The new frontier

While the credit markets have created massive upheaval in the US economy, there are still plenty of investments that will pay off handsomely elsewhere. Africa is poised to take off. Sure, scoff at the idea, but that’s exactly why it’s a great investment. Twenty five years ago, no one thought anything of East Asia and now China and Japan are integral to the world economy.

More and more, it seems to me that the people willing to take risks and dive into foreign ideas and places before everyone else are the ones that make the really significant amounts of money. Both Bill Gates and Steve Jobs dove into personal computers before they were anything more than hobby kits. Real estate agents in Dubai (selling to people in the UK) have been making a killing because they’ve jumped on a massively growing market that few people truly understand.

Also, because Africa is significantly less involved in the world credit markets, they’ve been less affected by the global recession so far.

On the other hand, a recent post on World Bank African Chief Economist Shanta Devarajan’s site suggests that there may be other immediate problems that would stiffle immediate growth in African markets. On his site today, a guest poster noted these five concerns:

1. Weakened local investor confidence in equities and bonds on African Stock Exchanges

2. Return to ultraconservative lending practices

3. Losses arising from central bank reserve management practices

4. Renewed debate on the role of governments in the financial system

5. Weakened balance sheets resulting from a downturn in the real economy.

Investing and other tidbits

I believe in a lot of ways that business and investing are different sides of the same coin. In business, we’re always trying to approach the right set of customers with the right product at the right price. In investing, you’re trying to find the right industry, then the right company that is targeting the right customers with the right product at the right price, and then you have to try and buy that company at the right price for yourself.

I started investing in the stock market when I was twelve and did it all through high school. When I reached college I realized that I didn’t have time to really understand what was going on. That’s one of the tricks to making money consistently in the market in my view. You have to really understand mideconomics. Most people are split into macro or micro economics, but in my view both focus the attention on cycles that are too short. Microeconomics tries to guess which company is going to be best over the next quarter because of the customers they have tomorrow. It looks at internal company metrics and industry-wide comparisons. Don’t get me wrong, i believe each of these metrics are quite important, but they don’t tell the whole story. See, a huge part of being successful in investing is picking the right industry as I said before. if you have the best company in a bad industry, you have a bad stock. But if you have a marginal stock in a great industry, you have a good stock. Macroeconomics has a tendency to, amazingly, also become very shortsighted. People start looking at movements in the Fed as the holy grail for what to do tomorrow. The implication is that the macroeconomic decisions will affect us right now so we have to react or we’ll be left behind.The macroeconomic view also fails to really tell us which industry to invest in unless the industry we select is somehow tied directly to macroeconomic trends. Again, don’t ignore macroeconomic information, but don’t make it your main priority. Here’s a crazy stat to think about: we’re heading into a recession so our economy is going to drop somewhere between 1-5%. So we still have 95% of our economy. Why are so many people worried? Do we all believe we’re in the bad 5%? Business still has to get done and certain companies are going to take advantage of everyone else’s fears and nervousness.

This is where my idea of the mideconomic view has served me well. I try to take both the micro and macro economic views, but I also try to find one further view that few others seem to follow. I try to find where the game changing industries are going to be. It seems that the industries with the most innovation are the ones that tend to make it over the long term. That’s why, for example, I would recommend investing in solar eventually, once the market settles down a bit. There are absolutely amazing innovations being made that will cause solar to become a viable power alternative over the next few years. Here are a few examples: Rensselaer Polytechnic Institute Researchers found a way to make solar panels non-reflective and thus absorb sunlight from any angle, greatly increasing the light uptake and conversion. In Spain, researchers have found a way to make solar cells take up sunlight from either side, again decreasing the cost of harvesting sunlight. The real trick to investing by way of mideconomics is understanding that you are actually investing for 5 years or more out. It’s not long term investment in the traditional sense where you figure that a company will be around forever so they’re a good investment, but rather an educated bet on both an industry and then a company inside of that industry because of the macroeconomic, cyclical view of the future and the microeconomic, industry and company view. How does the individual company invest in the future, what kind of links do they have to established researchers, and how well do they manage their internal resources?

In other news and tidbits, here are some interesting links. “A new study published in the journal of Minerva Cardioangiologica reveals Pycnogenol, pine bark extract from the French maritime pine tree, reduces jetlag in passengers by nearly 50 percent… lowered symptoms of jetlag such as fatigue, headaches, insomnia and brain edema (swelling) in both healthy individuals and hypertensive patients”, read more here. Elsewhere, it appears that we can use rocks to solve global warming. Part of the techtonic plates, about 20 miles underground, react with CO2, so we could be piping CO2 from powerplants down there in the near future. Read more here.

Gains for women in the recession

from lumaxart.com

One of the things that I’ve noticed about myself and I think that happens to a lot of us is that we read something interesting and then pretty quickly we forget about it. Later, when the information we read actually affects us, we’ve forgotten the information. Today I’m going to talk about one of those things that I read awhile back but is just now starting to be important.

Back in June I read an abstract of a study about how women advance during recessions. The study said that during downsizing, women are actually able to move up the ladder faster than normal as older men, in higher positions, take buyout packages. The movement though is relatively quick and stops after the initial promotions though as less jobs means less positions to be promoted into. So, women, if your company is going through downsizing, look for your opportunity to get promoted and take advantage of the opportunity while it exists, it wont last very long.

Another study that I read awhile back was about overconfident CEOs. It shared a lot of interesting things, including the idea that mergers and aquisitions often happen because the CEO thinks it should, not because of the business value that is actually attributed to the deal. Part of the article shared this fact:

[T]hey find that CEOs appear to overly attribute their role in successful deals, leading to more deals even though these subsequent deals are value destructive.

While we may be in a recession because of overconfident CEOs and others in the financial sector, it seems to me that everyone was overconfident over the last few years. The real question is simple. What do we do now to be successful over the next few years?

Welcome

I’d like to welcome you to my site. My name is Cody Boyte and this is my first blog post. I’ll be commenting on the things that affect my life, most often I will comment on business and economics. At this point, that seems to be the most important thing in the national news so it bears comments.

I won’t outline any manifesto or ground rules for my blog, I have chosen to let it evolve. Please comment as you please. I look forward to talking to everyone who gets involved.

I’ll start my blog with a comment on the state of the economy and give a little hope for the future. I’ve spent a bit of time over the last few months thinking about whether our economy is going to stay stagnent, move towards a recession, recover, or go into runaway inflation. At this point it seems like we’re occillating between inflation and deflation because the major financial institutions have started to completely deleveraged, which causes deflation, and yet at the same time the Fed is handing out money and has lowered the interbank rate back to the same rate that it was at when our economy started towards the problems we currently have.

In any case, I read an interesting article today. It was called “How Japan learnt how to stop worrying and love the recession” in the Times Online (timesonline.co.uk). Towards the bottom of the article I read a little passage that shared the secret for anyone that wants to learn what to do if we hit a deep recession:

Japanese instinctively hoarded cash for a rainy day: financially and philosophically, companies and the general population began carrying umbrellas even when the forecast was good. Household risk aversion now commands cultish devotion: books about living on a fiver a day sell in millions, and TV programmes on the theme are primetime fare.

If you can learn to be the guy selling the tome on how to live on a fiver a day, watch out. You’ll be doing just fine in the recession. The key it seems is to play to the times, whatever they are. Best of luck.