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This Is Worth Your Time

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May 07, 2009 – Comments (4)

This is the Ben Thanh market in Saigon. It's the place you go to buy, well, anything you want, including but not limited to lunch, coffee, T-shirts, pots and pans, liquor, candy, small wooden model dragonflies, enameled art, etc. Further, there are no prices. You bargain for everything and the little Vietnamese ladies generally won't let go of your arm until a deal has been struck.



The reason I bring this up is because Ben Thanh market epitomizes how markets work. They are ugly, chaotic, and nerve-wracking. It's easy to forget this fact living in America where prices are set, bargaining is frowned up at legitimate stores, and technological advances such as the Internet make commerce all seem very clean.

It's not. Commerce is a somewhat shady, inexact science, and that's as true on the stock market as it is in Ben Thanh market. It's easy to forget this trading from your Ameritrade account, where you get the false precision of decimal points, a clean interface, and have no reason to talk to anyone. But don't forget the true nature of markets, where you win because you are a better negotiator who has more information than the other guy.

It's with that in mind that I repeat my assertion that the best place to make outsized returns today -- as long as you're willing to do the legwork -- is in small, foreign stocks. I was reminded of that this morning as I was rereading Seth Klarman's 1997 letter to shareholders (yes, I'm a nerd; I reread old letters to shareholders in the morning while I drink my coffee). Here's what he had to say about folks who questioned the intelligence -- way back then -- of investing abroad:

I frequently hear the argument that the rules are different overseas: the accounting murky, the annual reports unreadable, the currencies sometimes unhedgable. All of these points are fair, but, rather than being arguments to avoid foreign markets, they are instead arguments to embrace them. After all, as an investor you never have perfect information, and the biggest profits are always available (just as they have been in the U.S.) when competition and information are scarce. The payoff to fundamental analysis rises proportionately with the difficulty of performing it.

Through this general line of thinking, you might conclude that the future returns will be lowest in expensive markets and greatest in cheap ones; lowest where information is plentiful and straightforward, and greatest where it is scarce and hard to interpret; and lowest when markets are priced to reflect shareholder-oriented management and greatest where managements are currently indifferent. All of this, I believe, is the case, and the next decade should prove it.
 

Yes, I added that emphasis, but it’s because it’s such a key point. Real money is not made easily and bubbles form when obvious asset classes offer uncharacteristic returns. The overarching lesson is that you have to do some real work to find the market's real gems, but that finding them is very, very worth it. 

That's one of the reasons why we keep up such hectic travel schedules at Global Gains, and why we "waste" our time visiting a lot of small companies in places like China, India, and Brazil that have "no chance" of ever being ready for prime time. In the off chance that we find one (and we have), the returns are pretty good.

Similarly, it's easy to walk out of Ben Thanh with 2 T-shirts for $5, but you know you've mastered the market when you're the guy walking out of there with 6 for $5 plus a cup of coffee and a red mark on your wrist from where the Vietnamese ladies were holding you tight.

4 Comments – Post Your Own

#1) On May 07, 2009 at 1:20 PM, gmXmkttiming (27.47) wrote:

Similarly, it's easy to walk out of Ben Thanh with 2 T-shirts for $5, but you know you've mastered the market when you're the guy walking out of there with 6 for $5 plus a cup of coffee and a red mark on your wrist from where the Vietnamese ladies were holding you tight.

One of the finest paragraphs I've read on this website.

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#2) On May 07, 2009 at 1:31 PM, JibJabs (86.00) wrote:

Cool- I was there this summer. The traffic is absolutely wild around there- you just have to wade through a sea of motorcycles with your arms upraised.

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#3) On May 07, 2009 at 2:07 PM, devoish (58.11) wrote:

During my last visit to a Mexico my wife wanted to go jewelry shoppping for gifts for her coworkers. I hadn't shopped for jewelry in a long time and had no clue about prices. Neither did my wife.

She found a silver ring in a small shop and asked how much it was. $80 was the answer. Without a reply I steered her out of the shop and as I did the salesman responded $20. My wife began negotiating and got him down to $15. I told her to walk away and after much difficulty she did. The salesman offered the ring for $7.00 which my wife accepted.

Later we returned to our Hotel and I peered into the closed gift shop window. Similar silver rings were selling for $5.00.

I smiled, went to the bar, and bought a $2.00 drink for $7.00.

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#4) On May 07, 2009 at 3:34 PM, TMFMmbop (28.22) wrote:

Just to be clear, I wasn't the guy who walked out of there with 6 shirts, coffee, and a red wrist. Those Vietnamese ladies owned me for the most part. I think we ended up with 4 shirts for $5.

By the way, there are some interesting stories in Jim Rogers Investment Biker about why he always uses the black market in places like Vietnam for changing currency. It's because while he knows the state banks are robbing him to the tune of 20% of the exchange value, he figures there's only a 5% or so chance he'll get totally robbed by the black market (fraud or hold-up). So over time, if he gets robbed 1 out of 20 times he tries to change money on the black market, he comes out ahead.

Of course, there's a gambler's ruin risk if the black market robbery turns violent, so there's that to think about.

Thanks for the comments. Glad folks are enjoying the blog. It's a blast to write.

Tim

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