It is a volatile time in the markets so I thought that I would give our loyal readers a break from my writing and share some research by an organization that we respect greatly; The Economist magazine.
During volatile markets, such as the ones that we often experience in September and October, it helps us to focus on the long term perspective, and to determine where the world economy is heading over the longer period. The September 16th edition of The Economist has written an excellent special section, covering just that area. I suggest that you all read it.
“THE NEW TITANS”
The Economist articles start with the following statements: “China, India and other developing countries are set to give the world economy its biggest boost in the whole of history…..What will that mean for today’s rich countries?”
The articles address many issues we have discussed before and some that are new including:
1. “The borderline between the rich and poor has become more fluid.”
2. “Developing economies are having a good run.”
3. “Many workers are missing out on the rewards of globalization.”
4. “Does the world have enough resources to meet the needs of emerging economies?”
5. “Competition from emerging economies has helped hold inflation down.”
6. “Interest rates are too low. Whose fault is that?”
7. “How long will emerging economies continue to finance America’s spendthrift habits?”
8. “If today’s rich world does not watch out, it could become tomorrow’s relatively poor world.”
A FEW POINTS
A. Today emerging economies make up more than half of global GDP.
B. Contrary to the Industrial Revolution, which included 1/3 of the world’s population, today’s revolution will cover most of the globe.
C. Emerging economies are growing at 7% for the last five years, versus 2.3% for the industrialized world.
D. Emerging economies have been growing faster than developed economies for decades. Now they are more than half of global GDP and their fast growth rate gives them more influence in world economies and stock markets.
WE SPEND A LOT OF TIME TRYING TO FIGURE OUT THE BEST COURSE OF ACTION TO DEAL WITH THESE AND OTHER ISSUES.
We believe that the key to seeing the future correctly is watching current trends and extrapolating from them. We also have seen that if you follow only the media of one country, you only get one perspective on the world. Thus, we try to monitor a range of media sources around the world. We study world events closely and we try to avoid the countries where the media is obviously manipulated or stifled.
We are not claiming to be great intellects. We just believe that investing is more perspiration and less inspiration. To us, it follows that if you have gone to the trouble to research the correct future trends, you can pretty easily create a strategy to profitably deal with the future.
In our opinion, one future trend continues to argue for fast growth in India, China and the developing world. Other trends include, continued demand for energy and raw materials to keep these economies growing. Markets do not always move in one direction. Any stock market or any market sector can and will experience corrections. For example, we are having one now in energy.
Conversely, you can have periods where weakening economic growth leads to good stock market opportunity. We believe, at this time, that this may be the case in several market sectors and in several developed countries. Many U.S. and European stocks are getting quite cheap, so are stocks from some developing countries and in the energy and metals area.
We are looking for bargains and we plan to buy them as they develop. We like bargains in stocks that can grow steadily (growth stocks), and those which have a large number of unrecognized assets that the market is ignoring (value stocks).