Investing: What To Do In 2012?

First, what not to do.

I’m solidly of the opinion that most private investors can’t consistently successfully pick individual international stocks over time. Why? The access to “truthful” micro-economic data is too controlled, misleading or non-existent. Insiders with that information will beat you most every time in a rigged situation. So stay away from picking individual stock where you have less than complete and reliable information.

So how do you rise above that and use this situation to your advantage?

Like making sausage, let the companies in remote parts of the world do their back door deals with their governments, hide their disasters from the public, and their creative financing deals. You let them fight their micro economic battles and you focus above that at the macro-economics of the regions of the world. Mutual Funds are the obvious best choice to mitigate or spread your micro-economic risk and still get good macroeconomic alpha (increase) assuming you picked a good growth segment. Picking winning segments is, in most cases, easier to choose than individual stock in foreign countries.

In a nutshell, what about Europe, the US and China?

Europe

There are always ways to make money in any market if you have the right information. However, for the average individual investor, Europe is full of red flags and unknowns. I see a sea of red flags in every corner of Europe. Like a cinder block tied around the boot of Italy, the PIGS are dragging the Brits and Germans down. Putting perfume and lipstick “PIG(s)” that can’t/won’t get to a revenue and expense neutral budget is still a “PIG(s)”.

USA

Not to get too political, the election is key to the long term prospects. The US could be on the same slope as Europe. Yes, the USA has been resilient in its history. Four things worry that should worry you:

1. We now have so much debt which limits our options. Can the Fed continue to use it’s tools to manage macro economics? Debt and inflation can reduce their effectiveness.
2. How much pain (cure) can the American people take to pay down the debt?
3. The election will determine the will of the people on the direction.
4. Entrepreneurs are the best chance to bring back the USA’s economy. Government regulations are limiting the growth and speed of which the entrepreneurs will save the USA. The Obama administration I now seems to understand this but I’m not sure the bureaucracy.

China

It’s ironic that the Communists are “out-free-enterprising” the USA or at least “out-enterprising”. But there are now some small chinks in the Chi-Coms armor-plated economy. In spite of the government will to control pricing, they are becoming a classic victim of their macro-economic success and over expansion. Wages and costs are apparently rising in China as evidenced by the beginnings of the resurrection and slight resurgence of the furniture industry in North Carolina. The delta between the price the of furniture manufactured in China and the costs of making furniture in the US has narrowed to the point that some US firms are beginning to restart plants even in this economy.

In addition, the housing market in China has been over inflated and there is a glut of empty individual housing in China. Another indicator that the China economy is exhibiting more signs of moving towards a more mature economic stage.

In Conclusion

The big advantage that I see from a macro-economic perspective is the Chinese have the flexibility to make changes faster to react to the changing market conditions. The US still has too many regulatory constraints on the American entrepreneurs. I’m sure the vast majority of Obama’s bureaucrats (as well as all other administrations) are implementing well meaning policies in their area but there are just too many unintended consequences. The US bureaucrats appear to be looking at their regulatory space of responsibility where the entrepreneurs forced to look at the totality of burdensome requirements. The sad result is that many entrepreneurs may make the logical decision to not move forward and not risk their capital on a job creating venture, and instead, just live off their $3 million investments.  As far a Europe goes, the best case is that the PIGS redo their social programs to match their revenues…… Me either.

Update (5/9/12)

With French people electing left-wing leadership my macro-economic predictions are unfolding as I predicted….. I’m sad to say. The outlook is looking dimmer for Europe.

The Author: Mike Dunn

An entrepreneur at heart, Mike Dunn launched his first computer training and software development business when he was just 21 years old. With Bachelor’s degrees in both Finance and Information Systems with minors in Economics and Psychology from Appalachian State University, Dunn embarked on a sales career for AT&T/BellSouth. He soared to the top of his field, matching customers’ corporate goals and objectives to bleeding-edge technology. He has leveraged his 20+ years of leadership in the sales field to help others succeed through his training company, PowerfulSalesSkills.com. As a thought leader in Internet-related finance, Dunn has been at the forefront of recognizing and acting on game-changing strategies. He melds his expertise in sales and finance in order to quantify return on investment for what Nassim Taleb termed Black Swan Events. Dunn’s current project, Mutual Fund Marketing Services.com, focuses on helping Mutual Fund Companies leverage Social Media/Call Center and Mutual Funds sales best practices into a powerful combination to help mutual fund companies achieve and exceed their corporate metrics and goals.