Find Your Way to Greek Riches

This is a fictional tale of a heroic investor, perhaps from Ithaca, NY, who made risky investments into the best stocks that Greece had to offer. Note this is fiction, and Greece and its public companies could very well end up much different in reality.

"Tell me, oh muse, of that ingenious investor who traveled far and wide after he had secured his retirement with some fantastic long-term Greek stocks. Let us hear of how he navigated safely through the incredible economic mess of Greece to find riches."

The muse, not one for flowery language, answered, "Sure, let's look at just how bad the Greek economy was, and then what stocks were best positioned to recover..."

Part I: A long way back to Ithaca
It was 2012, and Greece was a member of the European Union, although it only accounted for 1.5% of total EU GDP. Still, like a small bag containing all the winds in the world, the economic consequences of relatively tiny Greece could easily spread across the entire continent. This was because while the EU was fantastic at adding countries, having grown from its original six to 27, it didn't have much practice in kicking countries out. This was especially true for the eurozone, the group of 17 countries intricately tied together with the euro currency. 

Greece was seen as a sort of blueprint for future countries in trouble. Unfortunately, the other countries in trouble included Spain and Italy, about 5 and 8 times the size of Greece's economy, respectively. If Greece succumbed to the monster of debt, defaulted, and withdrew from the eurozone, it would set a dangerous precedent for the future of the economic union.

Given this, Greece seemed already sucked into a whirlpool of high debt and little, if any, growth. Unemployment was at an unimaginable 25%, even worse than one year ago, when it was at a still-staggering 18%. Unemployment for those between 15 and 24 was at a whopping 58%! As kids had a harder and harder time finding work, the more it seemed like a good idea to sail off to Troy -- to find a job. 

Greek debt to GDP wasn't falling, either, because the GDP itself fell off so quickly. Its debt to GDP figure of 170% was forecasted to rise to 192% in 2014, instead of the previous expectation for it to near the International Monetary Fund's sustainable threshold of 120%. In 2013, things were expected to be just as rough, with a GDP contraction of over 4% forecasted. While the government attempted to shrink the budget, general strikes abounded that included public transit workers, railway workers, airport workers, doctors, lawyers, prosecutors, and municipal workers.

The European Central Bank and IMF, like intervening gods, gave Greece lifelines. In 2010, Greece received a $140 billion bailout loan, and in 2012, another $165 billion. Private creditors to Greece lost over 50% of their investments as the country renegotiated for lower interest rates on the remaining balances.

The entire situation could have ended up with Greece swallowed whole by the whirlpool, with little left at the end. If Greece fell out of the eurozone and was forced to use a new drachma, it would've been devalued anywhere between 50% and 70%, while euros in the country would have made every opportunity to flee with their owners, and the country would struggle to import what citizens needed.

Even in the face of all this trouble, our hero filled out and executed three perfect trades, stunning the other investors who had only selected value traps.

Part II: The strongest will survive
In 2012, Greece had a Shiller P/E ratio around 3, compared to that of America's S&P 500  (INDEX: ^GSPC  ) , 21. While Greek's ASE index traded around 5,000 in 2008, it now sits below 1,000. These cheap valuations were either a siren song leading our hero to crash his portfolio, or a great opportunity. To mitigate a complete loss, our hero only set aside a small amount into some select stocks that he thought would perform well. Below are the equities he chose.

First, he took advantage of the broad diversification that an exchange-traded fund offered -- namely, the Global X FTSE Greece 20 (NYSEMKT: GREK  ) . If Greece pulled through, such a fund offered the chance to easily invest across 20 Greek companies. This fund charged a net expense ratio of 0.69%, with its largest holdings being Coca-Cola Hellenic  (NYSE: CCH  ) at 17% of holdings, the National Bank of Greece (NYSE: NBG  ) at 12%, and Hellenic Telecom (NASDAQOTH: HLTOY  ) at 9%.

Second, he looked at an industry relatively untouched: gambling. Specifically, he considered OPAP (NASDAQOTH: GOFPY  ) , which only saw a revenue decline of 7.5% from 2011 to 2012, yet realized a higher profit margin -- nearing 13%. A profitable business in one of the worst economies gave reassurance to our hero that even if Greece didn't turn around, this company would likely still survive any dramatic events. The government itself actually owned 34% of the company, but it planned to sell part of its stake to raise money to fund itself.

Finally, he looked at Mytilineos Holdings (MYTIL.AT), miner of aluminum, zinc, and lead, as well as having a hand in energy and defense vehicles. While he wrote of the Greek-made defense vehicle business, that Mytilineos was able to remain profitable in the first half of 2012 made it a strong contender amid any macroeconomic situation. Revenues were flat and profits down, but not negative.

No guts, no glory
That is the tale of the heroic investor who bought a smattering of Greek stocks in one of the most dangerous times. His secret, however, is that it was not only the extremely risky Greek stocks that led to a successful retirement among family in Ithaca, NY.  

A majority of his portfolio remained stateside. For an example of the American stocks in which he invested, take a look at our free report 3 American Companies Set to Dominate the WorldClick here to get your free copy.


Read/Post Comments (8) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 10, 2012, at 3:38 PM, SaraW946 wrote:

    I am BEYOND SHOCKED after reading this article! What I'm trying to decide is whether its author is in a position to do his due diligence, especially in foreign and dangerous markets such as Greece, or there's something more sinister behind the post. I leave aside the fact that with the total MESS of the Greek legal system and the widespread corruption it would be professional suicide to invest in GREK. Investing in Mytilinaios, however, is not just financially irresponsible, it's sheer madness. Mytilinaios is a very shady businessman with a long history of shady deals, and he continues to be so. And yes, he collaborated with Milosevic and was involved in serious money laundering too!

    Is it responsible for The Motley Fool to suggest investment under these circumstances? What's next? The neo-Madoff?

  • Report this Comment On November 11, 2012, at 12:49 AM, AirForceFool wrote:

    Anyone who thinks Greece isn't a risky market must have just got back from another planet... which is why "our hero only set aside a small amount into some select stocks..." As far as the corruption goes could you post some reputable links? It would be awesome to read up on... I've been fascinated at how the Greeks have managed to keep things afloat so long with the tax evasion etc...

    Chris

  • Report this Comment On November 11, 2012, at 5:46 PM, SaraW946 wrote:

    Chris, you can read the <i>Financial Times</i>. <i>The Economist.</i> The EU numbers. Just about any reputable publication, including books on the political economy of Greece. You can read the Lagarde report. You can read all reputable press about the corruption that is prevalent in Greece, about the failure of its judicial system, about tax evasion, about the unions, about everything. I will bet you all you want that you cannot even read any press beyond what is written in English, and I can read much more than you, including the German Press. Mytilinaios's corruption is very well known, just check the internet. I am surprised that you even ask this question and wonder whether you would easily part with your hard-earned money in search of a chance to beat the market and get those elusive riches.

    At the end of the day, I cannot tell anyone how to spend their money. All I can do is sincerely caution on topics I know more than others. You can dispute what I say at your own risk, but for GOD'S sake, be careful! I would also like to see The Motley Fool be very careful before suggesting such risks. Yes, risks have their rewards, but there is such a thing as calculated risk and then stupid (yes, stupid) risk. The last thing I want is to tell people that I told them so after the fact, so please, be proactive!

  • Report this Comment On November 11, 2012, at 5:57 PM, Darwood11 wrote:

    At the Fool, there are articles about investing, and occasionally articles about gambling. From what little I know about modern Greece, this is a tale about gambling and fiction.

  • Report this Comment On November 11, 2012, at 8:03 PM, SaraW946 wrote:

    In Greece you'll hear people claiming all kinds of crazy things, including the myth that there is oil in the Aegean. The modern Greeks cannot run a modern business, and enterprise is smothered by crazy regulations, government intervention, crazy bureaucracies. and impediments, while investment is an exercise in impossibility. I don't want to take anybody's time, so I'm not telling you the true story of the café-bar and the two sinks. I will only suggest to you a couple of things: first watch Professor George Pagoulatos's talk at Harvard about Greece's economy, and that was early in the crisis. Professor Pagoulatos is a former Rhodes scholar, mind you, and I have read his dissertation-turned book (Greece's Political Economy) and published by Oxford's Pagrave press. There are also sooooo many others. Anyway, here is his talk:

    http://www.youtube.com/watch?v=NSyR8T7zSEw

    Corruption is deeply rooted in the modern Greek DNA, I'm afraid, and the Ottoman mentality is not going to leave any time soon. Here is another article on the perils of Chinese investments in Greece, and please, don't blame the Chinese for being bad employers, etc. In this case it's really not the Chinese, I happen to know what I'm talking about.

    http://www.npr.org/templates/story/story.php?storyId=1302804...

    http://www.nytimes.com/2012/10/11/business/global/chinese-co...

    Deregulation has yet to happen there and the only reason they only impose austerity measures that are literally strangling the average Greek, is because they cannot, won't fight corruption and reform the country. In truth, what Greece needs is a complete abolition of its current constitution, complete clean-up of its political leaders, and voting a new constitution. Frankly, I've come to the conclusion that since they cannot come up with a rational constitution, they'd be better off adopting the American one! They are really unable to run their own country and the situation is desperate. Here is a typical story:

    Lagarde, the head of the IMF, gave the Greek government a report of HSBC with the names of Greeks who were tax evaders and had accounts in Switzerland. The list obviously included high-ranking government officials, and the government knew that if they followed it up, then they would have to put everyone in jail. So the minister of finance claimed that he "misplaced" the report. A journalist got a copy and published it, and he got...arrested for God's sake! Obviously he got acquitted at the trial because the whole world reacted to this infringement of his human rights and his right to free speech that the constitution supposedly safeguards. The stort made the headlines everywhere, including the Financial Times.

    It's sad, it's terrible, I wish things were different, but would you seriously consider investing in Greece?

  • Report this Comment On November 13, 2012, at 2:56 AM, Khizhim wrote:

    I'm amused by the Homeric elements! Bravo! (The Fitzgerald translation seems to me to be unsurpassed.)

  • Report this Comment On November 13, 2012, at 8:22 PM, Darwood11 wrote:

    What I discovered about the Greeks in the early 1980s was this. They thought they were "the Greeks." That is, the ancient ones who did all of those incredible things we all read about. In fact, the modern Greeks are not at all those people.

    There is a serious moral here. We "Americans" aren't the ones who fought the revolutionary war, or were "sons of liberty" or patriots.

    We are at best caretakers, and at worst parasites.

  • Report this Comment On December 04, 2012, at 2:52 AM, mikeinasia wrote:

    At valuations this cheap I think one has a lower chance of long-term capital loss than in more expensive and 'safer' markets.

    Present day Greece reminds me of Indonesia and SE Asia during the late 1990's Asian financial crisis.

    I went to Greece in July this year and decided to put quite a bit of money to work there as I missed other market bottoms. I hold both the GREK and OPAP as well as several other companies listed on the ASE.

    I found Greek people very smart, open-minded and switched-on. I found management of Greek companies very capable.

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