Now that’s what I call fundamental investing

The battle between quantitative and fundamental investing is nothing new.

It’s just that nowadays all the old arguments, at least for me, seem to be overwhelmed by the sinking feeling that there are super-computer models out there that are basically determining the direction and magnitude of every trade that gets made. That or the equally sinking feeling – made even sinkier when Bernie Madoff and a bunch of his fellow felons were interviewed a few weeks ago on the topic – that every other trade that gets made is done based on the ultimate in fundamentalism: insider information.

What’s a two-bit investor to do other than throw his or her money into a mutual fund and hope that its manager is either a super-computer or a felon-in-the-making?

Personally, when the debate was on between the quants and the fundies, I always sided with the fundamentalists. (This is perhaps the only domain in which I side with the fundamentalists.)

After all, quantitative is all about the numbers. It’s arid, dry. All IQ. No EQ. Boring. Robotic. Automaton.

Fundamentalism, on the other hand, is the English major of investment analysis. It’s about what a company does, what they make, how they make it, how they market it, how they’re run, and who’s doing the running. It’s got plot. It’s got characters. It’s got dialog, narrative, and action.

I can’t imagine curling up in bed with a chart, but I can imagine curling up in bed with a well-written annual report.

Anyway, given my fundamental bias, I was delighted to read an article in the Wall Street Journal the other day on investment tourism, or what the writer dubbed “adventure capitalism.” For a “few intrepid investors” who want to diversify their portfolios, but do so more up close and personal than the pages of, well, the WSJ:

… investing abroad means getting on a plane to scout out interesting companies in frontier and emerging markets up close and in person; then, trading in those shares directly, either by accessing the exchanges where they are listed over the Web, or by going through a brokerage based in the company's home country. (Source: WSJOnline.)

Of course, most of us don’t have the time or the scratch to buzz around kicking the tires, or peering into the yurt, in person. But for those with the will, the way, and the means, and, yes, the smarts not to get hoodwinked in multiple languages, it does sound pretty fun.

The article focused on a couple of “adventure capitalists.”

One, Chip Feiss, is a local guy, a fellow from Cambridge who:

…has purchased stocks on the exchanges of Mongolia, Thailand, Brazil and Tanzania—among others—and says he has turned a sizable profit on most of these investments over the years.

He doesn’t find his investments by being an armchair traveler. While he does do some of his hunting and pecking on the Web, he’s a management and development consultant who does a lot of international travel.

“I talk to people on the street, people in the hotels, taxi drivers," Mr. Feiss says. "I'll go out to a brokerage firm and talk to them and say, 'Send me to a business.' Then I'd go take a look at that. It's really quite simple."

He’s dabbled in New Zealand government bonds, tanzanite-mining (in Tanzania, naturally), South African diamond-mining, an herbal medicine in India.

All this is not without problems:

"All the time," he says. "You have less control, you have more political risk, there are cultural issues, there are language issues, timing issues." If he decides to sell a stock he owns in Mongolia, he says, "it won't be simple. I'm going to have to call [my Mongolian brokerage]. It's probably going to be a multiday process."

Yes, but just the cachet of being able to drop the name of your Mongolian broker at a party. Not exactly like mentioning Charles Schwab.

Erika Nolan is another one who puts her feets on the overseas streets - all part of her work with The Sovereign Society, an ultra-libertarian outfit:

…conceived in 1998 by a group of four uncompromising advocates of liberty and free markets. We felt strongly that individuals are born sovereign over themselves, not as chattels of governments.

Lest you think that “not as chattel” is only code for “no pay taxes,” Ms. Nolan is the ultimate in fundamental investing:

When she travels, she says, she loves to see what's being sold in local grocery stores. "You'll find a product on the shelf and say, 'Wow, there's company XYZ, and they make an entire line of whatever,' " she says. "You might notice that there's certain products you see everywhere, a product that we've never seen on our shelves."

None of this is, of course, without risk. No investing ever is, but investing in Mongolia and Tanzania is more fraught with the perils of instability than, say, investing in IBM. On the other hand, as we have amply witnessed, thanks to the likes of Bernie Madoff, Raj Rajaratnam, and Jeff Skilling, investing in the U.S. or the rest of the western world is not exactly peril-free.

Anyway, poking around grocery stores in Kenya, and checking out what they’re making in that Mongolian yurt, does sound like more fun than listening in on IBM’s quarterly investor call. I’d say the adventure capitalists are – har-dee-har-har- putting some of the fun back in fundamentalism.

There’s a hell of a good universe next door. Let’s go…