Multi Currency Portfolios Question


Multi currency portfolio questions can help us learn.

There have been lots of questions about our recent message of the Multi Currency Portfolio Crash.

One reader wrote:

“ Gary — I have not written to you before even though I have been an avid reader of your ‘Newsletters’, if I may call it that, for the past 4 years. In fact it was because of you I started by account with Jyske Bank’s invest loans and have seen excellent profit growth. Thank you.

“Now the reason for my writing. First, to say thank you which I have done. 2nd, should I take a position in your recommendations now? For example how about a position in Infrastructure or Danish health which have seen a 35-45% drop. Your thoughts please.”

As an investment publisher I cannot give individual investment advice but wanted to share this thought for everyone.

My reply is that the timing of the ups and downs in the market has almost nothing to do with whether one should invest or not. Forget market timing! This is one of the most minor factors you should consider when investing.

The three most important factors one should look at with an investment advisor when considering an investment are:

#1: What are my personal financial and life circumstances?

#2: Where is there good value?

#3: What are the fundamentals social economic and technological forces driving the world that I know, understand and am comfortable with?

Another reader wrote with an idea. I do not think it will work but he is on the right track.

He wrote:

“Happy Thursday Gary, I just finished reading today’s edition of the newsletter and saw the tremendous drops in your model portfolios. The word ‘Ouch!’ came to mind if someone was actually implementing your portfolios, but your point of this information being an excellent teaching tool is well taken. Somehow, this information prompted the thought of UK Building Societies. I did some online research and came across the UK ‘s largest building society, Nationwide. They are currently offering 12-month e-bonds (bonds available only thru an online account) at a guaranteed rate of 6.7%. At the current exchange rate of USD 2.06 this works out to an annual return of 13.8% cash-on-cash. The minimum deposit is only 1 pound. Interest is paid monthly directly to the account holder, but the principal cannot be withdrawn until the 12 months have expired. As best as I can tell, building societies are to the UK what credit unions are to the US . If so, they look like a great deal since the members own the financial institution…

There is a www. Link at nationwide.co.uk/default.htm

“My question is this: I know these accounts are off limits to US residents, but is it possible to 1) access this account thru Jyske Bank and 2) possibly get a least 1:1 leverage (or more) to increase the returns?

All the best to you and the family, Gary. Enjoy the day! Best Regards,”

Here is my reply:

First, yes “ouch” is a word those who are caught in watching the daily ups and downs of markets would feel. This fact shows the important of perception and why market timing is such a fallacy. The drop of the last month is nothing compared too what was experienced in the middle of 2007.

This last month, for example the Green Portfolio has dropped 38.82%.

However from July 20 to August 17, The Green Portfolio fell from being up 214.15% to being up 110.93% in the exact same period of time (one month). That is a drop of 104% or nearly three times more than this drop.

This shows how most investors thought processes masks reality. Their thinking is totally skewed by previous performance. The fantastic rise of the Green Portfolio from November 2006 to July 2007 allowed investors to mask the loss. Their thinking was “wow this portfolio is up 110% from November to July”…not gulp…it’s down 104%.

Building Societies by the way are and have been a great deal for savers for decades (I used to have an account and a mortgage with London & Manchester myself). They are the Savings & Loans of the UK .

I doubt that Jyske would do what you suggest nor am I sure this is a good idea. The typical deal would be to borrow SFR and reinvest in pounds. There is a good chance that the pound could drop versus the euro and the SFR so your investment would lose its carry via forex loss.

I repeat… The three most important factors one should look at with an investment advisor when considering an investment are:

“#1: What are my personal financial and life circumstances?

“#2: Where is there good value?

“#3: What are the fundamentals social economic and technological forces driving the world that I know, understand and am comfortable with?

In this case the fundamentals of the British pound versus the Swiss franc are not that great…so though there may be a value distortion between the lending rate of the Swiss franc and the pound interest rate in UK building societies…this is a risk premium paid for taking a REAL risk. The premium may be quite a good one but given the complications of trying to open a building society account in this cumbersome way..it is most likely not worth the effort if possible at all.

Until next message, may all you perceptions be clear!

Gary

P.S. Give yourself the gift of Ecuador in 2008. Come with us to El Meson.

Enjoy the music of the Andes .

Enjoy the lakes nearby.

Enjoy the mountains by our hotel.

Enjoy our Meson de las Flores . Here is one of my favorite shots of our plaza at the hotel on a misty morn taken by our good friend, Dennis Goff.

Join us in Ecuador . Be there for New Year’s Eve! We always have a great time.

Our upcoming 2008 winter courses are:

Jan. 18-23 Spanish Course

http://www.garyascott.com/catalog/ecuador-spanish-course

Jan. 26-27 Real Estate Tour.

http://www.garyascott.com/catalog/ecuador-real-estate

Feb 18-23 Ecuador Import Export Course

http://www.garyascott.com/catalog/ecuador-import-and-export-tour

Mar 7-9 International Investing and Business Made EZ Ecuador

http://www.garyascott.com/catalog/international-business-made-ez-ecuador

Mar 10-11 Imbabura Real Estate Tour

http://www.garyascott.com/catalog/ecuador-real-estate

Mar 12-14 Coastal Real Estate Tour



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