Learn From Ikea's Big Mistake

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In the grand post-Thanksgiving tradition, we're digging through our fridge to warm up some of our best articles from the past year. Whether you missed them the first time around, or you just want a second helping, it's never too late to fill up on Foolishness.

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.