By Bill Smead, chief investment officer of Smead Capital Management.

There are very good reasons to avoid investing in emerging markets. They include political instability, liquidity issues, poor regulation, unusual accounting and currency risks.

However, I'd like to make the case for investing in emerging markets. Five years ago my family and I took a trip to the Bay Islands of Honduras. While there I noticed that one of the only companies selling products there was Coca-Cola ( CCE) by way of the Fanta soda line.

It reminded me of 1988 when Warren Buffett stepped outside of his usual proclivity to buy into the stock of a great company when the share price falls into some significant distress.

Coke had gone up about fivefold since the bottom in 1982 and sported a trailing 12-month P/E ratio of 18. Buffett bought a major stake in the company and dumbfounded his fondest admirers in the process. Buffett said at that time that he "could go away for 10 years" and he'd know that Coke would be doing well.

One of the main reasons that Buffett could have that kind of confidence was that the Berlin Wall was preparing to fall. Countries in Eastern Europe and Latin America were getting political freedom and adopting free-market capitalism. Any improvement in a third-world country's circumstances was going to create a chance to sell something clean to drink.

Nobody does that better than Coca-Cola. With Coke he never had to take the risks listed above to make money from emerging markets. He only had to trust the brand, the balance sheet, the distribution system, the economies of scale and the management of the company.

A front page article in last week's Wall Street Journal that discusses the distribution of drugs in emerging market countries tells you everything you need to know to make money investing in emerging markets in the next 10 years.

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