Guess which country had the best stock market performance in 2023? Is it the US? China? Italy? Wrong, wrong, wrong. Despite a strong year, the United States did not crack the top five. Italy fell outside the top 10. Chinese stocks also had a terrible year, with indexes down more than 10%. Meanwhile, the MSCI Global Index soared more than 20%.
In fact, the biggest winner was Argentina, which rose more than 50% in 2023. Other countries that are doing particularly well include Pakistan, Poland, Greece and Mexico. However, in 2022, Pakistan and Poland fell by much more than her 20%, and Turkey saw its stock index double her.
So what is my point? Just as individual segments of markets such as healthcare, technology, and goods can be volatile, so too can individual countries have volatile markets. And just as diversifying investment assets across different classes can reduce risk, diversifying across different countries can reduce risk per unit of expected return.
Consider Vail Corporation, owner of Heavenly, Kirkwood, and Northstar here in Lake Tahoe. Until 2002, they only owned resorts in a small area of Colorado. If it's a bad year for snow in the Colorado Rockies, it's a bad year for resorts everywhere. A few bad years can lead to bankruptcy. So in 2002 the company acquired Heavenly. It's not uncommon for Tahoe to have a different snowpack than Colorado, so this created some diversity. A few years later, Vail acquired Kirkwood and Northstar, giving the company significant investments in two different markets.
Over the next decade, Vail expanded to Park City, Canada (Whistler/Blackcomb), Australia, and many other areas. The company currently operates ski areas in 14 states, Canada and Australia, and has agreements with resorts in many other countries. They are diverse. Vail has become a protected company because even when some of its resorts have a down year, others often do well that year.
This same concept is at the heart of global investment diversification. By investing in companies in different countries around the world, you can build a portfolio that allows you to take less risk per unit of expected return. Or, as Nobel Prize winner Harry Markowitz famously said, “diversification is the only free lunch” in investing. This is a winning strategy!
Indeed, international companies operate under completely different regulatory and economic conditions than U.S. companies, which can make choosing a company difficult. This is why low-cost international ETFs (exchange traded funds) and mutual funds are great because they allow you to diversify your investments outside of the U.S. without having to choose individual companies.
The U.S. economy continues to be considered by most investment experts to be the strongest economy in the world.My words here are not to say you should have less of anything.
The goal is to learn how to further diversify and reduce risk in your portfolio by investing internationally, rather than investing the majority of your assets in the United States.
But choose diversification, invest wisely, and invest well.
Larry Sidney is an investment advisor principal based in Zephyr Cove. Information can be found at https://palisadeinvestments.com/. Or call 775-299-4600 x702. This is not a solicitation to buy or sell securities. Clients may hold positions mentioned in this article. Past performance does not guarantee future results. Please consult your financial advisor before purchasing any securities.
