Investment

How do you spot a good offshore investment anyway?

  • author Brandon Rowe
  • calendar November 5, 2021

I (Brandon) have lived the international life for a couple decades now. It’s also been the focus of my career ever since (investment research firm) Casey Research asked me to help create Doug Casey’s International Man community.

As for most people, the idea of going offshore was something special at first. It was like getting on an airplane the first time – that sense of anticipation and excitement.

But as I flew more, flying itself became routine. It was just a way to get where I wanted to go that was – for the most part – “boring.”

My goal is to make international investing “boring” for you too.

Yes, it may be exciting. It might feel mysterious. Something special.

And to many of your friends and family, that’s how it will stay.

But as you get into this, you’ll discover that it’s not that “mysterious” at all. The “excitement” will subside. And you’ll see international investing – no matter what you’re investing in – as what it really is…

… a way to access new and interesting opportunities…

… in a way that eliminates the risk that comes with having all of your eggs in the “US-domestic” basket.

Now, please don’t get me wrong: It’s fun to chase after opportunities wherever they happen to be. But it’s the fun of the chase, not the fact that it might be in Russia, Australia or Canada.

The truth is – other than some paperwork and some of the tools – what it takes to successfully invest offshore isn’t all that different than what it takes to invest in the US.

Universal principles hold true no matter where they are.

If it sounds too good to be true, it probably is.

If you don’t understand it, don’t do it.

If it’s so secret that you’re threatened with a lawsuit for even talking about it, it’s probably a scam.

We’ll talk more about such things in coming issues, but today…

What do you know about Chinese fertilizer?

Unless you’re in farming or the commodities business, maybe not much. But a recent development in this area could point the way to some interesting international investing opportunities.

It’s also a great way to show how we choose our own offshore investments (the same method now available in our newest service, Global Stock Analyst.)

In this case, China has announced it will ban phosphate exports – a key ingredient in commercial fertilizers – through the middle of 2022.

So, we ask ourselves…

#1: What are the details?

About a third of the world’s phosphates comes from China. Suddenly losing that supply will make life difficult for plenty of farmers.

For a bit of background, here are a few snippets from a relevant article from the Michigan Farm News, an official publication of the Michigan Farm Bureau:

[China] is the top exporter of phosphate, a major component of commercial fertilizer that’s applied annually to roughly 300 million acres of U.S. cropland.

Early reports indicate China is restricting fertilizer exports to assure domestic supplies and take advantage of increased raw material prices.

“It’s going to turn when it turns,” [vice president of agronomy at Michigan Agricultural Commodities Inc., John] Ezinga added. “And when it turns, it’s going to be ugly because there’s going to be a bunch of people who own a bunch of high-priced product, and then the supply constraints will get lifted, and everybody’s going to pay in excess. I think these prices remain out of whack through spring.”

#2: Why is this happening?

Sometimes we know. Sometimes we don’t. Sometimes we can take an educated guess.

When it has to do with China, it’s often more than just a question of markets. There are political considerations too. But this snippet from a recent Reuters article makes sense:

The move is the latest by Beijing to tackle soaring prices of major raw materials.

Fertiliser prices in China have hit records this year amid stronger demand from overseas, lower production domestically and high energy costs.

Yes, maybe the ongoing trade war played a part in this. Maybe there’s a lot more behind the scenes.

But most of the time, it’s more valuable to us to deal with the facts as we see them and put the guessing to the side. Instead, we move to the next question.

#3: What effects are we already seeing?

As much as possible, we prefer to see the market acting on this information. That will give us an idea of how the news is likely to play out… and whether there’s really an opportunity here.

In this case, prices have been rising quickly both in China and around the world. The trend will eventually break and prices will drop. But, for now, momentum is on our side.

#4: Who will lose from this?

Obviously, this announcement will affect all Northern Hemisphere farmers for the 2022 growing season.

They should still be able to get supply, but they’ll have to pay more to do so. That cost is likely to mean higher food prices for consumers. Depending on the state of the economy, the government or the Fed may need to act. And a “small” event becomes something much bigger.

Now, you might think we’re getting a little ahead of ourselves. And maybe we are on this particular story. But it’s helpful to ask ourselves this question because:

a) It helps to know the players likely to lose because we don’t live in a truly free market economy. Politics play a part and sometimes, a development can affect someone with the power to change what should happen in a free economy.

b) It helps us to understand whether to pull our money from sectors or companies most likely to be affected.

c) It may just lead us to the answer to our next question.

#5: Who stands to gain the most from this?

The most obvious group would be non-Chinese phosphate producers and fertilizer producers.

Like Nutrien, for example. It’s a Canadian fertilizer company based in Saskatoon, Saskatchewan. It is the largest producer of potash (effectively potassium) and the third largest producer of nitrogen in the world – two key ingredients in commercial fertilizer. It trades on the Toronto Stock Exchange in Canadian dollars as NTR and on the NYSE as NTR in US dollars.

#6: Is now the right time to buy?

That’s an important question. Just because something has great fundamentals doesn’t mean the market is going to push the price up anytime soon.

That why it’s valuable to understand what the people in the market are thinking. And I’m not just talking about analysts either, but the people actually putting their money on the line.

Our philosophy – and the heart of our work in this area – is that we don’t play the markets; we play the people playing the markets.

So, we analyze:

a) the sentiment on a market…

b) a sector in that market and the companies within that sector… and

c) which firms the people in the market believe are likely to go up.

Take Nutrien mentioned earlier. Fundamentally, they should benefit. But we’ve been watching the data and the market is giving us a mixed picture. Yes, there’s been a run up. But more recently, the people in the market have been telling us they’re not so sure.

There’s no point in betting against market sentiment. So we’re watching for certain indicators to tell us when the market thinks the price will turn around and head back on up.

Again, this shorter-term price movement has nothing to do with the company directly; it’s about the beliefs about the company that we’re paying attention to.

That’s the final piece to this… and what, more often than not, can mean the difference between someone who wins on a trade, and someone who loses.

On another note, many clients first get to know us by accessing some of our free publications, courses and reports on important topics that affect you.

Like Bay+King, a free investment letter that introduces you to the ever more popular world of offshore investing. For most US clients, buying foreign stocks is the easiest, fastest and safest way to get started in the offshore world. It’s where you can find opportunities not available in the US. And one that can serve as a launchpad for any and all other international efforts. Simply click the button below to get the next bi-monthly letter.

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