The STRIDE Blog

The International Investor Series: #1 Getting Started

stride-3d-value-investing-triangulating-the-best-investment-targets-internal-1

The lessons we've learned from six years of international investing.

In this post:

  • Why you don't need an investment adviser
  • How much is your independence worth?
  • Understanding which countries to avoid

Sack Your Investment Adviser - You Can Do Better

Access to international trading has never been so open. Investors no longer need to feel as though their only option is to stick to home stock markets or use funds to buy into foreign ones.

For a few years already it has been quite easy to trade internationally. The main issue has been the lack of accessible data available to private investors to inform their decisions on what they should invest in overseas.

Any information that did exist has always been prohibitively expensive to the private investor. This economic barrier effectively closed off foreign markets to all but large financial organisations, who used this market information to extract large fees from any investor wanting to buy foreign stocks. They knew how incredibly arduous and time-consuming it is for an individual to conduct fundamental analysis with piecemeal information, and used it to their advantage

The problem with using a financial professional to manage your investments on your behalf is this: they don't work for you. They work for the companies that employ them. It is their job to invest money that doesn't belong to them.

Your money.

With no personal meaning attached for them whatsoever.

Each time your fund manager trades with your money, their company receives commission. Fund managers get paid as long as they are making trades on your behalf, whether you see a return or not. 

We wanted access to the data to manage our own international investment portfolios because we were convinced we could beat the returns our investment adviser had been getting for us.

So we created STRIDE. How STRIDE works

Take Control of Your International Investments

The best person to invest your money is you.

STRIDE gives you all the data you need to select the best global 3d value investment opportunities. But it is an information service, not a trading platform, so you will need to decide how you want to facilitate your international trades once you've selected your investment targets.

Leading high street banks across the world have been offering personal international trading services for some time. Online platforms such as Boom and Saxo Bank offer lower cost alternatives which afford you even more control and flexibility over your trades.

In America, despite their stock markets being the biggest in the world, the SEC has dedicated a section of its website to international investing. Globally, the popularity of international investing is reflected in the sheer number of online international trading platforms now in operation - far too many to list here. There will be something that really suits your style so spend time finding out which ones work best for you.

It's important to do thorough research regarding your homeland tax implications and understand the fee structure of whichever platform or bank you choose to trade through.

Many non-US based trading companies are opting out of servicing American clients due to the country's stringent tax laws. There are so many based in the States, however, that Americans shouldn't have a problem finding a good local match for their needs.

Depending on your requirements, place of residence or level of investment capital, you may choose more than one trading supplier. The great news is that options for the independent investor are growing by the day. 

Diversification

International investing offers your portfolio the highest level of protection through maximum diversification.

Some studies indicate that the benefits of global diversification hits a maximum when you invest 20% to 40% of your stock portfolio in international equities, with the rest in the US markets. Others suggest it's best to invest according to the ratio of US and foreign stocks in the world economy, reflecting the US stockmarket's status as the largest in the world.

Vanguard Total World Stock ETF, which seeks to track the performance of the FTSE Global All Cap Index, had 49.2% of its assets invested in US stocks as of July 31 2013 and the rest invested internationally.

It's fairly obvious that putting all your nest-eggs in one stock, sector, market or currency is going to increase your risk. If one fails, you lose everything. Exposure to multiple sets of market forces militates against any one of them failing. This table shows how a 1970 investment of $1,000 grew over forty years when spread across the global markets, compared to when it was confined to a single market.

Portfolio (1970-2010) $1,000 Turned Into…
Pacific Stocks

$49,378

U.S. Stocks

$49,655

European Stocks

$63,906

Global Stocks

$65,307

Source: Ibbotson Stocks, Bonds, Bills, and Inflation Yearbook

During the development of STRIDE we conducted a great deal of research. A key finding was that investing in strong, undervalued businesses, regardless of sector, location or currency and selling once that market has over-recovered, gives a portfolio the best chance of making great long-term returns.

This proved true even through severe financial crises so it's extremely important to trust the 3D value investing principles and not lose your nerve if a market takes a dive. The chances are, your investment will recover because you should only ever select strong businesses. Even if some do fail permanently, your diversified portfolio of strong businesses should absorb your loss.

The Value of Independence

Because independent international investors now have so much control over when and where they buy stocks, we are able to take advantage of the fluctuations of the global markets more so than ever before. 

This table shows shows the average annualized returns of stocks from various parts of the world from 1970 to 2010, categorised by decade and the entire period.

While the long-term returns overall are similar, returns vary a great deal from decade to decade. The mighty US stock market led only during the 1990s. During the 1970s and 2000s it performed the worst!

 

1970s

1980s

1990s

2000s

1970-2010

Canada

11.0

11.7

9.9

9.2

10.7

Europe

8.6

18.5

14.5

2.4

10.7

Pacific

14.8

26.4

0.5

-0.3

10.0

EAFE*

10.1

22.8

7.3

1.6

10.1

World

7.0

19.9

12.0

0.2

9.6

U.S.

5.9

17.6

18.2

-0.9

10.0

*MSCI Europe, Australasia, and Far East Index. Source: Ibbotson Stocks, Bonds, Bills, and Inflation Yearbook

Your independence as an international investor is a great strength. It brings agility to your portfolio because, while 3D VI is all about long-term gains, it's important to be able to act quickly if you notice an opportunity to buy or sell stock at an excellent price.

By fine-tuning your portfolio in this way, you are able to take advantage of far more market fluctuations than an investment adviser would. Your consider buy and sell prices might come up more than once on the same stock over time, but if you don't know about these key moments, you can't act on them.

Remember, you only have your investments to consider whereas a manager or adviser has numerous clients. You will always be one of a crowd if you stick with a fund whereas independently you are the master of each and every trade you make.

What Are the Risks?

Any investment carries a certain amount of risk and international investing is no exception.

STRIDE sees through all outer layers to the fundamental health of the business within so it cuts through a lot of superfluous information investors don't need to know; information that often serves no other purpose than to cloud the truth.

What STRIDE can not see is the future of any country. A healthy business might find itself in the midst of a political coup, a social disaster such as a medical pandemic or currency emergency. While STRIDE will still identify that business as strong, it will not spot the turmoil with which it is surrounded or that is about to unfold.

Barriers Can Exist For a Reason

As a general rule, we've found that if it proves too hard to invest in a particular territory, it's best to steer clear. Barriers to investing usually exist for a reason. Venezuela, for instance, is incredibly difficult to invest in due to its political unrest.

The same is true of the more volatile African countries. Additionally, the underdeveloped corporate governance and investment exchanges of such countries can carry higher potential for manipulation and fraud.

If in doubt, research the processes of investment and if a country seems like an impenetrable fortress in terms of moving money around, it's probably best to avoid it. After all, if it's so tricky to get your money in, imagine the headache you could face when you want to get it out again.

Currency Issues

Currency fluctuations are also a risk to international investors. But this is just one of the things a portfolio is protected from with good diversification. 

STRIDE encourages all investors to spread investments across global markets, sectors, geographies and currencies because of the risk-lowering benefits this brings.

The basket of global currencies, between May 13 and May 14 did fall 2.3% against the SDR. This means that if you could have invested evenly across all global Forex during this time, you would be a little down.

However, another plus of investing internationally is that if a stock hits its consider sell price at a time when the currency is down, you can hold that currency until it recovers before converting it back into your home currency.

The Bottom Line

An international diversified portfolio is going to generate the best possible returns for today's independent investor. Your STRIDE data will mean you are as well - if not better - informed than a fund manager regarding the fundamental health of businesses across every significant stock market in the world. Using your international trading platform, you will be able to facilitate your own purchases and sales of stocks to maximise your returns.
Yes, there are risks. But through sound diversification, you can buffer global investments against downturns in multiple markets, sectors and currencies because you will always have other stocks that are overperforming to counter balance losses.

Learn how you can achieve 19.25% annualised returns by investing independently. Download your copy of our complimentary eBook on 3D Value Investing here. 

3d-value-investing-ebook

Topics: STRIDE, International Investing

cta-book-example.jpg

3D Value Investing: Triangulating The Best Investment Targets

3D Value Investing uncovers the best businesses for investment, the fair value of those businesses and the best times to buy in and sell out. This approach to long-term investing results in higher returns with lower risk.

Download your eBook now

Subscribe to Email Updates