Many of you have asked for pointers on how to invest. Making or preserving money in capital markets is not an easy task, especially in these volatile times. It requires a lot of research, hard work and most important of all, discipline. I hope that you can start your investing year off on a good foot, and so I’d like to share with you a few investment rules I’ve picked up over the years.
1. Diversification. I think that your best strategy to plan against unexpected events such as earthquakes, political upheaval, floods, investor panic and the like, is diversification – not only within a particular market, but also across markets globally. You never want to be overly dependent on the fate of any one stock or security, particularly if you don’t have control over a company’s management or events. Some successful investors with a limited number of holdings believe in the school of thought “put all your eggs in one basket – but watch that basket carefully”. But these investors often have some influence on companies and management. Most investors are not able to do that, and if you fall into the latter category, you may be better off diversifying across countries and companies.
I arrived in Tripoli, Libya’s capital and largest city, on a short flight from Athens, Greece, so I appreciated the closeness of this North African country to Europe. Libya is right on the Mediterranean and has Egypt, Sudan, Chad, Niger, Algeria and Tunisia as neighbors. Libya is a huge country (1.8 million square kilometers) but 90% of it is desert. The population is only about six million, with about two million living in Tripoli.
Libya at various times in its history was inhabited by Phoenicians, Greeks and Romans. It later became part of the Turkish Ottoman empire and then an Italian colony. We got a taste of its ancient history when we took a two-hour drive out of Tripoli to the ruins of the ancient city of Leptis Magna, one of the largest cities in the Roman empire, built by the Roman emperor Lucius Septimius Severus, who came from this area. We were dumbstruck by the Leptis Magna ruins. They are among the most impressive I’ve seen of Roman ruins. This is one reason I believe the potential here for hospitality and tourism is tremendous.
Thank you for the many positive and encouraging comments you have left during the first few weeks of my blog. Several readers also sent in questions on a range of topics. I apologize for not being able to answer all of your questions here, but have tried to touch on a couple of key topics.
In which countries, regions or sectors are you finding the best values?
— Allen and Uday (separately)
We are finding opportunities in almost all emerging markets. Our ground-up research process locates opportunities in countries where the political or economic outlooks may not, at first appearance, look good. Nevertheless, we generally favor China and Brazil, but also have large positions in Russia, India and Turkey. In terms of sectors, we believe commodity stocks look good because we expect the global demand for commodities to continue its long-term growth. We also favor consumer stocks. With rising per-capita income and strong demand for consumer goods and services in many emerging markets, we believe the earnings growth outlook for these stocks is positive.
I want to thank everyone for their feedback on my blog. A frequent comment that I received was about doing business in Brazil, Russia, China and India, commonly known as BRIC.
There were also queries specifically on India, which I visited a few weeks ago. My visit reinforced our previous assessment that the growth rate in India may likely continue. The Indian companies that we spoke with indicated that their businesses are growing above expectations, and that downturn in the U.S. and in Europe didn’t affect them as much as they had expected.
There are many people who say that with the rapid increase in money supply, we’re going to see a return of inflation. We believe that inflation is a risk in India, as in many parts of the world, but that it will not happen suddenly and will take time to develop. One of the good things happening globally is the trend towards higher productivity. With higher productivity, inflation should not move up because goods are being produced at a lower price.
I arrived in Ho Chi Minh City in Vietnam on Friday via transit in Dubai. Interesting that I passed through Dubai. Of course, that city-state has been in the news since Friday, when the government-owned Dubai World and a few of its subsidiaries announced a debt standstill – that they would not be meeting their debt obligations over the next six months while a restructuring is arranged. It is important to note that the Dubai problems affect markets around the world, because a number of major international banks are exposed to Dubai debt and several international construction companies have had major contracts in Dubai. The negative news impacted markets globally, particularly in Asia. Major Asian stock exchanges in Hong Kong, Tokyo, Seoul and Mumbai were down on Friday, but advanced on Monday. Middle Eastern markets in Muslim countries such as Dubai and Abu Dhabi have been closed since last Thursday due to the Eid religious holiday. Most markets in the region resumed trading on Monday or will resume on Tuesday. While markets in the United Arab Emirates opened on Monday, they will be on holiday again for most of the week.