The
stock market. It can either make your career or break it. Investment without
sufficient knowledge has become borderline perilous. But with so much
information surfacing these days pertaining to investments, it becomes
increasingly difficult to decide how and in what to invest in. In Canada, most
of us have traditionally been constrained by the nation’s borders when it comes
to investments. For worse, we have been putting all of our eggs in one basket.
But this is a practice that is rapidly changing. According to Statistics
Canada, Canadian investors bought a staggering $9.67 billion in foreign
securities. This is the highest number since April 2007. So what changed our
minds? Generally speaking, the Canadian economy has been doing well. So why the
need to diversify now? The answer is actually very simple and it all has to do
with relativity. Relatively speaking to the U.S. Dollar, for example, the Lonnie
is heading lower. The American economy is picking up pace relatively to us here
in Canada. Perhaps this is why Canadians spend about $6.2 billion on foreign
equities in the month of July. Half of this was spent on U.S. securities.
Investors in Canada also purchased $4-billion of foreign bonds with a prime
focus on U.S. government and corporate issues. But numbers without commentary
may be irrelevant. The billion dollar question of foreign investment is where
exactly should I invest my money?
1. Establishing the
Ground Rules
Before
investing in anything, it is always a good idea to develop a safety net. Some
ground rules if you will. International investing is no different. The truth
is, there are some countries that one should stay away from when looking to
invest abroad. If this was before the 1990s having a very diverse portfolio
would be revered, but today having too diverse of a portfolio can be a bad
thing. Because markets are so closely correlated, there is a strong chance that
the collapse of one thing will certainly lead to a chain-reaction type event.
That is why investing in emerging markets is slightly more rigorous today than
it was two decades ago. When you look at some Middle Eastern based countries,
for instance, you will notice that they are growing at an exponential rate.
However, given the instability in the region, one would have to scrutinize a
lot of elements before throwing some money in there.
2. Looking at
Different Sectors
In
Canada, the market is heavily concentrated in three industries. Materials,
resources and financial. Therefore, if you hold a Canadian fund, more likely
than not you are exposed to one of these aforementioned industries. This is not
a bad thing but it leaves ample room for risk. Remember that dependency is
never the key for a good portfolio. Hence wise, a good investor looks at multiple
sectors during different economic times. Looking from a historical perspective,
we can take the Satellite Radio industry as a prime example. In the early
2000s, companies like Sirius Satellite radio were a gem to invest in. The
market was tired of listening to the radio with a limited reach. Since iPods
weren’t widely available on the market, radio was the way to go. In the years that
followed, investors spent upwards of a billion dollars to help Sirius expand its
infrastructure. But the main revenue for the company was derived from its
partnerships with automobile companies. Virtually every car after 2003 came
installed with satellite radio. And this was exactly the point. Ironically, the
industry that helped satellite radio boom would be its downfall come the
economic crisis. When the 2007/2008 crisis hit, the first luxury item that the
general public stopped purchasing were cars. As companies like GM and Ford took
downturns so did the Satellite radio business.
A
sustainable industry on a general level is the telecommunication industry. When
a crisis hits, people are more likely to rid of obsolete expenses before
cutting of their phone lines. International telecommunication companies that
are boasting favorable numbers include Deutsche Telekom, Nippon Telegraph and
Telephone, Vodaphone amongst others. If we pick Vodaphone from the
aforementioned group we will immediately note some impressive figures, mostly
its astonishing share price. As of Sept 22, 2014, the share price amounts to
$201.60. The company is hovering around the $200 mark these days but if we
assess the company’s performance over the past year, we will note that it is
generally positive with share price peaking over the past year at $238.65 just
a couple of months ago. It is also worth mentioning that the company is spread
across 65 nations with upwards of 400 million employees. It is also among the top
three companies that is listed on the London Stock Exchange.
Since
Alibaba is the big story for this week, investors should really take a note if
its book. In January, Alibaba acquired CITIC. Since its inception in the late
70s, CITIC has attracted and utilized a lot of foreign capital. It has also
introduced advanced technology within its industry. Since Alibaba announced it
would purchase a majority ownership controlling stake in the company, the stock
has risen more than seven fold. As of today, the share price of the stock is
nothing to boast about coming at around 14 Hong Kong Dollar, or just under US$2.
However, investors should also account for its potential. And potential is one
thing that CITIC has. According to recent reports, the company has ties to
China’s elite families. This is very important especially when considering the
demographic of the Chinese economy. We must remember that China is a nation
where state-owned enterprises typically dictate the navigation of the economy.
For a dominant private company to reach the heights of success, it is something
worthwhile for investors.
3. Diversify yet
again
By
now one should get the lingo of international investing. Diversify, diversity
and diversify. Understanding and investing in different types of asset classes
is also essential. It is vital that along with stocks, one should hold bonds
and certainly even gold. Generally speaking, bonds are a safer bet than stocks
because they retain their value over time. Gold is also excellent to keep but
functions opposite to that of stocks. The rule of thumb is that when stocks
fall, gold rises. This was seen a number of times in the past two months
following global political tensions.
Disclaimer: This article was posted with the permission
of a third-party contributor and the opinions contained therein do not
necessarily reflect those of Smallcappower. Smallcappower does not endorse
any investment advice provided by these third-party contributors.
Please consult your investment advisor before
making any investment decisions. Ubika Corporation and its divisions
Smallcappower, Ubika Communication and Ubika Research are not registered with
any financial or securities regulatory authority in Ontario or Canada, and
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