Global Investing

CHAPTER 20Portfolio Construction

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We have reviewed the world's major sectors and industries and the environment in which global businesses operate, along with the risks we are exposed to when investing in foreign companies. We now explore how an investor can construct a portfolio of good global businesses and build wealth in a safe and effective way. Since we are concerned with building business ownership, we exclude corporate-issued debt as well as preferred shares, both of which represent claims on the cash flows of the business rather than equity ownership. Depending on age and financial circumstances, it may be appropriate for investors to hold bonds or preferred shares in their portfolio (if this is the case, please refer to The Handbook of Fixed Income Securities by Frank Fabozzi, and Financial Statement Analysis by Martin Fridson). This approach assumes that the investor has a long-term investment horizon and will not need to access this money for many years. Additionally, it assumes that the investor has a high-risk tolerance, meaning they have the ability and willingness to endure periods of volatile and/or declining share prices. We begin with a discussion on the types of investment instruments you can buy to obtain ownership in the businesses you like.

Types of Investment Instruments

Common shares of publicly traded companies are my preferred investment instrument because they represent a direct ownership stake in a specific company and can be ...