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The problem with being an investor is that no matter what you do, you always have investments on your mind. From making analogies between dating and options theory, to viewing HBS as a forward on your classmates’ contacts, the topic never leaves.

Hence, it only makes sense to tell you what was on my mind during Spring Break. I was first home in Paris, then headed to Germany (Dsseldorf, Cologne), and stopped in the Netherlands (Amsterdam) before going back full circle to the City of Lights.
There were many interesting investment takeaways in each place.

One thing is for sure when you go to Paris: there will be strikes and/or riots. It just comes with the territory. Such was the case when I headed there March 18. Students were complaining about a law that would give employers the opportunity to hire people under the age of 26 for a trial period of two years, with the ability to dismiss them at will during after that time. While the French labor market needs more flexibility, it did seem a bit unfair to make young people bear the brunt of the problem.

In addition, Prime Minister Dominique de Villepin, another product of the French political/social/economic elite out of touch with reality, used a loophole to swiftly pass the law without going through the traditional channels. So, does that mean you should dump your portfolio of French equities (I’m sure there are some in that Euro/International mutual fund that your broker recommended)?

Not necessarily. While it is true that France has to deal with many structural issues, there are a few bright spots worth investigating. According to the Invest in France Agency, France is first alongside China for FDI inflows and the second exporter of FDI worldwide.

The government has been quietly working to create an environment conducive for investments, particularly in R&D and engineering. In fact, there are a large number of tax advantages for foreign firms investing in research there-just ask the largest American firms.

Finally, in spite of the rigidity of the labor laws, France has one of the highest levels of productivity worldwide. As a result of these factors, innovative public companies in France are doing quite well. For example, Systan, a language translator technology, has gained roughly 50 percent since January 2005 and is being heavily courted by the likes of Google and is already ubiquitous on sites like AltaVista. French video maker UbiSoft, one of the largest and most innovative developer, publisher and distributor of games globally, just signed a deal with Capcom to distribute “Resident Evil 4,” which promises to be another blockbuster. The stock is up 43 percent since January 2005. In short, it might be worth including French technology firms in European portfolios.

On to Germany. It is time for that country to shake off its image as stiff and boring. First of all, if the night scene is any indication of the energy young folks there are waiting to release, then hitting a nightclub like Nachtflug in Cologne will convince anyone that it makes sense to go long with Germany. Rumor pales in comparison to student hangouts in cities like Dsseldorf and Cologne.

While their parents viewed social benefits and strong unions as important features of society, today’s young people are much more market oriented. Many of them spend time in the UK and the United States, gaining exposure to competitive capitalism. Combined with Germany’s outstanding engineering and production capabilities, one can easily imagine the country becoming once again the true economic engine of Europe-at-large.

So where is the catalyst? Business confidence unexpectedly jumped to its highest level in 15 years in March, a key survey showed recently. The main index of the Ifo institute’s confidence survey rose to 105.4 in March from 103.4 in February, although analysts had expected it to fall. According to several economists, Germany seems to be heading for a serious economic upswing. Rises in wholesale and retail trade confidence showed a recovery spreading from industry to the consumer sector, the survey illustrated, raising hopes that the German consumer may finally be starting to spend. Let’s just hope the European Central Bank doesn’t raise rates too aggressively, and we could see a nice rise in German equities over the medium term.

Next, the Netherlands. Anyone who has ever been to Amsterdam will likely agree that aside from tourism, museums and beer, there isn’t much that seems to drive the economy.

But what if opportunities were, in fact, hiding in obvious places, like Heineken? A tour of the brewery, which conveniently offers free beer throughout the tour, prompted a bit of research. For event-driven and activist investors, the firm appears to be a great target. The Dutch brewing group faces action to unwind its ownership structure after the Netherlands’ leading shareholder rights group, VEB, placed it on a blacklist of under-performing and poorly governed companies. In fact, activist investors have already derailed strategy at VNU, the Dutch business information company, and shaken-up century-old governance structures at Royal Dutch Shell. According to a VEB official, Heineken’s ownership structure has a strangling effect on the company and needs to be changed soon. VEB expects the pressure to ramp up if Heineken posts another set of disappointing earnings. Along the same lines, ING, the Dutch financial institution, and Vedior, the employment agency, will also face pressure to scrap out-dated governance structures, according to VEB.

The final stop in Paris was a good opportunity to reflect. Strolling on the Champs Elysees, my travel buddy made an interesting observation: Nothing new ever gets constructed in Paris. New stores, companies, etc. always show up, but instead of tearing down the existing buildings and structures, they simply change the name on the door. If Paris can be taken as a sign of things to come, then don’t expect Europeans to change the way they operate. They will surely do what they must in order to be competitive, but within their own framework and at their own pace. Europe probably doesn’t need be a mirror image of the United States to be successful. So investors will have to look beyond the surface to find attractive investment opportunities there.

April 3, 2006
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