CHAPTER 2
Hope, Growth, and the Investing Process
In 1986, when I first began investing in what were then called less developed countries as a fund manager, the term emerging market had only recently been coined by the International Finance Corporation (IFC), a subsidiary of the World Bank. At the time, the term represented more wishful fantasy than reality, because many of these markets, stranded on the shoals of an outmoded socialism, were submerging faster than they were emerging. So how do we know when, how, and which emerging markets to enter?
FELT
As one by one the emerging markets converted—usually by fits and starts—to a market economy, they were obliged to set up capital markets, the first phase of which is usually a “stock” market, although that is something of a misnomer, because stock markets often trade in all forms of securities and financial instruments, from bonds to futures and options, as well as commodities, not to mention various funny and fancy hybrids in between.
Before I’m willing to risk any funds under our management in one of these spanking-new capital markets, we insist that they have these minimum requirements, which I’ve defined by an easy acronym: FELT.
FELT stands for:
F—Fair
E—Efficient
L—Liquid
T—Transparent
Putting on My FELT Hat, Puttin’ on the Ritz
Whenever I enter any newly emerged market, I ask myself four basic questions:
1. Is it Fair?
2. Is it Efficient?
3. Is it Liquid?
4. Is it Transparent?
(By “transparent” investors mean: Is it ...
