Follow the Growth

You know Hamish Douglass, yeah?

He’s boss of the $4 billion fund manager Magellan Financial Group Ltd [ASX:MFG].

He’s an excellent stock picker, generating an impressive track record over time.

So, what’s Hamish picking now?

Nothing.

He’s increasing his cash position, which now sits at 18%.

I would say this coming together of all-time-record asset prices, central banks withdrawing liquidity and a very large and late cycle fiscal stimulus is really throwing a very uncertain picture here of what could happen,’ Hamish told the Australian Financial Review.

In our view, a 20% to 30% global stock market correction in the next 12 to 18 months is conceivable,’ he added.

Running through Hamish’s mind is political tensions, economic data and central bank decisions. I’m sure it can all get a bit much at times.

But while Hamish sits on cash concerned about the future, you can take the complete opposite view.

Let me explain why…

Your advantage over Hamish

If Hamish is increasing his cash position, he’s either concerned about market falls or believes better opportunities will pop up in the near future.

In either case, it’s a bearish take on the market today.

I’d suggest you not follow Hamish and hoard cash. Unlike you, Hamish needs to do well in the short run. If he doesn’t, investors might pull their cash out of his fund and go somewhere else.

He also needs to invest as much cash as possible. Any cash he holds is an unproductive asset earning little to nothing. It puts a drag on his overall performance at the end of the day.

Hamish also needs a lot of big opportunities to spread billions of dollars over. Among his top picks are giants like Google, Facebook and Kraft Heinz.

Unlike you, Hamish also doesn’t have the luxury of tuning out the market.

He’s doesn’t take notice of market noise. However, Hamish does care if the market drops more than a few percent.

Why? Because the giants in his portfolio are likely to be affected. 

You on the other hand, can dive into smaller opportunities. Opportunities a majority of investors don’t even notice.

It’s why trade tensions concern Hamish, but can go ignored by you. It’s why he cares what central bankers do, whereas you can forget about them for months at a time.

Hamish has to care, not only about his long-term performance, but what his picks do from month-to-month.

So, while Hamish is a great stock picker and has decades of experience, he has far more limitations than you.

As a result, you can potentially make far more than 15–20% annually.

With little to no limitations, you can potentially double and even triple your money in a short space of time.

Whatever you do, don’t miss out on these markets

To be on the other end of high growth, it makes sense to go where the growth is.

Let’s wind the clock back five years. You’re looking at countries like China, India and South Korea. You believe all three will continue to grow.

You do a little digging and find out China is determined to develop their tech industry, India has massive domestic consumer power and South Korea is all about electronics.

With this information you decide to pick three stocks. First is a Chinese tech giant, let’s say you pick Alibaba Group Holdings Ltd [NYSE:BABA]. Next let’s assume you buy Indian underwear company Page Industries Ltd [BOM:532827]. And last but not least, let’s throw Korean semiconductor company SK Hynix, Inc. [KRX:000660] in there as well.

Spreading $10,000 equally among the three stocks above, you’d have made a 282% over five years. Or you would have turned $10,000 into $38,233.

Yes, I had the benefit of hindsight. But these aren’t even the best returning stocks among emerging markets.

So why doesn’t everyone jump into these growth filled regions?

Well, not everyone is bullish on these markets over the next 12 months. For that and other reasons, stock pickers would rather look elsewhere for opportunities.

But this just means there are far more opportunities for you.

Of course, there are risks involved. Regulation, government policies, competition and economic growth are just a few.

But there are still plenty of bets you could make and that inspire confidently over the long haul.

To make sure we’re clear, I’m not telling you to bet the farm on these opportunities.

No matter the potential return or certainty of those returns, there’s always a chance you could lose money.

But that shouldn’t stop you from putting a few thousand towards these emerging opportunities.

Better yet, you don’t have to leave markets like the ASX, NASDAQ or LSE to benefit from emerging exposure.

All you’ve got to do is start looking.

Your friend,

Harje Ronngard,
Editor, Money Morning


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.


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