Pakistan soars
As previously discussed here, of the emerging markets Pakistan’s stock crash was an absolute gift serving up a PE of 7 and dividend yield of about 9½ per cent.
There were fundamental drivers of the preceding market crash, most notably double digit interest rates, but as the old saying goes: when stocks go on sale don't run out of the store....back up the truck!
Now I know what you're thinking (too volatile, too risky, that can't possibly work...so just buy and hold).
(I know because I get all the emails 😀)
But remember, volatility is not the same thing as risk.
In fact, volatility is your friend, if it allows you to buy low and sell high (though, interestingly, because of the way compounding works, the broad range of returns from stock markets actually does hamper the returns of passive investors).
In fact, volatility is your friend, if it allows you to buy low and sell high (though, interestingly, because of the way compounding works, the broad range of returns from stock markets actually does hamper the returns of passive investors).
There are different ways to invest in international markets such as Pakistan (in this case via the LSE for me) and of course you need to manage liquidity risk.
Nek minnit, via Bloomie...
That makes for 3-month accumulated returns of nearly 40 per cent so far.
Still cheap, though 😂
Buy low, sell high
Buffett said that rule number one of investing is 'don't lose money' - so buy low.
Consider this: if an investment in an ETF goes from $2.60 to 80 cents over a few desperate years then that represents catastrophic drawdown of about 70 per cent for the passive investor.
But when it bounces from 80 cents to just $1.20 that's a 50 per cent gain for the opportunistic investor that buys low (yes, that's you).
This doesn't really seem fair, in some ways, but it's just the way numbers work - to become wealthy with reduced downside risk you need to avoid the losses.
Remember, rule #1: don’t lose money.
If you adhere to this simple overarching rule, time and compounding will get you to your goals plenty fast enough.
Remember, rule #1: don’t lose money.
If you adhere to this simple overarching rule, time and compounding will get you to your goals plenty fast enough.
Here's a short extract from my new book, due out early in the new year:
The finance industry decrees, well, of course YOU can't time the market so you shouldn't bother trying, just leave it to the experts (for an annual percentage fee which accelerates higher with your portfolio, naturally).
And then they'll put out papers to 'prove' their point that you must always be fully invested in their fund.
But it's a self-serving half-truth: everyone accepts that you can't pick the exact bottom of the market to the week, or month.
But it's not true to say that you can't determine when a market is cheap (or expensive), and by staging your entry to an investment you can capture more than enough of the upside.
I'll write a more detailed post in time on why a simple buying low and selling high strategy delivers superior risk-adjusted returns to buy-and-hold.
In the meantime, keep enjoying that 9½ per cent yield...
