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 in 2008, I jumped on a plane and flew around the world. My goal was to test my impressions of the world, its markets, and its people. I'd like to share what I found. It made me a better investor and a better person.
Myth No. 1: Two wheels good ...
First stop, 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, amazingly, you'd be right -- 15 years ago.
Now it's a lot of cars. Don't misunderstand: I knew that Shanghai and Beijing -- with its ridiculous five-loop beltway -- would be a Jiffy Lube paradise. But if, for you, China's "smaller" second- and even third-tier cities conjured images of Chinatown circa the 1906 earthquake, you're in for a shock.
In fact, you can't help but wonder how much better off General Motors would be if it had 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 a lock on 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 would be 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 this time last year -- 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. OK, maybe it's not completely insane to presume that a populace deluged with Western brands -- from Caterpillar (NYSE:CAT) to Nike (NYSE:NKE) to Dell (NYSE:DELL) -- would speak a little English. But it's not true, either.
In fact, despite an infatuation with many 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 I don't think China's top businesses -- for instance, the three we'll discuss just below -- will always rely on exports and massive trade surpluses.
And now for a delicate point ...
I mention my fourth observation cautiously, having seen a tiny part of the country and knowing I may have this one wrong. But perhaps my biggest surprise was the apparent 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 relative handful of Chinese companies. And some, like online travel agent Ctrip, are admittedly white-collar businesses. China Green Agriculture, however, is a hands-on agriscience business -- a small-scale version of Archer-Daniels-Midland (NYSE:ADM) or Monsanto (NYSE:MON).
And our extended visit to China Fire & Security -- an industrial products company General Electric (NYSE:GE) or Tyco (NYSE:TYC) might snap up here in the U.S. -- included a tour of a full-scale factory, albeit a high-tech one.
True, the living arrangements seemed at odds with what we know here in the United States. Often, the workers, mostly young men and women from the countryside, live in dormitories on campus. But my impression was that they 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 remain 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 my colleague, global investing expert Tim Hanson, named them his top picks from our 2008 and 2007 research trips to China.
It may also explain why one stock is up 100% and the other has more than quadrupled in value. Of this I have no doubt: 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 under the condition that "I won't eat anything with a head on it." (I feel homesick just writing this column.)
Finding the next triple ...
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 300%, respectively. That's what got me thinking about this column today.
Tim is on the road again. This time, his destination is India -- China's rising economic nemesis. As you read this, he's landing in New Delhi, but he won't be there long. He and his team plan to spend most of their time traveling across the subcontinent, visiting companies and searching for India's version of China Fire, China Green Agriculture, or other three-digit gainer. I have a suspicion he'll find it.
If you'd like to hear about Tim's No. 1 India stock for 2009, here's how to do it. Simply click here for a 30-day free trial.
Fool writer Paul Elliott doesn't own shares of any stocks mentioned. Ctrip is a Motley Fool Hidden Gems recommendation. China Green Agriculture is a Global Gains selection. Dell and Monsanto are Inside Value selections. The Motley Fool has a disclosure policy.
