Borderless Investor

Bloomberg sez:

Toyota Motor Corp., the world’s largest automaker by value, gained 90 yen, or 1.5 percent, to 5,980. The company will introduce a sports car in 2009 to compete against high-end Ferraris and Porsches, the Nihon Keizai reported.

Don’t get me wrong…I love Toyota…but this is just crazy talk.

More evidence that the Japanese banking crisis is officially ancient history. Bloomberg reports that Japan’s best and brightest are now interested in working in finance:

The fastest economic growth in 15 years and record profits of $27 billion in fiscal 2005 helped financial companies overtake electronics makers as the biggest recruiters at Japan’s most selective universities, including the top two schools, University of Tokyo and Keio University.

“Japanese banks are now being very aggressive and have changed their posture to offense from defense,'’ said Akira Ukaji, a 21-year-old majoring in politics at Keio University in Tokyo. “I want to join Mitsubishi UFJ and take on overseas banks such as Goldman Sachs Group Inc.'’

Obviously this won’t pay off overnight, but it’s an encouraging development for a sector that’s desperately in need of fresh talent.

One of Australia’s top currency strategists is launching a new hedge fund that will invest mainly in the Australian dollar.

This reminds me of the time I tried to listen to my entire 10-hour AC/DC music collection on a flight from New York to Asia. Not a great idea. It’s just a little too much Australia, if you know what I mean.

A hedge fund also seems like a strange vehicle to use to make a directional bet on a single currency, especially one that’s not far away from 20-year highs.

Unless, of course, you’re the manager of the fund in which case you can collect your 2 and 20 by sitting around buying Aussie dollars all day long (and listening to AC/DC). Now that’s a cool job.

I’m no expert on the European Court of Human Rights, but I’m pretty sure this is not what it was meant for:

The Hungary- born financier [George Soros], who has been fighting the case for more than 17 years, will appeal to the European Court of Human Rights, his lawyer said.

“The court did not respond to one of our key arguments concerning the fact that the length of the proceedings didn’t allow Mr. Soros to have a fair trial,'’ said lawyer Ron Soffer.

Boo hoo hoo.

The headlines coming out of Japan about the arrest of Yoshiaki Murakami on insider trading charges may sound ominous to American ears in light of the scandals that we’ve been through in this country.

Please don’t fall for this. It is an interesting story, but it is a sideshow, just like the Livedoor scandal that came and went a few months ago. This is not Enron or Eliot Spitzer-caliber material and none of it has anything to do with the fundamental investment case for Japan. Any sell-off as a result of this non-story is simply a great buying opportunity.

Murakami’s demise is unfortunate. Steven Towns at Japan Stock Blog nails it:

Murakami has done a lot for Japanese shareholders and it will be hard to replace the outspoken capitalist that wasn’t afraid of making money but slipped up in a stupid deal.

I believe Murakami can–and will–be replaced. The activism cat is out of the bag in Japan and it just needs a bigger and better evangelist.

Carl, are you ready yet? Call me–let’s go make some money!!

NYT had an excellent profile of Sir Howard Stringer and the Sony turnaround over the weekend.

This great little nugget captures the essence of both Sony’s situation and the Japan restructuring case as a whole:

Of course, Sony’s future and Sir Howard’s legacy do not rest on his charm but on his stated goal of increasing the company’s sluggish annual profit margins to 5 percent from last year’s 2.6 percent by March 2008. By comparison, Samsung and Apple Computer rack up annual margins of 14 percent and 12 percent. Every percentage point that Sony adds to its margins could bolster its stock price by $8 a share, [Credit Suisse analyst] Mr. Drewry said. Sony’s shares closed on Friday at $46.81.

Sony doesn’t need to “beat” Apple or Samsung. It doesn’t matter when the new Playstation comes out or how much Da Vinci Code made last weekend. It just needs to make more money than it does now–and a benchmark of 2.6% isn’t hard to improve upon.

The same is true for Japan. It doesn’t need 10% growth like China or India to be a good investment destination. It just needs to improve, to become more efficient, and that’s happening too.

Still, it will be a looooong process because some people, sadly, think like this:

Kazukuni Kobayashi, a former Sony employee who has written five books about the company’s problems, including one called “Sony Sickness,” is among those who think that the company should install a Japanese chief executive. “In Japan, Sony is an engineering company,” Mr. Kobayashi said in an interview. “In America, it’s a brand.”

Sorry “Kaz”, but Sony is a brand in Japan too–and a good one. And good, global brands are incredibly valuable. Robot dogs are not.

Bertha Coombs on CNBC: “…everywhere from Mumbai to Bombay…”

And we wonder why nobody understands global investing.

Today’s Sunday New York Times has a column on international investing and diversification. It’s not very long, but the writer manages to use the word “foreign” an astonishing 28 times.

Some folks dislike the word “foreign” because it’s not politically correct. That’s not what bothers me here. My beef with the word is that it encourages investors to think about the world in two buckets–our markets (domestic) and their markets (foreign)–and the key exercise in asset allocation thus involves the balancing of x% in domestic stocks and y% in foreign stocks.

Asset allocation is very important. But doing it based on the location of a company’s headquarters makes less and less sense in the age of globalization. To arrive at a more meaningful long-term allocation, we need to dig much deeper to understand where each company’s true economic exposure lies.

Take an All-American company like 3M. “Minnesota Mining and Manufacturing”–it’s hard to get much more patriotic than that! But don’t tell that to 3M’s CEO George Buckley. Last week Buckley said the company is focusing on emerging markets and he expects “foreign” sales to reach 70% within 5 years, up from 61% today.

So what is 3M then? American? If 70% of their sales come from markets outside the U.S., buying shares of 3M would seem like a very odd way to invest in America’s domestic economy–assuming that’s your objective.

How about John Malone’s Liberty Global? It’s based in Denver, but all of its operations are overseas, with a big chunk in Central and Eastern Europe. Does that really belong in the domestic bucket?

What should we make of Infosys, which is located in India, but sells almost none of its services to its domestic market. Is this really an “emerging market” stock at all?

And where on earth do we put Heineken? (See related link below).

Unfortunately, this stuff isn’t easy to measure with any precision unless you have time to do a complete analysis of all the companies in your portfolio. And once you introduce mutual funds into the mix, it becomes even harder to isolate exactly how much of your money is really in each bucket.

Until we come up with a better way to account for all this, there’s a very easy solution: Stop thinking about buckets and start thinking about companies.

Related:
Draft Day (Heineken)

Motley Fool lives up to its name with this nonsense on Liberty Global. Nice typo in there too:

That said, I’m don’t agree that Central and Eastern Europeans will enjoy sufficiently strong economic growth to close the standard-of-living gap with the West.

That said, I agree with them on Liberty Global, but I’m [sic] don’t agree with them on Central and Eastern Europe. Of course they won’t close the gap next quarter or next year, but why on earth can’t they close it in the long run? I thought we tore down that wall…

The Economist’s Edward Lucas has a much more enlightened view on his blog.

As a kid, I was obsessed with airplanes. The first flight I ever took was with my grandfather, a veteran of the Mighty Eighth, when I was about 5 years old.

That was back when stewardesses were friendly, the food was good, the silverware was made of metal, and passengers–especially 5-year old kids–were more than welcome to check out the cockpit during the flight, and flying was…sorta fun.

Now, unless you have your own jet, flying sucks, and I’m glad that my grandfather isn’t around to see what a nightmare commercial air travel has become. I’m also sure he would be surprised to learn that one of the best aircraft manufacturing companies in the world hails from Brazil.

Embraer (nyse: ERJ) is based in Brazil, but it’s a truly borderless company. For more of my thoughts on ERJ check out the following story on Forbes.com.