Real diversification is done in different asset classes and markets.
A country is a market with its own rules and dynamics. By investing in a country you will just be immersed in this context and you will not have much to get away from.
Over the last three years, we have witnessed the total destruction of the value of public and state-owned enterprises in Brazil, destruction of value in addition to non-creation of value due to the low productivity of employees and the system itself. And if you invest in a market that is extremely regulated, cluttered by laws, taxes, difficult to enforce rules and where many things are done based on kickbacks and bribes, it is very difficult even, in addition, the average income of the Brazilian fell and unemployment increased. Without jobs and income people do not consume more, without consumption there is no profit and without profit, the investments are paralyzed and the market recoils, and with the retraction of the market comes to its low or meager return.
And that’s exactly what happened in the last three years in Brazil.
Consider that each year we have four quarters and see this Economática study:
“For the tenth consecutive quarter, the net operating income adjusted for the inflation of publicly traded companies registered a decrease.”
That is, in a real metric, 10 quarters make the net REVENUE of the sum of the companies of bovespa CAI. So that if bovespa were to be considered as a single company, such as a holding company, exemplified by an index that would pick up all listed companies, RECIPE would be falling for 10 consecutive quarters, which is not a good thing. His salary fell month by month.
See that I have set the example considering ALL the market, and not only the good companies, that for being good, some even managed to increase profits, few, very few, and for the investor it is not always easy to identify them, An investor who invests in an ETF in the whole market, from a bad country or who is going to perform bad is even more dangerous. Maybe because of this, and because of the relatively small size of the Brazilian market, I think we can do a stock pick here to try to protect ourselves from all the poisonous situation we are experiencing.
Looking well at the chart you will realize that since JUNE / 2014 the net revenue of companies only falls. From 2007 to 2013 the market was just bonanza (and there where fortunes are built and you get rich, choosing good and profitable companies in a bull market and that keeps up for many years). But now the game has turned, and interestingly well where I started to invest in bovespa, there towards the end of 2013.
In the picture above you see how companies caught 2015 to 2016.
I picked up a bear market for almost 14 consecutive quarters. I did not sell my shares or migrate to RF. I sold some companies that got much worse and I did not see any future in them, the rest, the ones that I consider good, I maintain, with meager profits, profitability lower than saving, but so what? I know I did not go in for profitability, the companies I chose really good, are good boats sailing in turbulent seas when the tide improves the boat will follow its course according to its full and full capacity. The investor has to know what he’s doing to handle it, OUT of theory, because in theory, everything is simple and easy, but in human emotions NOT IT! Each one knows the cost and the work he did to earn the money, to stop spending and invest, only after that expect some return, and fatally he will TENDER to compare the returns of several other investments to know if he made a good deal, But as no one is a fortuneteller, no one knows the future, and any prediction is quackery.
Look at this chart I made today on Google Finance (which site!)
The result (dollarized) of the last 5 years:
SWDA: + 113.75%
CSPX: + 98.82%
IBOV: + 1.89%
PIBB11: + 21.39%
The good thing about google finance is that you can think of a theory and quickly test it.
The PIBB11 performed MUCH better than the IBOV (good to know once again that the IBOV does not serve much). I think the result of the total Brazilian MARKET, managed to be worse than the IBOV (in speaking of the public companies).
If the investor had diversified 5 years ago between SWDA, CSPX and pibb11 would have a very good result because the pibb11’s poor return would be offset by the excellent gains of the two international assets.
That way, of course, the portfolio of some investors may have gone much better than pib11, but they hardly got close to SWDA or CSPX. Although he chose excellent Brazilian companies, he did not perform as well as a passive index. It would have a much larger patrimony today, less volatile and part dollarized and invested abroad.
Doing a critical analysis you could say:
“Ah Frugal, but you’re just saying this because CSPX and SWDA went very well and ibov went bad, so it’s easy to look back”
I’m not saying that will always be so, it was always like that, or never be so, I’m just talking about that in the period analyzed these were the results, there is no guarantee that they will be repeated in the future, may even If inverted. But facts are facts and this is what happened.
And why do I say that? Because, honestly, if I went back to 2013 and knew everything I know today, I would have immediately opened my account with a brokerage abroad and would have sent part of the contribution there month by month, and I would have also put a good part of the contribution here in TD and fiis, And would have concentrated less on stocks. But now that I know this, what am I going to do?
Diversify more and more and more. It was always meant to be done but I did not.
I knew I had to diversify from the beginning, but I did not do that much, I wanted to risk a little more (at least I already had my ap and car removed), I risked more and did not leave the corner.
And who is 100% RF? Or actions? Or were you?
Same reasoning. No one knows what will happen to the country, see Venezuela, Argentina. It all got worse, people got rotten money in their hands.
And another key part that I have been showing here is actually applying the concept of diversification and it is INTERNATIONALIZING your assets, this brings a certain peace that only those who do will realize, you care less about the Brazilian news, do not be afraid if the country Explode or sink in the mud, because you will not sink (much) together.
So my project for 2017 is:
RF + fiis + ETFs abroad
Until balance the whole of the work. I am not turning heritage, just directing the new contributions to those three places I mentioned above. And not because out there rose and here fell, in the same key beat, just to balance more.
I would like to read the testimonies of colleagues who also invest abroad to verify my conjecture.