When businesses flourish in local soil, most (if not all) CEOs will look to expand overseas. Why? Because having a presence in more than one country exposes the business to a larger market, albeit higher risks.
But higher risks almost always promise higher rewards. If the CEO manages the business’s risk well, the company has an excellent chance of growing much larger than merely staying on its home ground.
An international company has a better chance of growing more sustainably and quicker than a company based only in its home country. The reason is simple. A wider market exposure presents more opportunities and thus, higher growth as well. Of course, more exposure to opportunities also means higher risks.
Investing is very much the same
Most retail investors tend to only invest in the local stock market and might even shy away from overseas companies listed on the Singapore Stock Exchange (SGX).
Of course, the most common mindset most Singaporean retail investors is to only look at stocks close to our hearts, companies we understand and businesses we can see. But if we are constantly only looking within our homeland, wouldn’t we be blind to opportunities outside our borders?
Being “international” is a prestige in itself
Businesses that globalise tend to grow a lot faster than local businesses because of the mere fact that the former are international names.
Everyone – especially Singaporeans – awe at international brands, celebrities and the like just because our first impression when looking at anything with a global presence to be famous, trustworthy, reliable, prestigious, successful and the list just goes on.
To put it simply, when a business becomes international, the value of it increases – both tangibly and intangibly.
Why, then, wouldn’t we want our portfolios to be “international” and include businesses successful in several countries and more importantly, out of our homeland? Retail investors typically suffer from a “home bias” (yes, they actually have a term for this) and avoid moving out of our comfort zone.
But it makes perfect sense to invest overseas, especially out of Singapore now that we’re experiencing low growth for the past few years now.
Also, according to the World Bank’s database, there are more than 30 countries above us on the Gross Domestic Product (GDP) ranking list in 2015 (latest data). In terms of GDP growth, Singapore (2.0%) is lower than the world’s average (2.7%). As per the latest data, though, Singapore’s GDP growth has gone up to 2.5%.
Here’s a fun fact: Apple Inc.’s (NASDAQ: AAPL) cash pile ($355.8 billion; US$261.5 billion) is almost as large as Singapore’s foreign reserves ($363.3 billion). Take a moment to digest that and rethink if we should continue being resistant to investing overseas.
Put in the work to make it less dangerous
Investing overseas might be riskier than only holding domestic stocks, undoubtedly. But with due homework and appropriate risk management, retail investors would turn those risks into opportunities.
Overseas stocks will be harder for us individual retail investors. The truth is, though, we just need to apply the same concepts of identifying a good company’s stock to invest in. Ask these questions – the same ones we ask ourselves when looking at a local stock:
- Is the business sound and sustainable?
- Is the CEO, founder and/or management doing a good job?
- Is the stock trading at a fair or discounted price and not overvalued?
The above questions can be answered with proper research of any listed companies – free or premium – done over the Internet (like Aspire and Shares Investment). Of course, if we have the option of doing research with our own eyes, that might be even better.
Imagine deciding whether to buy Starbucks Corporation (NASDAQ: SBUX) – as in its stock. Putting the overpriced coffee and lattes aside, Starbucks has been expanding in many countries. In Singapore alone, almost every major shopping mall has a Starbucks outlet serving hundreds or even thousands of Starbucks lovers (myself included) every day.
If we see Starbucks constantly adding new stores around Singapore and the world, reporting growth in profits, cash pile, etc., it’s a good indication the expensive Atas coffee seller is growing.
Anyway, when the stocks on home ground are not performing well – or worse, in a downward cycle – investing overseas will help hedge our portfolio against such unexpected economic conditions. As retail investors, we have to put in the work and effort to make sure we understand the stocks – domestic or overseas – well before diving in.
How to look for great stocks across our borders
Like most principles in life, investing overseas just for the sake of investing overseas and picking any stock won’t end well.
The general rule of thumb is to invest in what we know. For example, if a retail investor is experienced in the REITs sector, look for overseas REITs that are positioned well for growth and healthy tenant occupancy rates just to name a few.
Next, contributor Coffee Talk previously wrote a popular article about minimum trading price (MTP) policy by SGX. Here’s what we like the most, “…these penny stocks are still penny stocks.” Penny stocks are common targets for speculation and as investors, we’re in for the long term. So, avoid penny stocks as much as possible, regardless on local soil or overseas.
Last but not least, strong companies with a global presence should be on our watch list, at least. When a market correction occurs, these strong companies might trade at a discounted price, which presents opportunities.
Learn from experienced veterans
There is only so much we can teach through writing. If you’re free on 16 September 2017 (Saturday), we’ll be holding an investment convention where we invited speakers with diversified backgrounds and expertise.
David Kuo (CEO of Motley Fool Singapore), Rusmin Ang (Co-founder of The Fifth Person), Kim Iskyan (Co-founder of Stansberry Churchouse Research) and Alvin Chow (Co-founder of Dr Wealth) will bring their decades of experience to the event and share insights on how to invest in a low-growth economy.
- How To Invest In REITs For Income by David Kuo
- How To Maximise Dividends & Build Multiple Streams Of Passive Income by Rusmin Ang
- Identifying Market Trends & Dynamics In Asian & Emerging Markets by Kim Iskyan
- How To REALLY Profit In The Market Today by Alvin Chow
Learn more about the investment event by clicking on the button below. Early bird discount ends on 16 August 2017 (Wednesday) at 11:59 pm! Prices will go up permanently, so act ASAP.
P.S. Don’t forget to enter promo code “SHARES10” for a $10 discount!