Doree, among many others, has written in to ask about applying Rule #1 investing methods in her own country (in this case, New Zealand).
The great thing about Rule #1 investing is that it not only applies to any investment, it also applies to any investment anywhere. It doesn't matter if the market that you are in is thinly traded or thickly traded, long term or short term, in Chinese or New Zealandese. It's all the same. You MUST buy wonderful businesses at attractive prices. Anything else is pure gambling. End of story.
So how do you do that in New Zealand?
The same way you do it anywhere. The process is the same, the data is
the same… the only thing different is getting your hands on the real
data.
If you are in New Zealand (or New Delhi, for that matter) you
must be sure that the historical data you are getting is real and
accurate.
In the US markets, they make the CEO sign a document that
says the numbers are real. If the numbers are not real then he or she
gets to go spend 18 months mopping floors in a minimum security federal
institution. Most other countries do not require that of the
businesses in their public stock markets.
In fact, most other
countries don't even require the businesses to have current data
available to shareholders. Often the data is 6 months old, wrong,
manipulated, twisted, massaged and generally unreliable simply because
no one is forcing anyone to do what is right. In New Zealand, for
example, inside trading isn't even really a crime. It's more like bad
sportsmanship.
So what to do? Get the information directly from the business to
confirm what they've given the public markets. Then really dig in on
the business. By that I mean you need to do massive homework to
confirm the numbers are real. If they are claiming 20% growth, go to
the store and see if you can confirm orders are piling in. Are there
lines there that would confirm a hot growth rate? Or are the stores
kind of empty?
This is a situation where the third M is critical. You MUST know that
the person running this business is HONEST, OWNER-ORIENTED, AND HAS A
BAG (Big Audacious Goal). If you're not sure, this is too close to call. It needs to be
crystal clear that this person is NOT going to lie to you.
In addition, you must determine MOAT without the advantage of using the
Big Five Numbers. Use them by all means, but don't rely on them. You
have to do your homework and KNOW what the moat is and that it is
getting wider, not narrower. That means you identify the kind of
monopoly this business employs to protect itself. Again, if you are
not totally sure, then this is too close to call.
New Zealand has a long history of great innovation that is sold off to
American or British businesses before New Zealand can benefit. The
creativity is there, but the money to build a world-wide product has to
come from somewhere else — so the great NZ businesses are sold off. That
is sort of sad. On the other hand, if you can find the next big thing
in NZ tech businesses that are public and THEN it gets sold off, you
are going to do very well indeed.
By the way, do NOT invest in the broad NZ stock market. It can go flat for a long long time.
So do your homework and find a few great NZ businesses. Buy them when
they are on sale. If in fact they are great businesses, eventually the
market price will go up, or, more likely, they will be sold lock stock and
barrel — and you'll do great then, too.
By the way, I LOVE snowboarding in New Zealand. Nothing quite like it
for great long runs of untouched powder and amazing scenery.
Now go play.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.