Take Your Investment International
In nearly every story, Uncle Scrooge is either getting word from his global network of businesses or traveling the world to find rare treasurers and artifacts. In his early days, he made his fortune in the far-distant Yukon. The point is simple: There is no reason to only own stocks and assets in the United States.Now, if you are just starting out, it may not make a lot of sense to start buying global stocks. Nevertheless, as a value investor, there is a lot to be said for effectively doubling the number of potential undervalued stocks you can find by looking outside of America’s borders. Not that long ago, we published a piece explaining how the average investor can buy ADRs, short for American Depository Receipts, which are a way to acquire stocks on foreign exchanges without leaving the comfort of our home country. For years, I, as well as various member of my family, have owned shares of the Tweedy Browne Global Value fund.
Well Bought Is Well Sold
The old retail adage “well bought is well sold” could be seen in nearly every business deal in which Scrooge took part (save, of course, for a rather expense open-cry auction that he attended – Warren Buffett and Charlie Munger, of course, have long warned that it’s a mistake to go to those, but alas McDuck must not have gotten the advice).This was the basic premise of Ben Graham’s investment style. The return you earn is determined by the price you paid for an asset (for more information on this, read Price is Paramount). All else being equal, the lower the price you pay, the less risk. This was the philosophy that Rose Blumkin used to build the Nebraska Furniture Mart and make her family extraordinarily wealthy despite being unable to read or write.
Maintain Plenty of Liquidity at All Times
It’s highly likely that Scrooge overdid the liquidity principle with his money bin. In some stories, however, he states that this is merely the working capital for his operating businesses. If General Electric, Exxon Mobile, or Berkshire Hathaway were to keep their working capital in a comparable bin, it would likely be just as large, so perhaps all of those funds really are nothing more than a very large corporate cash register.The principle is true and plain: The greater your liquidity, the more flexibility you have in making decisions including investments. You can meet unexpected demands, such as car repairs or health emergencies. If you are constantly strapped for funds, you might not be able to take advantage when opportunity presents itself or, worse yet, you might not be able to financially survive something that otherwise would have been a short-term blip. How many people were wiped out in the October 1987 crash because they were highly leveraged when the markets plunged? Yet, by the end of the year, the market had recovered all of the lost ground. For those who lost their equity, they couldn’t participate in the recovery and it spelled total and complete ruin.
Remember the words of Warren Buffett: You should be able to manage just fine and be perfectly content with your investments if the stock market were to close for five years. People often forget that prolonged stock market closures are not only possible, they have happened in the past. You shouldn’t require the funds in your investment accounts to survive. If you are living off of dividends, consider having the shares registered directly with the transfer agent or keeping the certificates in a safe deposit box so the dividend checks are mailed to you directly from the companies, leaving you unscathed as long as the companies in which you have an ownership stake continue to make their regular dividend payments (for more information read All About Dividends to see how they are established, who decides what is paid out to shareholders, and much more).
