Price and value secret

Hello everyone,

Today, we'll delve into the often overlooked realm of investing in foreign markets, and how they can provide significant benefits when approached with the right knowledge and strategy.

We start by examining a diverse range of countries, categorized into TIER 1, 2, and 3, and analyze why some of them might present better investment opportunities than others.

TIER 1 countries, such as the US, Canada, and most of Europe, are typically perceived as safer investment destinations. This is due in part to their robust regulatory frameworks that ensure corporate transparency and reliable financial reporting. This significantly reduces the likelihood of falling victim to fraudulent activities, a risk often associated with investing in less regulated markets. Some of you might recall the tales of Chinese companies promising outsized returns and profits, only to leave investors high and dry when the reality of their financial health came to light.

So, you might wonder, why would anyone venture into emerging markets like Turkey or other higher-risk countries? The answer lies in the potential for higher returns. Despite the risks, these markets present opportunities to earn significantly higher returns on your investment than you might in more developed countries. This can be attributed to the disparity between the actual price listed on the stock exchange and the true value of the company.

A prime example of this was when renowned value investor Mohnish Pabrai invested in Reysas, a Turkish company. Despite having a liquidation value north of $500 million, Reysas had a market capitalization of just $30 million at the time of Pabrai's investment. A key aspect of Reysas' durable competitive advantage was its financial structure: most of its revenues were in USD and Euros, while its expenses were primarily in Turkish lira. This meant that any economic downturn or currency fluctuation would actually boost the company's revenues, a seemingly counterintuitive but highly effective strategy.

This example perfectly illustrates Warren Buffet's timeless wisdom that "price is what you pay, value is what you get." It's a core principle that value investors like Buffett and Charlie Munger swear by, and for good reason. Buffett, in particular, is renowned for his ability to assess the intrinsic value of a company, often ignoring market trends and focusing instead on the company's long-term prospects and management quality. Similarly, Munger emphasizes the importance of patience, discipline, and a deep understanding of a company's business model before making an investment decision​1​.

These strategies underline the importance of thorough analysis and understanding the true value of an investment, regardless of the market it operates in. By focusing on the intrinsic value of a company and disregarding short-term market fluctuations, investors can unlock significant opportunities in markets that others might overlook due to perceived risk.

In conclusion, while investing in foreign markets can be fraught with challenges and uncertainties, it also opens up a world of opportunities for those willing to delve deep into understanding the true value of an investment. Whether it's a TIER 1 country with strict regulatory oversight or an emerging market promising high returns, understanding the difference between price and value is crucial to successful investing. By adopting the principles of renowned value investors and practicing patient, informed decision-making, you too can navigate the global investment landscape with confidence and foresight.

Until next time, remember - it's not about the price you pay, but the value you get.