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Seek Global Investments of ‘Enduring’ Value

To The Editor:

Read with interest your comments on Hungary and international investing (“A Tattered Welcome Mat for Investors,” Sentinel, December 1995). I agree with most of what you write.

Hungary and other countries which have privatized their state-owned businesses face structural unemployment. The Czech Republic, which cites a 5% unemployment rate, will soon find this number higher, as private businesses start to lay off employees. This happened in Argentina, where, for example, YPF Corp. reduced headcount from 60,000 in 1992 down to 8,000 today. The result: 12% to 15% unemployment.

I've learned that, when investing in foreign securities, you often do not know what you are getting, especially when it comes to your rights as a shareholder. One day, there are 10 million shares outstanding. The next day, by fiat, there are 12 million shares outstanding!

By purchasing U.S. companies, you do not reduce “market” risk. That is, 3M may have 50% international sales, but the stock still trades based on the sentiment of the U.S. market. Maybe this will change over time, as 3M registers its shares on various bourses, but not for now.

I agree entirely with your conclusion, “buy the best global businesses, regardless of where they are.” In this vein, one should buy stable, predictable companies whose operations do span the globe. Companies such as Mattel, Gillette, Coke, McDonald’s, Nestle, Heineken, Abb Asea Brown Boveri, to name several, are much more enduring than the fly-by-night high tech IPOs with no sustainable long-term advantage. Nestle, for example, has 5% sales in Switzerland and is much cheaper than equivalent U.S. food companies.

The more I read about world affairs, the more I am convinced that China and India hold the key to most U.S. multinational companies. While statistics of spending power in those countries are overstated, companies which can transcend cultural issues and offer their products have unlimited potential.

Bruce Paulson
Windsor Financial Group, Inc.