Ten Tips and Random Observations on Traveling in China
The Cushioning Power of Cash
PriceSmart Looks Smart Again
I'm about done writing about my recent trip to China. The dust
has been washed out of my clothes, I've shown my slides to my
colleagues at Cabot and the suitcases are safely stowed in the
attic again. Well, most of them. My trusty Samsonite hard-sided
suitcase finally fell to the baggage-handlers hammer. The frame had
been sprung for a few years by what I assume was a drop of at least
20 feet, and I lived with that. But this time they tore one of the
wheels off, and a suitcase that doesn't roll doesn't survive.
Anyway, here are some final thoughts on China travel, some of which
have practical applications and some of which are just for your
1. When you're in China, don't buy anything
because you think it's worth a lot more than you're paying for it.
The Chinese have years of experience with making things look old or
like jade or like anything you might want. Your best bet is to find
a "Rolex," "Ming teapot" or "ancient" scroll that you really like,
assume it's the product of a modern workshop in Shanghai, and then
bargain like crazy for it (See #6 below). You should always assume
that the Chinese manufacturer's ability to make something look old
and valuable is superior to your ability to spot a fake.
2. If you learn just 10 phrases in Chinese, you
will be regarded as a very clever person indeed, and the Chinese
will often tell you so in much better English. I suggest the old
standards: Hello. Please. Good, or very good (which also means
"yes"). Your child is very pretty. I don't want it (for use with
street peddlers). Does anyone speak English? Where is the toilet?
How much is it? Thank you. Goodbye.
3. Don't assume that that taxi (bus, scooter,
bicycle, three-wheeled bicycle hybrid) is going to stop for you
just because you're in a crosswalk or have the traffic light on
your side. The moral high ground claimed by pedestrians in the U.S.
doesn't exist in China. Where we might reason "I'm afoot, without
protection, so you should yield to me," Chinese drivers are
resolutely realistic. "You're soft and defenseless, so you should
act like it and get the heck out of the way."
4. Venture outside your safety zone in China and
you will probably be rewarded with the best stories of your entire
trip. My wife and I have never liked the idea of tours; you're told
where to go, what to see and what to think about it. But a walk
down a completely unmarked street can show you people who aren't
used to seeing tourists (who may show it by staring at you, which
isn't considered rude in China). But a smile and a nod will go a
long way toward easing any discomfort, and you will probably see
sights that tourists never get within a mile of. We have never felt
physically threatened in China, and you can go pretty much wherever
5. If you think the age of heroes is over, China
will sometimes prove you wrong. When my wife and I missed our train
in Hangzhou, a Chinese engineering undergraduate (who gave his name
as Peter) spent more than an hour shepherding me through the lines
in the sweaty ticket hall, fending off queue jumpers, negotiating
the exchange of our tickets and, once we had them, sprinting with
me to be sure my wife and I were in the right waiting room. After
that experience, we enjoyed the high-speed train to Shanghai (300
KPH and smooth as glass) with warmed hearts.
6. Patience is more than a virtue in China; it's
also a great bargaining tool. There are generally said to be two
ways to bargain for goods in China, the nice way and the nasty way.
The nice way involves complements to both the quality of the goods
in question and the integrity of the purveyor. The basic idea is to
let the seller do you a favor by reducing the price. The nasty way
uses an all-out assault on both goods and seller, pointing out
every flaw and feigning great dissatisfaction, even indignation at
the proposed price. Whichever approach you choose, the seller will
keep after you to make a counteroffer, and when that happens you're
probably going to meet somewhere midway between the offered price
and your bid. But if you're willing to take some time (especially
if you're willing to walk away), the seller will often keep
lowering the price. After three or four one-sided discounts by the
seller, you can safely make your offer.
7. Being deaf and mute--which is effectively what
you are if you can't talk to or understand the Chinese people
around you--is really irritating. But being illiterate--meaning
that you can't even read directions or street names unless they're
given in English--is a disaster. Beijing, as a result of a massive
overhaul of signage surrounding the Olympics, is very good about
putting English on its signs. Shanghai is also not bad. But most
other places have about as much English in their signs as U.S.
cities have Chinese. Often the only way you can get places is to
have your hotel concierge write out the address in Chinese for you
to show your cab driver.
8. Everything you can learn about China before
you go there will help to enrich your experience, including
history, geography, economics, politics and philosophy. This is
true of any place to which you travel, even Des Moines, Iowa, of
course. But China is another universe, and even a small amount of
study will help you get a perspective on what you're seeing. A good
guidebook can be an excellent place to start, as the bigger names
have been honing their summaries, descriptions and anecdotes for
9. Now that digital cameras are better in almost
every way than your old point-and-shoot film camera, the only
pictures you will regret are the ones that you don't take. During
my latest trip, I noticed that just about every company with a
sense of its own importance will tend to have a big rock in front
of its building. And I mean BIG, often as much as 12 to 14 feet
tall! Rocks can also be wide, but going for height seems to be the
rule. But I neglected to take any pictures of such rocks, and I'm
kicking myself for it. So the rule is, if you see something that
makes you want to nudge your companion and point it out, take the
10. Just to throw in a little business content, I
have to say that entrepreneurship seems to be built into the
Chinese character. My wife and I went to a Wal-Mart in Beijing to
buy a case of bottled water. And the very next day, just outside
the Forbidden City, we saw hawkers selling the same bottles of
water for about five times what we paid. Chinese salesmanship has a
fierce quality to it even if the item being bargained for is worth
only a buck or two. My conclusion is that if China can successfully
build a substantial middle class, the internal economy will
flourish like a bandit!
Markets have been stumbling downstairs like a man with a hangover
and one shoe, and that's a challenging environment for any
investment strategy. But for the Cabot growth disciplines, it's a
time to shine, at least in a defensive way.
The essence of Cabot's approach to market timing is a shift in
exposure and risk tolerance depending on the general trend of the
market. When markets are advancing (you remember what that feels
like, don't you?), we move steadily toward fuller investment and
loosen our loss limits to allow leading stocks more room to
Cabot Market Letter
is now just over 40% in cash and
Cabot China & Emerging Markets Report
is about 50% in cash.
Think about it. If you followed the strategy of
Cabot China & Emerging Markets Report
, of which I'm the editor, half of the capital that you had
earmarked for emerging market stocks would be sitting in a money
market fund. With only half of your money at risk, no matter how
challenging the market gets, you would have the comfort of knowing
that half your risk was off the table.
That's the kind of move that helps you sleep at night.
That cash also becomes your best friend when markets turn up again
and you go hunting for the new leaders.
Keep in mind also that Cabot's growth newsletters use the rules
that Cabot has developed over the course of more than four decades
to pinpoint when a new bull market is born. So we don't guess; we
I hope you have your virtual mattress stuffed with cash as the
bears continue to knock stock after stock to the ground and stomp
on them. Cash is king when the bear's in the ring.
My stock pick for today is a useful illustration of the challenges
of growth investing. It's
, a company that's bringing the warehouse store concept to Latin
PriceSmart has an interesting pedigree; it's the brainchild of Sol
Price, the man who invented the warehouse store concept back in
1976. Price and his son sold their company (called Price Club) to
Costco in 1993, then looked around for a new territory. They found
it in the Caribbean and Central America.
PriceSmart now has more than a million cardholders who shop at the
company's 29 owned and operated stores in 12 countries and one U.S.
territory and annual revenues are $1.9 billion. Revenue growth has
been consistently above 20% per quarter for the last seven
The challenge I referred to was PSMT's price action following my
recommendation of the stock for my subscribers in late October
2011. PSMT began 2011 with a three-month correction, but had
appreciated strongly from 31 in March to 77 when I recommended it.
At that point, the stock began a tortuous correction/consolidation
that pulled the stock as low as 57, but never quite went over the
falls. I advised bailing out in mid-November with the stock at 64.
Then came March, and PSMT, which had been range-bound for four
months, made a strong two-month run that pushed it to as high as
84! Clearly the market has a cruel sense of humor.
The cranky market of the past three weeks has dropped PSMT back
below its 25- and 50-day moving averages on middling volume. It's
still not cheap, with a P/E ratio of 31. But for a high-quality
company with a slow-but-sure expansion strategy (and a stock that
pays a small dividend: forward annual yield of 0.8%) PSMT looks
like a long-term winner.
Cabot China & Emerging Markets Report