Paul Winkler: Welcome. This is “The Investor Coaching Show.” I’m talking about the world of money and investing, commenting on all of the interesting things going on. There are some really interesting things going on, quite frankly. I am kind of blown away.
Ethnocentricity
I was reading The Economist this week. Sometimes, you agree with things, sometimes you don’t necessarily agree with things, but it’s always interesting to find out what’s going on around the world because we tend to be so myopic, focused on only what’s going on here in America.
When you invest, you diversify internationally. You own everything, which can be really great if we mess up here in the United States and the dollar devalues, then your international stocks tend to do really, really well.
So there are a lot of reasons that we diversify internationally. Too often what we do as investors is we focus way too much on U.S. stocks. It’s ethnocentricity. I remember learning that term. We tend to think we’re the only game in town, and it’s just the way we are.
We live in a world of countries with companies that are all interdependent and trying to work to their own best interest.
Now you remember not too long ago, Australia was making big news with China. Australia got really mad at China because of COVID. Then they decided that they were going to cut off all ties, and a lot of the ties because Australia was a huge exporter to China.
As a big exporter, they were exporting all kinds of natural resources and things like that, and China was a really huge importer of a lot of things and really depended on Australia. Now, there was an article in The Economist asking if Australia was coming off China’s naughty step?
Mark McGowan, leader of the state of Western Australia’s center left government, goes to China on Monday on a trip that aims to reconnect the two sides. China cut off bilateral ministerial contact in collaboration with Australia with trade bans after the previous coalition government called for an inquiry into the origins of COVID-19 in 2020.
Under Australia’s new labor government, the two countries are at least back on speaking terms. So it is so interesting to see how these countries are going, “Well, maybe trade is not a bad idea. We need to be doing this.”
Now, the big topic of conversation amongst countries is not having real sensitive types of trade, where technology can be stolen, those types of things. I find it fascinating that that’s happening.
The Risk of Risk
They were also pointing out in The Economist that Japan was losing the electric car race. And I think the educational moment is what Japan has done. They were actually really good with the hybrids from what they were saying, and that they had made a bet on hydrogen, and that wasn’t panning out yet.
Technology is going to proliferate into the future in ways that we just can’t even imagine right now. But I think it’s just interesting that now, they’re trying to play catch up. But who knows? Maybe they’ve been working on some of the other things for so long that if things revert back to the other direction, that they may have a lead.
Right there is a testament to how hard it is to predict. Companies will take risks. I think the lesson here is this:
Companies will take risks, governments will take risks.
In this particular case, they may take risks that don’t pan out. In some cases, they take risks that do pan out. And so often, what we do as investors is we see something that really worked well, and we go, “Oh man, it was just obvious all along that this was going to be the technology, the future, and you had to be blind not to see it.”
It’s called hindsight bias. When we look back into the past and say that it was obvious this thing was going to be the great thing into the future. We forget that it wasn’t obvious at the time. Now, right now they’re saying electric vehicles are the future and people are unsure.
There are some infrastructure issues that could be really, really difficult. Matter of fact, that was another article in The Economist I was reading this week. It was about transmission lines.
They were talking about how environmentalists are really fighting transmission lines and infrastructure and things like that that are absolutely required for us to have electric vehicles and electric transmission lines.
They’re fighting because well, it doesn’t look good, it’s ugly, it’s not environmentally sound, or whatever. Yet the very thing that they think is going to save the world is what they’re literally fighting, which I just find endlessly entertaining.
Broad Diversification
Japan said, “Hey, let’s try hydrogen.” People haven’t gone that direction yet. Is it possible that we will go that direction? Yeah, quite possible. This is why we diversify so broadly as investors, because you don’t know where things are going to go.
Who knows what the next technology is going to be that shoots us off in a new direction? And what I find that often happens is we pick companies, we pick stocks, we go, “I think this company’s going to be the future.” Investors will jump on something that they think is going to be the technology of the future, only to be wrong.
Then you’re not there when something else does well. Think back to the late nineties in the technology realm. Nobody really knew at the time which companies, like Amazon or Google or whoever, were going to be the big winners in the future.
You had some guesses as to what you were seeing and what the trends might be, but you really didn’t know who was going to do well. Now, we look back and we go, “Oh, it was obvious X, Y, Z company wasn’t going to do well. It was obvious.”
But it wasn’t obvious. As investors, what we do is we look back at these things and go, “Boy, if only I knew…. Something does well, and then we say, “I knew all along that was going to be a big thing. I just knew it.”
“Oh, did you mortgage your house on it?” “Well, no.” “Well, then you didn’t really know, did you?” It’s just so difficult to try to see what’s going to happen in the future.
We fool ourselves into thinking that we know things.
If you asked somebody in the 1800s what it was going to look like driving around town and having traffic lights and having buses and shuttles all over, they would say, “What? I’m getting on my horse.”
Imagining what things will be like in the future is overwhelming. That’s why I am always optimistic about the future. I’ve talked about this many times, that one of these days we’re going to be flying.
We’re going to be on these little airplanes carrying people around, and it’s going to be commonplace. That’s how we’re going to be getting around. I am absolutely convinced that’s where things are going.
What Is Inflation?
Inflation is the depreciation of the dollar. That’s basically what it is. The news has been reporting recently that inflation is subsiding to some extent. Will it go back the other direction? Will we head back into deflation? I hear some people ask about that.
Again, this is why we diversify so much as investors. Don’t try to figure it out. You will not figure it out. Nobody’s been successful at it yet.
You probably won’t be the person that actually figures out the formula for determining the future.
It’s always “Do something or change something in your portfolio. Jump over to this now because this is what’s going to happen next. Recognize it’s all market timing. Market timing is any attempt to alter or change your portfolio based on a prediction or a forecast about the future.
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