Value Investing in a Global Setting – Risk Perception versus Reality

But does this geographic focus make them miss out on opportunities? Would their quest to generate excess returns over passive strategies be more successful if they embraced the opportunities available in frontier and emerging markets?

It may be time to revisit the consensus view.

Pavel Begun of 3G Capital Management in Toronto runs a value-based strategy. Since 2009, he has included frontier and emerging markets in his investment universe. Following their inclusion, his value fund's performance versus its benchmark has improved substantially.

What follows is the exclusive transcript of a presentation he has just given for the first time. Pavel's talk was part of the annual Explorer Summit in Florida.

With permission from both the event's host and the presenter, I can provide this (slightly edited) transcript of Pavel's presentation, along with selected accompanying slides.

For a copy of the complete slide deck, please contact Pavel directly (details further below).

The exclusive Explorer Summit gathering in West Palm Beach, Florida.

Transcript of presentation given on 19 November 2025

"I'd like to talk to you about risk perceptions when it comes to global investing.

And I'd like to talk about how those risk perceptions align with reality.

From a geographic perspective, there are a couple of ways to apply value investing.

Most money managers are actually focused on investing in developed markets.

The reason they are is because they say in developed markets, the rules of the game are very well established. The playing field is level. Therefore, you have a chance to win.

At the same time, most fund managers deliberately avoid emerging and frontier markets. The reason that they do is because the governance standards and the regulatory standards in those markets are much weaker. Therefore, the argument goes, the game is "rigged". You don't really have a chance to win, and therefore you should just stay away.

The purpose of this talk is to examine how that long-established perception aligns with today's reality on the ground.

I'd like to set the stage with a quote from Hans Rosling's book, "Factfulness". By way of background, the book examines the common misconceptions held by the general public about the world. Hans Rosling, the author, goes about it in a data-driven way to disprove those misconceptions.

Here he talks about his experience of being a visiting medical school student in Bangalore, India.

Basically, he goes into a room full of what he thinks are fourth-year students who were discussing how to identify kidney cancer.

The professor says, "Here's the X-ray. Can you explain if there is cancer or not, and why?"

Hans is confident he is the best guy there. He's a specialist, and the others are just fourth-year students.

But he doesn't want to show off, so he says nothing at first.

And then he sees all those hands going up.

One by one, the students look at the X-ray and explain in great detail as to why there is cancer. Hans is surprised. He concludes that he ended up in the classroom where the specialists are, rather than the fourth-year students.

Then on the way out, he remarks to one of the people in the classroom that, "Hey, I actually thought I was in the room with fourth-year students, but obviously given the level of knowledge, you guys are specialists."

And the fellow replies back, "No, no, we're fourth-year students!"

At that point, Hans is shocked.

He thinks: "Well, I'm from Sweden. I'm supposed to know way better than you guys who wear weird clothing and have caste marks on their foreheads. They live among exotic palm trees. How can they know it so much better than me?"

Later on, what he learns is that these students read a medical textbook that is three times as thick as his, and they studied it three times as many times.

This is the exact quote that came to mind when I was having a conversation with a prospective investor who is based in a developed market about investing internationally.

Upon learning that we focus on emerging and frontier markets, he basically said he can understand how you can generate excess returns by investing in quoted businesses in places such as North America, maybe Germany, and maybe Italy. But in Brazil, Indonesia, Turkey, and other frontier or emerging markets, he believed it is simply impossible.

So, is it?

Let's study the data.

The most advanced developed market in the world today is the US. If you study its history, you're going to find out that before it became a developed market, it used to be an emerging market. Before it became an emerging market, it used to be a frontier market.

If you look at the history of the US and you apply the World Bank classification, you're going to see that up until about 1950, the US was actually a frontier market. Between 1950 and 1990, it was an emerging market. From about 1990 on, it has become a developed market.

The question is whether has it become easier or harder to generate excess returns as the US progressed to developed market status?

Let's look at some data here.

Here, this is the history of the valuation disparity in the US market in the past century.

Basically, you see the measure of valuation disparity, which shows you how many inefficiencies you have in a market. Of course, the more inefficiencies, the easier it is to find attractive investment opportunities to generate those excess returns over the market.

Contrary to the common wisdom, what you see is that during the frontier stage in the US market, it was actually the easiest time to generate excess returns over the benchmark.

It became a little harder during the emerging market stage. Once you got into the developed stage, it became very hard to generate excess returns over the benchmark because the market has become so much more efficient.

Of course, if you look at the anecdotal evidence, it points to the same conclusion.

The frontier market stage in the US lasted up until about 1950, and it was what I would call the Benjamin Graham era. This is when Benjamin Graham devised his know-nothing, purely mechanical approach to investing, where he would just buy businesses that were trading at less than two-thirds of net working capital. That worked great for generating very good excess returns over the benchmark.

During the emerging market period from about 1950 to about 1990, those net working capital ideas – those easy Benjamin Graham bargains – would all disappear. However, Warren Buffett devised a different approach where he was still able to find bargains that required only basic business analysis and were available at a single-digit multiple of earnings. So I call this period the Warren Buffett era.

Then if you look at the developed market stage of the US market from 1990 onwards, what you see is that even those bargains that required basic analysis and a low p/e also dried up. It became very difficult to generate excess return compared to the benchmarks. It's no coincidence that you had a big rise in index fund investing in the US in the past 20 years, because why would you pay someone to manage your money if they cannot generate returns in excess of the market? You might as well just stick with the index. I called this the post-Buffett period.

So why is it easier to generate excess returns in frontier and emerging markets?

If you're knowledgeable and rational, it is easier for you to generate excess returns in those markets simply because they are a lot less efficient.

If you just look at the number of people who are looking for ideas in those markets, there are just fewer of them than in developed markets.

So by definition, there are going to be more attractively priced opportunities.

There are a few reasons as to why that happens.

Reason number one, setting up custody and trading infrastructure in many frontier and emerging markets can be time-consuming and expensive. The amount of effort and resource required goes up exponentially once you need to set up across many dozens of these markets. Most money managers are not willing to do it. Why go for the effort without even knowing that you're going to be able to buy something in those markets? So they don't do it in the first place.

Second reason, market depth. A lot of those markets are not really liquid. If you run billions of dollars, you're probably not going to be able to put the money to work. That's why a lot of money managers just avoid the whole thing altogether.

Thirdly, there is a knowledge barrier. It takes a lot of time to build up a knowledge base about all those diverse frontier and emerging markets around the world. And again, a lot of people are not willing to commit to spend years and years of their lifetime learning about those markets without really knowing that at the end they will be able to put money to work.

Rigid investment mandates represent another barrier to investing in emerging and frontier markets. A lot of funds and a lot of capital allocators require that you stick with something singular.

So they say: "Look, you have to invest just in Turkey."

Well, once that happens, you have pigeonholed yourself into one market.

As a result, if Turkey is not attractively priced, you are basically stuck there.

You can't really just go from market to market.

In emerging and frontier markets, it is critical to be able to switch between the markets because at any given time, there may only be one market that offers attractive investment opportunities. If your mandate ties you to a single market, then you're not going to be able to take advantage of that.

Also, of course, there is a pure unfamiliarity and a so-called my-side bias. It's what Hans Rosling experienced. He thought, India is a place where people look and dress differently and therefore are just not as knowledgeable as him. That's why he was just so sceptical if those students even knew anything.

In addition to a lot of similarities that I talked about with respect to the emerging and frontier markets of today versus the emerging and the frontier markets of the past, there are also some notable differences.

Number one, there are differences with respect to the market structure and differences with respect to the benefit of hindsight.

When it comes to market structure, what you see in those markets a lot of times is that they're smaller. The governments generally pursue pro-consolidation policies in those markets in order to bring about stability.

Also, you have much higher dispersion in management quality. This means the difference between the best management teams and the worst management teams in those markets is very vast compared to the US.

As a result of those factors, what happens is a lot of those industries in emerging and frontier markets end up in monopolistic or oligopolistic structures. This makes for much better economics in those emerging markets compared to similar businesses in the US.

Second, the benefit of hindsight.

The policymakers in those markets have seen real-life effects of wealth creation because of the implementation of best practices in the West. That's why they are able to implement those same best practices very rapidly. All they need to do is to copy. They don't need to invent anything.

As a result, if you look at the standards of management quality, governance, the regulatory regime, or transparency, all those things have been improving a lot faster on average in the emerging markets of today compared to the now-developed markets in the past.

In a similar vein, when you look at businesses in emerging and frontier markets, you see that a lot of times, the reporting standards and the capital management policies are going to be on par, if not better, than those of the businesses based in the developed markets.

If you look at the regulatory attitude, what you're going to see is a lot of those regulators are going to be a lot more business-friendly in those emerging markets, simply because they have to be. They know that otherwise, they don't stand a chance to compete for capital with the developed markets.

We have applied this approach to global investing at 3G Capital Management, which is the firm that I run, not to be confused with the Brazilian 3G Capital.

We started at 3G Capital back in 2004. Initially, our investment universe was limited to the US. However, over time, a couple of things happened.

Number one, we noticed that the number of attractively priced investment opportunties in the US dried up.

Number two, our investment hero, Warren Buffett, was becoming increasingly vocal about investing internationally. At one point, he went as far as to say that if he were starting today, he'd be 100% international.

As a result, we decided to expand our investment universe. Starting in 2009, we included other developed markets, frontier and emerging markets in our investment universe.

If you look at our track record prior to that, and post-inclusion of those markets, our performance versus the benchmark has improved substantially.

It's not because we became any smarter.

We simply went into the markets with a lot of more attractive price opportunities because they were just a lot less efficient.

So that's theory.

It would be instructive to examine how we apply that theory in a real-life setting.

I'd like to present a few investment examples…"

Learn more

The remainder of the talk focused on specific stocks that Pavel's fund has invested in, but that portion was reserved exclusively for participants of the Explorer Summit.

For information about Pavel Begun's work at 3G Capital Management, or to receive a PDF version of his presentation, visit the firm's website or reach out to him by email or on LinkedIn.

The Explorer Summit in West Palm Beach, Florida, is a gathering organised by Cody Shirk, bringing together adventurous and creative investors who want to learn and grow alongside like-minded individuals. Contact Cody through his website to be considered as a participant or speaker at future events.

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