December 29, 2009
It is probably fair to say we've moved beyond the bear market. With the benefit of hindsight, it is common sense to ask: would we have done anything differently? For my part, it's difficult to say with any conviction that I would have. I bought stocks for clients that I thought were strong but proved weak. I suggested safe investments that didn't live up to the name. I was surprised when diversifiers didn't really diversify.
We've all heard that the liquidity crisis was a once-in-a-lifetime event. If that's true, then personal finance strategy is little changed from two years ago. We will still use asset allocation. We will still diversify. We will continue to select investments we believe in. Investment themes that were popular before the recession are still relevant today: there is a supply/demand imbalance with energy; technology is America's greatest export and strength; baby boomers are still creating new demand for medical care; etc. It could be argued that the only things different today are timing and price levels.
That being said, there is one theme that might be more relevant today: the health of international economies relative to the U.S., most especially in the developing world. As a group, emerging markets have over 80% of the world's population, produce over 50% of the world's GDP growth, and have almost doubled their share of the word's GDP since the early 1990's. In addition, the stimulus-induced debt accepted by developed nations may result in relatively weak balance sheets and high tax rates. For investors, the main takeaway is to pay more attention to where companies are making their money. Companies like Coca-Cola and Proctor & Gamble get over 50% of their sales outside the U.S. It seems reasonable that owning companies like these will be advantageous because their growth and health will be less dependent on the countries they call home. These companies don't have to break the mold or revolutionize anything. They simply have to do what they're good at in more places.
This is not new, but today it is more true than ever before.
Brennan R. Redmond
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).