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This podcast was recorded on Sept. 20, 2016
Alison Southwick: What do you recommend individual investors do?
Joe Magyer: What do they do...
Robert Brokamp: Especially when it comes to international investing. Because when you worked here at the Fool, you were working on services that picked U.S. stocks, and now you've gone to Australia, and you're focusing on that stock market. Do you have a more international viewpoint in terms of your own portfolio now, and where you invest?
Magyer: Yes, I've got less of a home bias. I'd say for normal, everyday people, it's hard to get emerging-market exposure in a good way. Tim Hanson is always fond of talking about how you can get passive investments (you can do an index fund or ETF), but the trouble is you just end up owning what are effectively these massive state-owned banks. Oil companies that are public, but they're controlled by governments. And you're not getting the exposure to the better part of the story, which is the consumer story and a rising middle class.
So it helps to actually try to find the individual consumer companies, but if you're busy and you're a normal person, that doesn't make a lot of sense. So one option could be just looking for funds that scratch that itch and that have really good track records with low and reasonable fees.
Brokamp: And a good one, by the way, is T. Rowe Price. They have a great emerging-markets fund that people should consider if they're looking for this. And I think the whole story behind emerging markets was the foundation for the BRICs. When you look at 10 years ago, or so, people felt the developed world was getting older and a little stodgier.
When you look at the growth rates of a lot of emerging-market countries, I think, to a certain degree, the BRICs got picked out because they were the biggest and the ones that had the highest profiles. But a lot of it was this emerging-market story. If there's a big story like that (that drives up the stocks of those companies in those countries) if you then get into it, to an extent you almost get in too late.
Vanguard did a couple of good reports earlier in this decade (in 2010 and 2013) looking at the correlation between a country's growth and the growth of its stock market. Surprisingly, there's actually not that much of a correlation. It's sort of what I just said. To a certain degree, when you see the GDP growth that drives the stock market up too high, it's become overvalued, and it's become a bubble. And also along the lines of what Joe said in that a nation's stock market isn't necessarily reflective of its true economy. A lot of the growth can be driven by other companies, and it's not reflected in the stock market.
Magyer: That's so super true. That's something I've experienced in Australia, which is a very large, developed economy, but the top half of the market is 10 companies, and it's basically four big banks, a couple of large retailers, and a couple of commodity companies. Then there's another 2,000 that make up the rest of the index that are more representative of everyday life.