Mike and All,
I was interested in the valuation of the foreign component (TBR, ELAMF, DSWLF) of the portfolio, since they are arguably all emerging market stocks. I was wondering how some of you more-experienced foreign-market value investors would address the following questions (more in general than as they relate to those specific stocks):
1) How do you adjust enterprise value for political and other non-financial risks? Comparing ELAMF - headquartered in a very volatile area of the world - and an "equivalent" American company, how should one adjust their measurement of enterprise value to compensate?
2) Do you manage or make adjustment for currency risk? There are various well-known approaches to currency risk: hedge the currency exchange, diversify your currency risk among many countries, discount the currency risk as part of your valuation of the company, or ignore the risk. By discounting the valuation, I mean allow a percentage of the valuation as a margin of safety. For example, to hold TBR, it would need to x% cheaper than an "equivalent" American company and, if you were one of those sell when fully valued people, you would perhaps sell it if it reached than percentage discount.
3) Do you make any adjustment to an enterprise's value due to foreign tax rates? For example, I noticed that DSWLF's profit margin should be 50% higher than an "equivalent" American company (paying 33% tax) because DSWLF essentially pays no taxes. Do you think that DSWLF is worth 50% more than an "equivalent" American business (i.e. if all other things were equal, they should trade at the same P/E)?
Stew |
