Introduction to What Would Ben Graham Do Now?
- May 10, 2011
This book was written to help you profit from the arrival of a new global investment landscape—a "new destination" created from the bending, shifting, and reshaping of economic power centers around the world.
Instead of Wall Street and European money centers dominating the investment world, multiple systems are now coming to prominence. China, India, Brazil, Russia, and the Middle East are all coming to the fore, both rivaling the traditional investment hubs in their ability to create economic wealth and challenging their way of doing business. Autocratic governments, regulatory uncertainty, limited legal structures, exotic consumer habits, and odd kinds of company ownership (including government and quasi-government ownership) are all characteristics of the new investment world. In many ways, it is a post-Wall Street economy.
For investors, it's an exciting time. Markets and companies are emerging everywhere, offering more and more opportunities. This is in turn attracting, and perhaps creating, a new breed of global investor who crosses borders and sees the entire world as his hunting ground. I was fortunate to spend much of the last decade working for the most prominent of this new breed of global investor, Prince Waleed. Often regarded as the world's #2 investor after Warren Buffett, Waleed is arguably the world's first private global investor. With projects and holdings in more than 130 countries, he is one of a rare few who can definitively claim the title of global tycoon. This book reflects many of the lessons I learned working on his investment team.
The Struggle to Go Global
Going global as an investor is conspicuously problematic—particularly for the value crowd. When we dig into the public markets in places like China and India, we find that corporate behavior is far different from what we have learned to expect in the United States and Europe. The companies just don't appear to be very stable, making calculations of a useful intrinsic value difficult. In fact, the economies themselves appear to be changing rapidly (that is, developing). Additionally, information, even in published financial reports, appears questionable. Unless you're investing short-term, it's a struggle to invest in changing companies in changing environments with limited and/or incorrect information.
Looking at private companies, of which there appear to be a truly large and increasing number, there are problems as well. First, it's hard to find information. And then you discover that you can't get access to the deal anyway. These private companies often are owned by entrepreneurs, families, conglomerates, and state-backed vehicles, and they don't sell easily. And if they do, it's only a minority percentage, never a majority. Plus, significant cross-cultural and cross-border problems exist—language gaps; cultural gaps; differing political, economic, and legal systems. If value-based investing in the U.S. is mostly about finding and accurately measuring unrecognized value, value investing globally seems to be mostly about getting information and access to deals.
Finally, if you do manage to get a deal done, you find yourself a minority owner of an emerging-market company, frequently known as the "sucker at the table." You quickly discover that your contract and Board seat mean little. Corporate governance and minority shareholder rights are nonexistent. A foreigner and his money are very easily parted. Don't be surprised if you are diluted or forced out after you have paid in.
The classic long-term value investing approach assumes many things: ready access to deals, the rule of law, shareholder rights, accurate and available information, a separation of commercial and government activities, and a significant degree of stability in both the company and the market. Few of these assumptions hold as you start to go global. So Western investors either stay in the West or go global but limit themselves to short-term, highly liquid, or speculative and technical strategies.
In doing so, they miss the point and ignore the most important lesson of value investing: An investor can build the most wealth not by speculating or going short-term, but by capturing real economic value in companies. This means staying focused on economic value. It means thinking long-term. And that is the crux of the problem. How do you focus on economic value over the long term, particularly for private companies and illiquid assets, in environments that are inherently unstable and uncertain? The struggle to go global is really the struggle to apply a long-term and value-based investment approach in unstable and uncertain landscapes.