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.