I have three “trends” or situations I would like to raise and discuss briefly today. They are not inter-related in any direct sense, are of relevance to different people, and have very different consequences, so each should be considered separately. I will not go into a great deal of detail on any one of them at this point, but as time allows, I will expand on them in days to come.
1) The first is positive and relates to investing in “emerging” and “frontier” economies, as opposed to “advanced” economies. Those terms are amusing and clearly created by people in what I call the Old World of the North Atlantic. “Advanced” means nations where North Atlantic investors live, even if it includes many nations up to their eyeballs in debt and with little to show for it in terms of economic growth. “Emerging” refers to those other nations whose stock markets are big enough for the “advanced” folks to regularly trade. “Frontier” refers to nations whose stock markets are too small to be traded by the “big guys” in investment, but where there has been substantial growth and the potential for much more.
The least well-understood of any of these nations are the frontier economies. With the occasional exception, Mark Mobius of Franklin Templeton comes to mind, most of the “big names” in investment advice simply know little or nothing about these markets. They might visit one or more for a brief time, but reading their commentary on frontier markets in which I have lived and/or worked clearly demonstrates how poorly informed they are. I suspect they depend on statistics alone, plus commentaries by others like themselves, to make their judgments, pretty much like an ordinary person. I don’t mean to criticize them unfairly. I understand. They are known as experts in global investing, they are famous, it’s a major source of their income, and they show up constantly at global investment gatherings where they are faced with questions about frontier markets. Naturally, they want to respond and they do their best, but I wouldn’t use them as my investment advisors. Their real knowledge is too shallow.
I live in one of those frontier nations, Panama, and have lived and/or worked professionally as a development advisor in others for more than four decades. They may be aware that Panama’s GDP corrected for inflation has more than doubled in the last decade. They may be aware that it has ranked in the top-ten fastest growing economies in the world for several years now, including last year. They may even be aware that Panama is considered an “upper-middle income” nation sandwiched among low income nations starting from much lower GDP levels, thus making its growth even more impressive.
Fine, but all that does not help much in determining how or in what you might invest. The “global investment experts” are of no more help than anyone else who tries to understand a nation from a great distance and based on very limited, often out-of-date, information. If small outside investors are referred to as “computer jockeys”, the experts are not much better, if at all. For frontier nations, the Internet provides some information, but often very little more than a commercial pitch or advice based on a political agenda, neither of which is sufficient. Yet, it can lead people to believe they know what they are doing when it is clear to resident analysts that they do not. There is a price to pay for that.
I have experienced this directly as I have some land for sale here, but I have had to ignore investors from the North Atlantic. They come convinced they know what to do, based on their “research”, but it becomes rapidly clear that they are total newbies without a clue as to what is actually going on and how to deal with it competently. Worse yet, they don’t take practical advice. They don’t think they need it. Just as frustrating, it takes me an hour or more just to provide the basic background because they are starting from zero or worse. That is too much for them to accept from a seller. I understand that too, but I will not sell to them because I want the area developed successfully as it is where I intend to remain active for years to come. So I focus on people who have experience at least in Latin America and can be brought up to speed fairly quickly. What I have long known from observation, I now know from direct experience.
So what should a smaller investor do who is seriously interested in investing what for him or her is a substantial amount of money in a frontier market? The answer is simple to state, but not so simple to implement. Relocate. Choose your nation, pack your bags, and move. Expect to take at least three years and get to work. This brings me to the trend. This sort of relocation is underway and has been for several years. I discussed it in two articles at Barron’s, one in 2007 and the other in 2011, following our surveys of Americans on their interest in relocation outside their new nation. The 2011 article and survey results can be seen at our website at America Wave as a public service (no ads, no sales, completely free). We have let it sit since we are too busy actually doing what we talk about others thinking of doing, although we are now beginning to add to our Facebook page as time allows.
I see the results all around me. Not only is the expatriate community (not just American, but from many nations) growing here, but their investments are growing too, at least those who live here and invest directly. Many of the most successful are those under 40, some in their early 20’s. Age is not a necessary factor, but the young do tend to stay in more urbanized areas where the demand exists as opposed to retirees who frequently live in rural areas where demand is much harder to find. After my 2007 Barron’s article on this topic, Jay Tolson, then a senior staffer at US News and World Report, wrote one Friday, said he was arriving the coming Monday, and could I set up some interviews with several American entrepreneurs under 35? Totally taken by surprise, I said, sure. When he arrived 72 hours later, I had half a dozen for him to interview and that was before many of today’s young Americans had yet to arrive.
In any case, some of these entrepreneurs (few, if any, with MBAs) have done exceptionally well and for up to a decade. Excellent. It will take awhile, but eventually they will come to the notice of a Mark Mobius or someone else in a similar position and be able to provide experience-based investment advice to others, or they will simply come together and do it themselves. Ten years from now, these folks plus others who are older, but also successful entrepreneurs, will be in much better shape than their age counterparts who sit in New York or London earning good salaries, but who will not be able to compete well in the future. In any case, it is a healthy trend and, at 68 with 46 years of professional experience globally, I am very impressed. Not only by Americans, but by so many expat nationalities who are building their futures here and in other frontier markets. Finally, a trend that works to the advantage of investors everywhere, but one that is almost totally ignored today.
2) – The second is far more important currently to many people. I have already discussed this in detail at an earlier essay, We’ve Got The ‘Population Problem’ Upside Down, so I will not spend much time on it here. In a nutshell, I argue that any “population problem” is much more likely to be related to the growing numbers of retired people living ever-longer lifespans than it is to babies being born. The apparent lack of any serious research on this matter by those who are funded to study population changes is simply unacceptable as it can greatly distort the situation and the “problem” requiring attention, if indeed there is a population problem.
3) The third is the big one, at least for the future, and its consequences are likely to not only be both positive and negative, but quite literally change everything. It is an extremely sensitive topic when raised in regard to the issue that I think to be most important by far. I am referring to “genetic engineering”, a term that might not be pleasing to the ear in years to come.
I was sitting with a woman recently who was especially upset with Monsanto and its genetic engineering of seeds. She is not alone. It’s a very hot topic with many people. I told her that, important though that issue may be, it was nowhere near as important as a related issue, the genetic engineering of human beings. She was completely shocked. The thought had never occurred to her.
The development of all living things, plant and animal, are based on their genetic code, typically known to most of us as DNA and RNA. Every living cell was created on the basis of its genetic code. No one with any real knowledge of this topic has suggested that the DNA of one species can be engineered, but another cannot. If we can (and do) have genetically-modified seed corn, we can (and will) have genetically-modified humans.
The life-saving and life-enhancing benefits of this are frequently discussed and rightly so. Millions of people, perhaps billions eventually, will owe a great deal to this new field of genetics. But as is true of all human endeavors, there will be a downside right along with the upside.
Here’s a question. To what extent is human behavior genetically determined? This question is being researched by scientists all over the world. The research is necessarily in its “early stages”, but the direction is obvious, as is the question. It is important to know, so we are determined to know. One unintended “victim” of this scientific inquiry may turn out to be our concept of “free will”. Every time science finds another clue that genetics impacts our behavior, free will becomes a little more limited. Will we get to a point where little or nothing is left to our traditional concept of free will? Will we have to give that concept up, as we have so many others over past centuries? Talk about an existential crisis!
This issue is not unknown, but it is rarely discussed in the general media, or even in future-oriented publications. Recently however, McKinsey & Company published a 176-page report, Disruptive technologies: Advances that will transform life, business, and the global economy, which discusses twelve of these technologies, including “Next-generation genomics”.
It discusses the many positive benefits that can flow from this new field, but mentions the uncomfortable, if briefly. They say, “This could lead to novel disease treatments and new types of genetically engineered products (such as genetically engineered biofuels), while enabling the nascent field of synthetic biology—designing DNA from scratch to produce desired traits. (my emphasis).
Elsewhere, it adds that one company “…is working on developing the biological equivalent of a high-level programming language with the goal of enabling large-scale production of synthetically engineered organisms.”
Its final paragraph on this topic is clearly relevant. “Ever since the creation of Dolly the sheep in 1996 proved that cloning is possible, genetic engineering has inspired both visions of a better world and concerns about the risks of such advances. Recently, scientists revealed that they have successfully inserted mitochondrial DNA into the egg cells of women who have had trouble conceiving. The procedure has been used in 30 successful pregnancies, producing babies with genes from the child’s two biological parents and the mitochondrial DNA donor; in effect, these children have three biological parents. This particular modification was performed to aid in conception, but it could also represent the first step on the path to manipulating human DNA to produce babies with “desirable” traits.” (again, my emphasis)
This is an excellent overview of twelve important “disruptive technologies” written to inform their clients and the public on important issues. What I share above is definitely taken out of context, but not unfairly so in my opinion. I encourage you to read the full report yourself. And I salute McKinsey & Company for being frank and raising the uncomfortable along with the comfortable potential results.
My purpose in raising these three topics is not to provoke fear or pleasure or any other emotion, but to provoke thought. The big break-throughs, crises, events that bring on a cascade of other events, and so forth may seem to “suddenly” occur, but in truth, they unfold over time. Only our perception of them changes suddenly, and that because we simply did not notice them in their early stages. I am exactly the same as anyone else. I have to have them brought to my attention by someone or something. The first two above come from decades of personal professional experience. The last results from my long-time interest in the research underlying terms like “genetic engineering” and “gene therapy”.
So with that in mind, I offer these three trends to you for your consideration.
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