{"id":29315,"date":"2012-04-26T07:40:56","date_gmt":"2012-04-26T11:40:56","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/04\/investment-lessons-from-a-peruvian-horse-show\/"},"modified":"2012-04-26T07:40:56","modified_gmt":"2012-04-26T11:40:56","slug":"investment-lessons-from-a-peruvian-horse-show","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/04\/26\/investment-lessons-from-a-peruvian-horse-show\/","title":{"rendered":"Investment Lessons from a Peruvian Horse Show"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

Ah, to be back in South America.\u00a0 Long-time Trading Deck readers might recall that I spend a fair bit of time in Peru (see \u201cGoing Long Two Beaten Down Euro Stocks<\/a>\u201d).\u00a0 When you marry a Peruvian, you don\u2019t really have a choice.<\/p>\n

Not that I\u2019m complaining.\u00a0 I can say in all seriousness that I\u2019ve never had a bad meal in Peru.\u00a0 Not in more than five years of regularly visiting.\u00a0 (If you haven\u2019t had lomo saltado or proper Peruvian ceviche, then you haven\u2019t lived.)\u00a0 And as the father of a young toddler, I can happily say that I\u2019ve never had to change a diaper there either.\u00a0 A Peruvian man can live happily aloof of such responsibilities.\u00a0 Such a shame I had to return to Dallas\u2026<\/p>\n

I was recently in Lima with the wife and kid to root for my father in law, Lucho Vasquez, in the Concurso Nacional, the once-per-year national championship for Peruvian paso horses (see \u201cPaijan and the Legendary Peruvian Paso Horse<\/a>\u201d).<\/p>\n

The Vasquez family have a long history of success as breeders, and last year Lucho won the prize for Champion of Champion stallion (LV Jardinero<\/strong>, the horse on the left in the photo below).\u00a0 Alas, 2012 would not be a repeat.\u00a0 The best stallion this year belonged to long-time breeder Alfredo Elias Vargas.\u00a0 Oh well.\u00a0 Can\u2019t win \u2018em all.<\/p>\n

\"\"<\/a><\/p>\n

(Anyone interested in viewing the past years\u2019 champions (and who can read Spanish) can visit http:\/\/www.ancpcpp.org.pe\/inicio.html<\/a>, click on \u201cIdentidad\u201d and then on \u201cCampeones.\u201d)<\/p>\n

One might legitimately wonder what Peruvian horses have to do with investing.\u00a0 My answer would be \u201ceverything.\u201d\u00a0 <\/strong><\/p>\n

During rough economic times, there are two basic ways to run a successful business.\u00a0 You can go the Walmart (NYSE:$<\/span>WMT<\/a>)<\/strong> or Amazon (Nasdaq: $<\/span>AMZN<\/a>)<\/strong> route of providing basic goods and services that people need regardless of the state of the economy. Or, you sell a specialized niche product to a dedicated core of consumers that is not sensitive to price. With a niche product like high-end Peruvian Pasos, you have a base of aficionados so fanatically dedicated to the breed that nothing short of death or incapacitation will cause demand to fall much.\u00a0 Sure, at the margin, there will be the occasional aficionado who has to cut back his operation due to business setbacks elsewhere.\u00a0 But for the best horses, demand simply doesn\u2019t fall.<\/p>\n

I\u2019m not<\/em> recommending that readers run out and buy a Peruvian horse (unless, of course, horseback riding is a passion of yours).\u00a0\u00a0 A breeding operation can<\/em> be a fantastic investment.\u00a0 But making it so requires years of experience and massive initial capital outlays for land, labor, feed, and\u2014most importantly\u2014high-quality breeding stock. For the vast majority of breeders, Peruvian horses are a luxury expense.\u00a0 \u00a0Afici\u00f3n <\/em>isn\u2019t cheap.<\/p>\n

Instead I want to draw broader investment conclusions from recent developments in the world of Peruvian horses.<\/p>\n

The first is the internationalization of the breed.\u00a0 Every time I come to a horse show I see new faces and hear stories about a new breeder from a new country looking to enter the fray.\u00a0 The breed\u2019s popularity has expanded beyond its homeland to cover virtually all of Spanish-speaking South America and Central America.\u00a0 It\u2019s also gaining popularity in Europe, and it even has a small foothold in India.\u00a0 (Ironically, the breed is struggling in the United States, which used to be one of the stronger markets.\u00a0 There are now only a handful of internationally-competitive American breeders and a pronounced dearth of young <\/em>breeders to carry the torch.)<\/p>\n

While I am not aware of much in the way of Asian interest, I\u2019m sure it\u2019s coming.\u00a0 Chinese companies are active all over South America, and it is just a matter of time before a Chinese investor decides to \u201cgo native\u201d and buy a ranch.<\/p>\n

This fits into my investment theme of luxury goods as both a play on the rise of emerging markets and on the rise of the global nouveau riche<\/strong> (see \u201cProfiting from the Art Boom<\/a>\u201d).\u00a0 <\/strong>While the middle class continue to suffer with impaired home equity and stagnant real wages, the world\u2019s wealthy are doing just fine.\u00a0 The crisis in Europe notwithstanding, corporate profits are at all-time highs.<\/strong><\/p>\n

It also makes a case for alternative investments with little correlation to global stock markets and relatively little exposure to the bends and twists of the global economy.\u00a0\u00a0 In a global bust, a champion horse will hold its value better than most financial assets.\u00a0 This was certainly the case during the 2008-2009 meltdown.\u00a0 Based solely on the prices paid for top-quality horses, one might not have noticed there was a crisis at all.<\/p>\n

Of course, it helps that horses are rarely purchased with debt and that hedge funds have thus far ignored them.\u00a0 The day I see a solicitation for a hedge fund or ETF that buys Peruvian horses, I\u2019ll probably cry a little.\u00a0 Just wait\u2026that day will come.<\/p>\n

If you take away one lesson from this article, it should be this: \u00a0If you want stability, buy assets that are not held by others with excessive debt or that have been \u201cfinancialized\u201d with ETF issues.<\/p>\n

The financialization of commodities and other previously-uncorrelated assets has caused correlations to shoot upward in recent years and has been a major contributor to the upswing in volatility we\u2019ve had to endure (see \u201cThe Myth of Commodities Investment<\/a>\u201d).\u00a0 Everything <\/em>is correlated to the stock market now because everything<\/em> is traded on the same exchanges by the same people with the same borrowed money.\u00a0 Diversification is dead.<\/p>\n

As for your capital that is invested in traded financial assets, use their inherent volatility to your advantage.\u00a0 Buy investments that no one else seems to want.\u00a0 As an example, with Spain\u2019s stock market near its 2009 lows, many Spanish blue chips are trading at prices we may never see again in our lifetimes.<\/p>\n

My favorite?\u00a0 Telecom giant Telefonica (NYSE: $<\/span>TEF<\/a>).<\/strong>\u00a0 Roughly half its revenues come from the high-growth markets of South America, and it pays a dividend that could be cut in half and still be one of the highest-yielding stocks in Europe.<\/p>\n

This article first appeared on Market Watch<\/a><\/p>\n

Disclosures: TEF and WMT are held by Sizemore Capital clients.\u00a0 TEF is held by the Covestor Sizemore Investment Letter Model<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter Ah, to be back in South America.\u00a0 Long-time Trading Deck readers might recall that I spend a fair bit of time in Peru (see \u201cGoing Long Two Beaten Down Euro Stocks\u201d).\u00a0 When you marry a Peruvian, you don\u2019t really have a choice. Not that I\u2019m complaining.\u00a0 I can say in all … <\/p>\n

Continue reading “Investment Lessons from a Peruvian Horse Show”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-29315","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/29315","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=29315"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/29315\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=29315"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=29315"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=29315"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}