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     Radio Interview With Carlos Andres Discussing Frontier Markets http://frontierresearchreport.com/2011/02/frontier-markets-2/
  • Investing In Frontier Markets
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Portfolio Diversification – Are you using the right kind?

“There is highly profitable diversification and then there is the kind Wall Street practices.”

Portfolio PicksMost of us have learned somewhere, perhaps our parents or financial adviser, that you never put all your eggs in one basket. In the investment world we use the grown up term diversification.   It’s very reasonable piece of advice, which is why Mutual Funds have become giant warehouses for the general public’s investments.  Mutual Funds offer us endless fund flavors, each of which typically invests in a couple hundred publicly traded companies in their particular niche.  If you look at a mutual fund prospectus (you know, that thick paper-bound booklet they send you quarterly that goes straight into the trash or kindling pile), you’ll find a lengthy list of companies they have bought on your behalf.   The list typically goes on for pages.  This is diversification with a vengeance.  Is this a good thing?  If average or mediocre performance is you’re thing, then maybe so.

Although this type of diversification seems a reasonable way to manage risk, the way it is typically applied in the modern financial world guarantees mediocre performance.  The word has become synonymous with what we call the shotgun approach to investing.  You just aim a shotgun in the general direction of your target and you’re bound to hit something.  Most fund managers take this approach to investing your money.  If we spread the money among lots of companies we never have to worry that one company’s problems will sink the ship, or so the thinking goes.

Unfortunately, what we have discovered during the Global Financial Crisis (GFC) is that “this ain’t necessarily so.”  It is entirely possible to suffer catastrophic losses regardless of whether you are “widely diversified”.  One of the problems with this approach to diversification is that it gives the money mangers a false sense of security.  They become narrowly focused on beating industry averages, and in the process lose sight of emerging fundamental economic trends and the companies that will profit from them.  The change in trend often finds them flat footed and exposed to the wrong industries.

S&P500 vs Emerging Markets (10yrs)

S&P500 vs Emerging Markets (10yrs)

At the Frontier Research Report we practice a different form of diversification; a highly profitable one.  How about investing some of your money in a handful of individual, well researched, selectively chosen, publicly traded, natural resource companies whose operations are located in well researched, selectively chosen countries.  Companies that you can trade from the comfort of your living room because although their operations are located in exotic and faraway places, their shares are traded on major foreign exchanges (ex. Canada, Australia, England) and accessible via well known on-line brokerages.

You don’t need to be “widely” diversified if you have taken the time to separate the wheat from the chaff.  This doesn’t mean putting all of your eggs in one basket, but it does mean narrowing your choices down to only the best of the best companies and then selecting a handful of companies from this list.  It has been proven, time and time again that this approach will beat the “index chasers” by large multiples.

Every month, we profile a natural resource company we’ve identified after exhaustive research that’s poised for growth.

We are focused on natural resources because that’s where the trend is.  It’s the stuff everyday life is made of and the world population isn’t getting any smaller.  Just ask China and India.  We are focused on company operations in emerging and frontier markets because that’s where perceived risk is far greater than actual risk.  This often means that we can buy stellar companies in great jurisdictions very cheap in comparison to companies whose operations are in the developed world.

Take a test drive of our Premium Subscription today for a fully refundable 30 day trial with a lifetime money back guarantee.  We’ve purposely given you no excuse, because we are convinced that you will profit from our hard work.  To make it even easier we are offering new subscribers a 20% discount off the regular annual price.  Your profits from a single company recommendation will more than pay for the subscription price.

Carlos Andres
Managing Editor

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