International Investing for Safety & Security?
International investing is foreign to most Americans. We’ve been discussing asset management in a crazy economy. In the last post we looked at commodities as an investment. As we said, most US investors only invest in US Markets. The advantage to this is that they inherently know US markets and companies better. The disadvantage is that they may be missing out on some of the best opportunities in the world.
For decades (as long as the modern investing world has existed), the real growth in the world economy was happening in the biggest markets, particularly in the United States, but also in Europe and a few other countries. Most of the world was still living in a primarily primitive way.
That has changed in a big way. The established “First world” economies have not been growing very much at all, while the rest of the world is quickly catching up. International investing (particularly in emerging markets) has been the best place to be in the markets. While the US, UK, Japan, & Europe struggle to achieve positive economic growth, many emerging markets often have double digit growth. The US government would actively try to put on the breaks if we had growth that strong!
So if you are a long term stock investor, it is foolish to ignore the emerging markets. Our guess is that in our lifetimes, many of these countries will join the ranks of economic leaders.
Still, as this is written, we believe (you must decide what you believe) that the world is about to experience a big crash. We think this will take down international investing markets around the world too. We prognosticate that these emerging counties economies and markets will recover more quickly than those of the west. Ideally, you would like to buy the markets that you feel strongest about when the market has bottomed. Of course, that is easier said than done!
If you really feel you are a long term buyer and don’t want to constantly watch the markets, you could decide to go ahead and try your hand at international investing by buying the markets that seem to be the best values now. Or, if you understand that the most important factor in driving a large profit is determined by the Buy price that you enter an investment, It might make sense to wait to see the market go lower (again, if that is what you believe will happen) and buy at a lower price. You’ll never get the exact bottom, but if you watch the market action, you can get fairly near the bottom. One way to do this is to look for some signs of recovery and then buy then.
We do think that the markets in the coming decade will be volatile, so you might get suckered into buying off a false bottom that is later shown to be higher than a subsequent actual bottom. If that’s the case, you will need to have decided ahead of time if you are making a long term buy and hold decision, or if you will employ a strict stop loss.
There are a tremendous number of options for you when investing internationally. You can choose individual companies or funds. You can select individual countries or broadly diversify.
In the next post in this series, we’ll look at blue chip investing. If you have any thoughts or questions on this or other topics, please let us know.