So what are Frontier Markets exactly?
The academic, economic, political, Wall Street version goes something like this. Emerging Markets are countries or regions that are experiencing rapid economic growth buoyed by rapid industrialization and Frontier Markets are a unique subset of of this list. An example of Emerging Market countries are the newly named BRIC countries of Brazil, Russia, India and China. As you might imagine these definitions were created in the West and some of these countries do not consider themselves as emerging at all. As far as their concerned they have fully arrived. But I digress. Frontier Markets are identified as countries where companies shares are fairly illiquid, sporting low market caps and relatively small revenues. They are often geographic satellites of an Emerging Market neighbor. They are typically characterized as lacking openness to foreign investors and are often economically or politically unstable. This is a nice definition as far as it goes, but for us at the Frontier Research Report we have a slightly different perspective.
For our purposes, the relentless search for legendary profits, Frontier Markets are anywhere the massive mindless investment herd is not. OK, its a bit of an oversimplification but it makes the point. In short, the herd runs up share prices in the developed world. The best companies on US markets are covered by armies of analysts who recommend the shares to the masses who in turn run up prices beyond any reasonable valuation. On the Frontier we have these often exotic countries and companies all to ourselves at prices that provide outstanding leverage to value for those that have the right stuff. Of course we go through a rigorous, exhaustive and proprietary due diligence process to vet countries, companies, and projects. From this process we develop a short list of the best and the brightest, and from the shortlist we diversify amongst a handful of winners. For us, a classical definition of the word frontier is more appropriate to our cause. It speaks to a boundary or outer limit beyond which the opportunities have yet to be fully explored and exploited.
It might be obvious but our advantage is that analysts and investors are typically apprehensive of Emerging Markets let alone Frontier Markets. If you mention these markets, all they can see is high risk. They don’t even make the mental leap to high reward. Although it is certainly true that there are many places in the world that are far too risky to give a second thought, there are many others that rival the developed world in terms of financial, economic and political stability. In short, there are many safe countries around the world where your capital can be safely invested.
It is this gap between perceived risk and actual risk that gives us at the Frontier Research Report an edge. By virtue of our unique international experience and expertise we are not paralyzed by the same irrational fears that guide investors in the developed world. In the High Risk High Reward formula we greatly diminish the risk by virtue of doing our homework while leaving the High Reward part of our formula intact. Once we have identified a great company in a great jurisdiction with a pipeline of good news in its future, we buy our shares cheap and wait for the investment herd to catch up. Taking this approach, we have been able to achieve dramatic gains on our capital in comparison to what one might expect for a similarly strong company on western markets.
As we never get tired of pointing out to our readers, you don’t have to trade on exotic stock exchanges to invest in companies doing business in exotic locations. Many of the companies whose operations are in Frontier Market locations are traded on the larger foreign exchanges and these exchanges are available from many on-line brokerages.
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Carlos Andres
Managing Editor
