Step 9 Preservation

Global economic crises usually come with little warning, and knowing how to keep your wealth despite market turbulence is essential whether you are a new investor, or a professional. Diversification into different countries and currencies to protect yourself against local events, as well as into different asset classes to safeguard against worldwide disasters are both necessary.

The typical advice given to people who want to invest conservatively is to put a large percentage of their holdings in bonds. In the past several decades, bonds have given a “safe”, although lower return when compared to stocks. But despite a 30-year bull market, bonds may not be as safe as they once were.

Interest rates throughout the world have been declining ever since the early 1980s; however, a strategy used by central banks throughout the world in order to recover from the 2008 Economic Crisis was to keep rates even lower, artificially. As nations recover from recession, loose monetary policies are being stopped causing interest rates to rise and thus, bond prices to fall.

High-dividend paying stocks, such as the Bank of China which yields over 6%, are now preferred by many investors over bonds.

Because of this, investors are no longer able to just buy bonds in order to protect themselves. This is where being a global investor gives you a huge advantage. By choosing to invest in assets located in certain countries that are less impacted by global events, you gain an extra layer of diversification that simple asset allocation does not provide.

Keeping a certain amount of cash on you, preferably in multiple currencies, is also important. A wise investor is able to make money regardless of whether being in a bull or bear market. Having cash in hand gives you the flexibility of being able to adapt to market conditions and make money during a recession by purchasing assets at a low price, or shorting them.

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Step 8 Calmness

Errors in judgment, poor planning and hasty decisions can quickly take away an investor’s profits. Let’s face it: we as human beings can be easily influenced by things we hear from friends, or in the news. We have a tendency to panic and make poor decisions about what we should buy and what we should sell before properly thinking things through.

Quite frankly, no one can teach you to avoid these types of mistakes. It has more to do with knowing about your own psychology, gaining experience as an investor and making many mistakes that you are able to learn from. Every person is different and makes poor judgments in different ways.

With that being said, learning from the mistakes and experiences of others does count for at least something.

One example of a “panic sell” situation is that of Carnival Corporation (NYSE: CCL). Carnival is the world’s largest operator of passenger cruise ships with many thousands of vacationers riding on their massive ships every year. But in January of 2012, one of Carnival’s Ships, the Costa Concordia, hit a rock off the coast of Italy and submerged. 32 people died in the crash, massive rescue operations were undertaken, and the event was broadcast all throughout the world.

The crash of the Carnival cruise ship “Costa Concordia”.

Shares of Carnival plunged almost 20% in mere days as investors were spooked by a large amount of negative publicity. However, Carnival not only soon regained their losses, but later that year they traded at more than 30% higher than their previous lows!

What happened? Investors eventually came to their senses and realized that while the negative media attention was unfortunate, people easily forget things that they hear on the news. Carnival’s fundamentals were also still sound. A cruise ship may have sunk, but Carnival operates over one hundred of them. The loss of one was not only fully covered by insurance, but would cause only a small amount of damage even if it were not.

The advice to “Be fearful when others are greedy, and greedy when others are fearful” has truly been proven to be sound many times.

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Step 7 Action

Your research is done, your overseas brokerage account is open, and you are finally prepared to make your first investment in a foreign market. However, there are still many things to be aware of because as usual, even things that seem simple are bound to be at least slightly different in a foreign country.

The process of buying stocks can be different depending on where you do it. In most developed countries, you can buy stocks either over the internet, or the phone. For some countries with less developed financial markets, you may need to be at the brokerage in-person for your first stock purchase with that account, or possibly even every purchase with that account.

As is probably the case in your home country, there are several different types of purchase orders. A market order will execute as soon as it can be, at the next available price.  A limit order will buy the stock for a price no higher than the one you set, and a stop order will buy the stock for no lower than a price that you set. These are the three most common types of buy orders.

One piece of advice that you are unlikely to hear, is this: Be extremely careful with market orders. Stock prices can fluctuate rapidly and with little notice, especially in an international setting with less developed and/or less active markets and the price that you may think you are paying for the stock can often be very different once your order executes. There is usually no reason to place anything other than a limit order.

Other factors to consider are the different time zones and trading hours that each market has. Some exchanges offer “after-hours trading”, which allows investors to place orders of limited quantity and variety after the official close of the market. Some exchanges will take a lunch break, or be closed on a national holiday that you are not aware of. Most western countries practice daylight savings time, where the time throughout the country will differ by an hour at certain times of the year.

Some of the things above that were mentioned may seem of little importance, but much money has been lost by countless investors who simply had bad timing.

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Step 6 Patience

Some incredibly successful individuals have made their name by investing in risky assets, and getting rich off of it. Investor gurus such as George Soros and Warren Buffet have made their fortune by putting a large amount of money into one asset that they think will perform very well.

These men have certainly done their homework, and this method of investing has worked well for some. However, it has also ended in disaster for even more.

Growing your wealth does not need to be dangerous and uncertain, though. Oftentimes, the only thing you need on your side is time. Investing in safer assets, holding them for a certain period of time and reinvesting dividends and other profits made off of your investments can not only be extremely effective, but very safe. In the short term, you may lose money; however, history shows you will be ahead of yourself in the long term.

While the benefits of compound dividends and long-term investing are relevant for any type of investor, global investing adds many more levels of complexity. Some nations have companies that pay more dividends in general, while some countries may also provide a better environment for long-term growth. For example, Singaporean companies that pay dividends tend to pay small dividends quarterly, while their European counterparts will often pay one very large dividend once per year. Timing can be very important.

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Step 5 Discipline

There are many different things to keep in mind when choosing what to invest in besides the asset itself. Most of these things relate to you. Your age, risk tolerance, goals and timeframe are all important things to consider. This is true in any circumstance, but especially so when investing internationally in markets that may be more risky, volatile and illiquid.

A diversified portfolio should always make money in the long term and because of this, one of the most common pieces of advice is to start investing at a young age. Dividends, compound interest and the historical tendency of the world’s economy to grow rather than shrink allows people who are younger to put their money into assets that are volatile in the short term, but hugely profitable in the long term.

Of course, not everyone has the luxury of time. Equities have outperformed all other assets in the long term, but most people have shorter term goals. For a person who is saving for a house, their child’s education, or retirement, a short term crisis in the market may ruin their plan entirely.

Many investment managers suggest allocating assets according to age.

The above model is one of many used by asset managers to recommend the percentage of allocation to stocks, bonds and cash their client’s portfolios, but as always, things are much more complicated to the global investor. For example, stocks are not simply “stocks”. Some companies are located in riskier areas of the world, some will be in financially stable jurisdictions, and most global equities will be bought in a different currency than your own, to name just a few differences.

Just remember: do not be greedy. It may be tempting to put all of your money into potentially profitable, yet volatile assets. But only put at risk what you can afford to lose.

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Step 4 Discovery

One mistake that many global investors make is buying the stock of a company without researching it first. This may seem like an obvious step that any investor would need to take, however this can be difficult when buying stocks internationally. The language barrier, and possible lack of information can prove challenging and some people choose to skip this step altogether. Because of this, it is a good idea to revisit the importance of due diligence.

Analyzing a company’s future prospects does not need to be too complicated. Most things an investor needs to know about a company’s performance can be found by simply evaluating management, the products that the company sells, as well as a few key numbers and ratios that can be found in any language.

Many of the world’s most successful investors will tell you that good management and a simple business model are the most important indicators of how well a company will perform in the long-term. Warren Buffett, for example, has made much of his fortune by investing in companies such as Coca-Cola and Wal-Mart. These companies are in businesses (selling beverages, operating supermarkets) that anyone could understand, appeal to the mass market, and have competent management.

“Never invest in a business you can’t understand.” – Warren Buffett

Beyond the qualitative, there are certain ratios that will show an overview of the company’s valuation and trends. Two of the most important are the company’s Price to Earnings (P/E) Ratio and Return on Assets (ROA). Of course, numbers are still written the same in most languages, so this can be a way of analyzing a company without needing to learn the language of the country you are investing in.

The P/E ratio does exactly what it says. It shows the price per share of the company, divided by the annual earnings per share of the company. With all other things being equal, a lower P/E is a better buy than a high one because the company will have high earnings compared to the price of their stock.

ROA shows how profitable a company is compared to their total assets. Here, the trend over the past several years, and the percentage when compared to competitors are more important than the number itself. If a company’s ROA is moving lower throughout the years, or is low when compared to its competitors, it shows that the company is less profitable than it should be.

In general, a company with good management, a low P/E and a reasonable ROA could be considered a good investment. But of course, things are always more complicated. The stock market can perform in strange ways that no amount of analysis could predict. This is even truer in smaller and less developed markets, where stock prices can move at the whim of important people and local phenomena.

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Step 3 Preparation

International investing may be rewarding and wise, but it may also add many different layers of complexity. Different countries have their own pros and cons. Some may be safer to store your money and have a well regulated business environment, while others may be simple to create accounts in with the entire process able to be done through email.

Opening a brokerage account to trade on some exchanges may even give you access to stocks in other countries besides them, such as in the case of the Hong Kong Stock Exchange which has many companies from mainland China and the United States listed.

Hong Kong is well-regulated, stable and has many different investment options. However, opening a brokerage account as a foreigner is complicated and usually requires a personal visit to the country.

If this sounds complicated, it is. Not only must you make a decision of which jurisdiction (or which ones) are right for you, but you must figure out exactly how to open the bank and brokerage accounts that you need. Afterwards, you will need to figure out which companies have a high potential for growth and are good investments.

But the reward is well worth the small effort. As a global investor, you are able to gain many advantages. These range from guarding yourself from an economic disaster, to seeking out greater investment opportunities away from home, to minimizing your taxes and much more.

And besides, there are many countries with excellent investments opportunities that require only a small amount of money and a few hours of your time to set up a trading account. You certainly do not need to hop on a plane and visit a bank branch in another country to trade stocks globally.

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Step 2 Wisdom

Deciding to invest in foreign assets so that you may seek out greater profit definitely takes motivation and perseverance. Global investors are often required to learn about different companies, markets, businesses cultures, and sometimes even new languages. That being so, many people throughout history from Marco Polo, to George Soros have become wealthy by seeking out opportunities abroad and while unfamiliarity comes with risk, it also comes with return.

A lot of these difficulties can be overcome with the proper research, though. A task, such as opening a bank account in Hong Kong, which may at first seem to require a plane flight to a different country may simply be able to done from the comforts of your own home.  One just needs to be aware of different methods. For example, certain banks will assist you in opening a brokerage account of theirs by mail, while many will not. It is also usually possible to find information about individual foreign stocks in your native language; you just simply need to know where to look.

Singapore is infamously difficult to open a bank or brokerage account in as a non-resident. However, it is possible to open one without even visiting the country with the proper knowledge.

International investing the correct way can not only diversify you, but also be very profitable. Yet some people try to apply the standards of the market in their home country to others. This is foolish. Since stocks are bought by people, psychology plays a large factor in how a market moves, and understanding their culture and how they think is needed in order to be successful.

This does not mean that you need to be and think like people from another country, but you should keep up to date with news and recommendations from the locals. A stock that may seem undervalued to you, for example, may be simply kept low by a local phenomenon that you do not know of. Keeping yourself informed can solve problems such as these.

In summary, having knowledge of not only your options of investing in a country as a foreigner, but In what ways unfamiliar markets and stocks move can mean the difference between gain and loss.

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Step 1 Enlightenment

Any investor must learn the importance of international diversification and there are many reasons to invest outside of your own country. From having better ways to make money during periods of opportunity, to gaining a greater ability to diversify and protect yourself during times of regional and global crisis

Good investors thrive when they have options, and seeking out different markets abroad give a wide range of possibilities. Different currencies, different stocks, and even the possibility to take advantage of time zones by trading in markets around the world at any time of day that you wish have the potential to make you very wealthy.

No matter where you live, chances are that somewhere in the world there is an investment that is better than anything within your own borders. Perhaps a large gold deposit was just found in Cambodia, or Taiwanese researchers are on the verge of finding a breakthrough cure for a major disease? With the proper planning and foreign accounts in place, you can increase your versatility and react to money-making investments before the rest of the world does, making you richer in the process. Preparation is key for putting yourself in a position to react quickly to global trends.

During Cyprus’s economic crisis in 2012, the government decided to confiscate private assets. The result was mass lines outside of banks and ATMs as people tried to withdraw and protect their money.

International diversification not only can also help you gain wealth, but can also preserve it. Having assets in different countries will protect you from a potential crisis in your own. No nation is immune to disaster, but political, economic, or monetary crisis in one country will have a much lesser effect on another.

During a crisis, many different things can happen with short notice. The stock market may crash, or a country’s currency may become worthless. As governments become desperate, some have even tried to confiscate the private assets of their citizens. Preparing for the worst can give you peace of mind and possibly protect you later down the road. Even if nothing bad happens, you will not be any worse for having assets in a stable jurisdiction.

In short, safeguarding your portfolio by spreading your assets throughout the world is needed for any risk-averse and intelligent investor.

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9 steps to investing globally

Step 1 : Enlightenment

Realize the vastness of the world, and the endless number of opportunities to be had. 

Step 2 : Wisdom

Prepare yourself so that you may avoid the biggest mistakes that many investors make.

Step 3 : Preparation

Take the important steps of opening and funding your bank and investment accounts. 

Step 4 : Discovery

Analyze businesses and find the best managed ones that are able to offer you the highest growth. 

Step 5 : Discipline

Buy the right type of investment for the right time frame that you need it for. 

Step 6 : Patience

Stay in for the long-term and do not choose to become a speculator. 

Step 7 : Action

You have prepared, now it’s time to get to business and become a global investor!

Step 8 : Calmness

Don’t become distracted by short term events and the opinions of others.

Step 9 : Preservation

Making your fortune is only half the battle, the other half is keeping and growing it.

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