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SOVEREIGN MAN

Three countries where you’ll want to have exposure

January 4, 2012
Seat 5F, Undisclosed location at 35,000 feet

Most of us have grown up steadily ingesting a hearty line of crap that has made its way into the social consciousness. Governments can’t go bankrupt. Government bonds are safe. Banks are safe. Real estate always goes up. The US dollar is king.

Yet even the dullest bystander has begun to realize over the last few years that such platitudes are questionable, at best. Many independent contrarians have abandoned them altogether.

The big issue is this: there is no such thing as risk free. Government bonds carry risk. Cash in a bank carries risk. Cash under your mattress carries risk. The oldest, most well established companies in the world carry risk. There is no escaping it. We can no longer assume away risk with anything.

Even the nature of the market itself has become risky, particularly in the developed world. The price discovery mechanism no longer exists — a consequence of the market being dominated by fresh swaths of newly-minted money and the latest round of political innuendo.

As an example, a few months ago US Rep. John Larson introduced H.R. 2835. It’s purpose?

“To establish a joint select committee of Congress to report findings and propose legislation to restore the Nation’s workforce to full employment over the period of fiscal years 2012 and 2013, and to provide for expedited consideration of such legislation by both the House of Representatives and the Senate.”

What will they think of next — a bill proposing that the S&P 500 readjust to 2,000?

These people will never learn that you cannot legislate your way into prosperity. And yet, it’s organizations like the United States Congress, the Treasury Department, the Federal Reserve, the European Central Bank, and the International Monetary Fund which underpin the modern financial system.

As long as these guys are around, those old timeless investment strategies are nothing more than a recipe for financial ruin. Municipal bonds for tax efficiency? S&P index funds for guaranteed long-term investment results? US Treasuries for safety and security? Throw all that nonsense right in the garbage.

Entrusting your hard-earned savings to such conventional thinking is incredibly risky. And with this notion of risk in mind, it’s really time to think differently about investing.

Here’s the good news: it’s a great, big, giant world out there that’s full of opportunity. If you start by looking at places that actually have solid structural fundamentals (i.e. countries and markets that are in good shape and have a bright future), you’ll come up with some incredible possibilities.

Here are just a few that score highly on my radar:

Mongolia: We’ve talked about this before– the evidence is overwhelming that Mongolia will be among the richest places in the world in terms of per capita GDP within 10-years based on its natural resource wealth.

The Mongolian market is small, but there are a number of ways to invest– including a local brokerage account (which is completely open to foreigners), a high-yielding bank account (though you do have to show up in person), direct real estate holdings, or foreign companies which invest in Mongolia.

Chile: In full disclosure, I’ve invested a great deal of my time and capital in the country. And with reason. Chile is a wealthy, market-oriented, export-driven economy, and I’m hard-pressed to think of a better, more stable place to be well-positioned for the emerging boom in agriculture.

Singapore: Did you know that more than half of Singapore’s population (of nearly 5 million people) falls within the world’s top 8.8% wealth bracket? The country’s average wealth per adult is nearly $300,000 (USD) and rising.

Given its favorable (and growing) wealth demographics, easy regulatory framework, and market transparency, Singapore is a great place to both start a business and to invest.

Cash: If you’re looking for a paper currency to hold, any of the above-mentioned (Singapore dollar, Mongolian tugrik, Chilean peso) demonstrate stronger fundamentals to any of the major currencies out there (dollar, euro, yen, pound).

For generating superior risk-adjusted returns on unallocated cash, though, I’ve found no better solution than Tim Staermose’s 4th Pillar method. More on that soon.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Danny

    Simon I live and work in Mongolia and have done so for the last 13 years and I do not agree with your out look for the country. Great mineral wealth and bad and totally corrupt governments do not generally lead to great prosperity. 

  • defence_hellas

    What about Bulgaria?

  • Norm

    While I agree that Singapore has a strong economy and worthy of consideration for investment opportunities; I think your statistics on per capital income lacks content. Singapore, like Dubia and the Emerites have a core population of Singaporeans, but the majority of the work force are at the lower end of income scale and are not considered Singaporeans .  They are imported from Malaysa, and the sub-Asian continent.  The Stats you quote only relate to Citizens of Singapore, who hold upper level management positions and have the resources to acquire and develop high-end real estate projects.  The country is run by a business oligarchy, and in fact entrerpeneurship is discouraged by both the culture and government, wanting workers/employees. 

    I spent many years doing venture capital and joint ventures in Asia, including Sinagpore, Hong Kong and mainland China.  And I was a volunteer mentor on a fledging entrepreneur website based in Singapore. So I have some hands-on experience in those areas. 

    I also like the opportunities in Ecuador, and have investments there, particularly in real estate at the macro level and micro-businesses.  A strong “gringo” market is migrating there and the country is benefiting from the baby-boomer exodus to a lower cost of living.

    Norm 

  • Nickbert

    While bank accounts in Mongolia do give high returns (both in tugrik and dollar accounts) compared to most other countries, the banks there have historically not been the most stable and neither has the Mongolian tugrik. Bank failures have been common (my wife’s parents lost a little of their savings in one some years ago), and in the 90′s they experienced a nasty currency crisis. I think Simon is right in that the fundamentals going forward from here look good, but if you’re putting money in Mongolia please PLEASE diversify your investments and spread your risk. The economy and business environment is still developing, and inflation is pretty high. Use more than one bank if you’re placing money there, and don’t invest in any company here without doing your homework.
    One thing to note: the tugrik has gone down relative to the dollar recently, from about 1250 tugriks to the dollar in September, to about 1375 tugriks to the dollar as of a week ago.  It seems this is mostly a consequence of the recent strength in the dollar, so timing-wise if you’re a dollar holder this might be a decent opportunity to convert some of those into a tugrik account before the dollar’s strength eventually declines again.

  • http://www.bzemic.com/impossibleInstinct/ steve ward

    nice and bookedmarket as i build the family wealth

  • Victor Au-Yong

    Good exposure on investment opportunity. Do you know where can I open an account to trade equities in Mongolia ?

    • Frank

      LOL

  • sgman

    I am a Singaporean and I wish to correct your error about wealthy population. The wealth statistic, like all govt statistics are not reflective of the truth. The wealth statistic you have used is the result of inclusion of home values priced at the margin and the result of decades of low interest rate. It is not real physical wealth, but a financial valuation. Many middle-class Singaporeans are in fact heavily indebted with mortgages but able to finance them because they earn sufficient income due high employment resulting from the strength of the diversified economy with attractive pro-business laws, taxation, and strong rule of law by the Singapore Govt.

    The real wealth of Singapore lies in the intangibles which you mention: pro-business regulatory framework and taxation, market transparency, clean living environment and efficiency. These tend to attract certain type of rich individuals, such as Jim Rogers. To be honest, the reason for Jim Rogers to be in Singapore is mainly Mandarin language schooling for his daughter, not to invest in Singapore.

  • Johnny Bronx

    Cash is a lousy investemnt. It will always go down in value over time due to inflation and taxation. If you want to make money, you need to grow a business (or have an interest in one) faster than inflation and taxation combined.

    If you’re going to carry foreign currencies, you’ll need to also compensate for manipulation of the currency market by governments and other big players. Good luck there.

  • Lps223

    Simon:
    HNY! Have many connections in the Dominican Republic and speak spanish. One of your Panama colleagues painted a fairly positive picture of life there including short times for citizenship and internationalized status in terms of banking, biz/corporation, as well as cheap lifestyle. Too close to US and its tentacles or reasonable alternative to Chile?
    LPS

  • Hiday_happy

    simon,lets hang out with me at malaysia

  • Arcachon

    Convert your USD to SGD by buying SG property with 60 % leverage.

  • In search of plan b

    I have so much to learn.  It feels overwhelming, but I know having plan b, c, etc is the only wise way to go.  I wish I wasn’t such a fool with my money when I was younger.

  • Gerry55

    What about Venezuela currency? I have read that they have highest gold reserves compared to currency

  • Hiday_happy

    yes its true i cannot lesgilate into propostion

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