BRIC fund?

BRIC? Everyone is talking about big emerging markets and wants a piece of the action. Businesses and individuals are rapidly embracing new technologies. There are a few rogue countries and terrorists threaten but basically we are all global friends now. Economies around the world are doing great. We are at a permanent plateau of peace and prosperity. It really is different this time!

Yes it is...1906. Time to put money to work. My financial advisor told me I cannot lose on "stocks" provided I buy and hold for at least a decade. Active managers are "expensive" so I'll use those "safe" index funds for my portfolio. They are "cheaper" and the "experts" say to use them. They tell me there are speculators out there who dare to short sell! There's a sucker born every minute. They'll be wiped out with outlooks for the 1907 USA market looking so good...

Other countries' prospects appear even better. Russia is attractive with all those natural resources. Argentina just entered the top ten of world economies with analysts predicting massive further growth. I will buy German stocks too with Europe so stable these days. Europe obviously has no chance of those wasteful territorial squabbles ever again. Can't lose money there. And China has all those people and a free market economy these days. I'll buy and hold to maturity those "investment grade" Chinese bonds. Back up the truck...

Of course the investment returns from those countries' securities, decades later, were effectively 100% losses on stocks AND bonds. All looked like solid, prudent investments in 1906. It will be interesting to see which countries' benchmarks fall to ZERO in the 21st century and whose government bonds default. MANY will. Perhaps the ones we least expect. Maybe those that look today like "no brainer" long term holdings.

There is no such thing as a long term investment. Just a manic depressive series of short hauls and you need to invest accordingly. No-one has a clue on the long haul; not you, not me and definitely not economists coining BRIC acronyms. All you can do is hedge, manage risk and make money from what is happening NOW. Every country offers opportunities for skilled investment strategies. Long only buy and hold the index is not one of them.

My preferred BRIC, Bangladesh, Romania, Indonesia and Colombia, will probably do just as well as that more famous other BRIC. In general small stocks outperform large stocks and small hedge funds">hedge funds outperform big hedge funds">hedge funds. And there never has been any connection between a country's population, economic growth and its stock market returns.

by Veryan Allen. Copyright

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