A Break From The Noise

“Remember, your goal in investing isn’t to earn average returns; you want to do better than average. Thus, your thinking has to be better than that of others — both more powerful and at a higher level.”  – Howard Marks

Investing was never meant to be easy. If it were, we’d all be rich. We’d easily be able to pile into assets when they are cheap, sell when they are expensive and life would be just groovy. The only problem is that there wouldn’t exist a market if this were the case.

The market exists because of crowd psychology and the only way that astute investors can consistently beat the market is by ascending beyond first level thinking and be a contrarian. Being a contrarian is not an easy thing to do. In fact, most people in the world do not even possess the ability to acknowledge that there is a second-level of deeper thinking that can be used to their advantage to beat the market.  

And to top it off, being a contrarian is oftentimes a very lonely act. For most of the time that you are thinking differently from the crowd, you don’t get any satisfaction from it. In fact, you often get ridiculed or shunned for not following the crowd. It is a very uncomfortable position to be in, especially over a long duration of time.

I spent last week in New York City, meeting with a number of investors, business partners and service providers to catch up in general and to review plans for future collaboration. The one constant theme that kept coming up, from everything on mainstream media to investors who were based in the US, was the trade war with China. It was literally the only thing anyone asked me about.

Now don’t get me wrong, the trade war and potential escalation of it is a big thing. It has huge ramifications for investors and it certainly is not something that can be brushed aside without continued deliberation.

But the overtly bearish sentiment that I observed was very telling of how the crowd was thinking about this whole thing and I couldn’t help but be excited by this, given that I’ve been such an advocate of Asia after having moved here 13 years ago. Why was I excited at the bearish sentiment? Because it was more clear to me now than ever before that we are on the cusp of a once-in-a-lifetime opportunity for wealth creation.

Over the past two decades, the world has undergone a transformative rebalancing of economic and political power. From the Asian Financial Crisis of 1997 to the tragedy of September 11, 2001, to the Global Financial Crisis of 2008, there has been a major resetting of global wealth and GDP distribution. As has happened many times in history, the rise and decline of nations, superpowers, and hegemonic regimes have allowed new economies to step up and assume the mantle on the world stage.

For those astute investors who have been paying attention, it would be clear that during this historic period of transition the remarkable rise of Asia is the one sure thing. Asia is now home of the most vibrant technological innovation in the world, with explosive economic growth that has far surpassed the rest of the world.

Asia’s US$27 trillion economy accounts for over two-thirds of the entire world’s middle class and the average GDP growth in ASEAN countries have far surpassed those of the rest of the emerging markets. According to the IMF, Asia is expected to grow by 5.6% this year, which makes it not only the fastest-growing region in the world but also the main growth driver, contributing to nearly two-thirds of global economic growth.

We are now living in what is known as the Third Post-Industrial Era or “The Asian Century”. By the year 2020, it is well expected that China, which has already long been the world’s largest consumer market, will finally become the largest economy in the world. Emerging technologies and business models will only continue to support this wave of innovation in the future.  

There is no denying the existence of the massive investment opportunity in Asia right now and it is unthinkable to not have exposure to this market. It is my contention that the near-term geopolitical headwinds such as the trade wars with China will only spur stronger and more competitive technological advancements and innovation from this region, unlike we’ve ever seen before.

This past weekend my company Explorer Equity Group hosted a group of over 50 investors at a private dinner in New York City. What was the main topic of discussion? You guessed it – Asia. All of these investors had come out on a cold and rainy night to hear about the massive investment opportunity that is sitting right in front of our noses right now. They were able to progress past all the mainstream media feeding them first level headlines, beyond all the hype and propaganda surrounding the trade wars, and see the bigger picture.  

Emerging markets have certainly bore the brunt of this uncertainty recently. One quick look at the US stock market’s valuation versus EM will clearly paint that picture. But when you strip out the fear, uncertainty, and doubt and consider the underlying demographics, technological disruption, and macro tailwinds, it is difficult to see how Asia will not be the leader in global innovation and commerce in the future.

It’s important to take some time to progress beyond the first level of thinking. Sometimes in life, the things that are out of favor the most tend to present the greatest upside later, and that is something we all should take advantage of.