How to Invest in a Global Economy

How to Invest in a Global Economy Jeff Shjarback, MBA Copyright 2012 by Jeff Shjarback Smashwords Edition www.jeffshjarback.com www.tradestock.net Globalization is a widely used term that is used to describe the increased movement of people`s knowledge, ideas, goods and money across multi-national borders that leads to increased connectivity among the world`s populations, economically, politically, socially and culturally. With the advent of Globalization, an investor can now see that many of the world`s economies are tied together. Investing today has become more complex than at any other time. In the past many people contributed to a 401K or invested in company stock not knowing what risk was involved. Most people would expect a 6-8% return on their investments and not think twice about where there funds were allocated or how to diversify their portfolio. The stock market crash of 2008 began to change the way most investors handled their finances. Many investors saw a 0% return on their investments from 2000-2010. This fact has many people interested to learn more about finances and how to properly invest in a dynamic, ever-changing, global marketplace. The first step investors should take is to learn what strategy fits their long term goals. When initial research is begun on how to invest, one will find that many different strategies exist and some often contradict the other. The key is to know what risk levels you are comfortable with and the ultimate goal of your investing strategy. Some novices are very timid to invest now that most economies are interlinked, but one must also realize that there is a lot opportunity to be had as well. On our MBA International trip to Austria and Germany we had the pleasure to visit Garmisch, Germany and attend a banking seminar with Mr. Leonhard Guntz. Mr. Guntz is Director and Head of Trade Finance Advisory of HypoVereinsBank, based in Nuremberg, and has almost 30 years of progressively responsible experience in international banking. Mr. Guntz helped us to understand how different economies are interlinked and how some have to rely on each other to function. This seminar broadened our exposure to the global economy and allowed us to take in new ideas in how to invest in emerging markets. Once you begin to formulate what risk you are comfortable with and also your long term goals for investing, the next step is to identify a strategy that fits your needs. Here are some of the basic popular strategies some investors follow today. The majority of this list comes from the Motley Fool financial website. The Motley Fool is a financial investing website dedicated to helping all investors at every level. • Large-Cap Investors seek the stability of established companies with proven track records. Stocks like Wal-Mart and Microsoft have some of their boom and fast growth years behind them, but shareholders don`t have to worry about them going out of business anytime soon. • Value Investors look for stocks that trade at attractive prices. Like a Christmas shopper waking up at 4 a.m. on the day after Thanksgiving, value investors hope to snag bargains by buying out of favor stocks. While some beaten-down companies never recover, others, such as FairFax Financial, provide standout returns when they come back. • Growth Investors focus more on companies with strong prospects for the future. Although they prefer not to pay too much, growth investors are willing to pay up for the most promising businesses. Google is a good example, with more than 75% annual earnings in the past five years. • Dividend Investors value stocks that pay them back with generous income streams. Dividend-paying stocks like Duke Energy, with its 4.8% yield, won`t always show big price jumps. However, over time dividend investors hope to outpace their counterparts. • Small-cap Investors look beyond the security of blue-chip stocks to find undiscovered companies, such as specialty chemical-maker Innophos, that have the potential to become household names tomorrow. While this strategy is riskier, small-cap investors rely on good speculation and expect profits from their successes to outweigh the losses from failures. • International Investors recognize that great companies exist throughout the world. Most everyone in the United States has heard of Google, but a lot of people have not heard about Baidu, which is the Chinese search engine similar to Google which has had enormous growth in China over the last year (MotleyFool.com). After reading through some of the different investor types one should be able to start to relate to what strategy should fit him or her best. If you are wary of risk and plan to retire soon, than you may find that dividend or large-cap stocks would fit more of your appetite. Generally, most investors feel the younger you are, the more risk you can afford to take. So those in their 20`s or 30`s may feel more inclined to look for growth stocks or small-cap stocks for their long term investing strategy. As one begins to trade and understand more, then they may be able to see how different markets or stocks function. Once you are at this level than you can start to look at emerging markets and international investing. This is usually a little more challenging because there can be different disclosure rules and cultural differences that one may not be aware of. This was also mentioned by Mr. Guntz in his banking seminar. The more you begin to understand other cultures and economies, the more different happenings in the world will begin to make sense. He encouraged all of us to continue to travel and learn as much as we can about other cultures and economies to become more aware on a global level. A prime example of how international knowledge can help an investor is in the stock mentioned above, Baidu. Baidu is the Chinese search engine very similar to Google. If one knew some facts about China then they would know that China`s population is around 1.5 billion people. The US consists of only about 300 million people. Another important factor is that the government in China is communist. This means they can control to some extent what their citizens have access to. Therefore, if they chose not to let Google have access to their citizens and keep only Baidu as their internet search engine, one would have to conclude that Baidu should get significant growth and business here. This scenario would be just the tip of the iceberg on how to start researching an international stock. Investment expert John W. Rogers, Jr, notes that it is of critical importance that investors at all levels get comfortable with the jargon of investing and the stock market. He goes on to say that short-term volatility can scare even the most sophisticated investor out of the markets, but the successful investor is one who can think long-term, because the stock market can go up and down. The main focus right now in terms of the 401K is that you`ve got to have a diversified portfolio; people who got burned were people who had too much of their money either in the company stock, one large growth fund option, or whatever the hottest fund was in that period of time instead of having a diversified portfolio (Rogers). Therefore, we can see that every investor needs to have a little bit of investing knowledge to navigate the waters of their financial future. Many other complex strategies exist in investing today. For many financial analysts, macroeconomic indicators are used to judge where a stock, exchange or countries economy may go. Macroeconomic indicators are treated as statistical indicators which are used for assessment of the general state of the country`s economy during a certain period of time (Pilinkus). If you listen to CNBC or Bloomberg radio you may often hear some of the macroeconomics indicators mentioned to clue investors on an idea of how a market will turn. Some examples of macroeconomic indicators are gross domestic product, unemployment, interest rates, company inventory, home sales, etc. Depending on what industry your stock is located in you can often use macroeconomic indicators to judge the potential of a stock during a given time period. As you begin to do research into stock trading and investing you may find information on the internet that relays the concept that a market is predictable and can be consistently beat. After a lot of research I found this to not be true. Nothing is certain and anything is possible is a strategy I have adopted in life as well as investing. If you look into the percentage of hedge fund managers that have consistently beaten the market you will find it is very low. However, most financial experts note that if you have a good sense of the market, learn to read indicators well and choose well run companies poised for growth you can do better than most. In the end you still have to continue doing research because variables in the market can change at any time. Investing today also has many more advantages than it had in the past. With the advance of technology and the internet, individual investors can research company statistics as well as macroeconomic indicators on their own. In the past, most of those who had access to company/financial figures were in financial occupations. Most analysts predict that with globalization the stock market will continue to be volatile. If you are cognizant of the events happening all around you and the globe than this can be used as a strategy in investing. Janice Revell goes into great detail on different investment strategies in her article, "Navigating a High-Wire Market." Janice feels that is always good to mix some of your stock bets globally. She urges that one has to be very educated on the stock and country similar to the lesson we received from Mr. Guntz in Germany. Janice goes on to note with most of Europe apparently falling apart at the seams and even economic powerhouses like China slowing down, there is still a lot of opportunity internationally for emerging markets. Many emerging markets offer opportunities that you cannot get in the US anymore. China`s economy despite the slowdown, is still expected to expand 10% this year (Revell). When investors mention the term BRIC they are referring to investing in international emerging markets. This is an acronym for some of the top countries that are continuing to develop quickly. It stands for Brazil, Russia, India and China. Investors still have different opinions on which countries have more opportunity than others, but BRIC is still widely used to refer to international investing. Mr. Guntz also made note of how China is working with Africa to continue to develop parts of this nation. Africa is also rich with a lot of the earth`s minerals. However, researching this further I found that an experienced investor such as Mr. Guntz who travels to a lot of these locations frequently may be better aligned to take advantage of some of those investing opportunities than an average investor who has not visited these locations. In hearing Mr. Guntz speak about some of these emerging markets it did begin to get my mind spinning about opportunities for investment. ... - tailieumienphi.vn