Profit From The Biggest Beer Drinkers In The World

I was in Hollywood last week, mesmerized by the view from my hotel window.

There it was, just like they said on the news several minutes before, a few hundred yards to the right of the famous white "HOLLYWOOD" sign. An enormous column of thick, grey smoke billowed up over the hill, perhaps a mile or less from where I stood.

It reminded me of my youth, part of which I spent riding a Honda motorcycle through the hills of Southern California. I'd come out from work each afternoon, sweep the layer of ash from the seat, and off I'd go. Wildfire is a way of life here.

I arrived in Hollywood Sunday, May 5, to attend the Super Bowl of value investors... the annual Value Investing Congress (VIC). It's a first-class event with an all-star lineup.

The superstar investors present this year were Robert Hagstrom of Legg Mason, Robert Rodriguez of First Pacific, Wally Weitz, and Tom Russo. But hedge-fund mogul J. Carlo Cannell was my favorite.

Cannell is bullish on Vietnam.

He was hilarious in his description of state-owned Vietnamese companies undergoing privatization. He told us that investing in Vietnam is weird. You can't ask anyone about cash flows or balance sheets. You just hold your nose and buy.

One Vietnamese company about to go private is Sabeco, a beer company.

The Vietnamese people could drink any frat house in America clean under the table: According to Cannell, the Vietnamese down more beer than anyone – outpacing the notorious beer lovers in Ireland and Germany and more than doubling U.S. consumption. Vietnam is home to 325 brewers in 50 cities. Sabeco is the leader with 35% of the market. Cannell said everywhere you go, somebody just brings a case of beer. Case of beer here, case of beer there. He must have been half in the bag the whole time.

Vietnam is a communist country. When state-owned companies go public, many of them are monopolies. Cannell said that 1,500 state-owned enterprises would be privatized by 2010.

These stocks don't trade in the U.S. They trade over the counter in Vietnam. Over the counter in this case is literal. Securities are traded in coffee shops, bars, and other retail shops. If you want international investment ideas, I think Vietnam might be worth pursuing. It seems to have a couple of years of upside left in it...

Legg Mason's Robert Hagstrom also gave a very good presentation. After it, I felt like I wanted to buy Google, Microsoft, Yahoo, Amazon, and eBay and just forget about them for 20 years. Hagstrom made a case that, over the next several years, these big Internet firms will make more and more money on each dollar they invest in their businesses.

Hagstrom was particularly high on Amazon. He supplied a Warren Buffettquote affirming that incremental returns on invested capital were "the key." Buffett is just referring to the fact that a business that makes more and more money on each $1 it invests is a really fantastic business. 

Hagstrom then asked the audience which stock outperformed everybody in the 1990s. He gave the hint that it had triple-digit returns on invested capital. The answer was Dell – the No. 1 best investment of the decade. He predicted Amazon will be earning triple-digit returns on invested capital by 2010.

The VIC also arranged for a few busloads of us to go to the annual Wesco meeting in Pasadena. Wesco is the holding company of Warren Buffett's partner and close friend, Charlie Munger.

Munger has obviously worked very hard to learn how to make good decisions, lead a good happy life, and become successful. With $2 billion worth of Berkshire Hathaway in his account, he certainly achieved the latter, didn't he?

During his time on the stage, Munger said several things worth passing on: He called one Korean steel producer "the most technologically advanced steel company in the world." As Extreme Value readers can attest, POSCO is also one of world's truly great stocks to own. We've made 129% since our recommendation of the Korean steel maker's shares a few years ago.

Finally, (and this is a paraphrase), Munger said something like, "If you want to be an adult, you need spend a lot of time sitting our your ass reading. That's how I did it, and that's how anyone else can do it."

Good investing,

Dan

P.S. One of the world's best hedge fund managers, Monish Pabrai, also presented at the VIC. He spent some time praising a stock that's near and dear to my heart...