12) Where are the real growth stories overseas right now?
I would turn this one around a little bit based on the current reality of the investment world. Before figuring out the "growth stories overseas" it is crucial to understand which countries are facing systemic threats that far exceed the threats posed by normal economic and stock market cycles.
For example the Bovespa is down 15% YTD as of this writing up from what was a 25% decline. In looking at the totality of the story it is clear that the country is not wading through different forms of desperate and unprecedented action to try to restore something (growth, jobs, housing market etc). Brazil has had ups and downs and of course that will continue but the nature of the threats are nowhere near what they are in the US, Europe and Japan, not even remotely similar.We look out longer than one year in building an investment thesis. Part of the country selection process we prefer is, among other things, owning countries where there is a middle class ascendance. The idea here is that the demand for access to (relative) middle class lifestyles is very consistent. This means electricity, potable water, cable TV, telephones (probably wireless), better roads, cars, higher quality personal goods and so on--in short, their perception of an American lifestyle.
The demand is a one way trade but of course the stocks will not be but the demand does create a long term tailwind that is a valid investment thesis. Although not the only form of country selection we use this is one and countries we like and own in this context are Brazil, Chile, Colombia and China (by virtue of that China's weight in two thematic ETFs).
The process for possibly adding more countries in this context is ongoing. I've written many times on my blog about learning about countries and following them for quite a while before buying in, this was the case with Colombia and will be the case with other countries we add in to the portfolio in the future.
8 comments:
The WSJ regularly runs articles with "top" economists' forecasts of economic growth and interest rates. Their track records are abysmal, and they come from the supposed pros. An alternative approach is that an investment should not be dependent on growth forecasts, but rather valuations and a margin of safety.
I mentioned earlier in the week that there is solid evidence that stock market returns are not strongly correlated with economic growth. My take from your writings is that you disagree.
Like Rummy said, "you have your known knowns, known unknowns, and unknown unknowns" I would like to read about how you deal with unknown unknowns...especially in a world where political and natural disasters are unknowable.
The data on this topic can really be spun to say anything. As a matter of personal observation, I have seen things stay cheap for a very long time and have seen things stay expensive for a long time. I would also add that the transition from expensive to cheap seems to take many years (WMT as an example). There seems to be far fewer examples of stocks going from cheap to expensive and the companies still remaining healthy.
Although my portfolios have been decidedly conservative for a few years (no regrets!), I follow ROW markets, especially the more eclectic ones. I would almost consider this pursuit a hobby, and I never tire of exploring the Myanmar/VietNams/Croatia/Columbias of the world.
Although I am sure that some of my portfolio(s) security holdings have a direct or obtuse presence in these and other countries,in these times I am sticking to what I know about through direct action (real estate), dividend-paying securities or a portfolio that is designed for preservation of capital (in the style the Cuggino PP Fund).
I appreciate your posts on sleeper emerging market stories. And I am sure your clients are appreciative as well that you leave no stone unturned to insure their wealth is managed effectively.
T
To first Anonymous post at 7:48am,
"An alternative approach is that an investment should not be dependent on growth forecasts, but rather valuations and a margin of safety."
All valuation must factor in any growth/contraction in the underlying cash flows or else it is meaningless analysis.
Said another way, if you are only looking at the current year cash flow and are assuming you hold it constant --- in perpetuity, you are still making a growth forecast. You cannot make an investment without some type of forecast, they are inherently linked. Even if you own short-term fixed-income, you are effectively making a forecast that you are doing so because you either need the money at maturity -- or because you think re-investment opportunities will be higher at maturity then now. Either way, its still a forecast.
9:22,
I cannot disagree with your comments.
I understood Roger's post to be about forecasting a country's economic growth and attempting to use that as a basis for making investment decisions.
I frequently miss the message :(
Please...somebody go on the record regarding an economic forecast for Russia. What will the protests lead to? Will there be growth or chaos? Will the protests there lead to a return to communism or something else?
Where will the next blowup be? A Venezuelan adventure into Brazil?
This is the kind of thing that makes forecasting almost a futile exercise.
The first time I became aware of a tidal bore was not in the wave itself but in what happened before: I was sailing a Maine inlet in clear water and could see the seaweed on the bottom begin to bend towards shore more and more strongly until it looked like a gale was blowing down there yet it remained calm above; until a few minutes later when a foot-tall wall of water came through and I became way too busy to pay attention to seaweeds, just managing to set a new course that prevented me from making their closer acquaintence.
Not all the world went through crisis but all the world will be affected by the nature the recovery and the revised or new alliances it creates. Big economic moves and their associated policies do not happen overnight and it is hard to tell if they are right or wrong moves for some time so I personally expect things to look like more muddle through in 2012, probably into 2013, while the world's tides turn (plural: some tides will lift many boats, others will sink them).
As Barry Eichengreen phrases it at http://tinyurl.com/75pgqv2
"It is a sad state of affairs when a recession qualifies as muddling through. But such is the European condition. ... But muddling through cannot continue forever. Europe needs to draw a line under its crisis and figure out how to grow. The US needs to overcome its political polarization and policy gridlock. And China needs to rebalance its economy – shifting from construction and exports to household consumption as the main engine of growth – while it still has time."
Stay loose, stay liquid, stay open-minded.
FWIW: Scandinavia and Turkey are the only European destinations that interest me from an investment standpoint. Ghana is currently growing faster than either India or China but those big, state-regulated economies are playing the game smart and, at this point at least, more directly for the benefit of their citizens in terms of employment so I'm still a player there as I am in Brazil, the Andean states and S. Africa.
And I am still invested in the US: Most of my transactions are in $USD after all and I haven't completely lost faith that a majority of citizens can manage to see that survival depends on a government that is right-sized rather than one that is big or small.
RW,
That you haven't lost faith in the U.S. is refreshing. In all sincerity, thanks for sharing. There is still plenty of opportunity here and if everyone would show some optimisn, things just might improve. In my travels, courtesy of the U.S. Navy, I never found anywhere that I would rather live than here, and I have been a LOT of places. I know it sounds corny, but coming home to the U.S. always gave me goosebumps.
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