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Value investing has historically proven effective, not only in domestic markets but also internationally. Some investors have achieved outstanding success in foreign markets by following this approach. The essence of value investing, which involves seeking out undervalued assets trading below their intrinsic value, has been a key strategy for many renowned investors. The international market offers a diverse landscape for finding such investment opportunities, as evidenced by the triumphs of iconic value investors like Sir John Templeton and Peter Cundill. Their achievements in global markets serve as a testament to the potential of value investing beyond domestic boundaries, offering a blueprint for those aiming to explore and capitalize on international investment opportunities.

Sir John Templeton was a pioneering figure in the world of investment. Born on November 29, 1912, in Tennessee, USA, he displayed an early knack for economics and finance, earning a degree from Yale University and becoming a Rhodes Scholar at Oxford.

Templeton’s professional career in finance began in 1937 on Wall Street. However, it was after World War II that he truly made his mark. In 1954, he founded the Templeton Growth Fund, one of the first mutual funds focusing on global investment opportunities. This move was revolutionary at the time, as most investors were primarily focused on U.S. stocks.

Templeton’s investment philosophy centered on “value investing.” He was known for buying stocks at times of maximum pessimism and selling them at times of optimism. His approach was deeply analytical, focusing on long-term trends and the intrinsic value of companies rather than short-term market fluctuations. Templeton was an early adopter of investing in emerging markets and was known for his rigorous, globally diversified approach.

One of his most famous investment moves was during the early stages of World War II, when he bought shares of every public European company trading for less than $1 per share. Many of these companies were in disarray due to the war, but Templeton’s bet paid off handsomely in the long term.

Beyond his financial success, Templeton was also known for his philanthropic efforts. He established the John Templeton Foundation in 1987, which supports research and initiatives at the intersection of science and religion. He was knighted by Queen Elizabeth II in 1987 for his many philanthropic endeavors.

The impact of Sir John Templeton on global value investing is profound. He showed that a disciplined, patient, and globally aware approach could yield substantial returns. His methods influenced countless investors and set a precedent for looking beyond one’s national borders for investment opportunities. His legacy in finance is characterized by innovation, global perspective, and an unwavering commitment to finding value in overlooked places.

Peter Cundill was a highly respected figure in the world of finance, known for his disciplined approach to value investing. Born in Montreal, Canada, on July 21, 1938, Cundill developed an interest in the stock market at a young age. He graduated from McGill University and later qualified as a Chartered Accountant, which laid the foundation for his analytical approach to investing.

Cundill’s career in investment began in the early 1960s when he started working for Greenshields Incorporated, a Canadian brokerage firm. However, it was in 1974 that he truly began to shape his legacy in the world of finance. In that year, he took over the All Canadian Venture Fund, which was renamed the Cundill Value Fund. This marked the beginning of his distinct approach to value investing on a global scale.

His investment philosophy was heavily influenced by the principles of Benjamin Graham, often regarded as the father of value investing. Cundill’s approach was characterized by meticulous research and the patience to wait for the right opportunity. He focused on finding companies that were trading significantly below their intrinsic value, a strategy that often led him to invest in markets and companies that were out of favor with the majority of investors.

One of Cundill’s notable strategies was his global perspective. He did not limit his investments to North American markets, which was relatively uncommon at the time. Instead, he searched for value across various global markets, often finding opportunities in overlooked or undervalued regions. This global approach set him apart from many of his contemporaries and proved to be highly successful.

Throughout his career, Cundill’s fund consistently outperformed the market, earning him a reputation as a master of value investing. His focus on deep value, thorough research, and a global outlook had a significant influence on the field. He was known not just for his investment acumen, but also for his intellectual curiosity and humility.

Peter Cundill’s impact on global value investing was profound. He demonstrated the importance of looking beyond short-term market trends and focusing on the underlying value of assets. His global approach to value investing influenced a generation of investors and showed that opportunities could be found in the most unexpected places. His legacy continues to influence value investing strategies worldwide.

Advantages of Global Value Investing

Value investing, when applied to global markets, offers a strategic advantage, particularly when domestic markets like the U.S. are experiencing inflated valuations. By casting a wider net across various international economies, investors can tap into markets that are potentially undervalued, providing a fertile ground for discovering investment opportunities at more reasonable prices. This approach not only aligns with the core principles of diversification in value investing but also mitigates risks associated with overvalued domestic markets. It embodies the philosophy of looking for “points of maximum pessimism” globally, where undervalued assets may be hidden, offering a cost-effective diversification strategy beyond the often higher-priced U.S. market. This method not only broadens the investment horizon but also capitalizes on the price disparities between different markets, unlocking value in areas that are less recognized or understood by the majority of investors.

Developed markets, known for their robust regulatory frameworks and stable economic environments, can also be fertile hunting grounds for value investments, particularly when asset valuations are attractively low. This scenario aligns with Peter Cundill’s strategy of conducting meticulous research to uncover hidden gems. While emerging markets are often touted for their high growth potential, developed markets should not be overlooked for value investing. They can offer the dual advantage of regulatory security and undervalued assets, especially during economic downturns or market corrections. In such situations, even well-regulated and established markets can house undervalued companies with significant upside potential. For value investors, these conditions create opportunities to invest in fundamentally strong companies at lower prices, an approach that balances the pursuit of growth with the stability and predictability inherent in developed markets. This strategy requires a discerning eye to identify these undervalued assets, but for those willing to do the research, developed markets can offer compelling opportunities for value investing.

For value investors, the fluctuations in currency exchange rates present a unique opportunity, especially in the context of Sir John Templeton’s investment strategies. A key aspect of this approach involves capitalizing on situations where the U.S. dollar is strong against undervalued foreign currencies. An undervalued currency typically refers to a situation where a currency’s value is lower than its perceived intrinsic worth, often due to economic, political, or market-driven factors.

When investing in foreign assets with a strong dollar, investors are able to purchase more with less, effectively acquiring assets at a discount. This becomes particularly attractive when these foreign assets themselves are undervalued, allowing for a double benefit. First, there’s the potential gain from the asset’s price appreciation as it returns to its intrinsic value. Second, there’s the potential for additional gain if the foreign currency rebounds against the dollar. 

This dual potential for revaluation — both of the asset and the currency — can significantly enhance returns. It’s a strategy that requires careful analysis to determine the true value of a currency, considering factors like interest rates, economic growth, trade balances, and political stability. Identifying currencies that are cheap relative to their fundamentals, and pairing this with investments in undervalued assets in the same region, can be a powerful combination for value investors looking to maximize their gains in the global market.

Challenges in Global Value Investing

Investing in foreign markets, as adeptly demonstrated by Peter Cundill, involves a nuanced understanding of not just economic and political risks, but also the intricacies of different accounting practices that can significantly affect the valuation of assets. One key challenge is that accounting standards vary widely across countries. In some regions, practices may inflate asset values, presenting an overly optimistic view of a company’s financial health. In others, conservative accounting norms might understate asset values, creating hidden opportunities for value investors.

Cundill’s investment strategies were particularly noteworthy in this context. He was known for his thorough research and deep understanding of international accounting differences, enabling him to identify mispriced assets that others overlooked. For instance, in Russia, where political and business corruption can be prevalent, Cundill navigated these challenges by deeply analyzing companies beyond surface-level financials. He recognized that in markets with higher risks of corruption and less transparent business practices, asset values could be significantly distorted, either overvalued due to fraudulent activities or undervalued due to lack of investor confidence.

This approach requires a meticulous assessment of the true value of assets, factoring in the risks associated with political instability and corruption. Investors must conduct comprehensive due diligence to decipher the real financial position of companies in such markets. By doing so, they can uncover undervalued assets in challenging environments, much like Cundill did in Russia, where he capitalized on the eventual recovery of undervalued assets in a market rife with complexities and challenges.

Sir John Templeton’s investment approach, especially his focus on global markets, indeed highlights the importance of understanding diverse regulatory environments in value investing. Different countries have their own unique regulatory frameworks that can significantly impact the valuation and performance of investments. These regulations may influence everything from corporate governance and financial reporting to market operations and investor protection.

Templeton’s strategy involved not just identifying undervalued assets globally but also conducting extensive research to understand the local regulatory landscapes. This approach is crucial because regulations can greatly affect the risk and potential return of investments. For example, a country with strong investor protection laws and transparent financial reporting standards may offer a safer environment for investment, albeit potentially with lower returns. On the other hand, a market with less stringent regulations might offer higher growth potential but also comes with greater risks.

Contemporary investors looking to navigate global markets can learn from Templeton’s approach. It’s important to:

Research Local Regulations:  Understanding the specific legal and regulatory framework of each market is crucial. This includes knowledge of tax laws, restrictions on foreign investments, corporate governance standards, and financial disclosure requirements.

Assess Impact on Investments: Regulatory environments can affect the profitability and risk profile of investments. Investors should evaluate how local regulations might impact their investment strategy and potential returns.

Stay Informed on Changes: Regulatory landscapes can evolve, and staying informed about these changes is important for managing and adjusting investment strategies accordingly.

Diversify Appropriately: Given the varying degrees of regulatory environments, diversifying across different markets can help mitigate the risks associated with any single regulatory regime.

By adopting a thorough and research-driven approach similar to Templeton’s, investors can better navigate the complexities of global markets and make more informed investment decisions. Understanding and adapting to different regulatory environments is a key skill in successful global value investing.

Understanding the people and culture of a market is a vital component of value investing in foreign markets, a strategy employed by notable investors such as Sir John Templeton and Peter Cundill. Their investment approaches extended beyond mere financial analysis, often involving visits to the areas of interest and immersing themselves in local cultures.

Gaining cultural insights is crucial. By understanding local customs, consumer behavior, and business practices, investors can better assess market dynamics and potential business performance. For example, specific consumer preferences and social norms can heavily influence a company’s success in a particular country.

Having a local market understanding is another key aspect. By spending time in a market, investors obtain a clearer picture of the economic conditions, including market development, the regulatory environment, and political climate. This direct approach can uncover details not visible from a distance.

Building relationships is also an important strategy. Visiting a market not only allows for direct observation of potential investment opportunities but also enables investors to form local contacts. These relationships are invaluable for gaining deeper insights and staying updated on local developments. They can also assist in navigating local bureaucratic and regulatory processes.

Direct observation offers a significant advantage. Seeing the operations of potential investment targets and the general state of infrastructure and economic activity provides a more accurate understanding of the investment environment.

Finally, mitigating information asymmetry is essential. In foreign markets, local investors or stakeholders might have more or better information. Through on-the-ground research and immersion in local markets, investors can reduce this gap, leading to more informed decision-making.

Thus, comprehending the culture and people of a foreign market is about more than just collecting information; it involves a profound, nuanced understanding of the investment environment. This approach, as exemplified by Templeton and Cundill, combines financial analysis with a deep grasp of cultural and social contexts.

Adopting strategies to mitigate risks in foreign markets involves a mix of sophisticated techniques and thorough research. Currency hedging is a key method, particularly relevant for investors dealing with assets in different currencies. This strategy is aimed at protecting against fluctuations in exchange rates, which can significantly impact the value of foreign investments when converted back to the investor’s home currency. Methods like forward contracts and currency futures are commonly used for this purpose, allowing investors to set future exchange rates and therefore manage the risk of currency volatility.

Market puts are another important tool, serving as a form of insurance against market declines. These put options give investors the right to sell a specific amount of an underlying asset at a predetermined price within a certain time frame. If the market falls below the strike price of the put, the investor can sell the option at a profit, thus offsetting some of the losses in their portfolio. This strategy is particularly useful in volatile or unpredictable markets.

Beyond currency hedging and market puts, diversification across asset classes is a fundamental risk management technique. Investing in a mix of asset types, like stocks, bonds, and real estate, can reduce overall portfolio risk. Using derivatives such as futures contracts and swaps is another way to hedge against various risks. Additionally, dynamic asset allocation, where the composition of a portfolio is adjusted in response to market conditions, can help manage risk.

Leveraging local expertise is also crucial in foreign markets. Local experts provide insights into market trends, regulatory changes, and other regional specifics that might impact investments. They can guide on reliable local partners and help navigate legal systems and business practices.

Comprehensive due diligence is the cornerstone of foreign market investment. This involves an in-depth analysis of potential investments, taking into account not just financial metrics but also political stability, the regulatory environment, corporate governance, and macroeconomic conditions. Such a comprehensive approach enables investors to make well-informed decisions and anticipate potential risks.

Overall, navigating foreign markets successfully requires a blend of risk management techniques, leveraging local knowledge, and extensive research. By employing these strategies, investors can safeguard their portfolios from the various risks associated with international investing.

Embracing Global Value Investing with Strategic Foresight

Global investing, particularly from a value investing perspective, has been a crucial element in the success stories of Sir John Templeton and Peter Cundill, offering a pathway to robust portfolio growth for Western investors. These iconic investors demonstrated the significant benefits of expanding investment horizons beyond domestic markets. Templeton’s approach was groundbreaking; he was known for his global perspective and his willingness to invest in markets that others considered too risky. This strategy was rooted in identifying undervalued companies worldwide, not just in well-known markets. Similarly, Cundill’s investment journey was marked by his exploration of international markets, especially those experiencing temporary difficulties, leveraging these situations to capitalize on their eventual recovery.

Warren Buffett, another prominent figure in the investment world, has also recognized the value of international diversification. Though Buffett is predominantly known for his investments in American companies, his venture into Korean stocks through his personal account illustrates his adaptability and understanding of global value. He identified a period when Korean stocks were undervalued and seized the opportunity, applying his value investing principles in a market that was largely neglected by mainstream investors.

The successes of Templeton, Cundill, and Buffett in global markets underscore the importance of thorough research, deep understanding of various market environments, and patience. They committed considerable time and resources to study international markets, understanding their economic, political, and regulatory nuances. Their approach necessitated a robust commitment to due diligence and a willingness to explore unfamiliar territories.

Effective risk management was another key aspect of their investment strategies. Investing in foreign markets introduces a range of challenges, including currency fluctuations, political instability, and different accounting standards. These investors demonstrated adeptness in navigating these risks, often using diversification across regions and sectors as a strategy to hedge against potential downturns.

In conclusion, the investment journeys of Templeton, Cundill, and Buffett in global markets exemplify the effectiveness of applying value investing principles on an international scale. For American investors, this implies embracing a broader perspective of investment opportunities, characterized by rigorous research, patience, and a nuanced understanding of diverse markets, all while maintaining effective risk management. This approach not only diversifies investment portfolios but also aligns with the timeless principles of value investing, tapping into the rich potential of global markets.

The information presented in this article is the opinion of Jacobs Investment Management and does not reflect the view of any other person or entity.  The information provided is believed to be from reliable sources, but no liability is accepted for any inaccuracies.  This is for information purposes and should not be construed as an investment recommendation.  Past performance is no guarantee of future performance.