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.

Back in June 2007, and again about the same time the next year, 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 ...
I landed first in China, a sprawling minicontinent 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 -- 20 years ago.

Now it's a lot of cars. Don't misunderstand: I knew that Shanghai and Beijing -- with its five-loop beltway -- would be a mechanic's 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 tier-two story in a moment).

In fact, you can'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 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 traveling with my colleague Tim Hanson to 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 the last time -- 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 country that's home to McDonald's (NYSE: MCD  ) , KFC, Starbucks (Nasdaq: SBUX  ) , and Wal-Mart (NYSE: WMT  ) , among other Western institutions, would speak some English. But it's not true, either.

In fact, despite an infatuation with things Western, I doubt China's 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 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 I may have this one wrong. But my biggest surprise was the loyalty and 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 small number 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 agriscience business, however. And our visit to China Fire & Security included a tour of a full-scale factory.

To be sure, the living arrangements are not 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 liked their jobs and were 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 Ctrip, China Green Agriculture, and China Fire. Clearly, these three companies stand out among China's best. Which is a big part of why global investing expert and 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 is up 100%. The other has already quadrupled in less than a year -- not only outperforming such widely regarded U.S. stocks as Google (Nasdaq: GOOG  ) and even Research In Motion (Nasdaq: RIMM  ) , but celebrated Chinese winners Baidu.com (NYSE: BIDU  ) and CNOOC (NYSE: CEO  ) as well.

And of this I have no doubt whatsoever: Disproving my No. 5 China myth -- my idiotic notion that Americans aren't welcome there -- was 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.)

The best China idea out there
But this is an article about investing, after all. As I mentioned earlier, Tim 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.

Tim 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 trips, including China Green Agriculture, which is up more than 500%

I think he's found it. If you'd like to hear more about what Tim discovered on his latest 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 agree to sample The Motley Fool's top global stock research for 30 days, absolutely free.

There's no pressure or obligation to subscribe. To learn more about this special free trial, click here now.

Already a member of Global Gains? Log in at the top of this page.

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

Fool writer Paul Elliott does not owns shares of any of the companies mentioned in this article. Ctrip is a Motley Fool Hidden Gems recommendation. China Green Agriculture and CNOOC are Global Gains selections. Google and Baidu.com are Rule Breakers picks. Wal-Mart is an Inside Value choice. Starbucks is a Stock Advisor recommendation. The Motley Fool owns shares of Starbucks. 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 April 02, 2010, at 11:32 AM, stevenpinter wrote:

    I had BIDU and sold it early in a down valley like a fool and went back to F for Ford. Could not really care for most anti-american articles all over the web. I really don't feel bad for any fool who buys Toyota and then the foot pedal sticks. Ha! That's what you get for being a traitor to helping Reasearch and Development in America! I have never had a problem in an American car but am only 43 so we shall see. If the Americans really want to gamble and buy foreign countries goods and glorify them then let Japan and China and the rest of the world try and sell me an exotic item just because some Asian women are so cute! I know better now so I won't contribute knowingly to ever investing outside of America again. Remember the big worldly solar lie? What a rip-off! I can't believe the governments advertised that bogus rip-off while Greece and their Democrat friends pretend to show everyone their empty countries pockets. So where is all this newfound oil coming from? (And I saw in the ocean a new discovery of fuel that may be present in deep oceans to fuel the world for 2,000 years!) Well, they hid it deep! Nice going writers who comment on make-believe portfolios! Will you ever really invest in America? Or China? etc. Probably not!!!!!!

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