Until recently, I only invested in stocks trading on US exchanges. This was pretty convenient. I could use any brokerage, screen easily, and never worry about whether the yen might be on the verge of collapse.
There was just one problem: A lack of bargains. There are only so many times you can run the same screen, get the same handful of Chinese companies, and expect the next time to go differently. (I do actually own some Chinese companies, like $NUIN and $ZA. But the investing process tends to be more fun when you can trust the numbers.)
What I discovered, as have many others before me, was that there are much greener pastures overseas. Japanese companies trading at a fraction of net current asset value, significantly undervalued European stocks with high dividends, and Australian companies with balance sheets that put Magnus Ver Magnusson to shame.
The process of starting to invest internationally can be slightly overwhelming at first. So this post will give my approach to navigating the various obstacles of getting started. These include: How to screen / generate ideas, find reliable data, find a broker that lets you buy internationally, the foreign currency issue, minimum lot requirements, and automated portfolio tracking.
How to generate ideas. Usually my preferred approach is screeners since I’m investing on quantitative criteria. The problem with using this approach internationally is that most screeners either don’t cover international markets (like Portfolio123), are very expensive if they do (like Gurufocus), or don’t allow screening based on the specific balance sheet criteria I’m interested in (like the Financial Times free screener).
I’d recommend starting off with the free resources, such as free screeners (start here), and value investing blogs that discuss non US-listed companies (like Oddball Stocks). If that works for you, great. If not, check out the paid resources like screener.co (global stock screening with many available criteria), or Net Net Hunter. I have a subscription to Net Net Hunter which I use to quickly identify companies trading for well under liquidation value; I put them in a spreadsheet to research and buy the ones that meet my criteria.
Reliable Data. My favorite site for international stock data is the London Financial Times. One other I’ll mention is Gurufocus. Normally all their international data/screening is paid, but if you select a company and go to “Definitions,” it still allows you to see various data like the debt/equity ratio, price-to-NCAV, etc.
Then of course check out the company’s site. For quickly getting data, sites like markets.ft.com and Bloomberg are a lot quicker. But once you’re interested in a company, if their site has financial statements in English, that’ll be the best resource.
Brokerages: Like most value investors, I use Interactive Brokers. Minimizing commissions is very important for microcap investing. IB has the lowest commissions (particularly for stocks with very low share prices), and allows you to trade on most exchanges. Their customer service isn’t exceptional, but it’s decent enough. Just make sure that before researching a company, you confirm you can buy it. I wanted to buy $HDT and $PFLM, but couldn’t because they trade on the London AIM.
Minimum Lots: In countries like Japan, there is a certain minimum order size, and you have to order in multiples of that number of shares. Often it equates to something relatively small, like multiples of $400 USD invested. Occasionally though the minimum lot requirement may be an obstacle. What I recommend doing, before spending too much time researching any one particular stock, is putting in a buy order (without executing, of course). That way you can easily confirm that you’re able to buy the stock and check out the minimum lot requirement at the same time.
Foreign Currencies: Your nominal return can decrease from adverse currency movements. But there are two things to keep in mind about this. The first is that the same concern exists when investing in USD, just in a more subtle form. The goal as an investor shouldn’t be to maximize the number of dollars you hold, but to maximize your purchasing power. If you buy a USD-denominated stock, you can still lose purchasing power despite positive nominal returns. So currencies aren’t just an issue when investing internationally.
The other thing to keep in mind with currencies is that the major currency pairs should be pretty efficiently priced. So if I exchange 5000 USD for 3000 GBP, I’m going to assume that’s close to a 0-EV trade, and the exchange rate fluctuations won’t hurt or help me over the long term. It’s just a neutral gamble that’s part of these investments.
Here’s how to do it. Put in an order on IB, then right-click to “Attach FX.” It’ll automatically convert (close to) the correct amount of currency from your USD balance at the time of purchase. You can then pull up your account window, and if you have a slight + or – balance in a foreign currency, select the option of closing it out.
Automated portfolio tracking: To get the current price in Google Docs for a US-traded company, you just put in the formula:
=$GoogleFinance(ʺUPGIʺ;ʺPriceʺ) (replacing “UPGI” with the ticker for the stock you’re looking at)
For an internationally traded equity, to get the current price, you can import the Bloomberg data as follows:
(Credit to http://stackoverflow.com/questions/21769645/how-to-get-taiwan-stock-exchange-index-in-google-spreadsheet for this tip)
To put the current price in dollar terms, just add the following at the end of the line above: /GoogleFinance(ʺCURRENCY:USDAUDʺ)
(The bolded parts above are the ones you modify based on the company’s ticker, country, and currency.)
For what it’s worth, here’s what the first couple rows of my Google Docs portfolio tracking spreadsheet look like (these are US companies at the top, but the format is the same for the international ones):
So that’s it. Definitely a bit more work, but very well worth having access to a lot more deeply undervalued companies.