Why You Should Plunder World Stock Markets Today

Security is mostly a superstition. It does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure or nothing.” – Helen Keller

Are you willing to sail far away to grab more booty?

You should be.

It’s rare that the greatest plundering opportunities lie buried in your own country’s stock markets, even if you know the secret spots to dig for treasure.

At any given time, some countries probably hold more gleaming treasure than your own.

How so?

Grab your pistol and pirate hat, and let’s set off to find out.

It’s almost always a good idea to invest abroad

Is it because foreign stock markets return more than America’s?

Well, the past data on that is sketchy – from the 1920’s through the 1990’s foreign stock markets on the whole underperformed America’s by a small amount annually.

And recent outperformance in foreign markets might just be like the slow pendulum that has swung too far in one direction…

If you get caught in the back swing – bam!

Outperformance, meet pendulum.

It’s not even because foreign markets don’t move in perfect step with US markets, helping balance out the winds that thrust you back and forth during your investing journey.

Diversification smooths the journey but doesn’t necessarily equal higher returns.

Can you guess it – the biggest reason to leave familiar waters and sail into those you barely know?

Ponder it for a bit.  While it’s usually a good idea to have a big portion of your assets abroad, there’s an anvil hurtling toward you in slow motion that you might want to dodge.

Why NOW is the time to be invested abroad

It hardly needs to be said that we are seeing history being made.

The collapse of Bear Stearns, Fannie & Freddie, Lehman Brothers, AIG, Washington Mutual, Wachovia, and hundreds of mortgage lenders might have tipped you off.

Perhaps it was earlier, when housing prices started shooting through the roof, that you realized something was wrong and had to give.

No matter how late or early you woke up to today’s problems, what you need to know is that there were a handful of people who saw this coming.

Yeah, sure, you’re probably thinking.  The broken clock that was finally right.

Years ago, I would have thought the same thing.

That was before digging into dozens of books that changed my mind forever.  These ‘broken clocks’ were right not because of their predictions, but because of the crystal clear theory they used.

They knew that consumption and borrowing is not the road to wealth, and that a housing bubble engorged by low interest rates had to burst.

We know how that turned out.

But over-analyzing the past doesn’t help much.  That’s because we need to decide what to do today.  And these guys have far more to say about the future than the past.

Who am I talking about?

Guys like Peter Schiff and many other Austrian economists.

The difference between Schiff and most Austrian economists is that Peter infiltrated the mainstream camp and has been interviewed dozens of times over the past six years.

For proof he saw this coming and some inkling of what else will come if we stay our current course, watch some interviews of Peter Schiff below:

Peter Schiff and others who understand what got us into this mess are scared of how our fearless leaders are handling the crisis today.

The same people who are pouring tons of money onto this fire to put it out don’t clearly understand how money served as kindle for the fire in the first place.  So their solution is to either borrow or electronically print enough money to end the crises.

It can’t work, but that’s a debate for somewhere else.  Instead, you need to be aware of the inevitable consequences of their actions.

The big bailout of bankers & the daily injections of liquidity by the Federal Reserve can only lead to one thing:  Inflation.

Let’s look at the most important reasons to sail out of US waters and look for bargains today:

3 reasons to plunder abroad today

  1. US consumers can’t afford to consume anymore – they’re tapped out and need to cut back
  2. The extreme inflationary measures from The Federal Reserve will slash the value of your dollar
  3. US markets are relatively expensive – why pay far more for earnings in America when you can pay far less for the same earnings elsewhere?

Even if reasons one and two above were not true, the third is more than enough reason to look abroad in search of greater profit earning opportunities.

This wasn’t true just six months to a year ago when many foreign markets were insanely expensive.

But it’s true today.

In case you ‘re wondering, this is also the reason it’s usually a good idea to plunder abroad.  You know, what I asked you to ponder while telling you about the anvil hurtling toward us.

That reason is this:  Somewhere in the world there are usually stocks selling at bargain prices.

Now how can a pirate investor like you or me take advantage of this situation?

Sail boldly into foreign stock markets

That’s boldly, not blindly.

You see, there are many foreign markets where you’re more likely to drown than bring home the booty.

The difference comes down to value and real risk.

Contrary to what countless professors have spent lifetimes worth of research trying to prove, the cheaper an individual stock or market is relative to common measures of value, the safer it is to invest on average.

Inexpensive markets and classes of stocks are generally like calm waters – it’s safe to sail through and easier to see the treasure through clear waters.

Expensive markets and stocks are the opposite – it may seem safe but a storm can strike at any time, and often does.

The housing bubble and tech bubble were a disaster waiting to happen.  So was the Chinese stock market just half a year ago, before it declined 70% year to date.

Of course, you can’t predict the future.  You can only guess at likely outcomes.

What does the past have to say about that?

Well, the best data I have seen on that comes from Robert Shiller’s Irrational Exuberance.

He looks at international stock markets which have had the biggest five year gains or losses, and sees what happens in the following five years.

And here’s what he has to say about that:

We find that of the twenty-five winning countries shown in Table 7.3, seventeen (68%) experienced a decrease in real stock prices in the five-year periods after large five-year real price increases, and the average price change for the seventeen countries was a decrease of 14.7%.  Similarly, of the twenty-five losing countries shown in Table 7.4, twenty (80%) experienced an increase in real stock prices in the five-year periods after large five-year price decreases, and the average price change was an increase of 119.7%.  We thus see quite a substantial, though imperfect, tendency for major five-year stock price movement to be reversed in another five years, for both up movements and down movements.¹

Basically, what goes up too much usually comes back down, and what is pushed down too much usually goes back up.

This shows that a smart pirate would have their hands in more than a few bargain markets at the same time.

After all, you can’t predict which markets will sink down into Davy Jones’ Locker.

And you’re a smart pirate.


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¹ From page 142 of Robert Shiller's Irrational Exuberance , second edition.

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