"So it sounds like you're optimistic about [fill in the blank]."
We travel a lot at Motley Fool Global Gains, and the above is inevitably how we wind down most of our meetings. Why? Because we give investment advice, and the people we're talking to generally stand to benefit if we tell the people who listen to us to buy their stock. As a result, we get the best believable story they have to offer. This doesn't mean they're lying to us, but rather that they're doing their best to make their situation, whatever it is, attractive to capital.
Just over the past six months, I've heard compelling cases made for Greece's ability to cut its deficit and therefore ballast National Bank of Greece
Don't hate the player, hate the game
Take, for example, the case of China Wind Systems
Furthermore, the market rewards it for doing so. A recent column by Jason Zweig in The Wall Street Journal revealed that "Dozens of tiny companies have gotten big stock market boosts simply by adding the word 'China' to their names."
Of course, some of these stocks deserve to be "China" stocks. Although we mocked China Green Agriculture
Now we find ourselves in Greece
Fast-forward a week and we've traveled from California to Greece. While the setting has changed, we're still searching for investment ideas and we're still getting the optimistic side of the story. When we told the head of research at the Investment Bank of Greece that he sounded optimistic, he responded, "Greece has no other choice." When we said the same to a political science professor at the University of Athens, he noted, "I am bound to be, otherwise ... "
These are both people who believe that Europe will eventually step up to assist Greece in rolling over its debt, preserving the euro and ensuring a happily-ever-after ending for all. While this is not an impossible scenario -- indeed, both have numbers and data to support their view -- it's diametrically different from the perspective we had upon entering the country, the one being pushed every day in papers such as the Financial Times and by well-known investors such as PIMCO's Bill Gross.
Gross, for example, wrote in his most recent commentary that there are three conditions a country should meet to escape a debt crisis. They are:
1. The ability to issue its own currency.
2. Moderate initial conditions and the ability to issue more public debt.
3. A central bank that can reflate without causing a currency crisis.
Further, he believes that when you apply these three tests to Greece, it "renders an immediate negative when viewed from an investor's lens." All of this is to say that there are smart minds and sound reasoning on both sides, which means the market has no idea what's going to happen next and that you can make good money.
The heart of the matter
So what is the truth? The people we've talked to in Greece seem to be overestimating the willingness of the bond market to buy more Greek debt. We've heard more than a few times that Greece could refinance all of the debt due by the end of May without even making a ripple in the global bond trade -- a notion that strikes us as naive. Gross, for his part, noted that the bond vigilantes (as he calls them) aren't that interested in Greece.
Gross and his team at PIMCO, on the other hand, appear to be underestimating the commitment of the EU to maintaining the union as well as the willingness of the Greek population to accept the government's austerity plan. Yes, there have been protests here in Athens, but (knock on wood because we have a few more days here) we keep hearing that they are not approaching the magnitude of past protests. In fact, the whisper is that the labor unions know the country is in deep trouble and are quite supportive of the relatively new socialist government.
This isn't to say that I can tell you now how it all turns out. Rather, it's just an observation that everyone everywhere talks up their book. That's the nature of this industry, and that's why it pays to not only meet with as many informed people as possible, but also to check their facts.
What you can do
The key to this last point is to make sure you have a sound investment process in place before you do anything -- potentially something as simple as a checklist that you go through every time you hear about an alluring opportunity to make sure you have the full story. For our part, we always make sure we:
1. Seek out and talk to someone with an opposite point of view. We don't always end up agreeing with him or her, but we want to know what he or she knows.
2. Cross-check all numbers using multiple sources. If a company is pushing non-GAAP numbers, go back to the filings. If someone is citing publicly available data, check the source.
3. Model for a range of possible scenarios and only buy a stock if it's trading at a margin of safety to one of our most pessimistic valuations.
Truth can be elusive in the investment world, partly because no one wants you to find it. Remember, though, that you're going to hear a lot of good stories in the stock market, so be choosy about what you invest in and know as much as you can before you jump in. That way you'll not only buy better stocks, but also know more about them and be able to potentially buy more when inevitable volatility strikes.
And as for Greece, we're still gathering facts and observations and trying to determine what to invest in (if anything) as a result. If you'd like to be the first to hear about what we decide, simply provide us your email in the box below.
Tim Hanson is co-advisor of Motley Fool Global Gains. His Global View column appears every Thursday. Tim does not own shares of any company mentioned. China Green Agriculture is a Global Gains recommendation. The Fool owns shares of China Green Agriculture. The Motley Fool has a global disclosure policy.