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Building a "Lifetime" Portfolio



August 27, 2013 – Comments (0)

Board: Macro Economics

Author: EddieLuck

The book "The Great Wave" by David Hackett chronicles the correlation throughout history between worldwide population growth, inflation, economic expansion, and rising profits to the wealthy (rising income inequality). It also shows the correlation between falling or stable population, deflation, business stagnation, and relative prosperity for the working classes.

The wave of expansion, inflation, population growth and income inequality/prosperity for the rich that occurred since WW2 is entirely consistent with the book's premise.

The recent worldwide trend of falling birthrates, declining growth rates and disinflation, especially in the more developed countries interested me because of its investment implications both as to stagnant GDP and rising dependency ratios. After some study I identified a few countries with populations that are expected to continue growing their populations for decades, as candidates for long-term investments.

Further, the debt crisis depression that is gripping the world is a very big deal to me, as I have stated many times. I believe that when a country "hits the wall" in its debt accumulation, that country will not grow much until its debts/GDP ratio is reduced drastically. Govt. debt is particularly pernicious in my view because govts. typically do the wrong things when over-indebted and cause massive defaults and hyperinflations rather than limit their spending. Therefore, I have also gathered data on the govt. debts of various countries, with low debt being an investment positive.

Here is an interesting comparative chart of projected population trends in various developing countries. (The emerging markets are by and large the only areas that have one or more of the good characteristics described above, as well as being relatively cheap.)

So far, Indonesia is the standout large, investable country, while India comes in second. I am accumulating stocks in both these countries through closed-end country funds. Malaysia and the Phillipines require further study as my data is a little short so far on these two but they show promise.

After 35 years of trading markets I am very tired of it, and am building a "lifetime" portfolio of investments that I expect to keep for very long periods, win or lose, so that I can spend more of my precious time just living. Hopefully, these country picks will pay off over the long term, especially since the emerging markets look competitively priced in terms of PE/G.

I'm not saying that these considerations should dominate a portfolio: just that a portion of the portfolio invested on these principles stands a good chance of being successful over time. For example, I am invested in Russia and Kazakhstan through TRF entirely because of their extremely low stock valuations combined with the fund discount. Low valuation remains the Holy Grail to me when selecting investments, and probably always will, but there is room in a portfolio for different approaches to security selection. Call it diversification if you will.

Good Luck,


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