Saturday, September 10, 2011

Dump Stocks, Invest in Frontier Markets Entrepreneurs

The next few years present few opportunities but great dangers for common stock holders in the stock market: especially those of the US, EU & Japan. It is simply put: the age of High Volatility, Low Growth due to mostly political imposed conditions in the US, European Union, Japan and China (yes, read China). The unsaid truth of those buy and hold disciples, and angels of long term economic proposition to buy stocks is the sad fact of the low creep economic outlook for the globe under these conditions. 
In the US, the deepening ideological divide will mean next to no reform on public spending, required investment in public infrastructure and reforms in education/health will be made in the next few years. As the meanness pervades the political atmosphere, one new congress will stifle the next new executive and the structurally defective economy foisted by two decades of stupidity at the top cannot be changed. This will ensure policy inadequacies leading to low growth and uncertainties due to circus like disagreements leading to high volatility.

In the EU, the situation is not different as different countries struggle under the burden of unified currency with no unified government or debt offering instrument (Eurobond); essentially ensuring volatility while the mad austerity culture stifles growth. In Japan, the incessant change of guard under the burden of aging population and low growth will lead to high volatility. 

The crazy one is China, where unlike the West or Japan does not suffer from the disease of policy indecision and low growth, but is unlikely to bail out the rest of the world as it looks increasingly inwards as the economic disease ravages her partners and customers. To this end, Africa & South America represents the free lunch.

This is why it will be crazy to get sucked into the idea that now that the market is collapsing is the time to buy...well, it depends on what you are buying! Fact is, I expect corporate profit to continue to balloon as the governments are driven comatose, but I also expect no investment in growth due to volatility and uncertainty which nearly will ensure common stocks will continue to crash. Capital preservations my friends...or may be not. 

This is not a moment to compare your luck to that of Warren Buffet ; you're simply not Uncle Warren. Preferred shares will beat ordinary shares; warrants/royalties will beat dividends. Private equity ownership in small growing businesses and young smart entrepreneurs in isolated sectors like Technology, Healthcare and Energy, as well as Agriculture will beat index investing.

Investing directly in frontier markets like West Africa in small start-up firms not their stock market will beat investing in any emerging or developed economy. The next 50 000 bagger is in a small country, small village and a very young mind that will upend the cart of innovation. Question is, have the world found the vehicle to make such investment? Will you help create such vehicle? Have you got the guts to make the bold bet on next wave innovation? 


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