Knowledge is Power: Green Color, Emerging Markets, Top Global Risks 2022 Edition

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The S&P 500 has had another run this year. The index is up by nearly 26% on price basis. Sectors such as tech, banking and transports have done well. Utilities have lagged. Overseas most developed markets have performed as well. Among emerging markets, Chile has performed poorly due to political change there. Brazil is in the negative territory also while Mexico has had a nice run due to its tighter coupling with the US economy. With that said, below are a few interesting articles for the long weekend:

Family wagon from the 1800s

There Will Always Be Reasons NOT To Invest

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One of the questions that many investors often wonder is when is the right time to invest. Or to put it another way, is it really a good idea to invest when there are so many reasons not to go anywhere near the equity market. For example, during the pandemic panic of early 2020 some investors not only pulled out of the market but also avoided investing any money after that. We all know what happened after that. Similarly in the past there have been many instances almost every to NOT invest in stocks. From Brexit to Interest Rates to Valuation Concerns and everything in between were reasons to ignore stocks like a plague. More recently we are worried about inflation, rising interest rates, the never-ending pandemic, etc.

However none of those reasons should matter for investors focused on the long-term. On a daily basis there will be something that makes buying stocks a dumb idea. But the key trick to ignore all the constant noises and keep the long-term goal in perspective. One should not be swayed by emotions or what the crowd is doing.

The below chart shows the growth of C$10,000 from 2001 thru the end of 2020. All through this period there have were a multitude of reasons to not invest some of which are hi-lighted. The multiple European debt crises drama being one example. An investor that simply ignored all the noises would have more than tripled his investment by 2020.

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Source: ​INVESTING FOR THE LONG TERM – How to avoid emotional investing. RBC Global Asset Management

The chart below shows the growth of S&P 500 during the same period:

Source: Yahoo Finance

Similar to the TSX index, the S&P 500 also had a strong run especially after the Global Financial Crisis (GFC) of 2008-2009.

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • iShares MSCI Canada Index Fund (EWC)

Disclosure: No positions

Why Did Ford Fail in India?

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Many American companies are successful at operating in other countries far away from the US and have become true multinationals. However there are some firms that have failed miserably in their expansion in overseas markets. They failed for a variety of reasons ranging from not respecting local culture and customs to trying to impose American style work rules and policies that may not always be accepted by local workers. A classic case in point the US retail giant Walmart(WMT). The behemoth is the largest employer in the country and is well respected by the general population and the government. In fact, in many states and cities and towns local politicians dream of luring a store to their locations for the taxes and economic activities it would produce. However Walmart’s foray into Germany did not go well for many reasons that I discussed in an article in 2013. After years of getting into trouble there the retailer pulled out many years ago.

One of the recent US firms that could not conquer a foreign market is the auto maker Ford(F). This past September Ford announced that it was ending its operations in the emerging market of India after decades of trying to make it work. Below is an excerpt from a Reuters article:

NEW DELHI, Sept 17 (Reuters) – When Ford Motor Co (F.N) built its first factory in India in the mid-1990s, U.S. carmakers believed they were buying into a boom – the next China.

The economy had been liberalised in 1991, the government was welcoming investors, and the middle class was expected to fuel a consumption frenzy. Rising disposable income would help foreign carmakers to a market share of as much as 10%, forecasters said.

It never happened.

Last week, Ford took a $2 billion hit to stop making cars in India, following compatriots General Motors Co (GM.N) and Harley-Davidson Inc (HOG.N) in closing factories in the country.

Among foreigners that remain, Japan’s Nissan Motor Co Ltd (7201.T) and even Germany’s Volkswagen AG (VOWG_p.DE) – the world’s biggest automaker by sales – each hold less than 1% of a car market once forecast to be the third-largest by 2020, after China and the United States, with annual sales of 5 million.

Instead, sales have stagnated at about 3 million cars. The growth rate has slowed to 3.6% in the last decade versus 12% a decade earlier.

Ford’s retreat marks the end of an Indian dream for U.S. carmakers. It also follows its exit from Brazil announced in January, reflecting an industry pivot from emerging markets to what is now widely seen as make-or-break investment in electric vehicles.

Some of the reasons for the failure of Ford in India include:
  • Misjudging India’s potential.
  • Not understanding the complexities of government policies in a huge country that favor domestic procurement.
  • Inability to understand the culture and adapt to produce small, cheap and fuel-efficient cars.  According to the Reuters article, 95% of cars sold there are price below $20,000.
  • High cost of ownership and maintenance and repair costs.
  • Lower tax on smaller cars made it difficult for larger car makers like Ford to compete.
  • Of all the foreign auto companies that invested in India over the past 25 years, only South Korea auto maker Hyundai was successful due to it portfolio of small cars and understands the needs of the Indian consumer.
  • Trying to produce and sell sedans made for US and European markets at relatively high prices will not work in an emerging country like India where consumers are price conscious.
Overall after investing over $4.5 billion in India Ford decided to call it quits. The failure of Ford in both India and Brazil would be interesting case studies for American business to learn from.
More articles on this topic:

Disclosure: No positions

Six Differences Between The Dow and The S&P 500 Indices

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The two major benchmark indices of the US equity market are the Dow Jones Industrial Average, popularly known as the Dow Jones and the S&P 500. The Dow Jones is the oldest index founded in 1896 and is comprised of 30 blue-chip companies. The S&P 500 offers more depth and is more representative of the US economy. It contains 500 companies from a wide-variety of industries. According to S&P, the covers approximately 80% of available market capitalization. About $13.5 Trillion of assets was benchmarked against the S&P 500 at the end of 2020. With that brief intro below are the key six differences between the Dow and the S&P 500:

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Source: S&P Global

Though the indices differ in many ways, in terms of performance both the indices have tracked each other as shown in the chart below:

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Source: S&P Global

So when following the equity markets, it does not matter which index one follows. However most people follow the S&P 500 for the reasons mentioned above.

The top ETF that is benchmarked against the S&P 500 is the SPDR® S&P 500® ETF Trust (SPY). This massive ETF has an asset base of over $436 billion and the expense ratio is very small at 0.0945%. Since the ET mirrors the index, it has a major weighting in Information Technology as shown in the sector breakdown below:

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Source: SSGA

The SPDR® Dow Jones® Industrial Average ETF Trust (DIA) tracks the Dow Index. The assets under management for this fund is over $29.0 billion. As most investors prefer the S&P 500, SPY is huge in size compared to DIA.

For investors that do not want to pick individual stocks, these two ETFs offer excellent alternatives to invest passively in the corresponding index.

Disclosure: No positions