Overseas Investing: Going Against the Mainstream
TOO OFTEN, INVESTORS SIMPLY CHOOSE TO follow the crowd. This strategy works in the short term, but can lead to difficulty in the longer haul. It also prevents investors from finding the great opportunities that experts have missed.
Most of the time, when the market is rising merrily, following the crowd can be profitable, even if gains are only average. For those who are less adept at making market decisions, following the right crowd may even demonstrate wisdom. But eventually, one's lack of independence takes dominance. The real problem arises at the turning points. When the market has been moving up, and suddenly takes a major downward shift, investors must be able to think for themselves and adapt. Those who cannot are left holding the bag. Just as important is the ability to recognize an upturn when everyone else believes there is no hope. Last April, those who stayed on the sidelines missed great opportunities. Luckily, our readers were able to achieve excellent gains. Of course, no one can perfectly time the market, but it is helpful to recognize when turns are possible, or even likely.
Similarly, when picking stocks, it is important to see past the opinions of "experts" and recognize real value. In recent years, "Wall Street" has become more of a marketing machine than a center for careful analysis.
Over time, we can learn who the few viable analysts are, but in the meantime, most of us are almost better off ignoring the salesmen in the media.
Let's look at how following the crowd works. Quite recently, an election surprise in India led to a market crash. The crowds who couldn't understand the results exited India's markets in droves, driving them down significantly.
This is a clear opportunity for investors. India has tremendous potential. Yet, those who simply follow, without looking beyond the immediate news, will miss that reality. Our analysis of India's politics is that everyone is now on board for free markets. There is no longer a great impetus for socialism. Therefore, a victory by the Congress Party doesn't foretell an effort to disrupt the strong economy. It merely indicates that many are satisfied with life, but probably more secular than the previous ruling party. The reaction by investors here is confused. Clearly, the fact that the Communist Party's support for the new government may cause some concern, but the leading parties in the new government have long-since abandoned any socialist leanings. Among the first meetings after the new election was a summit where it was decided that Congress would continue on the path, despite objections from the left. No party that wishes to be re-elected will discard a successful economic strategy. Thus, we strongly believe that the success of the Indian economy is safe.
Investing in India is still not easy. A limited number of shares of Indian companies are available on U.S. exchanges, each carrying relatively high P/E's. Countless smaller companies, likely with better prospects are available on local exchanges, but purchasing those is costly for the small investor; we must look for more practical ways to approach these markets. One useful method is to invest through diversified closed end funds selling at discounts, such as the Morgan Stanley India Investment Fund (IIF). These fund managers have better access to local research and markets, and have people on the ground to evaluate the situation on a daily basis. A similar method is to buy Exchange Traded Funds (ETF's), which may be available for some nations or regions.
At the same time India's market fell, the Brazilian market took a heavy hit. While we are still optimistic about the Brazilian economy, we believe the risk factors there may be stronger. Firstly, the leader of the government is unabashedly socialist, despite the fact that they have recognized the importance of foregoing socialism to keep the economy strong. However, once the economy strengthens, it remains unknown if Lula da Silva will pursue foolhardy anti-economic policies. Secondly, there is some uncertainty regarding Argentina's ability to maintain stability, and another collapse in Argentina would again draw Brazil into the slump. Thus, while we are willing to invest small amounts in Brazil, we feel the situation in India is more secure, and better prepared for long-term growth.
Diversification is, as always, a good strategy to help protect against uncertainty. Being diversified across countries is also wise, even though international diversification has lost some of its impact in these days of globalization. Still, if some money is placed in markets that are less dependent on our own, we stand a better chance of being protected in times of U.S. weakness.
"The crowd" seems to feel more comfortable investing "at home" regardless of where the real opportunities are, and where the risks may be. Instead, we should look worldwide, seeking to reduce risk and increase returns. If, for example, it is momentarily safer to invest in Australia than in the U.S., that's where we should put our dollars. The U.S. remains attractive at amount of investment dollars in that large powerhouse economy, but are less excited about 2005 there.
Keep investing, and keep alert. In times like these, changes may take place more unexpectedly than normal, but we can adapt if we remain vigilant and avoid following the crowd.
To send comments or to learn more about Scott Pearson's Investment Management services, visit http://www.valueview.net
Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U.S.
More Resources
- Investing:Mutual-Funds Articles from EzineArticles.com
- The Concepts of Risk and Spreading Your Investments
Putting your savings or capital in investments in stocks and shares is subjecting these to a certain amount of risk. Investments fall and rise and can go either way, so you may end up having less cash than your initial outlay. So is there any manner you can safeguard your investment or at best minimize the risk? In a few words yes, by spreading your investments over several different companies and marketplaces.
Read more - Private Equity Funds: The Visionaries That Guide the Corporates of the Future
Today private equity plays a very vital role in international trade and commerce as their investments are not restricted to one particular country or region. These funds have successfully incubated and mentored a host of businesses in India. While the first set of businesses to receive from the software companies, more recently realty and media companies have also sought Private Equity Funds.
Read more - Mutual Fund Share Classes Explained
If you are like most investors you have been exposed to the variety of Mutual Funds and their different classes. Do you understand them? Do you understand how they can affect your returns? Read more to learn about one of the Fund industry's big mysteries. Most Mutual Funds offer multiple classes of shares. They all invest in the same underlying fund but the expenses and commissions paid, referred to as "load", are varying and can serious affect the returns you realize. Most Mutual Funds offer three share classes which are typically referred to as A, B, and C share classes, and loads and fees vary per share class.
Read more - Managing Risk Through Mutual Funds
Does the current stock market volatility make you want to stick your head in the sand and forget about it? Don't despair! If you read last month's article "Risk is a Four Letter Word", then you know that investing always carries some form of risk; whether market risk, company/industry risk, currency/country risk, reinvestment risk, interest rate risk, liquidity risk or inflation risk. While you can't eliminate risk entirely, there is a way to minimize these risks so that you can sleep well at night. Mutual funds are one such way that the small investor can participate in various investment vehicles while reducing risk.
Read more - A Basic Introduction to Hedge Funds
What is a hedge fund? Learn the basics of hedge funds including their investment strategies and structure.
Read more - What to Look for When Selecting a Mutual Fund
Most active mutual fund managers underperform the market. Following the tips given in the article will improve chances of better investment performance.
Read more - Perks in Investing in Mutual Funds
Whether your goal is a comfortable retirement, education, travel, a new home or simply to accumulate money, mutual funds can help you achieve your investment objectives. A mutual fund is simply an investment that allows people with similar financial goals to pool their resources. Professional fund managers invest that money in various securities that meet the objectives of the fund. Investing your money in Mutual funds offer many distinct advantages.
Read more - The Many Benefits Of Mutual Funds Explained
The idea of creating mutual funds often catches the interest of those who desire to increase their income. These people believe that considering such investments could soon lead them to the kind of life that they want or to secure future during their old age. While these could be one of the benefits of mutual funds, there are certain risks that you need to manage well in the process.
Read more - More About Superannuations
Superannuation is a form of self managed super fund and is a very smart way to invest money and to provide for older age. The idea behind a superannuation is to invest a pot of money in order to gain interest, normally with the intention of saving for retirement. Anyone can submit to a superannuation be they employers, employees or self employed, and here they will submit the money in a series of payments over an agreed timescale in much the same way that you might submit money to a pension scheme in monthly or annual payments.
Read more - Some (Better) Ways to Invest Your Money
Investing your money is something that everyone should do and that is highly important if you want to make the most of your existing assets. By investing your money you will first and foremost find that you are able to grow your initial pot into a larger sum, and this is of course going to be very beneficial. At the same time though, you will also find that by investing your money you are keeping it away from yourself and this means that you won't fritter it away on day to day expenses.
Read more - Long - Term Investments For Retirement Planning
To build and maintain a successful retirement portfolio, you have to find mutual funds that will best help you achieve your objectives. In the early 90's, I searched for mutual funds that had to have: 1) average or low risk, 2) above average performance, and 3) distribution of large dividends...
Read more - The Different Types Of Mutual Funds You Need To Know
There are many different types of mutual funds for investors to choose from. No matter the type of investor that you are, you should be in position to know which are the best mutual funds for your investment needs.
Read more - Fog Over China
When we came into this year, we expected the Chinese stock market to offer the next big opportunity for gains now that the U.S. market was rallying. We have been following China with that in mind. We even took the beating of the Chinese market last year as creating an opportunity this year.
Read more - Is It Just the Weather - Fundamental Forces
The title we give to this article is our way of asking whether there are fundamental forces that are driving the rally or is the market just in a temporary phase that will shortly give way to another phase? A random walk, if you will. Obviously, we think there is more going on than just an extended, but temporary, mood shift by investors.
Read more - Smart Investments to Make For Retirement
Let's face it, last year's investment markets were volatile and full of uncertainties for the average investor, like myself. In trying to even the 'playing field', especially for a retirement portfolio, it is imperative to make investments that has a proven long-term positive performance record (number of years of gains far exceed number of years of losses). This goal should be the foundation of your type of retirement investment.
Read more
