Fisher Investments on Emerging Markets

Chapter 5. FROM THE PAST TO TODAY—HOW TO APPROACH EMERGING MARKETS

History provides valuable context—if we started with a blank page, investing would be largely guesswork. An evaluation of the present should always and everywhere be grounded in probabilities using the past as context. The preceding chapters provided the relevant structure. But that only gets you halfway. Markets are constantly evolving and changing before our very eyes—no two periods are exactly the same. Investors must interpret the events of yesterday into a relevant framework for today. To begin building an emerging markets portfolio, we need an understanding of its composition today. In this chapter, we deconstruct the current emerging market landscape to gain a better understanding of the areas most important to investors. We then provide a framework for thinking about markets—the top-down method—further detailing the important steps in Chapters 6 and 7.

PRELUDE TO A PORTFOLIO: CHOOSING A BENCHMARK

Investors often say their goal is to beat the "market," but they rarely identify what market they mean. Yet you can't successfully beat a market unless you choose a specific one to beat. Thus, before building any portfolio, investors must choose a benchmark.

A benchmark is your market. It's an index tracking whatever asset class(es) you wish to invest in. As discussed in Chapter 1, there are indexes designed to track every imaginable investment, from US Midwestern real estate values to the probability of default for ...