Lose the Bunker Mentality Now (FXI, EWG)

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October 13, 2011 11:04am NYSE:EWG NYSE:FXI

Doesn’t it sometimes seem like the world is turned upside down? Right after my talk last week at The Oxford Club’s investment summit at the historic and beautiful Greenbrier Resort, I took a tour of the famous bunker built during the 1950s to house Congress if America came under an expected nuclear attack.

To my astonishment, the nuclear bunker was actually above the conference room – not below it. This upside-down thinking is also alive and kicking in the investment world.

For example, the Financial Times front page headline this Monday screamed danger: Time is Short for Eurozone. And if a faint-hearted investor went on to scan all the headlines that morning, he might well keel over right there at the bottom of the driveway.

But when the market opened, U.S. markets surged.

During my bunker tour, I was struck by a couple of further things that apply to successful investing.

  • First, from its completion to 1962, the bunker was never actually activated – the whole idea was to be ready in case of a worst-case scenario.
  • Second, a good part of the bunker was used on an everyday basis from 1962 to 1994 by the Greenbrier as a conference facility. Imagine, convention attendees were having cocktails and making small talk in a nuclear bunker.

Now, with good reason, uncertain and rattled investors would like to, or already have, climb into their own investment bunker. Frozen in fear, they only want to hear about gold and silver and bear markets.

Really bad move.

A Smart, Prudent Way to Prepare for a Worst-Case Scenario

Don’t get me wrong. Putting the bulk of your investment egg into a well-diversified, hedged, conservative, liquid core portfolio is a smart and prudent way to prepare for a worst-case scenario.

But just as the Greenbrier stayed open and continued to graciously welcome a million guests during the height of dangerous Cold War tensions, you need to stay open to exploring new ideas and seizing new opportunities.

Start to gradually move some capital into areas that have pulled back sharply in the wake of global volatility. Here are a few ideas for long-term investors to act on today:

  • China – Readers know that I’m a “China skeptic,” but I haven’t seen Chinese stocks so cheap since the bottom of the global financial crisis. Yes, there are concerns that Chinese growth is slowing and regulatory issues still remain, but looking at China blue chip iShares FTSE China 25 Index (NYSE:FXI) right now makes sense. China’s official news agency, Xinhua, announced on Monday that Central Huijin Investment Ltd. – an arm of China’s sovereign wealth fund – has purchased shares in four of China’s major banks. An announcement like this in September 2008 came a few months before a sharp rebound in the market.
  • Germany – To follow up on my suggestion of BMW last week, you won’t likely find the blue-chip global multinationals in the iShares MSCI Germany Index (NYSE:EWG) basket trading at these “euro crisis” levels very often.
  • Franklin Resources (NYSE:BEN) – This broadly diversified, high-quality investment management company fell 30 perfect since July 4 of this year. It runs the high-quality American mutual fund family, as well as the leading international/emerging Templeton funds.

Climb out of your bunker mentality and start moving forward.

Good investing,

by Carl Delfeld, Investment U Senior Analyst

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