Just kidding. Yesterday I found a triple play of especially provocative woe is the investing world articles. Some of these articles are blatant marketing ploys while some, IMO the three yesterday, ask good questions and create a catalyst for exploration.
As opposed to woe is the investment world I view this as a problem (in the challenge sense of the word) to be solved and personally I enjoy pondering the possibilities, it contributes to the love of my job.
Pragmatic Capitalism had a post called Will The Cult Of Equities Die? which talked first about "our excesses" have contributed to where we, the US, are now. Reading between the lines there seemed to be blame a little more narrowly on society having tried to take short cuts, IE get rich quick. Also noted was that "we have spent more than we have and lived well beyond our means."
To the extent this is true it pertains not only to individuals but also to the federal and state governments. All of these things and related points create obstacles to "normal" equity market performance. The US market will either overcome these obstacles or it won't. The theme on this site for years has been to try to avoid the obstacles altogether.Long time readers will know that living within ones means, below ones means actually, has been a major talking point of mine. Given that it can be very difficult to have your money grow into what you need it to be to cover retirement it makes a lot of sense to stop worrying about the neighbors, get the monthly overhead down and save more each month.
This article from Mohamed El-Erian aimed at investment advisors addresses more of the evolution of investing. He says "investing for the world of tomorrow means paying closer attention to the faster-growing and more fiscally stable emerging economies." I believe this is consistent with my thoughts on avoiding or at least underweighting the countries with most obvious problems (hey, I've never claimed originality).
El-Erian and his colleagues at PIMCO have been referring to this as the new normal. It may not be truly new as the US has faced this sort of thing, at least in terms of equity market behavior, before and obviously we are seeing something similar play out in Japan although some of the details are different and Japan is further along than the US is.
The common thread is countries on the decline or at the very least struggling mightily to run in place. Both countries have demographic issues and debt problems. Their problems quite simply are bigger than in many other countries. Have you ever made the decision to avoid a country because the fundamentals did not look good to you? If you can say no to Argentina then why not the US?
The final article was from Wall Street Cheat Sheet and highlighted a potential loss in confidence on the part of US investors in the US stock market. Things like the flash crash, the article reasonably contends, have contributed to disillusionment with investing and retirement.
So there is a fair bit of negativism there. This line of thinking of draws criticism but it is not my job to try to solve the world's problems. My job is to try to give clients the best chance possible of having enough money when they need it. This means giving money the chance to grow at certain times and trying to protect it at other times. Other people might describe it putting money where it will be treated the best.
iShares has 31 single country funds (also several regional funds and other specialized foreign funds), Market Vectors has seven single country funds, additionally EG Shares, GlobalX, IndexIQ and WisdomTree also have single country funds. There are also countless other niche funds that provide heavy foreign exposure. The above might be the problem but if it is then the access available is where the solution lies for many do-it-yourselfers.
If the problem is definable, even if not solvable, and we know where the work-around lies and that the only thing between us and the work-around is time spent then I would say this is reasonably encouraging. People just need to save properly and do the work.
6 comments:
Roger, good morning.
I agree with you and El-Erian about the importance of fiscally sound economies, and I've selected some single country etfs accordingly.
One thing bothers me, though. Is there any evidence linking single stock selection to the fiscal propriety of the country where it's domiciled? I don't think you're saying investors should avoid Apple or JNJ or Coke because of the U.S. government's monetary and fiscal policies, but what is the headwind? Should we think about this as a tie breaking "all other things being equal" sort of factor?
Thanks for your perspective.
good question and possibly a complicated answer. i'm sure that in the Japanese market there have been great holds during the 20 year malaise but picking those stocks into a lousy fundamental back drop would have been very difficult to do. We own JNJ and it is a name that I don't think i'd ever have to sell (but of course would if circumstance dictated).
Looking at the US for the last ten years, if the market is down 20 whatever percent then there are obviously many stocks that are down more than that. this headwind simply becomes difficult to overcome in terms of finding stocks ten years ago that instead went up.
to me this makes the realistic case for less exposure to the US and more to foreign which is a process we've been implementing slowly.
I'm reading more and more that stocks, in general, have become mere commodities. If this thesis is correct, I do not have to pick individual stocks and I even wonder if sector selection will matter in the long run.
If stocks are treated as commodities, this will just be one small segment of my overall portfolio and timing will become more important
I believe the following is happening right before our very eyes: Investor cynicism is quickly evolving into complete lack of confidence in the public capital markets, period. With no confidence Wall Street appears more like the Vegas strip ("...put me down for $1,000 bucks on Apple, er, red...") than a place to thoughtfully and carefully invest into corporations that are doing things right. How long will it take a firm to recognize this (perhaps GS!) and create a "private, off-book" marketplace and fill this vacuum?
For my entire life, I never spooked when markets tumbled. I was glad I was able to buy great companies at a lower price. I no longer have this view. Not only is the outlook for America extremely negative long-term, but the financial markets operate like they are rigged. We had a chance for significant financial reform but politics are more important these days. Most Congressmen are financially illiterate.
Roger is right. The future is outside the U.S. ....but can we trust those markets?
Similar doubts and questions probably came up in the 1930s that the end of the world for stocks is upon us.
There is little doubt that a lot of confidence has been lost with equities being investments. I have no doubt that eventually confidence will be regained. How many years (decades?) that will take is a different question.
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