Bob Ryan

“Why didn’t we own Venezuela last quarter?”

Money is personal. Your relationship with your advisor is supposed to be personal. And if ultimately that personal relationship isn’t built on truth & trust — well, then what kind of relationship is that? But sometimes, as you may see in some of these posts, the truth can hit home & hard.

You may be one of these clients or advisors. It’s supposed to be funny not because I’m really making fun of you. I’m making fun of the perceptions we’ve all been taught by the incumbent Wall Street firms. So, without further ado…

“Why didn’t we own Venezuela last quarter?”

Sh#t My Clients Say

Of course what my client is referring to, in this instance, is the Venezuelan Stock Market outperforming all others in the first quarter of this year.

What I’m thinking:

“That’s actually a great question. Isn’t my job to see where the best opportunities are and ensure my clients have exposure to them? Why didn’t I invest at least a little of their money in Venezuela?? Isn’t it always good to have a small amount of capital invested as a sort of “swing-for-the-fences” bet? Isn’t that the FUN part of what I do for a living?? Adam….stop it. That is NOT your job. Your job is to protect your clients from themselves and manage their expectations. Your job is to assist your clients in quantifying their respective financial objectives and then to help them meet those objectives. Your job is to educate your clients about the market so they can involve themselves in the process of risk management and blah blah blah….. Dammit — I should have had at least a couple percent invested in Venezuela.”

What I want to say:

“What if I was to tell you that you could buy an investment for $140,000 and someday it would be worth $13 million? Now, is that something you might be interested in?”

What I actually say:

“It is impossible to predict at the start of a week, quarter, or year which asset class will perform best (or worst). My job is to actively ensure your portfolio is prepared to handle the most likely chain of events given the current economic environment. Meeting your long-term investment objectives will require that we don’t get caught up in the short-term fluctuations of the market or get greedy, chasing returns. We are going to miss out on opportunities like this once in a while but I think it’s more important that we don’t get caught with our pants down spending time looking for them. Wouldn’t you agree?”



7 thoughts on ““Why didn’t we own Venezuela last quarter?”

  1. Pingback: Wednesday links: no sure things | Abnormal Returns

  2. Miguel Octavio

    Even if you wanted to own Venezuela, it would have been very difficult. Daily volume in the Venezuela stock market has been averaging less than $50,000 a day. This is for a market that used to trade $30 million a day in the 90’s. Additionally, some days there is no trading of shares at all. Like today. Not a single share traded today in the Caracas Stock Market.  Last week, in three days of trading due to holidays, 1,183 shares traded. There are no ADR’s, it is really hard for a foreigner to invest in local shares. So, the answer is, why didn’t you invest? Because you can’t!

    Why does it go up? Easy. The Government controls interest rates. You can’t get anything above 12% per year with inflation near 30%. But, two or three stocks in the exchange pay dividends that are between 12% and 30% a year. These are the drivers for the index.

    But you could have bought dollar bonds , the PDVSA 2022, with a 12.75% coupon, was at 84% on Jan. 1st. and is today at 96.5%, not bad and all in dollars.

    Oh yes, I forgot, there are exchange controls in Venezuela.

    Not pretty.

  3. the99th

    Miguel beat me too it. The only reason Venezuelan stocks are raging is because the monetary policy there is madness. Same story with the Merval, which was the top performing index in 2009 if not ’10, Argentina is following in Chavez’s footsteps, co-opting monetary policy for fiscal.

  4. Adam Scott

    Does it really matter what the reason is? I mean, how many people are justifying their underperformance the past three years as being a result of “the fundamentals don’t look good” or “this economic recovery is only due to Fed stimulus” or something to that effect. Unfortunately, clients don’t care about the REASON you didn’t invest in something that went up. In their eyes it’s just an excuse and you know what they say…. 😉

  5. the99th

    I think the RIA’s that will shine in the coming decades are those who do more than just produce nominal gains, but also hedge the operational risk of their clients by getting them diversified into the jurisdictions of different custodial and sovereign institutions. Investors in Ven and Arg can barely legally transfer their profits into a foreign currency and expatriate it because of controls imposed by fiscally imbalanced, often totalitarian governments (at least when it comes to money, not so much the law and order stuff).

    In the US, this may become true as well.

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