Going back to home market

I am thinking that I will be able to make one more purchase this year. Of course, I would prefer more but buying a car put me on back foot in saving for investing, unfortunately. Thinking about my next purchase, I think it’s quite a good idea to get back to my home market and invest in Baltic Equity List (which includes Lithuania, Latvia and Estonia). It’s a really shallow market and there are almost no institutional investors. This has two sides.

On the cons part, the liquidity is very low. Usually, the market volume doesn’t exceed 1 million euros during a day. E.g. market volume of Nasdaq Baltic was ~25 million EUR in total during September. In comparison, Apple’s (AAPL) 50 day average daily volume is currently almost 26 million USD. So you may get stuck with a company and don’t have anybody to sell the stock to. Due to low volumes, the price gets influenced easier by market manipulators. Also, the companies don’t have long history of paying dividends or being in market altogether. There are no dividend aristocrats lists etc. Usually, the payouts are quite flat and may be sporadic during the years. One more drawback is that there are companies that don’t look crystal-clear to investors. There were instances of market manipulation so we need to find companies whose owners are responsible and open in their decisions. One more drawback is that there is not that much information about Baltic companies. Not many people are making analysis of these companies etc.

Looking at the bright side, you can find some really undervalued companies in the Baltic market. E.g. one of my previous investments in SFG generated ~240% return in less than 2 years I held it. The fact that there are almost no institutional investors lets small investors find some value which is not visible for big fishes. I believe it’s much harder to find so undervalued companies in NYSE etc. The drawback of lack of analysis of Baltic companies may become an advantage if you are capable of doing your own analysis. Another thing is that you are usually more familiar with the companies that operate in your environment. Also, most of the companies are quite small compared to their global counterparts. They have room to grow quicker than giants. The return of Baltic market index looks quite impressive currently and it is beating most of the other markets. On the other hand, they may well go down at the same speed so it’s riskier at the same time. This is how the Baltic Benchmark index looks so far this year:

There are also some pros for me personally to invest in the Baltic market. The commissions for me are much smaller (2.5EUR minimum or 0.5% of total deal) compared to investing in U.S. companies (9.95USD minimum or 0.5% of total deal). This means that I can invest in smaller amounts. I think I will not have enough capital to make a smart purchase this year in the US market but I should have enough money for one in Baltic market. Furthermore, I pay 30% tax for dividends from the U.S. companies compared to 15% for dividends coming from the local markets. It makes quite a big difference when you think about it.

So, I am starting to look at the opportunities the local markets may show. I guess I will write a short post of the list of the companies that caught my attention in the nearest future. I think I should be able to make a purchase in around a month’s time so stay tuned!