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VALUEVEST MANAGEMENT'S
MARK BAKAR AND JOHN BURBANK
(continued from preceding
page)
needless to say, we want to buy 'em right.
OlD: That does sound familiar...
Bakar: So, like Warren Buffett, we're trying to find a few great companies when they're trading at bargain prices.
OlD: Amen. Aren't we all?
Bakar: So, I know you'll be pleased to hear that over the last six months, most of the markets that we're investing in have declined 30% to 75% in U.S. dollar terms. And, as a result, we're finding great companies that are being thrown away across virtually the entire globe.
IS NOW A MOTHER OF ANOTHER COLOR.
OlD: Still, I imagine that those great companies that are being thrown away include some of your holdings.
Bakar: True. Many of our holdings have taken hits. But we've been lucky. At our high point this year, I believe that we were up about 40%. And we're still up about 20%.
OlD: And I gather that the markets you invest in have done somewhat worse than that?
Bakar: Oh, yeah. In U.S. dollar terms, I believe the IFC Emerging Market Index is down about 19%.
OlD: That would leave you with nearly 50% more capital before fees than someone matching the Index.
What accounts for the mammoth difference?
Bakar: The main reason is Asia. We pretty much haven't been there. And the reason why we haven't is that, at least until recently, we hadn't found much value there in terms of classic value measures like price-to-book ratio, P/E, etc. Even setting aside price, we hadn't found many companies that met our qualitative criteria - for example, that appeared to be well managed.
Plus, there have always been many "value traps" in Asia - situations with structural impediments that could keep shareholders from realizing whatever value there is.
OlD: Structural impediments?
Bakar: Foreign ownership limits, tax issues related to generational transfers and the like. Many things in Asia look cheap. And you can spin the most wonderful stories. We've spun 'em ourselves. But all too often, they're traps. All of the stock markets in the emerging markets are rigged to one degree or another - as they are in all countries. However, some are worse than others.
For example, Korea's stock market is constrained by virtually insurmountable impediments that we could talk about for hours. It's one of the ultimate rigged markets. Insiders are not only protected by foreign ownership limits, but also by all kinds of cozy relationships that determine not only who can buy into what, but even what they pay.
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