines of NSRGY/PM/KO/JNJ/BRK/CFR/UL/DEO/SAB/MA/GE/PG/HEIO/CFR.VX/MKL/FFH.TO. This is the stuff I am interested in addition to ASX stocks.

This kind of discussion on a forum like ASF will reach no consensus, as each will be convinced their position is correct.

Does it need to reach consensus?

Conviction of being right is a very dangerous thing.

Much too be taken from this discussion from both perspectives if you have an open mind. The cogitative dissonance though of accommodating opposing views is probably too much for most to handle.

 

[The Falcon]

No it doesn't. Fair point.

 

[luutzu]

To your example, here is the point, WMT is selling at same P/E as WOW. Which company has a greater potential runway for growth? Oz market ex ASX20 is sub scale. When they make international forays (as you mention) they are commoditised as none of them have durable brands outside of Oz. Home country bias probably not a big issue for US investors, as the S&P constituents are global leaders across all industries. ASX20 is some domestic banks and miners with a few odds and sods thrown in. This is very much a bet on Oz, rather than global growth.

Now, probably not of interest to a trader, who can participate in any market. But, personally with a large Oz exposure in the form of real estate, ASX stocks, and an operating business, I want to take a larger tilt to global markets and in particular businesses that can compound wealth over the very long term.

If same PE, WalMart is currently cheaper than WOW. And from memory, at $29.50, WOW is at same price level back in 2000 or so.

I'm with you regarding exposure and greater potential growth of, say, US businesses compare to Australians. But at the same time, we shouldn't think that simple exposure to other markets automatically reduce portfolio risk and access to greater gains than just this home bias tendency.

Investment returns correlate with buying good businesses at nice prices, not with timezone of the head office or place of incorporation.


Saw a slide from one of DeepState's posting - there's some chart saying diversification into emerging markets equities reduces a portfolio's equities risk by 30% or something. That seems to be the thinking behind the fund management industry, that if you put cash everywhere, it's more gain and less risk. I don't think that's the case at all.

The brokers and consulting firms would think so (and tell you why and how when you pay them), the MBA factories have got to find work for their grads... and fund managers got to look like they're doing something smart to collect the 2% of AUM a year - can't be too clever or work too hard and do something dumb like investing in businesses you know very well operating in jurisdictions you grew up in - got to be able to diversify and have things to point to when it goes wrong (everyone else does it; what is wrong with the US economy, man; that's what they taught us in our MBA...)

Read, some 10 years ago, how UBS closes shop after a couple of years in Vietnam. Losing some $250million for the dream of investment banking in an emerging market with a growing blah blah. Turns out the comrades changes the law every couple of weeks, and the new laws supersede the previous ones, and you could be found guilty under the new laws for things that were perfectly legal before the changes. Maybe the communists there don't know international banking practices, they sure know how to take your cake and eat your lunch too.

But yea, best to invest in the likes of GE and WMT... those guys there know how to deal with the government and their "taxes"

 

[DeepState]

For those who like to work off facts and data, I thought this was interesting in the context of this discussion:



Might ring some bells. Might not.

 

[DeepState]

Re; WMT, I was making a lazy response more as a conceptual rather than actual example. BUT, I am keen to follow that up with some analysis less than 10 years old. A capacity to suffer is required when entering new markets, so not sure that success of otherwise can be judged so quickly.

Stocks I am talking about along the lines of NSRGY/PM/KO/JNJ/BRK/CFR/UL/DEO/SAB/MA/GE/PG/HEIO/CFR.VX/MKL/FFH.TO. This is the stuff I am interested in addition to ASX stocks.

This kind of discussion on a forum like ASF will reach no consensus, as each will be convinced their position is correct.

Yep. This is good. Let's pursue this.

Assume, for illustration, that there are ony 20 stocks in the Aust market of scale. A key part to successful investing is comparison of relative value. There are Combo(20,2) = 190 pairs you can compare against in Aust alone. If you are any good at all, that's 190 inestment decisions from which you can take to improve your circumstances. Before the Buffett quoters get going yet again, you can compare against cash or zero as well if you want.

If you then add 10 stocks from offshore, kind of like the above, you now have Combo(30,2) = 435 pairwise choices. If you are skilled, that's more than twice the wiggle room to profit. To give you some notion of the value of this, a very rough illustrative ballpark of your ability to generate risk adjusted returns improves by around sqrt(2) by this additional flexibility. That's pretty massive. The better you are, the more it is worth. If you are no good at all, and everything is random choice anyway (even if you assess different stock as having meaningful disounts etc, maybe even talk a lot about moats and stuff... but these choices don't turn out that way when it comes down to it), you will still have greater opportunity to reduce the risk taken as you profit soley from equity risk premium. Given the choice of reducing my risk of getting a seriously bad outcome and keeping it as is, I'd make the choice to reduce it. However, I appreciate that others might like a more entertaining route or find that concept too radical. Ex Ante, adding furter opportunity to diversify cannot be worse than having less opportunity.

If you have bandwidth restrictions, if you are any good, you'd know where to concentrate your efforts. Of the 435 pairs you now have as an international investor, it would be a total freak if the best X pairs that you can monitor are found within the domestic 190. If you are no good, at least you'll have more entertaining war stories of the bull and bear variety by randomly selecting some pairs involving offshore investment.

For the anomalies of the very positive idiosyncratic variety out there, staying within the domestic 190 can make sense if that's where all their efforts and experience have been concentrated and they are genuinely good. They may assign zero (or otherwise very low) ability to any pairs involving offshore stock. However, even for these rare birds, there may be opportunities to increase earning power for any given level of risk of any description by progressively prioritising towards offshore opportunities that they find more prospective as sources of mispricing. Ex ante, the ability to do so implies the only way is up...or staying where you are.

For reasons apparent in behavioural finance, some may find it especially odious to lose money on an offshore expedition than to lose the same amount in a domestic stock. All the best with that. It won't keep you warm at night when the bills come in.

 

[luutzu]

For those who like to work off facts and data, I thought this was interesting in the context of this discussion:

View attachment 62216

Might ring some bells. Might not.

You got facts and data on returns by those fund managers diversifying overseas and across asset classes? Maybe a breakdown of performance from home-base investments vs performance of foreign investments.

I'll wager that if the fund manager is good at home, they'll do equally well or slightly better overseas; if they are no good, they'd either suk at both or do worst abroad. Average returns over 5 to 10 years, not short term returns.

Does any of them come close to Buffett or any of his fellow students learning from Graham and Dodd?

Hostility I sense

 

[DeepState]

An interesting example of how home country bias manifests itself (from WSJ)...even if the underlying is a domestic index :



http://www.wsj.com/articles/this-is...-up-1429274625?mod=WSJ_hps_MIDDLE_Video_Third

 

[noirua]

Univision Engineering Limited LSE AIM:UVEL Http://www.uvel.com
Company is based in Hong Kong and all interests are based there.
Univision Analyses: Https://simplywall.st/stocks/gb/tech/aim-uvel/univision-engineering-shares?utm_medium=finance_user&utm_source=post&utm_campaign=CTA_ticker&blueprint=315133

Annual results will be out by 31 August 2019 UK London time. Market Open 8am to 4-30pm UK BST

Half Year Results: 07/12/2018 - Interim Results to September 30 2018: https://uk.advfn.com/stock-market/l...sion-Engineering-Ltd-Interim-Results/78841590

 

[Value Hunter]

Most Australian investors will have some kind of international exposure whether that be through their industry or retail super fund, through the offshore earnings of ASX listed companies such as Cochlear, BHP Billiton, CSL, Seek, Xero, etc or through listed investment companies or managed funds that invest offshore. I have never had a deliberate strategy of gaining international exposure but I have gained some in any case. I think in most cases it ends up being a question of the degree of international exposure rather than having any or not.

If you look at people like Buffett he never had a plan to have a certain percentage of international exposure. Rather he took things one investment opportunity at a time and ended up with some international exposure. That is the same way I have always operated. I never saw the sense in having some prescribed asset allocation model. One should invest wherever and whenever they see opportunity and let the chips fall where they may.

The other point that people like Deepstate seem to miss about having more opportunities is that retail investors are not a large funds management company with dozens of full time analysts. The ASX alone has over 2000 securities how many securities can a part time retail investor analyse?

According to this investopedia article below there are an estimated 630,000 + listed securities in the world.
https://www.investopedia.com/financial-edge/1212/stock-exchanges-around-the-world.aspx
Does anybody expect a retail investor to comb through hundreds of thousands of securities to find the absolute best in the world.

This is aside from the admin, tax, and foreign currency issues with having direct overseas exposure to stocks.

 

[Value Hunter]

Besides as I pointed out in my first paragraph investors can and likely will have some foreign exposure without ever having to directly purchase a security on a foreign exchange. All of my international exposure is through a combination of an industry super fund and investments listed on the ASX (foreign focused listed investment companies, ASX companies with some foreign earnings and ASX listed companies which are actually based and domiciled offshore and have the majority of their earnings in other countries but are merely listed on the ASX).

 

[Garpal Gumnut]

I was looking at spending a few kopeks on Saudi Aramco when it listed.

I believe from a Korean friend ( who hates the Japanese ) that it is to be listed on the Nikkei.
via Australian brokers

Has anyone on ASF had experience with trading stocks on the Nikkei via Australian brokers.

gg

ps My Korean friend is quite racist and hateful but seems to like me for a reason which I am at a loss to explain. I imagine he may become useful if the Vegans take over.

gg

 

[noirua]

Univision Engineering Limited LSE AIM:UVEL Http://www.uvel.com
Company is based in Hong Kong and all interests are based there.
Univision Analyses: Https://simplywall.st/stocks/gb/tech/aim-uvel/univision-engineering-shares?utm_medium=finance_user&utm_source=post&utm_campaign=CTA_ticker&blueprint=315133

Annual results will be out by 31 August 2019 UK London time. Market Open 8am to 4-30pm UK BST

Half Year Results: 07/12/2018 - Interim Results to September 30 2018: https://uk.advfn.com/stock-market/l...sion-Engineering-Ltd-Interim-Results/78841590

RNS - UniVision (AIM: UVEL), the Hong Kong based group whose principal activities are the supply, design, installation and maintenance of closed-circuit television (CCTV) and surveillance systems, and the sale of security related products, announces that, further to the announcement on 15 July 2019, the Company will now release its Final Results, for the year ended 31 March 2019, in the next week.