First note the performance of the Emerging Market Portfolio. The 2006 model Emerging Market Portfolio was up 114%. This year’s Emerging Market Portfolio has a similar package of investments. All we did from last year was remove equities in Japan and add shares in Turkey and Eastern Europe . Given its current level of 103.22% appreciation, with a month to go and its momentum, there is a chance that the 2007 portfolio could even surpass the performance of last year.
This validates the lesson that emerging economies are catching up with major economies. Emerging markets have dramatically outperformed major markets for the past six years. The Emerging Market Portfolios have taken advantage of this.
The second lesson shows the importance of having financial and emotional staying power. Riding winners is important! Imagine how investors who abandoned any of the portfolios above, in mid August, due to the short downturn, feel now.
Investors should have a long term strategy that includes a plan on how to handle sudden and short corrections. That plan should be related to one’s own financial circumstance and value rather than short term price changes.
In most circumstances, if shares have been correctly selected to begin, short term downturns increase rather than decrease value.
Third, value is the key. Readers have been writing in (and have been since March) “its must be too late to invest in these portfolios.”
Past performance is not a guarantee and has little to do with future performance. Short term shifts in markets are not efficient indicators of value.
Value should be our guide in selecting investments, not recent price changes.
The economic reality is that high GDP growth and falling interest rates have stimulated markets. Earnings growth has explained more than 100% of the global equity returns in this past bull market.
P/E multiples globally are still low and this leaves the equity markets room for further growth. Equities are not expensive.
Emerging markets should continue to catch up with major markets and the US dollar continues to fall.
The rise in value we have seen even during these turbulent times, suggest that the market recognizes this value and continues to buy shares despite the current volatility. Investors are looking for a refuge from inflation and the falling US dollar. These assumptions suggest that these portfolios could rise even more.
The questions we should ask about these portfolios are:
#1: Are the shares in the portfolio still inexpensive?
#2: Do the shares in the portfolios have rising earnings.
#3: Are the shares in the portfolio in established up trends.
#4: Do I have somewhere better to invest?
In short we should look to see if the portfolios hold cheap, high quality stocks with high and rising earnings and are getting increasing attention in the market now.
If we find enough value in a portfolio we should continue to hold it, if that portfolio continues to fit our own unique financial situation. Plus we should always remember to never invest (and especially leverage) more than we can afford to lose.
Until next update, good investing.
We will introduce our 2008 portfolios next month. Join us and Jyske Bank at our Hotel El Meson de las Flores for International Business & Investing Made EZ in Ecuador , November 9-10 and 11. https://www.garyascott.com/catalog/IBEZec/
P.S. Low Subscription Update. This is the last day. The publisher we are working with has now initiated its test marketing and we will alter the price of our subscriptions this weekend.
This means that the time to extend your subscription at the low, existing $149 price is through on Sunday. To take advantage and save during these last days simply go to http://www.1shoppingcart.com/app/netcart.asp?MerchantID=86635&ProductID=3136540