On Jan. 1, 1980, the Dow Jones Industrial Average stood at 838 points. Within the past year, it has stood as high as 14,200. Even a know-nothing investor in U.S. equities over this period of time would have seen his or her money increase nearly 20 times in value just by focusing on the bluest of American blue-chip stocks.
It's the kind of opportunity that will never happen again in the United States. It can't -- our economy simply doesn't grow fast enough.
This is not to say that investing in America is dumb. This country is home to some of the greatest visionary business leaders in the world, from Apple's (Nasdaq: AAPL ) Steve Jobs to Google's Sergey Brin and Larry Page to Berkshire Hathaway's (NYSE: BRK-B ) Warren Buffett. These men have delivered extraordinary returns to their shareholders by doing things better and smarter than anyone around them.
But let's be clear -- Apple, Google, and Berkshire are cannibals. They won because they got all Lord of the Flies on companies trying to compete with them. The most successful company left in Google's wake is Yahoo! (Nasdaq: YHOO ) , which apparently needs a partner like one of these.
Don't think it's true with Berkshire and the avuncular Mr. Buffett? Please refer to the company's annual report -- annually -- where he brags about how Berkshire subsidiaries like GEICO, Nebraska Furniture Mart, and NetJets are gaining market share.
This isn't a bad thing. But betting on companies to take market share is tough going. For every Chipotle (NYSE: CMG ) , there is a Triarc (NYSE: TRY ) , wondering how to get people who are neither drunk nor lost to come to its Arby's chain.
The better environment for finding long-term winners is in an economy that is growing so fast and generating so much wealth that companies aren't necessarily destroying each other -- yet.
That market isn't the United States. It isn't Europe. It's China.
China is a once-in-a-lifetime investment opportunity. But you have to know what you're doing.
You also have to be patient. China's like that eighth-grader you know who is going to be unbelievable at basketball someday: He's already got the crossover dribble, the court vision, he's 6'5" -- but he's 14, and still makes mistakes typical of a 14-year-old. China's still unpredictable, like the adolescent market that it is. It has an unbelievable entrepreneurial culture, but does not yet have a fully formed culture of protecting minority shareholders.
This is why the strategy most big foreign investors are following in China is such an unbelievable mistake. They're investing in the big state-owned enterprises, which, by and large, have neither an entrepreneurial spirit nor a great affinity for protecting shareholder interests. Buying these companies is sort of like buying a house in Bakersfield because you always wanted to live in California. Good idea -- bad execution.
Doing what Google did
If you want to invest in China, pay attention to our own cannibals. Berkshire bought an enormous stake in PetroChina (NYSE: PTR ) -- an exception to the "stay away from Big-Cap China" rule -- to great effect. But Google did something different, taking a stake in a company that embodies the Chinese entrepreneurial spirit: Baidu.com (Nasdaq: BIDU ) .
Why did Google, a company with the ability to throw substantial resources at any opportunity, elect to invest in Baidu rather than compete in the world's fastest-growing economy? Because it figured it'd make more money this way. And Google did, in fact, do very well with its investment.
This is why China offers the world's greatest opportunity
China's in the process of making people who compete well in its economy -- and their investors -- fabulously wealthy. This past year, I traveled to China with Global Gains to meet some of the entrepreneurs and business leaders who have so famously driven the miraculous rebirth of China as a world power.
But when we came back, I didn't recommend any Chinese companies to my subscribers, because the market was in the midst of a mania for all things Chinese. In the meantime, the Shanghai stock market has dropped by as much as 50%.
In June, Global Gains is going back to China, and this time we're loaded for bear. Now that people are focusing less on the promise of China and more on its problems, shares of its companies have become increasingly attractive. We've recommended several, to great effect, and we're seeking more. The world's fortunes tend to be found where others aren't paying attention, and that's certainly the case with China right now.
Our recommended Chinese companies are the embodiment of what we're looking for with Global Gains: smarter managers pursuing bigger opportunities in the world's highest-potential markets. We circle the globe to recommend only the best opportunities to our subscribers.
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