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SHOULD INVESTORS LISTEN TO THE MEDIA FOR INVESTMENT ADVICE?

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SHOULD INVESTORS LISTEN TO THE MEDIA FOR INVESTMENT ADVICE?

As we all know, the media loves to hype up stories because the hype creates bigger audiences.  At about this time into the Obama administration, the media was hyping the rise of countries like Brazil, India, China and South Africa (the “BRICS”).  Many talking heads also encouraged investors to invest in these “rising” countries.  Over the last eight years, emerging market equities significantly underperformed US equity markets.  Those investors who listened to the media were poorly served by the advice they were given.

Recently, the media was back at it again.  This time, the business media was talking about a powerful America (from a business perspective) with a continuing rise in the US dollar against foreign currencies.  Today, the US dollar is at its lowest point in six months.  A big part of this may be the headline news about the Trump administration.  However, that is not the entire story.

One way to look at currencies is to look at what one can buy with a US dollar overseas.  Presently, the US dollar goes pretty far overseas.   One only has to look at the Big Mac Index to see this.  The Big Mac Index compares the price of a Big Mac in different countries.  You can see from the Big Mac Index that it costs more to buy a Big Mac here in the United States than in most other countries.  More anecdotal evidence came when Jim was at a conference in early December and met with an international bond manager who grew up in South Africa.  The bond manager was talking about how he has gone back to visit his home country for two weeks in each of the past 25 years.  He mentioned that he has never received more for his US dollar than he did on his most recent trip.  He paid $150 for a one night stay in a 6 bedroom house that included 4 servants.  He also was able to take his family of 6 out to dinner at the best steak restaurant in town for $120.  In other words, he was getting more bang for his “US Buck” in South Africa than he could have in the United States.

What does this mean for your portfolio?

At this time in the Obama administration, we had our lowest exposure to international stocks and had no money in emerging markets (exact opposite of what the media was touting with the BRICS).  Today, we are overweight international equities compared to US equities and more than half of that money is in emerging markets.  We are doing this because valuations are more attractive overseas than in the US.  Put another way, assets overseas are cheaper.  The key to any good investment (stocks, art, coins, etc.) is the price you pay for the investment.  The price on overseas assets is much lower than in the US.  In our opinion, performing solid fundamental and technical research and using that effort to understand the relative value of assets makes much more sense than listening to the headlines of the day for investment advice.

Written by

James E. Gore, CFA®, CAIA, CMT®

Jim serves as the Chief Investment Officer of THOR, is a Chartered Financial Analyst charter-holder, a Chartered Alternative Investment Analyst, a Chartered Market Technician, a member of the Association for Investment Management and Research and a member of the Cincinnati Society of Financial Analysts.

See bio

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