Winners and Losers

Okay, you win some, you lose some—you can’t avoid it. It’s not only the name of the game, but the only game in town for emerging markets investors. But some losses are not only avoidable, but meaningful, because you learn lessons from them.

With just about every major loss we’ve incurred, we’ve picked up a few pointers. I try to avoid repeating the same mistakes again and again. Because, like most people, I hate being wrong too often, and I know that fund managers are only as good as their last performance.

On the theory that we learn more from our mistakes than our successes, I’ll start out with the losers. We’ve had our fair share, believe me. But at the end of the day, we must be ready to make mistakes, otherwise we would never learn. You might even say that hitting a few foul balls goes with the territory.

No Exit

Always have an exit strategy. Always—repeat always—maintain a way to get out.

The most discouraging thing that can happen to a fledgling—or even veteran—emerging markets investor is getting stuck holding a bagful of illiquid stock. That’s not a soup recipe, but a stock you can’t sell, come hell or high water. Holding a batch of illiquid stocks for any length of time is like clutching a container of nitro: You’re dying to get rid of it, but no one in his or her right mind will take it off your hands. Getting stuck with a seriously sick stock is like wearing a 100-pound ball and chain while whitewater rafting. It’ll drag you down into ...

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