How to Avoid Getting Mugged in the Market

The United States often greets soccer with suspicion. For some, soccer's growing popularity represents the decline of American influence in the international arena. Americans will tell you that "football" is a sport where players wear helmets.

With Rio beating out Chicago to host the 2016 Olympics and the next World Cup in South Africa, the world of sport is less America-centric than it used to be. The same can be said for the investing world; economic growth comes increasingly from emerging markets such as Brazil and South Africa. As investors seek heady returns on equity, they're looking abroad more than ever.

Often called the "world's sport," soccer is both a universal passion on the macro level, and a reflection of the diversity found in different communities on the micro level. Understanding how the "beautiful game" is played in various parts of globe will make us more internationally savvy, both as sports fans and investors.

Please explain
Franklin Foer's 2004 book How Soccer Explains the World offers a fascinating expose of different soccer cultures around the world. In Brazil, soccer is both a national source of pride and big business. Brazil's legendary players, guys like Pele and Ronaldinho, are international icons whose endorsements command millions of dollars. However in the former Yugoslavia, the game serves as a forum for asserting religious and ethnic identities. Some paramilitary groups that fought during the Bosnian War first organized through local soccer clubs.

The major theme of Foer's work is that while soccer is an international language, its dialects can vary dramatically in different places. It's often essential to understand local dynamics, lest you, say, get caught wearing a Manchester United jersey in the London neighborhood of Chelsea, and find yourself in a tussle with a notoriously violent street gang like the Chelsea Headhunters. It's often essential to know these kind of things before you go.

The same philosophy applies to your investments. Reliable information about issues like taxes and regulations is essential before you send your money abroad. Serious Fools shouldn't invest in a country or market they don't understand. But short of booking a round-the-world flight, what are profit-hungry, investing Fooligans to do if they want to invest internationally?

Micro versus macro
First, Fooligans can learn to separate the macro from the micro in international investing. Macro ideas -- e.g., investing in Chinese petroleum production companies -- might sound good on the surface, if you think the developing world will demand and consume more oil in the coming decades. But on the micro level, taxes, regulations, and the state ownership of certain companies muddle that hypothesis. Price controls make the upside for Chinese oil majors like PetroChina (NYSE: PTR  ) and Sinopec (NYSE: SNP  ) limited in comparison to big American multinationals like ExxonMobil (NYSE: XOM  ) or Chevron (NYSE: CVX  ) , because of limits on the refining side of the business.

Electric utilities in populous and growing Brazil also sound like a great macro idea, but they vary on the micro level. Part of the electricity market in Brazil is regulated by the government, and part is open to competition. This means that companies such as CPFL Energia (NYSE: CPL  ) and Centrais Electricas Brasileiras (NYSE: EBR  ) are dealing with different regulations and considerations. Profit margins can vary, depending on what segment of the market they operate in.

On the ground
As a student in Cairo, I attended my first major soccer match between the Ahly and Zamalek clubs -- the Yankees-Red Sox rivalry of Egyptian soccer. The atmosphere was electric, complete with thousands of riot police, processions of cars carrying fans, fighting, and some of the most passionate swearing I've ever heard. It ended up being a great experience, but if an Egyptian friend hadn't accompanied our group, I might have had a panic attack.

But you don't need to panic when investing internationally. Just make sure to investigate the idiosyncrasies of macro ideas on the micro level, instead of throwing money blindly at a sector or country. Arming yourself with this knowledge will ensure that you're rooting for the right stocks.

Take agriculture production in China, for instance. The fertilizer business there is a competitive market, since the Chinese government limits fertilizer imports, and is pushing to make organic fertilizers a major part of agriculture production. Knowing this has helped our Global Gains team pick China Green Agriculture (NYSE: CGA  ) , which specializes in organic fertilizer. The company continues to grow, announcing its intention last month to acquire another 300,000 tons of manufacturing capacity.

Chant with me, Fooligans: "Know before you go!"

We know because we go
The Global Gains team may just be the rowdiest bunch of investing Fooligans in the world today. They've been all over the world, to places like Brazil, China, Indonesia, Vietnam, India, Mexico, and Malaysia. And they're not just snapping pictures to send home; the team meets with business leaders and government officials to get a firsthand account of market conditions, new regulations, and other concerns that can affect investments.

Perhaps most importantly, our Global Gains service establishes personal contacts in other countries, who give us access to information often only found published in a native language. For example, our team knew before the market did that rural areas would figure prominently in China's massive stimulus, and they positioned themselves accordingly. Open a window to the world with a free trial to our Global Gains service. Click here to get started.

Fool contributor Matt Hoffman will be heading to South Africa to cheer for the U.S. at the 2010 World Cup. He invites you to join him. China Green is a Global Gains recommendation and Fool holding.The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (13)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1181452, ~/Articles/ArticleHandler.aspx, 11/28/2014 1:32:18 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement