The Value of Good Value Investments


Looking for good value in investing and business is a way to work through all the noise.

czech-equity-market

See below which equity market has had this performance and why it may be the best valued bourse in the world… plus a good value share traded on that exchange.

First, more on the value of good value investments.

Yesterday’s message War on Four Fronts looked at potential problems that could have a profound impact on our social and economic world.

If the wars on the southern border of the USA and in Korea were both to expand… what could happen and what can we do about it?

First, let’s recognize that a lot of extra money… that the government does not have… will be spent. This is not invested money.  If someone borrows to invest… the result can be good or bad… depending on how the investment does.  Borrowing to consume however almost always turns out bad.

If we take a holistic view… this is not the government’s debt. This is your debt and mine and our neighbors. That money will come out of our packets one way or the other eventually.  The charge may come in increased taxes… reduced government services… lower value of our currency or inflation… plus maybe some one off costs… defunct pensions… broken banks…. some things like this.

What we can do about this is invest in good value inflation fighting opportunities… commodities… our own micro business… real estate… or equities.

Second. realize that the volume of noise will grow. Every society has an educational system that teaches its populations how things are supposed to be.   When events do not evolve as citizens have been taught… there is much gnashing of teeth… increased noise that if listened too, deafens one’s hearing to the greater… more holistic symphony of life.

The way to block this noise is to search for value in realistic, personalized, disciplined thought.

Since one of the recent screeches that has scratched across our daily records at a loud volume is the Greek economic crisis… let’s get some positive spin from Greece… from a couple of millenniums ago… from Socrates when he made the statement that he was a “citizen of the world.”

I wrote the same thing in the 1970s (that I felt like a citizen of the world) in my first book Passport to International Profit. Honestly I believed this was an original thought. Yet as we see Socrates beat me to it by a couple thousand years. I am sure a myriad of others did as well.  Maybe there really are no original thoughts.

Anyway Socrates declared himself “a citizen of the world.”   Since the Greeks did not have jet travel in those times his view of what the world consisted of was a little more narrow than yours or mine today but what he meant was that he did not feel bound by the rules of thought of any state or government.

He was enriched by a lifetime of free-thinking and understanding of the entire world (albeit limited) around him.  This was an incredible statement, especially considering the penalty of free thought in that era.  Socrates encouraged his Greek fellows to think purely for themselves.

This was such a revolutionary concept that it did not end well for him short term.   He was tried on two charges: “corrupting the youth and impiety (‘failing to acknowledge the gods that the city acknowledges’ and ‘introducing new deities). This led to his execution.

Long term thanks to technology that makes global travel and communication, we really can be citizens of the world.  So we owe Socrates for the thought and if we march to the beat of our own drummer… we stop hearing all the noise.

Next expect the noise to be mostly negative. There is a great quote about how to overcome this problem from the Daili Lama in a recent Time interview.

He was asked: How do you stay so optimistic and faithful when there is so much hate in the world? His reply was:  I always look at any event from a wider angle. There’s always some problem, some killing, some murder or terrorist act or scandal everywhere, every day. But if you think the whole world is like that, you’re wrong. Out of 6 billion humans, the troublemakers are just a handful.

This is so true. For every negative event in this world there are millions that are positive. Yet our news system focuses on the bad.  What we can do is always keep in mind that problems create opportunity… to serve…to be fulfilled and to earn.

Third, realize that the herd will try to sweep you along.

An affirmation of this fact  can be seen in Warren Buffet’s (the ultimate value investor) testimony before a commission appointed by Congress to investigate the actions of credit rating agencies during the boom that led to the recent financial crisis.  Buffett was issued a subpoena to appear before the Financial Crisis Inquiry Commission hearing in New York because his firm Berkshire Hathaway owns more than 13% of Moody’s stock.  He said of the stock market, sub primed fueled bubble,   “I was wrong on it, too, I called it a bubble-ette. That was the wrong term to use. It was a four-star bubble.  It really was the granddaddy of all bubbles,” Buffett said.  “In boom times, even the wisest can lose their common sense, he said, noting that the scientific genius Sir Isaac Newton was a victim of the notorious South Sea stock bubble of 1720: “Rising prices are a narcotic that affects reasoning power up and down the line.” (my bold).

Here are some tips on what we can do to steady ourselves against the public current that in terms of value is almost always wrong.

These tips came from a reader who wrote:  We just returned from Omaha and the annual Berkshire Hathaway meeting with Warren Buffett.

Although we have been shareholders for years, I never carved out the time to attend…. DUMB! We will be going back next year.

I have always thought that if you are going to listen to somebody, make sure they are eating their own cooking and have created truly sustainable success. Clearly, Warren Buffett falls into this category and his insights are crystal clear, simple and make sense….. here are a couple that I found particularly useful:

1.  The key to getting rich is to create a structure or set of rules that minimizes the “Everyone else is doing it” syndrome. If everyone else is doing it, be wary!

2.  The primary key to successful investing is not the size of your circle of competence, but rather knowing where the perimeter is. Too many people drift away from what they know and in the process move from investor to speculator.

3.  The biggest single cause of the recent meltdown on Wall Street is the Business Schools and MBA Programs throughout the country. Teaching people to invest for the short term instead of owning a piece of the business will always produce gyrations and spikes in stock prices.

4.  The most recent rise in the stock market is primarily a result of low interest rates…. people can’t stand sitting on the sidelines making 2/10th of 1% on their money. Money has started flowing back into stocks because there are no alternatives and most investors can’t sit and do nothing when there is nothing to do that makes sense.

5.  Given the recent level of government intervention on top of the previously existing debt obligations in the United States, inflation is very likely. So are higher taxes. Inflation and higher taxes are the result of an the US inability to live within its means, so collecting and printing more money is the most likely answer.

6.  The real culprit in the recent economic turmoil in the US is not the US Treasury department, it’s Congress. Too much money has been spent in comparison to the amount being collected and this imbalance will result in even more pain.

7.  The problem in Greece is that it doesn’t have its own currency to print its way out of the problem…. Nor do any of the other members of the Euro. The Greece problem is likely to be repeated several times in the coming months.

8.  Long term, Warren and his long time partner Charlie Munger are HUGE believers in the US economy, which is why they just spent $29 Billion buying a railroad. Railroads will be the primary mover of goods in the foreseeable future. The better the US economy, the more goods that need to be moved. This is a long term “all in” bet on the United States economy.

For those of you who are unfamiliar with the spectacular investing results of Warren Buffett, consider this: In 1979, you could have purchased his stock for $290/share. Today it costs $120,000/share. You can read more about this incredible man and his investing philosophy by reading his annual Chairman’s Letter to Shareholders…. You should read all of them (1977-2009):  http://www.berkshirehathaway.com/letters/letters.html

For those of you addicted to speed, please remember that it took Warren 12 years (1950-1962) to make his first million…. The lesson: The goal is not to get rich…. The goal is to get rich and stay that way!

A recent message at this site pointed out that a good sign was that our business grew fast in bad times and much more slowly in good times. This is a signal that we are watching value… buying and investing more when prices are low and less when they are high.

Create your own structure set by the limits of your unique wants… needs and desires that stresses the relentless search for good value in all you do.

If that structure includes equities, then you may want to take a look at this equity market which is perhaps currently the best…

czech-equity-market

valued market in the world.

We closely follow the value analysis of Keppler Asset Management and this chart from his latest quarterly Emerging Market Value Analysis gives nine emerging markets a top value ranking.

If you are a new subscriber learn about Keppler Asset Management here.

czech-equity-market

The Czech Market has the highest dividend yield and yield is one of the most important indicators of value.

We can see a great appreciation in this market as well. In the first quarter of 2010 the Czech Market rose 26.3% in US dollars.

czech-equity-market

One good value share traded on the Czech exchange is CEZ a.s. the CEZ group traded in Warsaw as CEZ and on the Pink OTC Markets Inc: CZAVF.

The heading from their web site reads.

FROM A CZECH CORPORATION TO A MULTINATIONAL GROUP

The strategic goal of CEZ Group is to become the leader on the Central and Southeastern European electricity market. Apart from the production and sale of electricity, CEZ Group also deals in telecommunications, informatics, nuclear research, planning, construction and maintenance of energy facilities, mining raw materials, and processing energy by-products. CEZ Group currently belongs among the three largest heat suppliers in the CzechRepublic.

The parent company and core of CEZ Group is ČEZ, a. s. the largest electricity producer in the CzechRepublic, founded in 1992 by the National Property Fund. CEZ Group was created in 2003, when ČEZ, a. s. merged with several regional distribution companies. Today, CEZ Group belongs among ten of the largest energy companies in Europe, both in terms of installed capacity and number of customers. It occupies a leading position on the electricity market in Central Europe. Following the acquisition of three distribution companies in Bulgaria, one in Romania, two Polish power plants and one Bulgarian power plant, CEZ Group has become a multinational enterprise comprising of over 90 Czech and foreign companies.

See more about CEZ here.

You can see that sales are up but…

cez-sales

according to this Bloomberg chart, the CEZ share price is down.

cez-sales

This is what we look for in our search for value… businesses in a growth markets available at times when prices are low… yet business is booming.

I am not suggesting that you invest in this share. Perhaps it fits into the limits of your unique wants… needs and desires. If not perhaps it can be a role model  in how you search for good value in all you do.

See some ideas why Ecuador offers good value here.

Gary

We’ll review all the good value investing markets and good value micro business ideas at our June 24-27 Quantum wealth course in North Carolina.

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