Sunday, March 21, 2010

Twenty, Forty, Sixty:
We are Going Global

In a space of just about one week I have been presented with three different examples of people thinking out of their comfort zone. The most remarkable of these is from a freshman at a liberal arts university whose email asked three questions:

1. Describe the growth of international business, and how this growth will impact multinational corporations and national economies in the future.

2. How will companies in the U.S. compete with companies in China, India and other emerging markets in the future?

3. You are the Vice President of International Business Development for Evergreen Solar. How can you use the resources of the international financial institutions to support your projects in India?

None of these questions were asked of me by my Ivy League University. I took many years, with help of the US Marine Corps and some basic analysis work to acquire the background to answer the questions that are preparing this student for the commercial world when she graduates. What is wonderful is that she is comfortable being asked these questions and recognizes how important the answers are to her future.

My reply to her starts with the fact that individual consumers and investors have already become transnational in their outlook and action. Few of the academic world and almost no governments have made the jump over the border into different time zones and customs. While Coca-Cola might be able to meet its debt service requirement without relying on non-US sales, I doubt that it can continue to pay its dividend out of purely domestic operating income.

We received our game plan for success in this global transnational world on or about our first birthday. There were two documents produced in 1776 that shaped our world. The first is our Declaration of Independence, which is a model for a lot of the world. The second and conceivably more important was the publication of The Wealth of Nations, which preached the development of comparative advantage. Author Adam Smith, a canny Scot, figures out if each person could do something better (read cheaper in many cases), we could trade with each other to fulfill many of our basic needs. Merchants became rich being the connectors of this system. One of my rules in looking to get and keep customers is being prepared to do things that make my clients richer. This precept works around the world.

The question as to “Evergreen Solar” is of interest to me in that we have energy technology stocks in our otherwise financial services portfolio. We need to do more work to find whether they are good investments. In general, I shy away from companies that require good connections with the government. So I would look eventually to commercial financing.


One of my sons has been asked to develop an Internet-based sales pitch to be used by mutual fund wholesalers distributing to retail brokers or advisors. As this was his first specific effort along this line, he asked for suggestions on what he should focus. I suggested Global funds. I believe everyone is impacted by overseas prices and trends, be they farmers, local retail merchants and just about every other economic activity in the US. Global investing is not exclusively investing in foreign companies. As a matter of fact, some of the very best global companies are US based. The critical difference is that as a global investor you are looking for the most rewarding investments, wherever they are.


As it is my nature to be generous, “Sixty” could be the average age of a combined Executive and Investment Committee which will meet early this week. Some of the time may be spent on investment guidelines which I feel are outmoded in a number of aspects. One issue of concern regards the asset allocation buckets for US Equities, Non-US Equities and Emerging Markets. These are artificial separations which have nothing to do with the risks and rewards in various securities. Whether we like it or not, almost all our large companies manage their currency risks, some do it well, others do not. Because China is going to be the second largest economy in the world at some point, the allocations system should accommodate it in a large bucket. I am also very concerned by the non- investor friendly court systems in China, India, Japan and California, etc. These factors should be taken into consideration by the managers we hire and not be the purview of a corporate governance document.


I only hope that in 80 years our preferred measure of account is the US dollar and that smart kids in our colleges are making fewer mistakes than we have.

What are your thoughts?


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