DECIDING WHICH COUNTRY IS MOST ATTRACTIVE FOR INVESTMENT: 

WE FAVOR MARKETS WHICH HAVE THE FOLLOWING CHARACTERISTICS

1. The country should have a strong central bank; one which manages the country's economic system in an appropriate manner.
2. Country should have a strong financial system.
3. The country’s companies should be fairly well run.  In almost every country, the larger and medium sized companies are better run than small companies.  (Note: in all countries, beware of nepotism.  Do not invest in companies where the suppliers or customers are relatives of the company management.)

LOOK FOR TAILWINDS

We recommend using global economic analysis to determine which part of the world is most attractive. We analyze economic, political, social and demographic trends to decide which parts of the world offer the most investment opportunity.

Listed below is the way I, and our staff at Guild Investment Management, have gained global economic, political, social and demographic knowledge over the last four decades investing in global markets.

Read constantly, or find out what publications your money manager reads.  you or  your mondy manager should  seek out and read news media and informed opinion from all corners of the economically developed and developing world.  Some of the generally available publications that we try to read every time they are published are:

• Barron’s
• Business Week
• Forbes
• The Economist
• Macleans
• The Financial Times
• The International Herald Tribune
• TheWall Street Journal Asia
• The Wall Street Journal
• The New York Times
• Foreign Affairs Magazine

It is also important to read the writings of intelligent economists and strategists.  Some of my favorites are (in alphabetical order):  Larry Jeddeloh, the editor of The Institutional Strategist; David Rosenberg, U.S. economist of Merrill Lynch; Jim Sinclair, who publishes www.jsmineset.com; and Dung Tao, the Asian economist of Credit Suisse.

In addition, find out if your money manager has a network of professional investor friends, who are successful investors in one or more areas of investing such as commodities, small cap U.S. stocks, U.S. value stocks, international value stocks, international growth stocks, cyclical stocks, technology stocks, mining stocks, and energy stocks.  Your money manager or you should be in regular contact with this network. 

DETERMINING IF THE MARKET IN QUESTION IS UNDERVALUED, FAIRLY VALUED OR OVER VALUED

Once we have decided that a country or group of countries is attractive, we then analyze the country's stock market using various financial analysis measures including: the price earnings ratio, price to book value, price to cash flow, enterprise value, to EBITDA, etc.  These measures help us determine if the market is cheap or overpriced with respect to the economic, demographic, political and other trends mentioned above. 

The economic, demographic, and sociopolitical trends can create tailwinds or headwinds.  The valuation measures can point out to the investor whether a high current valuation of the market nullifies the benefits received from the tailwinds, or a low valuation makes headwinds tolerable.

You or your money manager must also understand accounting to evaluate the accuracy and fairness of the accounting representations made by companies and industries, and must undertake financial analysis to make good use of the accounting information.

A thorough understanding of traditional financial analysis and of accounting and the analysis of numerous financial ratios is essential to make a good investment decision.

A few ratios we use for a country’s market as a whole, or an industry as a whole (as well as for individual companies) are:

• Price to Book Value
• Price to Earnings ratio
• Price to Cash Flow ratio
• Price to EBITDA ratio
• Enterprise Value to EBITDA ratio

It is necessary to personally spend many hours each week reading and analyzing global markets through the media mentioned above, and by obtaining the reports of numerous analysts.