I meant to get to this earlier but a company called Auerbach Grayson is going to be the first US firm to offer access to equities from Iraq to institutional investors.While I have no interest in Iraq anytime soon and doubt our firm would meet whatever definition they are using for institutional investor it is still an interesting development.
I found this on Alphaville which linked to another FT story with a little more detail.
The exchange figures to be fully electronic by the end of June, the Iraqi market is 60% financials (repeat theme: every country has a big bank or two). I was able to link through to a page that tells the schedule for moving Iraqi stocks to electronic trading and while I do not know if the list of companies is comprehensive or not it is interesting to look at.
As you think about Iraq, what do they need? Where is money very likely to be spent? I would think food, healthcare and rebuilding things (it would seem they will continue to outsource a lot of their security needs for a while). Included in the first batch of stocks to move to the electronic platform includes Iraqi Agricultural Products Marketing, National Food Industries, Fallujah Construction Materials and Iraqi for Seed Production. The second batch is mostly financial stocks but also Al-Mansour Pharmaceuticals Industries. I also saw a bicycle company, sewing company and a rug company in the listings.
Auerbach Grayson will be providing research on Iraqi companies to its clients but I think it would be much easier for them to offer some sort of index fund (maybe they will) to its clients instead, would it be truly shocking to find out that the Al-Ayam Financial Investment (real company) turned out to be headquartered on the wrong street corner (made up example)?. An extreme outcome (either up 1000% or complete eradication) is probably a good bet.
The observations above about money being spent on food and healthcare etc are fairly obvious, even if not complete; the money is going to be spent. That does not have to mean that the stocks do well for all sorts of reasons that could be topdown, bottom up or both.
Again, I'm not looking to buy into Iraq but this market, as will be the case with others, will open to US investors in the future. It doesn't hurt to see what comprises a new (to you) market and spend a few minutes learning you are unlikely to buy a certain country because you will increase your general knowledge and occasionally you will find a market that you do want to invest in.
The picture is from the Prescott Animal Control where my wife goes often in the context of doing her animal rescue work. She finally figured out how to get this picture from her phone to the computer. I think it is an amazing picture.
27 comments:
Mark Mobius has done quite well with Iraqi bonds, if I recall his recent interview correctly. A different point than you're making, but perhaps a somewhat safer way to invest in markets like this if one is so inclined.
I find the risk of the middle east to be instability. If that's the case, wouldn't stocks and bonds both be almost equally as risky?
Does anyone know if there's a way to quantify country risk against market cap? In other words, investing in Iraq vs. U.S. micro caps? Is that even a valid comparison?
Quick, get me stock in that Baby Milk Factory.
Look out for the whipsaw action, S&P500 is now below the 200 DMA. this may be a good example as to why the 200 exponential average is more useful as a market indicator.
Hopefully the market turns up form here.
OK, I tried not to plug more research here, but anon, I can't stand to hear another "EMA is the holy grail" type post [grin]
http://tinyurl.com/ll5pbn
Bill - look at the study posted last night
i am in the hood now (not Iraq, but neighboring country). Things seem a lot better overall than couple of years ago and people are less pessimistic (if not more optimistic).
Depending on how the Iran situation resolves itself, Iraq's worst days maybe well behind it.
However those small equity markets are always prune to manipulation by few rich individuals and gaming it from afar is not for the novice nor the faint of heart.
Bill B at 6:10 asks about country risk vs. market cap. ... that might be like apples vs. apricots. ... a micro cap might implode because its biotech project/whatever simply doesn't pan out or it runs out of financing. Whereas an Iraqi business might explode, literally, because of instability (aka terrorism) or outright fraud. On the other hand, there are some 'sameness' elements -- potential lack of experienced management, weak finances, etc. etc.
Speaking of fraud. Born2Code at 8:08 warns of manipulation in emerging markets. True dat.
Mind you, every other post at some sites such as CR is snarling about manipulation in the world's largest market. Hmmm.
BillM
Bill M, ya, I wasn't sure if I was making a valid comparison. But to me, Iraqi business has a number of business type risks as well as stability risks. To me a U.S. micro just has business risk (assuming nothing catastrophic, of course).
Anon, I saw yesterday's study and adds more credibility to the thought that it's random or working 'less' now than it did before. His tests were from the late 1800's to present. Mine are from 1960ish on. His part 2 will be interesting. If our results don't come close, I'll be quite curious.
Roger: I am sure I am not alon in wondering what your proactive plan is should the S&P close below its 200 day SMA, which could happen as early as today. THanks!
Gary B
Gary B as i said yesterday I cannot front run any action i take for clients
Bill B. it is funny that when you look at your findings for SMA and EMA crossing as a trading system you think 'nothing to see here' but many of us think 'wow better absolute returns AND less risk!' Maybe you have some killer trading systems up your sleeve that you are comparing to...
Gary B. I think a lot of people who implement SMA crossing in practice just check the levels once a month to decide if they should be in or out of the market. This is in contrast to watching every day to see if we have a cross.
The Cellblock.
Great photo.
thank you fboness
Well, I look at Bill B's findings and think "I'd like a lot more return for my money for that extra work."
You'd have to watch moving averages for each piece of your portfolio and execute trades on that piece of the portfolio.
There are options, of course. You could just check moving averages at the end of the month. You could just do it for pieces of your portfolio: domestic large cap, emerging markets, whatever.
There are a lot of variables, which is why each investor has to understand what he/she wants before making a decision.
Holy crap did you change blog stylesheets mid day?
@ Matt: Ditto what SD said, 100%. I could not have said that better.
Also, I might add again that there are some pretty key pieces omitted. Dividends, tax consequences, commission and tracking error will probably wipe out that little gain.
But Matt, you do bring up perspective, which I've mentioned as well. If it's the same returns with half the drawdown, what a win, especially for someone nearing retirement. However, my thought on the matter is that there are better ways of lessening drawdown than technical analysis.
So I guess I'm trying to say that as a staunch advocate of technical analysis, system trading, backtesting, "quant" type stuff, I think it's inappropriate in a large portfolio setting. This is just my opinion.
Trading systems start to get a lot like stock picking. People are passionate about their method and you can always find a time frame, stock, etc to fully support your method. And other people can find 10 ways to call it crap :)
Sorry Roger: I wasn't asking you to front run. Just wondering about the general strategy if a 200 day MA whipsaw occurs- increase SDS, sell something or what... not specifics...however if this is a compliance issue for u , then we will all eagerly wait until after the fact to find out....NOT trying to get u in trouble. Love the blog, keep up the great work!
Gary B.
SD, sort of. new template yes, me no. I am now working with an ad network and i have allowed them to make changes they see fit with the layout to allow for the best chance of monetizing the site. The revenue has been tens of dollars per month and after almost five years of blogging i'd like to do a little better than that.
I can live with whatever format you use; however, for the record, I prefer the previous format for the comments.
JCarr
Hello Roger,
I have been away for a while because I am automating some stuff instead of doing all mentally. Ever since we talk about how one must rely on him self, well then must have the computer do the work objectively. Tx Roger for this blog (I am thanking also the participants). You have talked about some stuff while I was away, like gold, permanent portfolio, and 200dma.
I looked up what the price of gold was in 1869 - $162. At 3% compound it should be around $10,156. At today’s spot of 955 from 1869(140 years later) gold’s return is little over 1.25% per year. This is not a good long-term return. Currently gold is in an uptrend, can it go further up, yes, but it comes a time where it is better to dump it from your portfolio. I am still keeping very liquid, and only own about 5% of stocks made by profits. I own gold in form of precious jewellery in case my family need it. The jewellery investment is a non-trading issue. It is always there just in case ...
Investing to me is looking for bargains and then after dump it when the investment is fully valued.
Investing is about hedging your cash against an asset class that is undervalued. For instance if gold is about $50 then it would be a good investment, but not great investment. So in terms of a permanent portfolio and the break-up into different asset class is not really taking advantage the possible hedge that may come to play. A great investment is looking for an under valued asset that can also generate a return as it goes along. That is the reason that I keep lots of cash and do short term trades. Some profits are invested in long-term plays. I like to point out that you made a superb call on BCS, not only it was an undervalued asset but potentially can generate lots of additional value in the form of dividend as it goes along. The 200dma – Roger, it kept you out of trouble but it can also get into trouble. The issue - is this a new bull market? I agree that a new bull market must start out of bear, but is this bear over. I think that you have answered that many times - this is not a new bull market, and I go along with ROGER. I have asked my self when will this bear end. I have some calculations – mid 2011. So we might be in a range bound for the next two years. The financial damage has been too great to start a new bull. Running after the 200dma is like chasing after a stock. Is oil (energy) a great long-term play? Not really, it is a good short-term play. Give you an example. In Italy we eat lots of pasta and bread, in the north also rice (we have rice fields) and corn we make polenta. Well bread is used more than the rest. So bread shops should be a great investment since in Milan, Italy the price of bread goes from 2.50 euro to 11 euro per kilo. My wife purchased a bread maker and has never gone back to a bakery; the cost for making bread at home is ½ euro a kilo. So technology will eventually replace crude, with some other form of fuel. Iraq – should prove to be a great investment looking back 40 years. I may consider in the future, for my son to reap the benefits. It is like gold - must wait for a long time before can reap the benefits.
Best,
Jeff from Milan, Italy
Jeff yes any version of 200 DMA will have pitfalls. The market seems like it is headed into one now (but not there yet) and so you do what you can. "What you can" should include knowing ahead of time of what might go wrong. Bread and pasta? Time for lunch
Interesting read in light of the discussion in the comments the past few days:
http://seekingalpha.com/article/142906-if-it-looks-like-a-bull-walks-like-a-bull-acts-like-a-bull
Jeff, you picked a period around the historic high for Gold
Whilst Gold is more of an inflation pacing type investment, it is volatile (more volatile than stocks), so a good candidate for trading. A modest Price Ladder indicates around 45% gold stock, 55% cash reserve might be considered as an appropriate amount of exposure at the present time.
Gold has a low correlation to stocks, so it serves as a counter-balance over periods when stocks are down.
Clive,
Your work is very precise. As a trading stock I have in the list Fcx. My work is to take advantage of short term pricing dicrepency. For instance on 12/1/2008 picked up Fro at 25.95 and sold it at 28.54 on 12/5/2008. Legal & General .569 sold it .643 from 5/18/2009 to 5/19/2009 (got partial fill - too bad). And now I have initiated looking at FCX. Lately, with online trading I have started putting the trades myself. It has been a disaster. Because the emotions gets to you. For instance I purchased fro at 18,70 instead of waiting for the 17 range on 4/24/2009 and sold it too early at 19.95 on 4/20/2009 could have sold for around 25. So I am wresteling with the online tool of entering trades. Must confess I like when I give the order to my wife brings it to the bank and it get's executed without my involvement.
Best,
Jeff from Milan,Italy
P.S. too bad I did not take advantage of ROGER's reccomendation of BCS. But rest assure tx to you Clive I have added Fcx into my list.
"I prefer the previous format for the comments."
I agree with the above. The old version's contrasts and separation between comments was much easier to read. The new version appears stark and distracting for my " old eyes".
j
Hi Jeff
Lately, with online trading I have started putting the trades myself. It has been a disaster. Because the emotions gets to you.
I used to use TA and all sorts and as you say emotions often sway you in the wrong direction. Now I just use GTC’s and let the market depict the trade action. Time and motion wise the automatic approach involves just a few minutes effort each day (check and update GTC’s), perhaps an hours focus once per month, and maybe around a whole day review once per year.
In contrast the manual approach often ends up with you sitting at the computer for hours each day all for perhaps 1% or 2% of the total fund value additional benefit p.a.. In my case that extra benefit rewards at less than minimum wage rates.
Recently I’ve been attracted to the Permanent Portfolio style and have established three Ladders to signal the ‘rebalancing’ against the stock, bond and gold components. So now emotion is totally removed as the approach tells me exactly what stock to hold and when to add/reduce. Whilst my approach is a deviation from the core PP style it is a modification I am happy with as it does add value.
I’ve set each of the three Ladders to have around 50% of the total fund allocation each, tuning the steps so that generally the exposure averages around 25% of that total fund value. The collective ‘cash’ reserve across all three ladders provides the PP’s 25% cash amount. In concept the 150% of total fund value virtual allocation is across dissimilar character investments so the different drumbeats should have one up (raising cash) as another is down (deploying cash). At extreme lows however any one component (stock, bonds, gold) could end up with 50% of the total fund value amount deployed in that component.
I’ve seen some PP discussions around recently about using total stock market versus small cap domestic and international value holdings instead for the stock component. From what I’ve seen the difference is at best only marginal. Another tweak I’ve opted to use therefore is against the 25% cash element, with a view to deploy some of that into special situations as and when apparent opportunities arise. Adding a couple of percentage points gain over cash seems to me to be an easier challenge than that of potential SV/TSM stock based differences.
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