Economic Review VIII – Risk Realities


This series is reviewing ideas gained at the Jyske Bank Global Economic Seminar in Copenhagen . Yesterday’s message reviewed ideas shared by Jakob Griesen, the lead portfolio manager for Jyske Invest’s Aggressive Strategy and the Jyske Invest Favorite Equities Fund.

One thought he had about investing is that risk is our partner…for better or for worse.

Our goal with multi currency investing is to increase safety through the wise use of spotting distortions to manage risk.  The research we do in our Multi Currency Educational Service has uncovered an interesting fact about risk. The general assumption is that shares are riskier than bonds.  Not always.

For example a year ago September, stock markets around the world had just come out of the worst setback in a decade.  A review of our 2006 portfolios noted:

“A lesson can be learned by reviewing why the emerging market stock portfolios are doing so much better than the three dollar (bond related) portfolios we track.”

The review then went on to point out that the emerging market portfolios were mostly in well managed equity mutual funds.  The three dollar portfolios were invested entirely in bonds.

Another examination of the portfolios showed that all the bonds remained in a loss position, but the equities were all quite profitable.

This led us to draw a number of conclusions. One conclusion was that emerging market equities were looking better than emerging equity bonds.  We further extrapolated that during inflation related market drops, equities dramatically outperformed bonds.  In other words, inflation turns investment risk upside down. Normally bonds are deemed safe and equities are thought to have more risk.  However during inflation, equities are much better to hold than bonds.

That was a lesson in 2006. Now it is reaffirmed in 2007 in the Multi Currency Portfolio Update #25 of September 10, 2007 in which I wrote:

“The latest review of the five multi currency portfolios we have tracked since November 1, 2006 (ten months) leaves me wondering, should we yawn or gasp?

“A week after August 10, the gasps began, but quickly slowed to a yawn. Now a month later, if we have blinked much, nothing seems to have happened at all.

“What we have learned in the years of tracking portfolios is that bond oriented portfolios recover more slowly than equities. This is as true here as it was last year.  The two dollar portfolios which are almost entirely in bonds are down about 50%. The Swiss Samba Portfolio which is a mixed portfolio of equities and bonds is down about 25%. The two share portfolios (Emerging and green) are down only 10% from last month.”

The review continues tomorrow when we learn why risk can be our friend.

Until then, may you have many friends!

Gary

You can still become a Multi Currency subscriber at a low fee.  Here is the latest word from the large publisher that we have developed a cooperative plan to offer our Multi Currency Educational Service.  “ Gary ,  Ideally, Gary, I’d like to set up a week–5 Postcards–re-introducing you to the readers. This could be a series of Postcards about protecting yourself from the weak dollar.”

This means that the time to subscribe at the low, existing $149 price is nearly through.  To take advantage and save during these last days simply go to http://www.garyascott.com/catalog/bldh

P.S.  We have had two cancellations so you can still meet with Merri, Thomas Fischer of Jyske Bank and me for International Business & Investing Made EZ course in North Carolina, September 14-15-16, 2007. We hope to see you there. Details are at http://www.garyascott.com/nccourse/

All delegates are invited to the farm for afternoon tea on Sunday September 16.  Autumn is here! The first yellow leave swirled in the wind today so come along, learn and enjoy the glory of nature in the Blue Ridge .  Here is an autumnal shot at the farm.

Or 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. http://www.garyascott.com/catalog/IBEZec/


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