Over the last couple of years I have had a knack for finding exciting markets that have been up a lot, go up a bit further and then implode.Iceland and Vietnam as the poster children for this.
Today ISK is at 81.41 which is lower than I have ever seen. Vietnam's stock market has cratered and inflation is around 25%.
That these markets have blown up is not the thing because that has happened before, is obviously happening now and more importantly will happen again.
If you invest in narrow themes this sort of thing will happen, I said as much in any of the posts on these places over the years.
What is important is the realization going in what the potential in either direct is. Both exposures were always small (and only for a few clients with high tolerances for volatility) which is a way to manage risk and action, although different with each one, was taken.
I'm not sure whether either one is accurately called a mistake or a bad trade as each one has positive and negative attributes but to be clear each market has blown up.
There has never been any shaking my long term conviction in both destinations but the key take away is that no matter how enamored you are with some narrow theme do not go too heavy. Depending on the overall market environment an implosion in a 2% position may not even be detectable to your bottom line.
5 comments:
Ummm, if an implosion of a position is not detectable on the bottom line, why bother with it at all? It won't make a difference the other way around either.
So this is where portfolio math can work in your favor.
Buy 2% into a hot potato stock. It doubles and you add 200 basis points to the portfolio's return which depending on the broad market result could be very meaningful.
If on the other hand it cuts in half you lose 50 basis points for the portfolio.
The math either compels or it doesn't but I think it does.
Hi Roger,
I agree with your math, which is why I've placed similar bets, recently, on the most obscure markets I could find. (THD, IF, GAF).
Regarding Iceland and Vietnam, two questions:
First, if I wished to take such a risk, how would I go about investing in these two places? I don't see them listed on any of the US exchanges.
Second, can you articulate any signs to look for after an implosion such as you describe that might show that the market has matured enough to support a new round of investment? I'd like to be there for the next run-up (and be smart enough to get out before the next collapse. We can all dream, can't we?)
alan, I've disclosed both in detail many times before so none of this is new.
Vietnam I use VTOPF (you get more info using VOF.L). I still have some.
Someone (I tthink Market Vectors) is working on a us listed ETF.
Iceland I have and account with Kaupthing Bank in Iceland (it may be closed now because there is no longer anything in it) in which I had some cash and the ICEX 15 ETF (ICEQ), which is only traded in Iceland.
Kaupthing has a dual listing in Stockholm which I was in and out of a few times. The Stockholm symbol is KAUP.ST and the five letter disgnator in the US is KPBIF.
to be clear I have no position in Iceland currently.
Hi Roger -
I just started My Stock Market Journey:
http://www.ourstockmarketjourney.blogspot.com/
and I found your Blog to be very interesting. Of course I am just a novice but I feel that any new exposure to investing will help me to make better decisions and hopefully minimize my losses.
Keep up the great work Roger.
Be well.
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