International Diversification

  • 19 May
    What Three Chinese Companies Tell Us About The Risks You Need To Watch For In Emerging Markets

    What Three Chinese Companies Tell Us About The Risks You Need To Watch For In Emerging Markets

    • Proper due diligence is needed to separate low risk from high risk investments.
    • The fact is, nobody does their research anymore as ETFs and index funds have taken over the investment world.
    • I’ll describe a few Chinese investments that look amazing at first but can easily lead to a total loss.

    Introduction

    Yesterday we talked about how emerging markets are generally becoming attractive. Today we’ll discuss a few Chinese stocks that show some of the risks lying in such a market.

    As I see the S&P 500 climb to new highs, I understand that risk isn’t what investors think about, but my experience that spans a few market cycles keeps me focused on the risks while investing.

    By risk I don’t mean short term volatility coming from market sentiment. The S&P 500 hasn’t been volatile at all in the last 8 years as it has just gone up, but for every point that it goes up while corporate earnings remain flat, the risk investors are taking gets higher. More →

  • 18 May
    Emerging Markets Are Becoming More Attractive Day By Day

    Emerging Markets Are Becoming More Attractive Day By Day

    • Volatility is a given in emerging markets, but it’s also what creates amazing opportunities.
    • Economics, fundamentals, and currencies are all in favor of emerging markets.
    • China is just doing what the FED should have done 5 years ago: tighten after an expansion period.

    Introduction

    Emerging markets are a volatile beast, this is a given. However, the inherent volatility is mostly the result of our perception and not of actual structural changes in a country. As an example, last year a wonderful buying opportunity emerged in Cemig (NYSE: CIG), a Brazilian utility from the state of Minas Gerais. CIG’s stock price fell from double digits to $1.05 in just a few years. More →

  • 24 Apr
    Global Growth Is Finally Getting Some Traction, Be Sure Your Money Follows

    Global Growth Is Finally Getting Some Traction, Be Sure Your Money Follows

    • Macroeconomic trends are extremely important for your investing or trading returns.
    • The IMF’s World Economic Outlook is a great starting point for understanding where the risks and opportunities lie.
    • Long term trends show emerging markets and commodities are the place to be.

    Introduction

    Investing is both difficult and easy. It’s difficult if you try to guess what the market’s sentiment will be next week or next month, while it’s easy if you simply look at slow moving structural macroeconomic trends. These trends are like little forces that shape the market, similar to the gravitational forces among planets in our solar system. More →

  • 07 Apr
    Emerging Markets Are Still A Buy Even At Two-Year Highs

    Emerging Markets Are Still A Buy Even At Two-Year Highs

    • The International Monetary Fund revised economic growth projections for emerging markets and developing economies up to 4.5% for 2017 and 4.8% for 2018.
    • Not all emerging markets are cheap, therefore the best strategy is to invest in individual stocks.
    • Buying companies in growing economies at low price earnings ratios is what will make the difference for your portfolio in the next 10 years.

    Introduction

    Over the last year, you’ve probably read some of my articles where I’ve said that emerging markets are the best investment class as the demographics are better and stocks are much cheaper in relation to what the S&P 500 offers. As markets can’t overlook such positive characteristics for very long, emerging markets are up more than 18% in the last 12 months. More →

  • 30 Mar
    Looking For Dividend Yielders Abroad

    Looking For Dividend Yielders Abroad

    • The 1.92% dividend yield offered by the S&P 500 is ranked 32nd out of 39 countries.
    • It isn’t difficult to find blue chip companies globally that have dividend yields north of 4%.
    • Currency fluctuations should be a benefit if you respond in a smart way.

    Introduction

    Yesterday we discussed how high dividend yielders can easily turn into a trap because the dividends are unsustainable and depend on uncontrollable variables like commodity prices or interest rates.

    A global look will show us that there are good companies around the world that offer higher dividend yields for the same risk. These companies are found in countries with better demographics and higher economic growth, which should strengthen their local currencies and increase future dollar dividends. More →

  • 29 Mar
    Are High Dividend Yields Worth It?

    Are High Dividend Yields Worth It?

    • High dividend yielders are worth it if you know what you’re doing, i.e. you know the sector in detail and understand the macro environment. However in most cases, high yielders are traps with a high risk of permanent capital loss.
    • Less risk can be obtained by investing in dividend aristocrats. Most are fairly priced or overpriced, but some still pay nice dividends. The complete list is provided.
    • As always, I would look abroad for yield. The dollar is currently strong which makes such investments cheap. A currency reversal will give you higher yields in the future.

    Introduction

    Dividend investors have really enjoyed the last three decades as interest rates have been declining. Lower interest rates make stocks that pay stable dividends more attractive while also enabling management to use more leverage to increase those dividends.

    You can read more about what to expect from the dividend world here. However, low interest rates also push the price of stable dividend yielders into the sky making new investments less attractive. More →

  • 16 Mar
    The U.S. Market Is Irrationally Expensive – What Does The Rest Of The World Have To Offer?

    The U.S. Market Is Irrationally Expensive – What Does The Rest Of The World Have To Offer?

    • Global markets are much cheaper, but there’s an even better option.
    • It’s relatively easy to find stocks that have huge growth potential at cheap valuations. I’ll describe three sectors.
    • In the long term, the current trend of favoring the U.S. dollar and equities is going to shift to where the growth is. There’s no doubt about it, so be prepared.

    Introduction

    The U.S. equity market is like driving a luxury car. It’s reliable (low volatility or as some say, low risk), costs you a bit more to maintain (low dividends), it makes you look good (investing with the big boys), and it will eventually bring you to where you want to go.

    Investing in emerging markets is like driving a cheap car. Nobody considers your investments cool (looking for bargains in unknown areas like Russia, China, or India), the car won’t be as reliable (break down more often – think volatility), but it will be cheap to repair (high dividends), and eventually will also bring you to where you want to go. More →

  • 03 Mar
    Why An ETF Is The Wrong Way To Invest In Emerging Markets

    Why An ETF Is The Wrong Way To Invest In Emerging Markets

    • Irrational market sentiment and low liquidity create high volatility that can easily be seized by smart investors. Just do the opposite of what the crowd does.
    • Despite what the market might think in a certain moment, emerging markets and businesses grow alongside economic development and positive demographics.
    • ETFs are the crowd and due to their construction and rules, ETFs represent buying high and selling low, which is a terrible strategy anywhere but it’s extremely costly on volatile emerging markets.

    Introduction

    I have a positive bias towards emerging markets because of their positive demographics, growth aspirations, and low starting level from a macroeconomic perspective, and because, from a behavioral perspective, emerging markets are completely irrational, much less liquid, and highly volatile, especially individual stocks.

    You might wonder why I like volatility, low liquidity, and irrational behavior. Well, at the first sign of fear on financial markets, everybody rushes to sell their emerging market position. This, combined with low liquidity, creates huge volatility which is the best investing opportunity if you are a value/growth investor. More →

  • 22 Feb
    What Will The Economic World Look Like In 2050?

    What Will The Economic World Look Like In 2050?

    • Emerging markets will be the economic leaders of the world.
    • Investment returns are related to economic performance, so it’s wise to be internationally diversified.
    • However, diversifying just to diversify is the biggest mistake you can make as emerging markets are full of risk.

    Introduction

    PricewaterhouseCoopers (PwC) just released its report on what the economic world will look like in 2050. You might wonder what that has do to with your investment returns as 2050 is 33 years from now, but it has everything to do with your returns if your investment horizon is longer than a few years because these global trends that will shape the world up to 2050 will also be the trends that will shape your portfolio returns. More →

  • 06 Jan
    This Is Why You’ll Want To Take A Closer Look At Investing In China

    This Is Why You’ll Want To Take A Closer Look At Investing In China

    • The large GDP-credit gap in China could be a win-win; panics should be seen as an opportunity to buy on the cheap.
    • Forecasts for the yuan are negative indicating further depreciation. Don’t fight the positive dollar trend for now.
    • Some sectors are going to get crushed by China, thus it is a threat.

    Introduction

    In the last two years, China has shaken the markets twice: once when the Chinese market correction began in August 2015, and when it seemed that we were in for a Chinese/global recession in January 2016. More →

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