Guest Author - Guido Deboeck
In the past couple of years I managed to get away in January. Like the birds my wife and I travel south to the warmer hemisphere and send some time relaxing. Two years ago we flew to Argentina where in Mendoza we spent a wonderful couple of days visiting wineries. This year we went “down under” to Australia and New Zealand for a similar wine tasting exploration. It was wonderful.
On return I found that the markets in the US had moved very little and that the time away provided new ideas. For example, have you considered Australia in your portfolio? You can look at individual stocks in Australia (e.g. BHP, NAB…) or pick some of the ADRs, but the easiest way is to invest in EWA, the ishares for Australia.
In 2006 investments in Australia based on EWA went up by 24.5% compared to the S&P 500’s 13.6%. Not bad, right? Over the past two years the yearly return on EWA was 18.7%.
Traveling “down under” thought me again that it remains important to think out of the box, to consider all alternatives, and especially to ask yourself: is what I belief or think really true?
Looking back to 2006 -- I trust you read my Regrets of 2006 article—there is also the usual party bragging or the occasional e-mail from friends who cannot resist telling you half stories.
Just last night I received an e-mail from a friend who claimed that someone he knows and respects had made 69% in 2006 in Indonesia. This poked my curiosity and hence I went to look at IF, an Indonesian fund. I found that at the end of 05 the fund’s close was $5.76; at the end of 06 it was $11.7, an increase of 103%. So if someone produced 69% did he really well?
Let’s look at the details: IF went from $5.76 to $12.44 by April 21, then dropped to $7.86 and ended the year at $11.7. So if you were invested in Indonesia via IF you traveled on a rollercoaster that brought you first up 115% , then down 36% , and finally up again by 48%. Do you like a rollercoaster portfolio? Would you have had the guts to sit through a portfolio decline of 36% from April till June 23 ?
Compare this to investing in EWZ which went from $16.70 at the end of 04 to $18.87 at the end of 05 and to $23.5 at the end of 06. Nice smooth ride.
Last year at an end-of-year party for 05 the wife of a friend of mine bragged that her husband had managed to produce 36% that year by being solely invested in Korea. I went again to the iShares for Korea and found that EWY had gone from $29.25 to $44,75 and increase of over 50% in 2005. Was 36% really that good if passive managment brought over 50%? If the husband has continued to keep their portfolio in Korea in 06, the return would have been 10.3%, quite poor compared to the world market index or even the S&P500.
In sum, don’t let the end-of-year bragging get at you, think independently and especially try to look at things upside down, as if you live “down under”.
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