You May Have This One Wrong -- Here's Why

If you're like me, you probably think you've got it figured out -- the stuff that matters, anyway. But just in case, I hope you'll take a moment and read on.

In June 2007, and again about the same time a year later, I hopped on a plane and flew around the globe. The idea was to test my impressions of the world, its markets, and most importantly, its people. What I found made me a better investor and a better person.

Myth No. 1: Two wheels good ...
Today, I'd like to focus on China, a mini-continent home to more than 1.3 billion people. If you are like I was, you're probably thinking "Man, that's a lot of Wizard of Oz-era Schwinns and pointy straw hats." And you'd be right -- 15 years ago.

Now it's a lot of cars. Don't misunderstand: Even I knew that Shanghai and Beijing -- with its five-loop beltway -- would be a Jiffy Lube paradise. But if, for you, China's "smaller" second- and third-tier cities conjure images of Chinatown circa the 1906 earthquake, you're in for a shock (more on the massive tier-two story in a moment).

As an American, I couldn't help but wonder how much better off General Motors or Ford would be if they'd gotten hold of a bigger piece of this market. It physically pained me to discover that, beyond the occasional Ford Focus and Toyota Camry, Volkswagen has all but cornered China's second- and third-tier markets. Or so it appeared to one American on the street in Shenzhen.

Myth No. 2: Small towns are small
Again, I knew Shanghai and Beijing were big. What I didn't know is that the "smaller" tier-two cities are big, too. That is, until I had the pleasure of visiting five of the 20 or so Chinese towns bigger than Chicago. All are vibrant, modern cities -- no doubt twice the size they were when I was there last -- my favorite being Xi'an, with its uncanny city wall.

Xi'an is also where I put to rest myths No. 3 and No. 4. The first seems a little silly in retrospect. I mean, maybe it's not completely insane to presume that a city that's home to Cisco (Nasdaq: CSCO  ) , Oracle (Nasdaq: ORCL  ) , and Micron Technology (NYSE: MU  ) , among other Western technology giants, would speak a little English -- the so-called international language of science. But it's not true, either.

In fact, despite an infatuation with most things Western, I doubt China's burgeoning middle class ever will adopt English as a second or "business" language. I don't think they'll need to. Just as sure as China's top businesses won't always rely on exports and massive trade surpluses -- for instance, the three companies we'll discuss just below.

And now for a delicate point ...
I mention my fourth observation cautiously -- having seen a small part of the country and knowing full well I may have this one wrong. But my biggest surprise was the buoyancy of the workers I encountered. I'm not sure what I expected, but these were not the ground-down, discouraged, and exploited laborers I'd read and heard so much about.

True, I visited a relative handful of Chinese companies. And some -- for example, travel agent Ctrip.com -- are white-collar businesses. China Green Agriculture, whose massive greenhouses we toured, is a relatively hands-on agri-science business, however. And our visit to China Fire & Security included a tour of a full-scale factory, albeit a modern, high-tech one.

To be sure, the living arrangements are at odds with what we're used to here in the United States. Often, the workers, mostly young men and women from the countryside, live in dormitories on campus. But my impression is that they like their jobs and are even happy to be there. They certainly are friendly -- and sure love their basketball.

Of this I have no doubt
Again, I know that human rights is a challenge in China, and I have no illusion that all companies are as pleasant to work for as China Green Agriculture and China Fire. Clearly, these companies stand out among China's best. Which is a big part of why my colleague, global investing expert and my fellow traveler Tim Hanson, named them his top picks from our 2008 and 2007 research trips to China, respectively.

It may also explain why one stock doubled and the other has already more than tripled since we brought them back. The same can't be said for such widely regarded U.S. stocks as Apple (Nasdaq: AAPL  ) or Johnson & Johnson (NYSE: JNJ  ) over the same periods -- or touted China stocks China Mobile (NYSE: CHL  ) and PetroChina (NYSE: PTR  ) , either.

Of this I have no doubt whatsoever: Disproving my No. 5 China myth -- my idiotic notion that Americans aren't welcome there -- was a pure pleasure. Having visited no less than half a dozen of China's cities, I can assure you that nothing could be further from the truth.

The people I met across China are among the most gracious and friendly I've met outside of Iowa. And this from a guy who accepted more than one dinner invitation with the awkward confession that, "I won't likely eat anything with a head on it." (I feel oddly homesick just writing this column.)

Are you ready to invest in Asia?
But this is an article about investing, after all. As I mentioned earlier, my colleague Tim Hanson and I returned from our research trips to China in 2007 and 2008 with actionable investment ideas that are now up 100% and more than 200%, respectively. That's what got me thinking about this column today.

Tim Hanson recently returned from another research trip -- this time to India. His goal was to dig up an investment opportunity that can earn you as much as his top picks from his previous research trips, including China Green Agriculture, which is up more than 500%.

I have a suspicion he's found it. If you'd like to hear more about what Tim and his team of analysts discovered on their recent research trip and get his No. 1 idea for your new money right now, here's how to do it: Click the link below and sample The Motley Fool's top global stock research for 30 days, absolutely free.

There's no pressure or obligation to join. If you're not impressed, or you don't agree that Tim and his team are making you money, you won't pay a cent. To find out more about this special free trial, click here now.

This article was first published July 10, 2009. It has been updated.

Fool writer Paul Elliott owns shares of J&J. Ctrip.com is a Motley Fool Hidden Gems pick. Apple and Ford Motor are Stock Advisor picks. China Green Agriculture is a Global Gains recommendation. Johnson & Johnson is a Income Investor pick. The Fool owns shares of China Green Agriculture, China Mobile, and Oracle. You can see the entire Global Gains scorecard with your free trial. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 04, 2010, at 11:41 AM, demodave wrote:

    AAPL Feb 5, 2007: $83.27

    AAPL Feb 4, 2010: $194.56 (random intraday).

    You write "The same can't be said for such widely regarded U.S. stocks as Apple (Nasdaq: AAPL) or Johnson & Johnson (NYSE: JNJ) over the same periods." How is AAPL is not a 100% increase in the same time period that you are writing about?

  • Report this Comment On February 04, 2010, at 11:41 AM, demodave wrote:

    AAPL Feb 5, 2007: $83.27

    AAPL Feb 4, 2010: $194.56 (random intraday).

    You write "The same can't be said for such widely regarded U.S. stocks as Apple (Nasdaq: AAPL) or Johnson & Johnson (NYSE: JNJ) over the same periods." How is AAPL is not a 100% increase in the same time period that you are writing about?

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